North Korean Economy Watch

For several months I have been meaning to post a review of Stephen Haggard and Marcus Noland’s book, Famine in North Korea, but for thousands of reasons it was always pushed back.

Stephen Haggard and Marcus Noland wrote the definitive book on the DPRK’s Arduous March, and it is required reading for any serious North Korea watcher.

Now…Joshua at One Free Korea has written the definitive review of the book, so I will just put links to his posts: Part One, Part Two, Part Three.

Korea Times
Andrei Lankov
8/19/2007

Sometimes even Stalinist propaganda tells the truth. When the North Korean newspapers occasionally told grossly exaggerated horror stories about South Korean inflation, they stressed that nothing like that could possibly happen in North Korea. This was the case indeed. For nearly half a century, from the late 1950s to the late 1980s retail prices in North Korea remained essentially unchanged. One kilogram of rice cost 0.08 won in 1960. It was still the same price in 1990.

This was possible because almost nothing was actually “sold’’ in North Korea. Communist states often rationed goods distributed through retail trade, but in most cases it was only a handful of most prestigious goods that were subjected to rationing _ like, say, cars. North Korea went much further: by the early 1970s, retail trade in the North ceased to exist, being completely replaced by an elaborate public distribution system. Rations depended on a type of work performed, but also on one’s position within a complicated hierarchy of social groups, as well as one’s place of residence (inhabitants of major cities, and Pyongyang in particular, enjoyed much better rations than those in the countryside).

There were some markets, of course, barely tolerated by the government. But until the late 1980s markets were small, with their trade volume being almost negligible. It seems that most people were reasonably satisfied with what they could get from the state distribution system _ of course, it helped that they knew next to nothing about the situation in other countries, so they could not compare.

The situation began to change around 1990 when the old distribution system collapsed under the pressure of an economic crisis. From 1993-94 there were increasing problems with rations, and from around 1996 rations pretty much stopped altogether. Some food was still distributed in major urban centers, but even there the distributed amount was so meager that nobody could survive on rations alone. A large-scale famine ensued, with at least half to one million dead (the oft-cited figure of three million victims seems to be an exaggeration).

People turned to trade and handicrafts, and with this arrival of a market economy inflation became a North Korean phenomenon as well. Even in the 1980s market prices exceeded the official prices in the state shops. By the mid-1990s, the difference was much greater. In theory, rice still cost 0.08 a kilo, but by 2000 its price on the market reached 45-50 won. Official wages remained unchanged, however, so around 2001 the average salary was approximately 20 times less than the income necessary for physical survival. People had no choice but to augment their income.

The government understood that there was no way to restore the old system: a decade of economic crisis had undermined the basic machinery of distribution and obviously the system was beyond repair. Thus, in 2002 the much trumpeted “July 1 Reforms” were introduced.

It’s difficult to describe these measures as “reforms”–the government simply gave official recognition to the situation which had existed for quite a few years.

The distribution system (long defunct) was curtailed. There was a dramatic increase in the retail prices of basic goods and services _ obviously in an attempt to approximate the prices of the market. Thus, that one-kilo of rice which cost 0.08 won since July cost 44 won.

Wages increased as well. Obviously, the wage increase was not even, and some groups have gained _ or lost _ more than others. It was estimated that the average increase in wages has been approximately 2500 percent (that is, 25 times). At the same time, prices have increased 3000-4000 percent (that is, 30-40 times). This necessitated the issue of 1000 won bills _ the largest denomination in North Korean financial history since the 1959 currency reform. Later, 5000 won bills were issued as well.

But the measures had another effect. The increase in salaries meant that the market was instantly flooded with cash. Needless to say, the only outcome could be inflation. Some people speculated that this was the intention of the Pyongyang leaders who hoped to kick-start the economy in such a way. Perhaps. But I would not be surprised if in 15 or 20 years down the track we learn from interviews and talks with the planners of this reform that they did not really expect inflation. Pyongyang economic managers have not had much exposure to market theory, and are sometimes very naive in their understanding of these questions.

Indeed, by October 2002 the market price of rice had increased to 120 won per kilo. In 2003, the price doubled to 250-300 won, and now it is about 1000 won. Inflation has become a part of North Korean life.

What will happen next? Will the North Korean leaders manage to stabilize the situation, or will a new wave of economic crisis wipe out the entire North Korean system? We do not know yet. But it is clear that there is no return to old days when a kilo of rice could be had for 0.08 won _ that is, if you were lucky enough to live in an area where they distributed grain rations in rice, not in maize.

Korea Times
Andrei Lankov
7/8/2007

Nowadays, the severity of famine appears to be a thing of the past _ at least outside Africa. Indeed, modern technology makes it possible to feed crowded cities almost effortlessly. Thus, any reports of famine nowadays can be argued to be the direct result of mismanagement and deliberate political decisions. The recent North Korean famine of 1996-2000 vividly demonstrates this and supports such a theory.

