North Korean Economy Watch

Hankyoreh
Authored by Ryu Yi-geun and translated by Daniel Rakove

PYONYANG: “Next time, please come back and purchase something,” implored Mr. Hong to the customers leaving his store empty-handed.

“You’re saying you earn more if you sell more?”

“You bet.”

But this reporter was still suspicious. Four days later, I carefully asked our handler for confirmation.

“Of course it’s true,” he assured me. “Even in the same eight-hour workday, he who produces more results gets paid more.”

The concept of receiving compensation in proportion to the amount of sales is one that is now long familiar to North Koreans. Yet what is surprising is the gusto with which North Korean store staff will go to in encouraging South Korean tourists to buy their products, a phenomenon indicative of how great the materialistic impulse has become in the reclusive communist nation.

Constructed in Pyongyang’s central district in 1995, the 47-story Yanggak Hotel seems to float above the Daedong River like an island. Mr. Hong works at a store there on the second floor. There is even a spot next door to exchange money. Though the set prices are written on each product – in Euros – the South Korean customers managed to save a bit through bargaining. The owner was at first insistent that all products be only sold for the listed price, but he finally gave way after a long give and take with the customers. He decided it worthwhile to sell his products slightly cheaper, if only to make a profit. Though most transactions are conducted at the listed price, there were instances at the hotel store and other establishments of selling to tourists at a discounted rate after haggling over the price.

Elements of capitalism are slowly making their way into North Korean life – wrapped in the euphemism of “utility.” After returning from his trip to North Korea from May 14-18, on which he led 130 economic delegates, Min Byeong-seok, Director of the Hankyoreh Foundation for Reunification and Culture proclaimed, “I could unmistakably feel here and there that North Korea is changing.”

It is of course difficult to confirm the presence of change in North Korea. This is in part because the changes are occurring at a low level. After all, there is always a difference in what we look for compared to what we are shown. This is what makes it difficult for someone to declare unreservedly, “North Korea is this,” or “North Korea is that.” There are also parts of North Korea that are difficult to understand due to the biases originating from the political system and values of the observer. Hankyoreh21 managed to get a spot in the group of Pyongyang-bound economic delegates, and recorded below is a compilation of the various things we witnessed.

“My life has gotten so much better since last year.” These words did not seem to be mere propaganda. Whether spoken by our North Korean guide or the various Pyongyang citizens with whom we came in contact, their words were by and large the same. One citizen told us, “My wages increased from 3,000 to 6,000 North Korean won,” and consumer prices “went up about 10-20 percent.” In other words, wages have increased much faster than has the rate of inflation. Yet that man cannot be taken to be the representative Pyongyang laborer, nor does he have the credibility of an economist.

Indeed, it is hard to grasp the level of inflation in North Korea: all one can do is take an educated guess. Lee Do-hyang of the Institute for National Security Strategy said, “These things are evidence that the financial situation is improving and the economy is enduring,” adding, “It seems that the quality of life for common people is taking a turn for the better.” Yet in North Korea, where it is said some US$30 a month is necessary to get by, a 3,000 North Korean won raise is not exactly a windfall: 6,000 North Korean won is about equivalent to $2, and on the black market, $1 sells for 3,000 North Korean won. Thus, the rationing and side jobs that bring in an additional $15-20 a month are an essential source of income.

Pyongyang’s major marketplaces have grown livelier. Stretching between 2,000 and 3,000 pyeong (1 pyeong is 3.3 sq. meters), one large-scale market has taken up a spot next to Kimchaek Industrial School on a once-empty spot along Otangangan Street. In the shape of a high school gym, the market’s two-story building is covered in a blue roof and the exterior is clean. Visible from the Yanggak Hotel, the market was bustling at 6 p.m. on May 16. The Bonghak Market next to the Pyongyang Cosmetics Factory was also busy once the sun set. At least one marketplace has taken shape in each of Pyongyang’s 18 districts. Each one is a symbol of capitalism’s penetration of the socialist, planned economy. The activities in each market are said to be hardly distinguishable from the capitalism found in other countries.

One citizen said, “The people go to the markets more, where the prices are a little bit cheaper than at the nationally operated stores. Even if one doesn’t buy anything, it is fun to look around, what with the variety of goods for sale and the haggling going on.” Most citizens are said to buy their daily necessities at such markets, having become an essential part of daily North Korean life.

Street food vendors started appearing quite a while ago, but their numbers are ever-increasing. The fairly tidy vendors can be seen here and there throughout Pyongyang, selling a variety of goods, including soft drinks, ice cream, bread, rice cakes, and so on. Each product runs between 100-300 North Korean won.

The local People’s Committee gives licenses for the operation of such stands to various companies or the descendants of revolutionaries. A portion of sales is taken by the state and the remainder of the profit goes to the managing company or individual.

Though the residents of Nampo, a port city 40 minutes by bus from Pyongyang, do not seem to be better off than their Pyongyang counterparts, the city is quite lively. On the journey from the major ship repair factory by the port, through the city center, and to the freeway entrance leading to Pyongyang, 50-60 separate street food vendors were spotted. The products they were selling as well as their method of sale were quite diverse. Some vendors – most likely new ones – simply laid out their goods on the ground for sale, showing even to the outsider that North Korea’s markets have hit a growth surge.

