2002 Economic reforms « North Korean Economy Watch

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Life Without Money

Tuesday, September 6th, 2005

Korea Times
Andrei Lankov
9/6/2005

For decades, money did not really matter in the North Korean economy and society. Levels of consumption were not determined by money expended, but rather by access to goods. Everything was distributed, and almost nothing was actually sold, at least from the 1970s when the Public Distribution system reached the height of its power.

Indeed, the history of the North Korean retail industries between 1948 and 1975 was one of a gradual demise of trade as it is generally known elsewhere. By the late 1940s most employees of state enterprises were being issued ration coupons. These coupons allowed them to buy goods at heavily subsidized prices. If they were not happy with them, they could go to the market.

In 1958 private trade in grain and cereals became illegal. For a while vegetables and meat were not rationed, but the number of items subject to distribution kept increasing, and by around 1975 the state shops had actually become nothing but outlets of the PDS. It was legal to buy and sell most goods on the market (grain and liquor remained an exception), however the North Korean economy was so structured that few goods could be produced outside the official economy. For this reason few goods could be channeled to the private markets. Thus, market prices were exorbitant, and people had to survive on what was supplied through the PDS.

However, the economic disaster and famine of 1996-2000 changed this situation. Markets began to spread across the country with amazing speed. In the years 1995-1997 nearly all plants and factories ceased to operate. In the worst period, in early 1997, the average utilization of major plants was reportedly a mere 46 percent of their capacity.

In most areas people still received ration coupons, but these coupons often could not be exchanged for food. Only in Pyongyang and some other politically important areas did food continue to be distributed through the late 1990s, but even here the norms were dramatically reduced: from the pre-crisis level of 500-700 grams a day (depending on one’s perceived value to the state) to merely 150-250 grams daily in the worst days of the famine. Even such small rations were not available to everybody. According to research by Meredith Woo-Cumings, as few as 6 percent of the entire population relied on the PDS in 1997.

Thus, many people, including myself, came to the conclusion that the PDS had died. This impression was reinforced in 2002 when the `economy improvement measures’ (never officially called `reforms’) were introduced. Then it was normally supposed by outside observers that consumption needs would be satisfied through markets.

But in 2004 and early 2005 new data emerged from the ever secretive North. It became clear that the Public Distribution System had not been dismantled. Indeed, it made a moderate comeback, largely due to foreign food aid which was largely channeled through the PDS.

Of course, the PDS does not even remotely reach its earlier ubiquitous levels. According to the FAO, the U.N. food and agriculture agency, in early 2005 the Public Distribution System was “the main source of cereals for the 70 percent of the population living in urban areas.’’ Farmers do not get food from the PDS. During the period November 2003 through October 2004, the average actual allocation through the PDS was about 305 grams, representing about half of a person’s daily needs. According to the World Food Program, in early 2005 rations were cut down to 250 grams per person per day — 40 percent of the internationally recommended minimum.

In October 2005 the North Korean government told its populace that the PDS would be re-started soon. So far, it seems that in Pyongyang the PDS indeed works at the 1990 level, but outside the capital the market remains the only place to find food.

In such a situation, the ability and willingness to engage in private business became a major guarantor of physical survival. A witty local observer described the situation in post-famine North Korea: “Those who could not trade are long dead, and we are only left with survivors hanging around now.’’

The major coping mechanisms are support from relatives in the countryside, wild food collection, and kitchen garden production. According to an FAO survey undertaken in late 2004, 57 percent of the PDS dependent population and “nearly all’’ farmers have kitchen gardens; about 60 to 80 percent of PDS dependents and 65 percent of coop-farmers gather wild foods; and 40 percent of surveyed households receive some support from relatives in the countryside (either as gifts or as part of barter deals).

It is important that farmers are allocated far larger rations, about 219 kilograms of cereals a year or 600 grams a day. They also have larger kitchen plots and can sometimes hide some additional food from hillside cultivation which is less strictly controlled by the state. According to the FAO estimates, kitchen gardens alone give the average farming household some 10 percent of its income.

As has been the case for decades, only a part of rations come as rice. Barley and maize, far less nutritious, comprise a large proportion of cereal consumption. The North Koreans’ approach to maize is clear from the fact that the rice/maize barter ratio is 1/2: for one kilogram of rice one expects to get two kilos of maize, and vice versa. In the period from September 2003 to September 2004 maize accounted for about half of all cereals distributed through the PDS.