Stalinist agriculture has never been very efficient. The lack of incentive makes it sluggish and wasteful. However, in some cases, the heavy investments in machinery and fertilizers did, in fact, help to overcome some of the deficiencies created by the inept social system.

This was the case in North Korea. In the late 1950s all North Korean farmers were herded into the so-called “agricultural co-operatives.’’ While less restrictive than the “people’s communes’’ in Mao’s China, they imposed a harsher control than Stalin’s “kolkhozs.’’

The North Korean government invested heavily in agriculture. Its efforts produced a remarkably energy-intensive agricultural system. Electric pumps were running huge irrigation projects; chemical fertilizers and tractors were used on a grand scale. In attempts to reclaim arable land, steep hills were made into terrace fields. These fields, endorsed by Kim Il-sung himself, remained the poster image of North Korean agriculture until the mid-1990s.

Initially these efforts seemingly paid off. In the 1980s North Korea produced some 5-6 million tons of grain (largely, rice and maize) a year. Its population never enjoyed anything like the present-day South Korean abundance: meat or fruits were rare delicacies. Nonetheless, the 6 million tons of grain was sufficient to feed the country’s population. This was done through the rationing system. Depending on one’s position in the complicated hierarchy of social groups, daily rations varied from 500 to 900 grams per adult _ sufficient to provide enough calories.

But in 1991 the situation changed. The much trumpeted “self-reliance’’ of North Korea proved to be a complete fake. The Soviet decision to discontinue sales of oil and other goods at hugely discounted prices wrought havoc in the country’s economy. The agricultural sector was especially vulnerable, since without the heavy input of energy and resources it stood no chance of survival. Tractors required diesel oil, which was not forthcoming, and electric pumps could not operate when power stations were idle due to a shortage of spare parts.

In 1992-1993 the North Korean media began to argue the benefits of having only two meals a day as opposed to the traditional three, claiming the latter was unhealthy and excessive. By 1994, people in some remote areas could not get food for days at a time. They were issued the usual rationing coupons, but no foodstuffs were available in the shops. Rations were also cut. These were signs of things to come.

However, the North Korean government did not follow the example of China or Vietnam, where the return to private agriculture led to an instant revival in food production. In the early 1990s the Pyongyang leaders saw how the reformist Communist governments of East Europe had been wiped out, and they considered any reform potentially dangerous to their own survival. Thus, no reform was undertaken, and in the years 1992-1995 agricultural production continued its free fall.

And then the real catastrophe came. In July and August 1995 unusually heavy rains led to disastrous floods. The North Korean authorities blamed the floods for all subsequent developments. In the aftermath of the disaster, they even decided to break with the decades-old tradition of covering or playing down all the problems of their country. Pyongyang stated that some 5.4 million people had been displaced by the 1995 floods (the subsequent U.N. survey indicated that the actual figure was much smaller _ probably, by an order of ten). Politically, this was understandable: if the country was hit by a natural disaster of unprecedented proportions, the authorities were not to be held responsible!

There is, however, good reason to doubt these statements. After all, the Korean Peninsular is small, but impact of the very same floods on the South was negligible. However, the contribution of the flood to the disaster is undeniable. The already strained power grid was destroyed, and entire irrigation systems were wiped out. Most of the terrace fields, the pride of the “juche agriculture,’’ were simply washed away.

In 1996, the country harvested some 3 million tons of grain _ just above half the pre-crisis level. This meant famine. It was to last for four years and take between half million and one million lives.

For international readers: The Congressional Research Service is an organization that puts together issue briefs and legislative histories for congressional staff.  They are one of the first places US Congressional staff go to learn about a topic.

In April, the Congressional Research Service published a document on the North Korean Economy.  The full report, as well as some past reports, can be downloaded here.

Executive Summary

This report provides an overview of the economy of the Democratic People’s Republic of Korea (DPRK) or North Korea, its external economic relations, attempts at reform, and U.S. policy options. Along with the United States, North Korea’s major trading partners — China, Japan, South Korea, and Russia — form the socalled “six parties,” who are engaged in talks, currently restarted, to resolve issues raised by the DPRK’s development of nuclear weapons.

The economy of North Korea is of interest to Congress because it provides the financial and industrial resources for Pyongyang to develop its military, can be used as leverage in negotiations, constitutes an important “push factor” for potential refugees seeking to flee the country, creates pressures for the country to trade in arms and illegal drugs, is a rationale for humanitarian assistance, is tied to Pyongyang’s nuclear program, and creates instability that affects South Korea and China. The North Korean threat to sell nuclear weapons material could be driven in part by Pyongyang’s need to generate export earnings. The dismal economic conditions also foster forces of discontent that potentially could turn against the Kim regime — especially if knowledge of the luxurious lifestyle of communist party leaders becomes better known or as the poor economic performance hurts even Pyongyang’s elite.