Five years have passed since the July 1, 2002 economic measures were instituted by the North Korean government, raising wages as well as the currency’s value. In addition, the price of rice and other necessities was increased, and a system of incentives and limited independent capital was expanded. Yet very few North Korean people have even heard of “the 7/1 measures.” Only after talking for a significant length of time will they mention the notion of “utility” that has been pursued over the last few years.

At the end of Unification Road in the Nagnang district of southern Pyongyang, the Phoenix Clothing Factory is producing clothing on commission. The 1,000-pyeong factory is unceasingly filled with the whirr of sewing machines. U Beom-su, 53, introduced himself to the South Korean observers as the company’s “chief executive,” explaining, “The workers work eight hours a day, but when the fixed day for shipment draws near, we have no choice but to put them on overtime.” The payment system for workers is multi-tiered, with five levels, the salary increasing with rank. Every month, one laborer is chosen from each team of workers as being the most outstanding, and is given bonus compensation. The ‘chief executive’ explained that further incentive payments were rewarded based upon the factory’s production levels on the whole.

It is unclear as to how widespread this model of business is, but director of the Korea Institute for National Unification Lee Bong-jo said that “the seeds of competition are visible.” However, the workers at the Yuwon Shoe Factory and the Pyongyang Cosmetics Factory were flustered when asked about their salaries or the labor system and evaded giving an answer.

The will for liberalization was evident here and there. At the 10th annual Pyongyang Spring International Trade Fair on May 14, 200 companies from 12 countries participated, either to view the product lines or to display their own. The majority were Chinese companies, including its largest electronics firm, Haier, while there were several sections of the exhibition primarily interested in retailing to the foreign visitors themselves, the determination by North Korea to get its products out to foreign markets was apparent.

Many members from the South Korean team of economic representatives also participated. In particular, representatives from Daewoo Shipbuilding & Marine Engineering Co., Ltd, the world’s second largest shipbuilder, as well as the Korea Port Engineering Company, visited the Yeongnam Ship Repair Factory and the Nampo Port to explore the possibility of making investments in those places. In a gesture of consideration, the Northern handlers prepared a separate automobile for the potential investors to explore the grounds, and held a separate consultation session for them beyond the general one for the economic delegates. On multiple occasions, various North Korean officials expressed an interest in attracting South Korean capital. The self-confidence they showed hinted at a sense that they had to some extent resolved the immediate issues of day-to-day subsistence. It may sound strange, but the consensus of those who had also made the trip last year was that the electricity situation had improved. In other words, basic economic conditions seemed to be on the upswing. Perhaps the self-confidence North Koreans showed in displaying their possession of a nuclear weapon has now flowed into the economic sector, thus explaining their will for some liberalization.

Yet simply because there is a will for opening up does not mean liberalization will come easily. One Daewoo source explained, “[We told the North Koreans that] there must be assurances before we invest. They have to provide the same conditions that China does.” At this point, there is probably not a single person who could make such assurances on behalf of the North Koreans. The country is still unprepared to take advantage of the money available to it from the South through the economic cooperation program. The six-party talks also must also make some progress on the nuclear issue. Furthermore, if North Korean – U.S. relations do not improve, then free trade between North and South will remain uncertain indefinitely.

In the case that external matters are settled and the will for liberalization strengthens, then the vitalization of the North Korean economy could quickly pick up with the improvement of infrastructure, such as the electricity grid and logistics, which are pointed to as the largest stumbling blocks. The reporters who arrived first on May 12 witnessed, for instance, how the automatic doors and the elevator on the first floor of the Yanggak Hotel took 30 minutes to warm up. While the houses themselves gave off light after the sun set, the streets between them were completely dark. The mere 20-30 percent rate of operation at factories as estimated by experts is partially accountable to a lack of raw materials, but most of all to the deficiency of electricity.

The rigidity of the economic system only adds to North Korea’s list of woes. Though the director of Pyongyang Cosmetics has requested raw materials and modern machinery, he does not have the full authority to manage the company. Another company has imported the raw materials from China, and he confessed that he knew little of the specifics on the subject. The director of the Daeanchinseon Glass Factory made a similarly vague request for “raw materials.”

The problems go deeper. For one, there was no sign on the part of the North Korean factory managers to think of the visiting economic representatives as business counterparts in the world of capital and industry. For example, even photography by the group of South Korean trade representatives was forbidden within the factory grounds. Another chronic problem is the ease by which North Koreans that are not economic officials or specialists break promises. Furthermore, as often appears in planned economies, there is a single-minded focus on “production” without consideration of whether the product being made is for domestic use or for export. This sort of difficulty was evident at the cosmetics and shoe factories, as well.

Lee Bong-jo, director of the Korea Institute for National Unification, offered some advice to the South: “Knowledge of North Korea must precede any investments there.”

It seems that amongst difficulty, Pyongyang may be carefully seeking change. Though it remains stuck in the dilemma of pursuing liberalization while maintaining regime stability, it is increasingly sending strong signs to the outside world of a will for liberalization. As South Korean Former Minister of Unification Jeong Sye-hyeon said, “It is difficult for North Korea to go backwards.”