Analysis, Economics The Markets: Private Economy and Capitalism in North Korea?

The growth of markets is the single most significant socioeconomic development to occur in North Korea over the last 20 years. An understanding of this change is critical for the formulation of North Korea policy, but the underlying issues have been relatively understudied in comparison to North Korea’s nuclear weapons program and prospects for denuclearization.

The North Korean economy is still theoretically run under a centrally-controlled and state-planned system. However, on-the-ground conditions show a reality that is quite different. Information from various sources, including internal in-country and external out-of-country data, demonstrates that the North Korean economy is increasingly penetrated by private market activity.1

In 2017 and 2018, Beyond Parallel launched a pioneering and original data collection project on markets in North Korea to study the changes happening in the country.2 The project’s objectives are: 1) to provide a comprehensive dataset on markets in North Korea; 2) to determine, based on this data and research, whether there is validity to the theory that a critical mass of markets could form the basis of a civil society in the otherwise highly repressive society; 3) to make the data accessible to policy experts and scholars through an interactive online format; and 4) to utilize the data to analyze current economic conditions as well as future strategic economic development plans for North Korea. The original interactive map below provides a broad overview of the data collected for this project.





Interactive: Each yellow dot on the map represents the geographical location of a market. Click on each dot to gain specific information about the market including its name, size (in square meters), and the estimated number of stalls it contains. Click the left mouse button on the map using the arrow or hand symbol to drag the map around to a different location. The zoom in/out function in the upper left-hand corner may be used to explore each region in more depth and view a close-up of the markets through satellite imagery at the ground level. The street map view and satellite image layer may be toggled on and off in the top left corner. Various layers of province and county data may be toggled on or off by selecting options on the main menu to the right.

This Beyond Parallel study captures the true size and omnipresence of markets in North Korea today. The markets mapped are officially sanctioned by the regime and are tacitly permitted to operate so long as vendors pay “taxes” or “rents” to the state. There are black markets that also operate outside of state control, but they have not been included in this dataset. This data includes: the geographical location of the general markets,3 their physical footprint, approximate number of vendor stalls,4 and the estimated rents generated for the regime through market activity. This information was collected and calculated through satellite imagery analysis and field interviews, and was further refined through cross-referencing with North Korean defector testimony and secondary source materials. Future posts on Beyond Parallel will explore various dimensions of this data in greater detail including regional analysis of the markets.

Key Findings

Emerging from the Shadows: The Growth of North Korea’s Formal Markets

Experts disagree about the exact origins of the process of marketization in North Korea, but they agree that the collapse of external support from the Soviet Union and the famine of the 1990s was a significant driver for and accelerator of the process.

For decades under the centrally-planned North Korean economy, the regime used a public distribution system (PDS) to provide people with food and basic necessities across all regions. However, after a devastating country-wide famine in the 1990s and the dissolution of external support from the Soviet Union, the PDS system collapsed and the North Korean people turned to trading and bartering goods in informal black markets to survive.

Informal markets gave way to regularized, state-sponsored markets over time. Since 2002 and 2003, the regime has tacitly allowed the operation of some markets with formal and informal taxation of vendors. Thriving trade on the border between North Korea and China also supported the growth of these markets, particularly in earlier years when smuggling was highly profitable for goods that were hard to produce or acquire inside the country. The process of marketization over the last 20 years has been full of fits and starts and is arguably far from complete. There have been periods when the process was driven by “bottom-up marketization” and market activity adopted by the North Korean populace for the purposes of human survival.

There have been other times when space for private economic activity expanded because the regime loosened regulatory controls to relieve pressure caused by severe social, political, and economic mismanagement. The government has also from time to time cracked down on the markets using the state security and police apparatus to repress market activity or enforce policies designed to stifle their growth.11

A 2016 microsurvey conducted by Beyond Parallel of North Koreans in the country suggests through anecdotal evidence that the general public reacts negatively to any attempts by the government to suppress the market. In response to a survey question about what caused them to feel the greatest animosity toward the government, many respondents said currency redenomination (화폐 개혁), or attempts by the regime to destroy the private cash holdings of regular citizens, made them feel angry. For example, in answer to this question one North Korean replied he felt resentment “when the Ministry of People’s Safety/Security took the seed money I had saved to do business (장사 밑천을 보안서에 빼앗겼을 때)” and another respondent asserted he was upset by the “seizure of assets (재산 몰수).” Similar findings have come from reports that are based on the testimony of North Korean defectors.12

Markets have improved the quality of life of North Korean people and are now an important stabilizing force for determining the cost of food and goods inside the country. Beyond Parallel’s microsurvey project in provinces across North Korea found that 72% of respondents received almost all of their household income from markets. Additionally, 83% of microsurvey respondents found outside goods and information to be of greater impact on their lives than decisions by the North Korean government. Given such significance of market trade and bartering activities, it is not surprising that anger over government predation of market activities and individuals’ entrepreneurial efforts to better their lives was prevalent.13

When one combines these attitudes and the ubiquitous growth of cell phone connectivity (on an internal network) and the growth of private transportation networks inside of the country, it may be possible to eventually imagine the growth of a nascent civil society.14