Economic conditions in North Korea currently seem to be improving but have been dismal for those out of the center of power. Mass starvation — eased only by international food aid and other humanitarian assistance — has stalked the countryside. Over the past 15 years, industrial production in North Korea has shrunk considerably. The country has embarked on a program of economic reforms that include raising wages, allowing prices to better reflect market values, reducing dependence on rationing of essential commodities, trimming back centralized control over factory operations, and opening foreign trade zones for international investment.

North Korea has extensive trading relationships with China and South Korea and more limited trade with Japan and Russia. Because of U.S. economic sanctions and lack of normal trade relations status, U.S. imports from North Korea in 2006 were nil, while U.S. exports consisted of $3,000 worth of books and newspapers.  The DPRK has been running an estimated $1.8 billion deficit per year in its international trade accounts that it funds primarily through receipts of foreign assistance and foreign investment as well as through various questionable activities, such as sales of weapons, transporting and producing illegal drugs, and counterfeiting brand name products and currency.

U.S.-led financial sanctions on North Korea have disrupted that country’s trade. In the six-party talks, economic assistance (including fuel oil) is a major bargaining chip. Economic policy options include increasing or easing economic sanctions, preventing shipments of illicit cargo, normalizing relations with Pyongyang, negotiating a trade agreement, allowing the DPRK to join international financial institutions, and removing the country from the terrorism list. This report will be updated as conditions warrant.

AFP
Philippe Agret
5/21/2007

After being ravaged by famine in the 1990s, North Korea again faces serious food shortages, with a UN official based here saying that politics are making things worse.

On the road from the capital Pyongyang to Kaesong in the south, every hill lot is developed for agriculture, with all farm work done by hand.

But only 17 percent of the land in North Korea is arable, one of the lowest ratios in the world, according to the UN’s World Food Programme (WFP).

“North Korea is suffering a chronic food shortage due to structural problems and limited food imports and food aid,” said Jean-Pierre de Margerie, the WFP’s representative in the communist state.

He lamented the international community’s lack of commitment to North Korea amid the deadlock in six-nation talks on disarming Pyongyang, and what some consider to be “hidden sanctions” linking a large part of aid to politics.

“There is no evidence that holding back food or humanitarian aid destined to civilian populations would have an impact on the government or its behaviour,” he said.

North Korea’s worst period came from 1995 to 1999 when drought, flooding and the disappearance of Soviet aid led to a famine that killed between 800,000 and two million people, according to independent estimates.

The scars of the famine still run deep, with a 2004 United Nations study finding that 37 percent of North Korean children suffered chronic malnutrition.

Some experts use the term “7, 8, 9, 10″ — as an adult, a seven-year-old born during the famine will be eight kilograms (18 pounds) lighter, stand nine inches (23 centimeters) shorter and live 10 years less than a South Korean of the same age.

The groups most at risk are young children and women who are pregnant or breastfeeding.

After a record harvest in 2005, 2006 was “very difficult” due to heavy floods in the summer and a dramatic drop in food aid and food imports; 2007 could also be dire, de Margerie warned.

Amid the international furore over Pyongyang’s nuclear and missile tests last year, China reduced its aid by half and        South Korea temporarily halted shipments.

Seoul has since resumed fertiliser aid and promised to provide 400,000 tons of rice to North Korea starting in late May.

But the food aid is linked to political conditions, such as Pyongyang shutting its nuclear reactor in line with a multilateral disarmament deal reached in February.

The impoverished country faces a shortfall of one million tons of food this year, or 20 percent of its needs, according to the WFP and the UN’s Food and Agriculture Organisation.

Up to one third of North Korea’s 23 million people may need assistance ahead of the next harvest, warns the WFP.

So is there a danger of another famine?

“No, not yet,” said de Margerie. “But if the trend continues, pockets of severe malnutrition could develop.”

In Pyongyang, not everyone is pessimistic as there is a lack of reliable agricultural data. Some observers say the problems lie in the distribution system and access to food, rather than in actual production.

North Korea’s leaders — whose ruling motto is “juche,” or self-reliance — say they have made food security their priority, but Pyongyang has nonetheless relied on foreign help.

The WFP has collected two billion dollars in 10 years, supplying four million tons of food between 1995 and 2005 that assisted one-third of North Korea in its biggest operation at the time.

Since 2001, multilateral aid from the WFP has been gradually replaced by assistance from China and South Korea. While bilateral aid goes to the government and may be distributed to the elite, the WFP says it closely monitors its aid so that it reaches those most in need.

This year, donor countries have promised only 12,000 tons of food.

The WFP has received only 20 percent of the financing for its programme up to March 2008, assisting three percent of the population, or 600,000 people, instead of the initial objective of reaching nearly two million North Koreans.

De Margerie says he hopes the international community will set aside political concerns to focus on the human tragedy unfolding in North Korea.

“You only see negative images of North Korea. But it has a human face,” he stressed.

“An eight-month-old child or pregnant woman does not engage in politics. It’s the most vulnerable in the civilian population who pay the price.”

Bloomberg
Bradley Martin
5/16/2007

For decades, tourists visiting North Korea have been brought to a 200-room, 70,000-square-meter palace completed in 1978 that displays presents to Kim Il Sung, the “Great Leader,” who died in 1994.