But why is the PDS necessary, or why is it not possible to get rid of it altogether? The answer to this question is largely political and, as our readers guess, this will be another story.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Agriculture statistics, Arduous March, Civil society, Fiscal & monetary policy, General markets (FMR: Farmers Market), Public Distribiution System (PDS), UN World Food Program | Comments Closed

In the Black Market

Tuesday, August 23rd, 2005

Korea Times
Andrei Lankov
8/23/2005

The North Korea of the 1960s or 1980s was not a society of complete equality. It had its rich and poor. But the affluent people were affluent either because the party-state bureaucracy chose them, such as government officials and a handful of the most prominent scholars and writers, as well as people who were allowed to work overseas and were paid in hard currency, or allowed them to be affluent. For example, this was the case with the repatriates from Japan. From the late 1980s, the situation changed. Some people began to make money not because they were paid and showered with privileges, but because they learned how to use market capitalism.

The markets began to grow explosively around 1990, and North Korean “black capitalism’’ was conceived around this time. The first really rich people began to appear, even though they had to hide their success both from the authorities and their fellow countrymen. And one had to use whatever advantages one had, as competition was tough. In the late 1990s, the North Koreans used to say “there are only three types of people in North Korea: those who starve, those who beg and those who trade.’’

These early capitalists came from backgrounds that gave them advantages over other people who also took up trade. Most of them were officials who had useful connections. In the 1990s, a person who could command a truck easily made a huge amount of money by moving merchandise around the country and exploiting the large differences in prices between the regions. Managers of state enterprises could sell the production of their factories on the market. This was technically stealing, of course, but it was in an increasingly corrupt society there was a fairly good chance of not getting caught. Retail personnel at all levels channeled the goods through the “back doors’’ of their shops, away from the disintegrating public distribution system. Military and security personnel also had advantages, since for decades they had lived in what can be described as a “state-within-the-state,’’ beyond even the most nominal control of outsiders. Finally, “hard currency earning’’ officials made a lot of money: they have been running quasi-market operations from the 1970s and had both the necessary expertise and resources. After 1990, they began to use these resources for their own ends.

In addition to officials, generals and police officers, there were other groups of people who found themselves in an advantageous position in those early days of North Korea’s capitalist revival. These included the repatriates from Japan whose relatives back in the “capitalist hell’’ have always been encouraged to transfer money to the North. The repatriates had money, and some of them retained vestigial experience of operating in a market economy. Another group included ethnic Chinese, some of whom were Chinese citizens, and Koreans who had close relatives in China. For decades, both of these groups have been engaged in small-time cross-border commerce, and after the collapse of state control, they greatly increased the scale of their operations.

Even some humbler professions found themselves in relatively good times. Drivers, for instance, could take money for moving passengers and merchandise _ especially, after the quiet breakdown of the travel restriction system around 1997. They also augmented this money by selling and buying goods themselves and became a major source of income for train conductors.

Fortunes were made in trade, not in manufacturing, which remained largely controlled by the state. Money lending also provided good profits. In the mid-1990s, private lenders charged their borrowers with a monthly interest of some 30-40 percent. The associated risks were high, too; these private lenders had virtually no protection against the state or criminals, or above all, bad debtors.

The growth of grassroots capitalism had another unexpected effect: the empowerment of women. Like their counterparts in most other Communist countries, the North Korean authorities expected every able-bodied male to be employed in some state enterprise. It was illegal for men to remain unemployed. However, for married women, the approach was different. All Communist countries grudgingly admitted that a woman has at least a theoretical right to remain a full-time housewife. In the North, the share of housewives was unusually high: no precise data is available but it appears that some 30-40 percent of married women of working age stayed at home.

When economic disaster struck, this arrangement had unintended consequences. The men kept going to their factories and offices, even if their wages were becoming meaningless. They were afraid of the still formidable state machine, they wanted to keep the status traditionally associated with proper jobs and they also needed the rations _ as long as the rations were forthcoming. Women, especially housewives, were free to pursue completely different economic strategies. They took up market commerce with great enthusiasm and soon comprised a majority of North Korean vendors. This also meant that the women’s earnings became the major source of income in many Korean families.

This did not mean that women became prominent at the highest reaches of the new capitalist market. To occupy the key positions and make really good money, one had to have connections, capital and connections. Most of the people who had all of these things were male, but at the lower levels of the new semi-legal capitalist class, women came to play a significant role.

Posted in 1990s Famine, 2002 Economic reforms, Automobiles, Black markets, Chongryun, DPRK Policies, Economic reform, Japan, Manufacturing, Public Distribiution System (PDS), Transportation | Comments Closed

Investors show new interest in North Korea

Friday, August 12th, 2005

From the Herald Tribune:
Donald Greenlees

In May, Kelvin Chia, one of the first foreign lawyers to receive a license to practice in North Korea, took a party of Indonesian miners on an investment tour.