Civil society formation in North Korea, as defined by Professor Andrew Yeo in his study of defectors’ accounts, is characterized on the ‘demand’ side by “motives, incentives, and opportunities for ordinary North Koreans to organize apart from the state, whether through informal markets or through some other avenue of association. The ‘supply’ side includes the extent to which the flow of outside information or regular interactions with foreigners through humanitarian, development, and other people-to-people exchanges might encourage a nascent civil society in closed regimes such as North Korea. In particular, if market exchanges help build social networks outside of government control, or if interaction with foreign actors and other North Koreans at the local level helps foster social capital, one might be able to point to the early trappings of civil society in North Korea.”15 Though still in nascent stages, the markets, cell phone connectivity, and evidentiary changes in attitudes separating the citizens’ livelihood from government provisions could suggest the growth of a civil society in North Korea revolving around these ubiquitous markets.16

While there is disagreement in the literature over how advanced North Korea’s marketization appears to be, it is clear markets have significantly impacted social, political, and economic conditions inside the country. 17

Beyond Parallel’s study “A View Inside North Korea,” is one of the first to examine and get information directly from North Koreans about how the growth of markets affects their thinking. Most of the qualitative studies that attempt to explore these issues are only available in the Korean language and draw primarily from the testimony of North Korean defectors and traders in the China-North Korea border region. This Beyond Parallel study is one of the first to use geographical data on markets to produce policy-relevant findings for decisionmakers. These research questions and additional dimensions of market data will be explored in greater depth in subsequent posts. Through this innovative work, Beyond Parallel has shed new light on the complexity of North Korean peoples’ growing dependence on markets and the process of institutionalizing market activity.

Types of Markets

This study revealed a distinction between official general markets and unofficial black markets in North Korea. Official markets are authorized by the government through operating licenses, while unofficial markets are those without an official governmental license. Vendors in official markets must pay rent to government organizations daily to sell goods or services.18

Unofficial markets are usually set up in residential areas, without fixed, permanent boundaries and vendors do not pay official “taxes” or “rents.” They may, however, be susceptible to regular shake-downs by the security forces or police who may demand bribes to allow their continuing operation. Regularly operated state-sponsored markets are identifiable through satellite imagery because they are housed in permanent buildings, while unofficial markets are difficult to locate because of their use of makeshift structures and spaces.

Markets are also classified based on their method of operation: some markets open every day, while others are open temporarily only once every 10 days. There is also a distinction between wholesale markets and retail markets, depending on the volume and the type of goods sold. Finally, markets are classified based on their physical structure—they can be permanently housed in buildings, appear as open-air outdoor markets with some roof covering, or consist of temporary, yard-sale type markets set up in empty fields or urban spaces.19

Rules and Regulations on Market Establishment

In July 2002, the North Korean government implemented new reforms to save the economy from further recession, officially allowing state-sanctioned markets to operate. On May 20, 2003, the government released a document outlining the regulations for establishing and operating markets. The document was internally distributed to province, county, city, and village-level institutions.20

After this measure was implemented, each province, county, city, and village began to create new markets based on the municipality’s unique traits and production capacity, and to expand the size of markets. The North Korean government set specific market-construction standards and requested that all markets be rebuilt accordingly. It appeared that this first phase of market expansion was completed by the late 2000s. The first building-type market was established in Tongil Street, Pyongyang. Six months after the establishment of Tongil Street Market, the government ordered more markets of this type to be created. As a result, markets nationwide were uniformly constructed into building-type markets, first in Pyongyang, Hamhung, and Chongjin and then all over the country.21 These structures can be identified in satellite imagery.

After the rapid growth of markets, limited regulations were implemented between 2003 and 2007 in order to alleviate the side-effects of marketization. Measures were taken to reduce inflation, correct imbalances in the supply and demand of goods, and to eliminate possible sources for disruption to society. The North Korean government also enacted a currency reform in late 2009, which ultimately failed. Since 2009, the government has not attempted the same type of currency redenomination action but has used state security and police apparatus to crack down on market activities and market actors.

The protocols regarding general markets enacted in 2002 are listed below:22

1. Departments of commerce and the People’s Committees in each province, county, and district or neighborhood responsible for the respective commercial industries shall establish one or more markets in an easily-accessible location, in accordance with each region’s population size and unique regional characteristics, to be used by the municipal or town residences.

The size of each market should depend on the population:

– 600 stalls in a city or town of a population of 30,000-40,000

– 900 stalls in a city or town of a population of 40,000-50,000

– 1,200 stalls in a city or town of a population of 50,000-70,000

– 2,000 stalls in a city or town of which the population size exceeds 70,000

2. Departments of commerce and the People’s Committees in each province, county, and district or neighborhood and the respective commercial industries shall title the markets according to the name of the specific municipality.

3. Departments of commerce and the People’s Committees in each province, county, and district or neighborhood shall continue to modernize each market with renovations and/or expansions.

4. When building new markets, departments of commerce and the People’s Committees in each province, county, and district or neighborhood shall consider local city planning designs, follow market design standards, and plan according to the finances of each town or city.

Methodology

To collect information on the markets this project used three different methods of research. First, CSIS worked with data on the markets initially provided by the North Korea Development Institute.23 To gather this data, extensive interviews of recent defectors from relevant regions of North Korea were conducted in South Korea. Geospatial data analysis of Google satellite imagery was also conducted to gather additional information on markets such as their location and size. Second, a review of literature was carried out and the data was also translated into English. Third, geospatial data was cross-referenced with reports and secondary resources to verify its accuracy.

For initial field research conducted by NKDI, a pool of potential interview candidates was selected based on relevant research criteria. Through a screening and pre-interview process, a research team carefully narrowed down the pool of interviewees to those with relevant, first-hand experience. To further ensure that the information provided by North Korean defectors was accurate, focused, in-depth interviews were conducted with the help of other North Koreans from the relevant region or district.