Starting with Joseph Stalin’s 1945 gift of a bulletproof railway carriage, the items include a stuffed bird from American evangelist Billy Graham and a piece of the Berlin Wall donated by a German writer.

These days most visiting foreign dignitaries bring gifts for Kim’s eldest son and successor, Kim Jong Il, 65. The junior Kim’s loot is housed in a 20,000-square-meter (215,278-square- foot) annex that was completed in 1996 — a time when a famine was starving tens of thousands of North Koreans.

Why would the country have spent vast sums on four-ton bronze doors and polished marble floors? “Our people couldn’t display all these precious gifts in a poor palace,” says tour guide Hong Myong Gun. “So we built this palace with our best.”

The gifts in the windowless “International Friendship Exhibition” at Mt. Myohyang, a two-hour drive north of the capital, Pyongyang, range from the trivial to the grandiose.

Cable News Network founder Ted Turner donated paperweights with the CNN logo. A tribal chief in Nigeria offered a throne featuring carved lions, with matching crown and walking stick. Romanian communist dictator Nicolae Ceausescu brought the stuffed head of a bear he had hunted and killed.

Giving and Receiving

In Asia, the protocol of gift-giving has been well established since Chinese emperors began expecting visitors to bear tribute. The Chinese know how to give as well as to receive: Pride of place in the exhibit goes to one of their presents, a life-sized wax figure of Kim Il Sung standing on a three-dimensional representation of a lake shore.

Reverent music, calculated to induce bowing, plays in the background of the posthumous gift, the final exhibit viewed by visitors to the hall.

The elder Kim’s title of President for Eternity makes him the world’s only dead head of state, and Hong says he continues to receive gifts. As of last year, his presents numbered 221,411.

“No other president could draw so many presents, so our people live in pride,” she says. “Except for this place, where can you see such a sight?”

The annex for Kim Jong Il, whose titles include secretary general of the Workers’ Party and chairman of the Military Commission, houses 55,423 additional presents, Hong says. As with his father’s gifts, most of them were never used but were immediately donated to the exhibition.

A Dynasty Sedan

Some highlights in the annex: a 1998 luxury sedan from the founder of South Korea’s Hyundai group — the model named, appropriately enough, Dynasty — and two roomfuls of carved, gilded furniture from South Korea’s Ace Bed Co.

From time to time, groups of uniformed soldiers troop past to see the gifts. A high percentage of them are five feet tall or shorter. In the 1990s, North Korea reduced the minimum height for military service to 148 centimeters (4 foot 9 inches) from 150 centimeters and the minimum weight to 43 kilograms (95 pounds) from 48 kilograms, according to South Korea’s National Intelligence Service.

A 2004 World Food Program nutritional survey found that 37 percent of North Korean children suffered chronic malnutrition. The state “bears central responsibility” for the shrinking of North Koreans, says Marcus Noland of Washington’s Peterson Institute for International Economics, co-author of a new book about the famine.

Freeing Up Foreign Exchange

“As aid began arriving, the North Koreans cut commercial food imports, freeing up foreign exchange,” Noland said in an e-mail exchange.

The saved money was used to purchase surplus military aircraft from Kazakhstan and to build monuments “to the recently departed Great Leader Kim Il Sung and his son,” Noland says. If the regime had maintained the rate of commercial food imports during the 1990s, using aid as a supplement instead of a substitute, he says, “the famine could have been avoided.”

Noland estimates the death toll at 600,000 to 1 million; others have said as many as 4 million people may have died.

Tour guide Hong, 27, places the blame elsewhere. “From 1993 to 2000 our people suffered from countless natural disasters and also from other pressure in the economic field owing to the U.S. aggressors,” she says, referring to sanctions. Even during such hardships, she says, constructing the annex with the best materials was “the greatest desire of our people.”

As she speaks, there is a brief power blackout, a frequent occurrence in the energy-short country. When the lights come back on, Hong continues.

“Our people are very grateful because the Great Leader Kim Jong Il sent all the gifts here for the people to look at freely,” she says. “It was our duty to preserve them and show them to the new generation.”

Daily NK
Choi Myung Chul
4/19/2007

I defected at a young age and arrived in South Korea in 2004, where I was admitted into third of year of middle school. In North Korea, I had been attending school and was in second year high school.

At first, I found it difficult assimilating into a South Korean school. Social interests were different and the fact that 9 out of 10 South Korean children enjoyed going to an internet café and playing games was intriguing on its own. Though I find computer games challenging and fun today, back then it was hard enough trying to figure out a computer, let along mastering a game.

There are no opportunities to see computers in North Korea. That’s because no one owns a computer. Comparatively, North Korea is like South Korea in the 1970’s. I played outside with top spins, paper-flipping, slides and soccer. I also caught fish as our family lived in Hoiryeong nearby the Tumen River, though catching fish was not only a game but our means of survival.