Visiting a coal mine outside Pyongyang, the group was surprised by the welcome from North Korean officials and found that the basic road and power infrastructure serving the mine site was in a better condition than they expected. Chia said the mining company – which he declined to identify for commercial reasons – is likely to soon enter a joint venture with the North Korean operator to further develop the mine.

Since being granted the right to open an office in Pyongyang last October, Chia, who is from Singapore, says his firm has been approached by about 20 companies from Europe, Southeast Asia and Australia with an interest in investing in communist North Korea’s shaky economy. Chia’s firm was the first wholly owned foreign legal practice in North Korea.

“I think there is an upsurge of interest in that country,” said Chia, who is based in Singapore but runs an office of two lawyers in the North Korean capital and has plans to expand.

Chia’s recent experience mirrors that of other hardy business people who have persisted with North Korea in the past decade, despite a nuclear crisis and U.S. commercial embargoes. Some business people equate the current level of investor interest with the early 1990s, when foreign companies, including some multinationals, started a spate of investments in the hope that North Korea’s largely self-imposed isolation would end.

While the latest round of six-nation talks to dismantle North Korea’s nuclear weapons program remains inconclusive, a handful of Asian and Western investors, some with earlier experience in doing business there, are again considering possibilities in defiance of Washington’s desire to use economic seclusion as a bargaining tool.

These investors, mainly manufacturers and miners, are being enticed back by low wages, plentiful mineral resources and a regime that appears increasingly prepared to support foreign investment and open its economy.

Pyongyang has signaled plans to open investment promotion offices within its embassies in Singapore and Malaysia, according to Chia, who maintains regular contact with North Korean officials. A revised foreign investment law, passed by the North Korean Supreme People’s Assembly in 2004, relaxed some conditions on foreign investment and permitted full foreign ownership of some ventures. The assembly has also strengthened intellectual property rights laws.

A South Korean government official said that Pyongyang also recently started to approve visas for foreign buyers to enter the joint North-South industrial park at Gaeseong, just north of the demilitarized zone. The official said 19 visas had been approved as of mid-July for buyers from Germany, Japan, China and Australia.

Investment in Gaeseong is restricted to South Korean companies.

Tony Michell, [Korean Associates Business Consultancy]a business consultant based in Seoul, has received permission to take a group of eight investors to North Korea in September in the first of what he said would be monthly investment missions. The first group will comprise European and Asian business people, none of whom are from China or South Korea, the countries with the largest investment in the North.

Michell, who introduced a number of companies to North Korea during the last upswing in investment interest from 1993 to 1995, said there had recently been “a revival of interest.”

“This comes up to the 1993 level of interest,” said Michell, managing director for Asia of the Euro-Asian Business Consultancy, adding that if the United States dropped its economic embargo “this would be a humdinger of an emerging market.”

Still, potential investors in North Korea have to weigh a long history of failure. Of the eight companies Michell introduced during the early 1990s, only one investment survives. An investment bank based in Hong Kong, Peregrine, entered a joint venture to establish Daedong Credit Bank in Pyongyang. Peregrine collapsed, but Daedong is marking a decade in business.

The experience of North East Asia Telecom, a Thai firm, is sobering. It set up a mobile phone network, but since May 2004 use of mobile phones has been suspended by the North Korean government as part of a security crackdown.

New investment largely dried up after October 2002 when U.S. officials claimed that North Korean officials had admitted during talks to possessing a nuclear weapons program. There is general agreement among investment advisers and economic analysts that if the nuclear impasse can be resolved foreign investment will accelerate.

The nuclear crisis erupted as North Korea was implementing a series of measures to open its economy and increase appeal to investors, like giving state-owned enterprises greater freedom to operate commercially, removing price controls and allowing its currency, the won, to be exchanged for the euro, which was adopted in December 2002 for all foreign currency transactions.

Analysts of the North Korean economy say those reforms remain largely on track and paved the way for an upsurge of direct investment in 2004 from China, North Korea’s main economic partner. Ahn Ye Hong, who studies the North Korean economy for the Bank of Korea, the South Korean central bank, said that investment from China rose from $1.3 million in 2003 to $173 million in 2004.

He said this investment was driven by China’s desire to “obtain as much of North Korea’s resources as it can,” particularly iron ore. He expects a further significant increase in Chinese investment this year.

The South Korean government is also seeking to increase direct investment in the North. Although the bulk of South Korean investment has gone into just two projects, Gaeseong and the Mount Geumgang tourism development, recent talks between the two Koreas explored the possibility of investment in upgrading or repairing mines that have fallen into disuse.