At that time, the greatest obstacle to our play was hunger. When you run around and play, you need food to regain your energy. There were even times we had no strength to sit up and play. Rather we lay, slumped. During those times, we sat around day-dreaming. We would play truth or dare and pretend to smoke with cigarette butts we had secretly collected and talked nonsense while lamenting over our lives.

Satisfying hunger through the generosity of an affluent friend

We often had fights with kids from other schools. There was one incident where a child even got his head seriously hurt, but back then your friends were all you had. Even as we lay lifeless, I felt secure because of my friends.

Though I was starving, I even got to watch TV, that is during the short times our village was supplied energy. Though the majority of us were poor, one of my friends had a TV in his home, as his mother had done well at the markets. Even though only one station was broadcasting, the North Korea program, it was still very fun. I remember seeing one movie, “Order 027” which was about the People’s Army invading the Blue House (South Korea’s presidential building). The action wasn’t too bad, even interesting to a point.

Once in a blue moon, a friend would come into some money and then we would go to the markets to buy snacks. We bought bread made of corn powder and tofu rice. Even though the serving was small, my friend always shared his food with me.

Actually, all our friends did this. It was a time where we were all starving, yet we were willing to share our food, even half a corn cob.

Then one day, my mother left and I starving of hunger, left for China. On my way to Dalian in search for relatives, I was caught and forcefully repatriated back to North Korea. So I went looking for my best friend Hakjoo. Hakjoo and I had grown up together and had experienced so many things including severe hunger.

Offer to escape but offer denied

I informed Hakjoo of my plans and tried to persuade him to come. He replied, “Nevertheless, my homeland is here. If I died, I am going to die here. I cannot go with you.” We got into a huge argument and he said I had been brainwashed by capitalism.

Ever since we were little, we studied that Chosun (North Korea) was a socialist paradise and learned of Kim Jong Il and Kim Il Song’s revolutionary history. Even at that time, many of us were ignorant of the outside world. My friend’s loyalty to the great leader stood firm and he denied leaving our motherland.

By the time I had seen and heard of China, my devotion to Kim Jong Il had disappeared. I tried to convince Hakjoo that China was rich in food and much more abundant than North Korea but, failed to persuade him. I remember him saying, “Still. How can I desert our leader and our motherland?”

Hakjoo did not agree with my dreams but he still wished me health and safety. He also promised me that he would not report me to the authorities and said, “Don’t worry. But you must go in safety. Do not get caught and be safe.”

North Korea is a society where each person regulates one another. It is a society where trust is nonexistent. However, I trusted that friend and because I believed that he would not report me, I was able to safely defect the country.

As I left, I said to me friend, “I will return without fail… I’ll see you then.”

That was ’98. I found my way to my relatives home in Dlian, worked as a farmer in China for 3 years and then at a restaurant for 3 years.

At first, I planned to live in China. I had no intention of coming to Korea as I felt it would then be harder for me to return to North Korea. However, I could not continue to live hidden as an illegal immigrant and in the end, I followed the footsteps of another friend in 2004.

Whenever I face a hard time I think, ‘If I came with Hakjoo, it wouldn’t have been so hard,’ If we had defected together, the hardships in China and the loneliness would not have been so bad.

No matter how difficult the task, that friend always pulled through. However, he is not here now and so all the decisions have to be made by me. It’s tough because there is not one person I can fully trust and be dependent on.

But I am going to live well. Every day, I have just enough to scrape by and though it’s not easy, I am attending university. When I return to North Korea one day, there are many things for me to do. My dream is to construct a company there and rebuild a North Korea that has fallen to devastation.

And above all, I study because I made a promise to my friend. When I return to my hometown, my aim is to meet my friend standing tall and proud.

Daily NK
Han Young Jin
4/2/2007

“100,000 won (approx. US$32.2) doesn’t cut it.” This is a sigh-ridden comment of a North Korean citizen, who states that even if he has 100,000 won, it is not much to spend.

The recent currency depreciation of the North Korean won has been exacerbating the North Korean citizens’ burdens of their costs of living.

Such a situation has been ongoing since the July 1st Economic Measure in 2002, but with the concentration of money in the privileged class, the grim realities of life of vulnerable persons have been becoming more difficult.

Hoiryeong citizen Park Hyun Sik (pseudonym), in a phone conversation with Daily NK on the 30th, stated that “a decent Chinese jumper costs 30,000 ~50,000 (approx. US$ 9.7~16) won for one, 3,000 won for 1kg of meat, and 2,700 won per a bottle of oil. After eagerly awaiting a month, I go to the market with 100,000 won (approx. US$ 32.2), but end up with nothing even though I did not buy much.”

Mr. Park, who conducts the wholesale business of relaying goods received from overseas Chinese emigrants to the provinces, receives a monthly income of 300,000 won. This puts him in a good class in North Korea. Mr. Park’s family, which consists of his wife and son, plans to secure food with this money.

Evidently, a family of four needs 50kg (50,000 won) of rice, which costs 1,000 won per kg, and 20 kg (7,000 won) of corn, which costs 350 won per kg, to survive. Additionally, the cost of buying a bottle of bean oil at 2,700 won as well as pepper powder, vinegar, garlic, onions and other vegetables is almost equal in value to the cost of buying rice.

On top of this, the family says they eat pork meat about once a month, which costs 3,000 won per kg. The rest of the money goes to the three family members’ clothing and cigarettes and drinks for Mr. Park, all of which cost about 300,000 won. Even then, Mr. Park tends to be on the well-fed side.

Working Citizens Cannot Eat Meat Even Once A Month

Kim Jung Ok (Alias), who sustains her living through a noodle business in the Hyeryung South Gate jang (market), has a monthly living expense of approximately 60,000 won. Ms. Kim is a housewife, who has taken on the responsibility of her three-member family.

Even if she sells noodles all day, she only makes 2,000~3,000 won. She merely earns around 60,000 won per month, all of which goes to food. Making a profit from her business is a mere dream, she expresses. She cannot even think about rice; after buying 70 kg of corn (23,000 won), bean oil, beans (950 won per kg) and other vegetables, she has nothing left.

The monthly income of her husband, who works at a machine shop in Hoiryeong, is 4,000 won. That is enough to buy 4kg of rice. Fearing starvation if she solely depended on her husband, she opened her noodle shop 10 years ago. “Even if we are both working like this, it is barely enough for corn meals. It is difficult to buy a kg of meat in a month. It has been a long time since I fed meat to my child,” she confessed.

Currently, with the exception of storekeepers who trade with Chinese emigrants, foreign currency traders, and those who have relatives in China, a majority of residents in Hoiryeong live daily as Mr. Park.

Recently, the Ministry of People’s Safety Agency issued the order that “Rations will be distributed in April. So, stop engaging in illegal trade.” Due to this decree, the control of the jangmadang (market) has been tightened. Discontent among residents who sell Chinese industrial products has climaxed, “How can we live if they feign ignorance while not providing the rations?”

The regulation of jangmadang (market) by ministry officials has only raised the price of Chinese industrial products. Before that, there would be joint bargains, but now, purchasers are visiting the merchants and so the costs of products are going up.

On one hand, the influence of the dollar’s recent bearish turn in the international market is fully reflected in the North Korean black market. The exchange rate of 800 won to a dollar between the Chinese Yuan and the dollar remains unchanging, but the North Korean currency following suit to the dollar and the Yuan changes day to day. Ultimately, North Korea is not “a region with a fixed exchange rate” due to the fact that exchange merchants occasionally apply the exchange information received from China.

Due to the dollar’s slump, the ratio of the North Korean won to the dollar and to the Yuan has been on the decline for several months. Mr. Park said, “In January, the North Korean currency went up to 42,000 won per 100 won RMB, but has drastically gone down to 36,500 won per 100 won.”

Daily NK
Kim Min Se
3/18/2007

In socialism, the laborer and the peasant dominate the nation and society. However, since the late `60’s, the role of the laborer and peasant has decreased with the bureaucracy taking power, to the extent that a country can no longer remain in traditional socialism.

Currently, North Korea’s leader Kim Jong Il with a minority of the central class surround this core power. In North Korea, the laborers and peasants are rather subject to extortion.

Amidst a North Korean market economy, a middle class is being established. The middle class comprises of people who have assets that the average citizen cannot afford and own medium-sized businesses or engage in wholesale trade.

Undoubtedly, this group of people are dominating the middle class as well as playing a vital role in the lifeline of North Korean citizens and market, a fact that could not have been fathomable in North Korea’s past.

Until the 80’s, North Korea’s economy was a planned economy. Supply and demand of goods was distributed according to the national plan. However, in the late-80’s, small holes began to emerge in the socialist planned economic system and with a lack of daily necessities, people began to rely on the black market.

Arising from the major cities, goods were secretively traded in the black market and eventually the majority of North Koreans acquired their needed goods through this system. This system operated evading the control and regulation of North Korean authorities, but when caught, a person was condemned to severe punishment and the goods confiscated.

However, the mass food crisis of the mid-90’s completely collapsed the remnants of a socialist planned economy that had subsided unto the time. What had happened was the end of the national food distribution system.

In particular, the collapse of the food distribution meant the death sentence. Tens and hundreds of thousands of North Koreans began to die of starvation and as a means to live, people became active in the market and trade began to emerge in different regions of North Korea.

Mass starvation which created expert tradesmen

The immobilization of a socialist planned economy activated Jangmadang (North Korea’s integrated markets) which then led to the formation of a new class within North Korea’s own expert tradesmen. North Korean authorities who had no other countermeasures had little choice but to comply as the lives of the citizens were now left to the hands of trade.

In the mid-90’s, North Korean authorities approved personal trade to occur between North Korea and China and then permitted markets to exist along the border districts. Simply put, the mass food crisis created a new class which actually gave North Koreans an opportunity to trade.