An official in South Korea’s Ministry of Unification said an inter-Korean economic cooperation meeting in Pyongyang between Sept. 28 and Oct. 1 would discuss the proposal further. The official, who requested anonymity due to restrictions on speaking publicly, said it was likely any South Korean involvement in redevelopment of the mines would be carried out by a joint enterprise between the government and the private sector.

Posted in 2002 Economic reforms, Bank of Korea, Cell phones, China, Coal, Daedong Credit Bank, Euro-Asian Business Consultancy, Foreign direct investment, Indonesia, Iron Ore, Kaesong Industrial Complex (KIC), Korean Assoicates Business Consultancy, Mining/Minerals, Mt. Kumgang Tourist Special Zone, South Korea, Thailand, USA | Comments Closed

Stand in Line for Half Day Long to Make a Phone Call

Wednesday, July 20th, 2005

Daily NK
Kim Young Jin
7/20/2005

Demand for Wire Telephones after the Government Confiscation of Cellular Phones

Recently in North Korea, demand for house phone skyrocketed and as the government confiscated personal cellular phones, people have also be increasingly using public phones.

It is known that setting a wire telephone for a household costs more than 450,000 Won and it is difficult to get one even after 4-5 months longs reservations.

Even Cellular Phones of Government Officials Confiscated

Park Young Chul (pseudo name, age 45) whom The DailyNK met in Tumen of China testified, “As the government completely banned the use of cellular phones after the Ryonchon Incident, demand for wire phones has been skyrocketing.”

Is the use of cellular phones still banned?

“It is hard to see cellular phones in North Korea. Not in local places, even in cities, people holding cellular phones cannot be seen.”

How about the Party cadres and managers of the state enterprises?

“The government confiscated all the cellular phones after the Ryongchon accident. They are still strictly banned. Even the provincial party cadres, National Security Agency, People’s Safety Agency officials are not allowed to use cellular phones.”

There are two kinds of cellular phones used in North Korea.

One kind is the official one acknowledged by the government, the GSM method of European style, which was used since 2002. Although it costs more than $1300 only to register and it is only usable in the city, it is known that more than 20,000 people are using this kind. Most of the users are foreigners and among the North Korean people, Party cadres and special government officials possessed it as the symbol of their special right.

The other kind is the Chinese wave, which the people use in secret along the Sino-Korean border areas. Although the number of users is unverifiable, it is known that the main purpose of their cellular phone use is to communicate with their family members in China and South Korea or with the dealers for their businesses. Due to the limitation in reach of the wave, these phones cannot be used extensively in inland. They are especially targeted by the government for control.

Then after the Ryongchon accident was known to the outside world by the cellular phones, the government of North Korea confiscated all the cellular phones last May. Although the foreigners are free from prohibition, there is no way for North Korean people to legally possess cellular phones.

Wire Phone Lines Still Hard to Get Even with Money

Then how do the people in North Korea communicate with each other?

“Usually by the wire phones (house phones). People who run business with other sellers and buyers in other verify their deals through phone. Those who have enough money seek to obtain their own phone line.”

Due to the limited means of transportation and communication, price differences between the regions varied much. For example, in Huiryeong of North Hamkyung province, the price of rice was low and the price of pollak pretty high while in Chungjin the opposite. People could take advantage of such price difference and earn money in between, for instance, by buying pollak in Chungjin and selling them in Huiryeong and buying rice from Huiryeong and selling it in Chungjin.

In the past such business were done only with guesses on price, but now phones are used to check the price differences. Recently dollar dealers are known for checking exchange rates through phone calls to China and even across the nation everyday.

How much does it cost to obtain a phone line?

“In the past it was not so difficult if you had money. Now, it is pretty difficult even if you had money. It cost about 450,000 to 500,000 North Korean won. That is a lot of money in North Korea. However, it is not a matter of how much it costs. The problem is that the government does not have enough of IC block necessary for switchboard of the Ministry of Communication to set up the phone line, so even if you had requested for a phone line, you are not guaranteed to get one.

Does that mean that someone has to withdraw a line for another person to get?

“Precisely. In the end, the cost of setting a phone line is actually the cost of selling and buying the IC block. The cost also includes the expense of laying phone line from the place where switchboard is located to the designated house. That is why it is so expensive.”

After the 7.1 Economic Management Improvement Measure in 2002, the average monthly wage of a North Korean worker ranges between 1500∼2500 won, thus 450,000won is the amount which an average worker has to save for 20 years without spending a penny, but the fact that “many people are willing to obtain” shows that there is a significant number of rich people present in North Korea.

Personal Identification and Deposit Money Required for the use of ‘Public Phones’

How is the situation of the public phones?

“They are called “common phones,” and two or three of them are located in each communications office or branch office in each area (district). There is a communications office in every 8km~12km and in the city about 4km.”

How much does it cost?

“It costs 10won for one local call. Before it was 50 jun (half of 1won) but recently the price increased. Of course the price varies for long distance called, they are more expensive. You have to leave your personal identification and 40-50won of deposit at the office prior to your make the call and when you are done you get them back after you pay.”

Why do you need personal identification and deposit money?

“They made this procedure because of some people who ran away without paying”

Are there many people using the public phones?

“There was a communications office about 4km away from my house, usually if I go, I had to wait about 30 minutes to make a call. Sometimes you have to waste as long as half of the day for your turn. Still, there are many people in line waiting.”

Park sighed and said, “Only if the transportation system were a little bit better, the living of the people would be much better. When one thing gets better, the government soon turns it down.” What we see is a scene of discord between the people who are already living in capitalistic style and the government that tries to deject it.

Posted in 2002 Economic reforms, Agriculture, Cell phones, Communications, Ministry of Communication, Price liberalization, Telephones, Transportation | Comments Closed

The Transformation of Class Structure and Class Conflict in North Korea

Friday, July 8th, 2005

International Journal of Korean Unification Studies
Vol. 14, No.2, 2005, pp 52-84.

PDF Here: transformation of class structure.pdf

Abstract
This study examines how North Korea’s class structure transformations influenced the social transformations, and seeks to understand the structural characteristics of North Korea by examining in detail the existing shape of each social class. This study found that North Korea’s socialist transformation was the process of dismantling every social class, such as the landowners, farmers, commerce and industry, and intelligentsia classes, etc. The 1946 land reform dismantled the landowner class, the 1958 agricultural collectivization dismantled the farmers class, and the 1958 nationalization of commerce and industry did the same to the petty bourgeoisie. The only class remaining in North Korea is the managers of the governing class. There was no class differentiation, only dismantlement. Thus, with social classes dissolved, the governing class remains as the monolithic class monopolizing social, economic, and political power in North Korea, with no other social power to act as a balancer. This type of class structure may constitute the social conditions of political dictatorship in North Korea.

Highlights:
In North Korea, the fundamental ownership relations of the traditional class structure were dismantled in the name of socialist construction. The victims of this construction were the traditional classes of landowner, petty bourgeoisie, farmer, and intellectual.

When the 1946 Land Reform Law was passed, it was enacted in a month. The law provided for government confiscation of land properties over 5 chongbo (1 chongbo=2.45 acres). When completed, 1,000,325 chongbo of 1,982,431 under cultivation at the time. At the time, land owned by the Japanese state, Japanese people, and religious organizations was barely 4%. the remaining 96% was in the hands of Korean landowners and tenants. It affected 405,603 of the 1,121,295 registered farming households. 4 in 10 households had land confiscated in part or whole. Ten years after land reform, many were again prospering, and theor political influence became noticeable. Kim il Sung sought to reassert control over them. In 1958, land reform was reversed and farms were colectivised.

Nationalization of industry, traffic, transportation, communications and bank finances, including over 1034 important factories and businesses. In 1947 80.2% of industry was held in state control. Private commerce made up the rest. After the Korean War, private enterprise production consisted of small-scale mills, metal workshops, rubber factories. by May 1957, the number of private industrial enterprises was 633. By August 1958, this activity was completely eliminated.

To purge the intellectuals (who were educated in the old ways) Kim il Sung proposed, “we have to speed up the construction of socialism, and fo rthat purpose, we have to fight against the conservatism of the intellectuals.” This started with technicians and economic managers. Then dissident writers.

All social powers were ousted: Landowners, farmers, businessmen, and intellectual classes. All menas of production were nationalized and socialiazed, so all became employees of the state, and the state became the sole employer. North Korea’s new system consists of the rulers and everyone else (two groups).

To prevent remanats of the past from gaining influence, North Korea classified each individual according to their family background, and discriminated on this classification (starting in 1957).

Yunan and Soviet factions were purged in the August Faction Incident in 1956. Cabinet Decision 149 mandates that ousted individuals be put in area 20km from the sea coast and demarcation line, 50km away from Pyongyang and Kaesong, 20km away fro mother cities and limited residential areas. These individuals received a special stamp on their ID cards and were registered with the social security agency.

The North Korean managerial (ruling) class is an exclusive group which has institutionalized a system so that it may keep its privileges. Only the sons and daughters of the core class can become promoted within the managerial class. Children of Cadres only marry children of cadres.