At first, people would sell goods that they already had such as household appliances, television, recorder and bicycle. Furthermore, any type of stock accessible, particularly clothing, candy and other foods coming from China such as rice, flour and corn were also traded.

As people gained more experience and came to know the basics of marketing, tradesmen became more specialized. People who sold rice, only sold rice, whereas people who traded fabric only sold fabric.

North Koreans began to realize that specializing in a particular field was the way to make money and the people who were unable to assimilate to this culture broke away penniless.

Accordingly, the market gradually became a center for specialized tradesmen to provide goods and daily necessities. The goods sold by these tradesmen eventually became the mark for the middle class merchant. During this time, stabilized distributors began to dominate the market and more individualized entrepreneurs surfaced.

People skilled at cooking, baked decorative and delicious bread in their homes and then sell them at the markets. In addition, candy distributors have made a mark at the markets with candy making having become an advanced skill. People who once made candy in their homes now brag that they have been able to produce a small-scale sugar factory. In particular, clothes making and candy making has become enterprises leading to great money.

Today, 50% of candy, home-made clothing and 30% of uniforms, sold at North Korean markets are products made from home. Through goods such as these, Chinese merchants, tradesmen and the middle class are earning money through North Korea’s markets supplying the customers, the majority of the lower class.

Daily NK (Part 1)
Han Young Jin
3/10/2007

The reason North Korea’s regime can persevere is because of the central class’ fear of regime collapse.

As a result of this perseverance, North Korea has been able to resist isolation and pressure for more than half a century, with the system even defeating the “March of Suffering” where tens and thousands of people died of starvation.

Today, powers maintaining the North Korean system are the hierarchical upper class including the North Korean Workers’ Paryy, the National Security Agency, the National Protection Agency, prosecutors and adjudicators.

Overall, there are about 4 millions members in the North Korean Workers’ Party (statistics as of 1995), this being roughly 20% of the population. Retrospectively, these people control the 23mn North Korean citizens.

The central class incorporating junior secretaries to the party, training officers, novice elites, generals from the army, safety and protection agents use their power position to control directly the North Korean people.

The most of these people have strong loyalty for the regime. In particular, military generals or party officials especially fear punishment and the thought that their privileges may be removed. Though they may be leaders, it is not one’s own desire to escalate in power but fear of retaliation from new powers.

Local party officers, security agents and protection agents directly control, inspect and punish civilians. In essence, they absolutely control the North Korean people and hence fear direct retaliation from the people. The collapse of the regime, also means that they may become jobless and troublesome.

In the 80’s, there was an incident where the Kangkye Munitions Factory incurred an explosion. The people who thought that a war had risen killed the security agent in charge and threatened to evacuate the country regardless of war or not. The people armed with weapons even raided the home of the security agent in charge, with stones and batons. As this rumor spread, security officers throughout the country felt the tension and were all on alert. Hence, control forces even to the lowest rank have become the trustworthy pillar to the North Korean regime.

Since the early stages of the regime, North Korea trained members of anti-Japan protestors and their families, Mankyungdae Revolutionary Academies and distinguished servicemen from the Korean War. As a result, the mindset of North Korea’s central class is relatively high in societal class awareness, as is their loyalty to Kim Jong Il.

Ideology amidst the central class and brainwashed passion

These people believe that the survival of the North Korea system is directly connected to their lifeline. They fear that they will not be able to receive the same privileges given by Kim Jong Il, if the current North Korean regime were to collapse. They believe that Kim Jong Il’s fate is their fate.

The North Korean regime is currently strengthening the multiple control system for their central class so that the ideology of the class is not shaken and the principals of Kim Jong Il kept intact.

In North Korea, every position and decision is focused around Kim Jong Il and his every single word is glorified. In one sense, it is a specialty of the dictatorial regime, but in reality it is a way to force the upper class to stand in awe and even dread the grand Kim Jong Il. Some defectors, once members of North Korea’s elite say that people work having no conscious awareness of their heavy duty or how to modify words spoken by Kim Jong Il.

Educational jobs by the central class are different to that of the common citizen. As the former Soviet Union and Eastern European bloc was merging in the 90’s inflicting collapse to the regime, elite officials internally passed video tapes on the end of Romania’s former President Nicolae Ceausescu to calm other comrades but in the end stirred greater fear.

Recently, it is said that tapes on the Iraq situation have been televised for commanders and military elites to see. The aim of this viewing, to plant into the minds of the commanders that compromises to the protection of the system means death.

The Kim Jong Il regime gives privileges to inspire the people supporting them. For example, people who work for the Central Committee systems department or the elite propagandists, receive a Mercedes Benz with the number plate ‘2.16’ symbolizing Kim Jong Il’s own birthday, and depending on the position, the car series is upgraded.

Other elites from the Central Committee and figures in key military posts are provided with luxurious apartments in Pyongyang. The apartment blocks are built and located separately to the average house. Soldiers guard the homes, even restraining relatives from entering the apartment premises. These homes are furnished with electrical goods, sofas, food and goods made in Japan, as well as being accompanied with western culture.