Core class is 3,915,000 people in 870,000 households. Wavering is 3,150,000 in 700,000 households. Hostile is 7,930,000 in 173,000 households.

In the workplace, all indivduals are obliged to be part of one of three organizations: the party, the Youth League, or the Workers Union.

Supplies are divided into special numbers. 1,2,3,4, etc. Those in higher positions are afforded higher rank in distribution. “How could Party Secretaries, who don’t do anything,obtian objects of a 4 level?”

Private relationships are only possible through the party.

Self-criticism sessions are carried out every week. Since these are routine, people know each other and act accordingly. Becuase everyone has to criticize each other they tend to do so in a modest way.

Peasants most angry. Laborers and office workers have time to do business on the side, but peasants do not. Some bright peasants do tend private plots.

People complain openly now.

While the core class focused on inner-systemic solidarity when faced with a crisis, the wavering and hostile classes were the first to enter the black market. After business expanded in the country side like wildfire the government brought the businesses into the open in July 2002. The marginalized societies led the change in values. Reportedly the collude with the regulatory authorities and security guards, borrow and rent vehicles for biusiness.

Only those sub-classified as Manyongdae line (Kim Il Sung’s lineage), Baektusan line (Kim Jong Il’s lineage), and Ryongnamsan line (People who graduated with Kim Jong Il from Kim Il Sung University) are able to receive official government posts.

Of the total population, 10% makes up the power-holding ruling class. Another 40% make up a lower social rung doing business and making deals.

Posted in 1946 Land Reform Law, 1990s Famine, 2002 Economic reforms, Agriculture statistics, Arduous March, Black markets, Civil society, Economic reform, Emigration statistics, Political economy, Price liberalization, Private property, Songbun, Statistics | Comments Closed

Overview of DPRK economic reform efforts

Tuesday, April 12th, 2005

The BBC offers a summary of economic conditions in the DPRK:

The focus of the international community’s alarm over North Korea is the isolated nation’s nuclear arsenal, and its refusal to talk about it.

An aspect that is sometimes overlooked is the dire state of its economy, and yet this could be at the heart of the nuclear crisis.

The regime, with few allies in the world, cannot appeal to the sort of humanitarian emotions that African or South Asian nations have in the past.

To ensure the flow of food and oil, it must have a bargaining chip, and its nuclear arsenal is that chip.

Therefore Pyongyang’s diplomatic bluster is inextricably linked to its need to keep what remains of its economy propped up by donations.

North Korea has recently attempted limited reforms to its economy, but these have not been comprehensive or well-enough planned to work.

Pushed into reform

North Korea became an independent state in 1953, and has operated a rigid centrally planned, or “command” economy based on that developed by Stalin in the USSR.

Industry and agriculture are planned on a five-year basis, all farms are collectivised, volume is praised over value and most foods and goods are rationed.

This model initially allowed for rapid industrialisation and rebuilding, but it failed to deliver sustainable growth or raise living standards.

The economy began to collapse, and by the mid-1990s the country was in a state of famine. The industrial base and the agricultural sector have been in decline ever since. Beijing, North Korea’s only real ally, decided to act in October 2001 with an economics lesson for North Korean leader Kim Jong-il.

He was shown round a GM plant and a hi-tech factory in Shanghai, and received a lecture about the benefits of Chinese-style reform.

The Chinese were effectively telling Mr Kim that it was time for change – and that they were fed up with the growing number of refugees fleeing over the Chinese border, and increasing demands for aid.

Mr Kim realised he needed to keep China close, and in June 2002 announced a series of economic reforms.

Pyongyang partially ended rationing and reformed the wages and pricing system.

Retail prices shot up – rice by 55,000%, corn 5,000%, electricity 143% and public transport fares 2,000% – but average wages increased by just 1,818% – from 110 won to 2,000 won (US$22) per month.

It also allowed private farmers’ markets to expand – to provide more goods for the consumers this monetary liberalisation had created.

Another major plank of the reforms was the new investment zone in Sinuiju – and another one in Kaesong, agreed as part of Kim Dae-jung’s Sunshine Policy.

These investment zones used foreign investment to create new economic ventures.

But neither the wage and pricing reform, nor the investment zones, have worked.

Scarce resources

The government had hoped that inflation created by the reforms, if kept under control, would “kick-start” the economy.

But this theory assumed there was a mass of underutilised resources waiting to be kick-started. Twenty-five years of decline meant that these resources were now scarce.

More food found its way into the farmers’ markets, but at prices ordinary people could not afford.

This effective legitimisation of private farming and smuggling across the border from China only succeeded in increasing the availability of goods to the elite – those whose wages were protected or had access to foreign currency.

As for the economic zones, Sinuiju’s position, opposite China’s flourishing economic zone in Dandong, annoyed Beijing.

It consequently arrested the Chinese businessman hired to run Sinuiju, imprisoning him for 18 years for tax evasion and effectively ending the project.

Kaesong survives but all the ventures are foreign-owned, with little benefit, therefore, for North Korea.

By the end of 2002, economic growth was estimated at just 1.2% at best, with the average citizen’s purchasing power severely eroded.

For most ordinary North Koreans, the end result of the reforms was further impoverishment and the eroding of any savings they may have been able to build up.

So, in light of the reforms’ failure, North Korea’s alleged announcement in October 2002 that its country was pursuing an enriched uranium programme could be interpreted as a return to its old bargaining tactics.

The international community responded to the announcement by setting up six-party talks in August 2003.

But the diplomacy is failing because North Korea, with no allies but the increasingly exasperated Chinese, and little prospect of economic revitalisation, needs to ensure a continued drip feed of aid.

That means a hard bargaining process, and Mr Kim has one bargaining chip – his nuclear bombs.

Already twice, as far as we know, Beijing has managed by persuasion, and perhaps a little economic pressure, to get Pyongyang back to the table after talks have stalled.

Now Beijing is trying again. Perhaps what Pyongyang wants most is a serious package of economic aid from China.

China may provide it to get the talking started again.

But the price Beijing will need to demand is that Pyongyang restarts economic reform in earnest, and moves away from the continual brink of collapse that forces it to make desperate diplomatic gambles such as the current crisis.

As for the economy today, it has to all intents and purposes collapsed.

The reforms were limited, and benefited just the elite of the country rather than ordinary people.

The basic structure remains in place and continues to erode the economy.

However, as long as the regime can keep the country isolated, it can survive on this drip-feed indefinitely.

The endgame is simple – regime survival. It is a long-term strategy using diplomatic belligerence and military threat to secure enough aid to maintain power and isolation.

The regime may survive, and may under pressure begin another round of tentative reform, but it seems unlikely that life will improve for ordinary North Koreans any time soon.

Read the full story here:
Economy root to N Korea crisis
BBC
Paul French
2005-4-12

Posted in 1990s Famine, 2002 Economic reforms, Economic reform, Fiscal & monetary policy, General markets (FMR: Farmers Market), International Aid, Kaesong Industrial Complex (KIC), Nuclear, Political economy, Price liberalization, Sinuiju Special Administrative Region | Comments Closed

North Korea: Market forces have female faces

Wednesday, April 6th, 2005

Asia Times
Andrei Lankov
4/6/2005

A defector from the North, a typical tough Korean auntie with trademark permed hair, smiled when asked about “men’s role” in North Korean families: “Well, in 1997-98 men became useless. They went to their jobs, but there was nothing to be done there, so they came back. Meanwhile their wives went to distant places to trade and kept families going.”

Indeed, the sudden increase in the economic strength and status of women is one of manifold changes that have taken place North Korea over the past 10 or 15 years. The old Stalinist society is dead. It has died a slow but natural death over the past decade and, in spite of Pyongyang’s frequent and loud protestation to the contrary, capitalism has been reborn in North Korea. The old socialist state-managed economy of steel mills and coal mines hardly functions at all, and the ongoing economic activity is largely private in nature.

But the new North Korean capitalism of dirty marketplaces, charcoal trucks and badly dressed vendors with huge sacks of merchandise on their backs demonstrates one surprising feature: it has a distinctly female face. Women are over-represented among the leaders of the growing post-Stalinist economy – a least on the lower level, among the market traders and small-time entrepreneurs.

This partially reflects a growth pattern of North Korean neo-capitalism. Unlike the restoration of capitalism in the former Soviet Union or China, the “post-socialist capitalism” of North Korea is not an affair planned and encouraged by people from the top tiers of the late communist hierarchy. Rather, it is capitalism from below, which grows in spite of government’s attempts to reverse the process and turn the clock back.

Until around 1990, the markets and private trade of all kinds played a very moderate role in North Korean society. Most people were content with what they were officially allocated through the elaborate public distribution system, and did not want to look for more opportunities. The government also did its best to suppress the capitalist spirit. The rations were not too generous, but still sufficient for survival.

And then things began to fall apart. The collapse of the Union of Soviet Socialist Republics brought a sudden end to the flow of the Soviet aid (which was, incidentally, happily accepted but never publicly admitted by the North Korean side). This triggered an implosion of the North Korean economy. In the early 1990s people discovered that the rations were not enough for survival, and thus something had to be done. In a matter of years acute shortages of food developed into a large-scale famine, and in 1994-96 the public distribution system ceased to function in most parts of the country.