As Military First Politics was implemented in the late 90’s, private nurses, full-time house maids, private apartments and country residences, private cars, office cars, as well as “recreational clubs” with beautiful women, were granted as privileges to the head military and provincial officers.

Every Lunar New Year, expensive foreign gifts are presented to the core central class. However, across the bridge, local and system secretaries, public control officers await common goods that can be found in South Korea’s supermarkets such as mandarins, apples, cigarettes and alcohol. Nonetheless, people who work for North Korea’s local offices are more than happy to receive these gifts are it distinctly segregates them from the common North Korean citizen.

OK to Capitalist Goods But NO to Capitalist Regime
Daily NK (Part 2)
Han Young Jin
3/11/2007

The higher the class, the closer one is to the 2nd and 3rd tier network. If a person is discovered to be in opposition to the regime they will be brutally punished and so a person is cut off early if they are found to show any signs of anti-Kim Jong Il.

The people who inflict the greatest control are the military high commanders. North Korea’s military can be seen as a branch of national politics that really does represent half of the regime. Political elites from the military closely control high commanders with under cover spies whose job is to specifically tattle on suspicious officers to the Party. Then, the protection agency in command contacts an expert who equipped with bugging devices carefully monitors the high commander’s every move, 24 hours a day.

In addition to this, control over university students who are being trained to become North Korea’s next elite group is also severe. In order to intensify regulations on university students, the protection agency initiates secret movements. Protection agents and even information staff are grouped to control the student’s movement with one information staff in charge of monitoring every each 5 students.

Even amidst the Workers’ Party and the ministries, national safety agents are dispatched to monitor the elite.

“Capitalist goods are good, but reform is unacceptable”

Though envious of South Korea’s economic development, North Korea’s upper class are opposed to growth and reform.

There is a popular story of an elite North Korean official who visited the South and frankly revealed “Though we may crawl and be worn, we cannot follow South Chosun’s economy.” It is also a well known fact that elite officials preferred Samsung digital cameras and showed interest in Hyundai cars at a South-North Cabinet talks and Aug 15th event in Seoul. Nonetheless, when it comes to acknowledging the need for capitalist reform, North Korea’s central class discards it with a wave of the hand.

The reason that capitalist goods are preferred but reform rejected is a result of the ideology that their individual power will be lost with change to the regime. Those who have loyally followed authorities have no mindset nor special skills that will enable them to survive a capitalist system. Rather than confronting a competitive society, they prefer their current position and the glory that comes with it.

The central class is also well aware of the restraints on North Korea’s economy. Every year as the harvest season arrives, they see citizens march onto the fields malnourished and underfed. They know that the economic policy implemented by authorities has failed and is incoherent. Yet, ultimately they are unwilling to let go of the small privileges they are endowed upon by the preposterous and unreasonable regime.

These people have become accustomed to their power which is utilized to gain them their privileges and tyranny. Even if North Korea enters a famine, they need not worry about food or clothing.

For example, in the case of an official factory secretary, he/she satisfies ones own personal needs by selling factory goods. Using the excuse that factory profits are being raised, he/she orders the workers to engage in more work, on the side. This is how tyranny occurs with the factory secretary manufacturing personal gains. Yet, these officials are not punished with any legal sentences.

Newly-rich dualism, collaborative relationship with official powers

Following the July 1st economic measures in 2002 trade became legal and North Korea experienced a sudden boom in newly rich elites. What led this new rich class to accumulate so much wealth was the fact that they had introduced an enterprise system which allowed trade with China.

The newly rich have a great interest in reform and development, and are well aware that the North Korean regime will not be able to solve the economic issue without facing reform.

However even this class of people are disinterested in bringing an end to the regime. They have already accumulated their wealth and feel no onus in the poverty stricken situation in North Korea. Whether capitalism or the current North Korean regime, as long as they can sustain a living, these people can continue to remain in a dualistic mindset.

While North Korean authorities are strengthening control over this new class, they are in another sense, receiving money and bribes to protect them. Where investigations are involved, authorities are risking their own identities being revealed and hence often ignore the illegalities of the people, even going to the extent of passing on information.

It is a fact that North Korea’s central class is acting as the forefront in sustaining the regime, but then again, these people have greater educational standard than the average commoner and they have had more opportunities to experience Western civilization. Hence, they can compare the North Korean regime with the outside world. Though the majority of this class accommodates to the North Korea regime, the possibility that a fraction of the elites may have some sort of antagonism against the Kim Jong Il regime and the odds that these people may just act upon these feelings cannot be discarded.

In addition, as North Korean society continues to decay, the organization of its systemic corruption may just be hit with danger. As corruption deepens and a crack appears in the regime, authorities will try to control this leak but while doing so, it is possible that endless punishment may just incite some elites to secede.

Particularly, the more information about foreign communities flow into North Korea and the people’s animosity against Kim Jong Il increases, even the elite will not be able to completely suppress feelings of antipathy.