But men still felt bound to their jobs by their obligations and rations (distributed through workplaces). Actually, rations were not forthcoming, but this did not matter. Being used to the stability of the previous decades, the North Koreans saw the situation as merely a temporary crisis that soon would be overcome somehow. No doubt, they reasoned, one day everything will go back to the “normal” (that is, Stalinist) state of affairs. So men believed that it would be wise to keep their jobs in order to resume their careers after eventual normalization of the situation. The ubiquitous “organizational life” also played its role: a North Korean adult is required to attend endless indoctrination sessions and meetings, and these requirements are more demanding for males than for females.

Women enjoyed more freedom. By the standard of the communist countries, North Korea has always had an unusually high percentage of housewives among its married women (for example, in the northern border city of Sinuiju, up to 70% of married women were estimated to be housewives in the 1980s). While in most other communist countries women were encouraged to continue work after marriage, in North Korea the government did not really mind when married women quit their jobs to become full-time housewives.

Thus when the economic crisis began, women were first to take up market activities of all kinds. This came very naturally. In some cases they began by selling those household items they could do without, or by selling homemade food. Eventually, this developed into larger businesses. While men continued to go to their plants (which by the mid-1990s had usually ceased to operate) women plunged into market activity. In North Korea such trade involved long journeys in open trucks, and nights spent on concrete floors or under the open skies; they often bribed predatory local officials. And, of course, women had the ability to move heavy material, since the vendor’s back tends to be her major method of transportation.

This tendency was especially pronounced among low- and middle- income families. The elite received rations even through the famine years of 1996-99, so the women of North Korea’s top 5% usually continued with their old lifestyle. Nonetheless, some of them began to use their ability to get goods cheaply. Quite often, the wives of high-level cadres were and still are involved in resale of merchandise that is first purchased from their husbands’ factories at cheap official prices. It is remarkable that in the case of North Korea such activities are carried out not so much by the cadres themselves, but by their wives. Cadres had to be careful, since it was not clear what was the official approach to the new situation of nascent capitalism. Thus it was assumed that women would be safer in such undertakings since they did not, and still do not, quite belong to the official social hierarchy.

But for the cadres’ wives, these market operations were a way to move from being affluent to being rich. The lesser folks had to do something just to stay alive.

Perhaps, had the state given its formal approval to nascent capitalism (as did the still formally “communist” state of China), the men would be far more active. But Pyongyang officialdom still seems to be uncertain what to do with the crumbling system, and it is afraid to give to unconditional approval to capitalism. Thus men are left behind and capitalism is left to women.

This led to a change in the gender roles inside families. On paper, communism appeared very feminist, but real life in the communist states was an altogether different matter, and among the communist countries North Korea was remarkable for the strength of its patriarchal stereotypes. Men, especially in the more conservative northeastern part of the country, seldom did anything at home, with all household chores being exclusively the female domain. But in the new situation, when men did not have much to do while their wives struggled to keep the family fed and clothed, many men changed their attitude that housework was something beneath their dignity (at least this is what recent research among the defectors seem to suggest). As one female defector put it, “When men went to outside jobs and earned something, they used to be very boastful. But now they cannot do it and they become sort of useless, like a streetlight in the middle of the day. So a man now tries to help his wife in her work as best as he can” to keep the family going.

Recently, when it is increasingly clear that the “old times” are not going to return, some men are bold enough to risk breaking their ties with official employment. But they often go to market not as businessmen in their own right but rather as aides to their wives who have amassed great experience over the past decade. Being newcomers, males are relegated to subordinate positions – at least temporarily. Or alternatively, they are involved in more dangerous and stressful kinds of activity, such as smuggling goods across the badly protected border with China. As one woman defector said: “Men usually do smuggling. Men are better in big things, you know”.

Economic difficulties and change in money-earning patterns as well as new lifestyle and related opportunities in some cases led to family breakdowns. In South Korea the economic crisis of 1998 resulted in a mushrooming divorce rate. In the North, the nearly simultaneous Great Famine had the same impact, even if in many cases the divorce was not officially recognized.

Of course, we are talking about a great disaster here, and a large part of the estimated 600,000-900,000 people who perished in those years were women. Of the survivors, not all women became winners, bold entrepreneurs or successful managers: some were dragged into prostitution, which has made a powerful comeback recently, and many more had to survive on whatever meager food was available. But still, it seems that years of crisis changed the social roles in North Korean families. For many women, the social disaster became the time when they showed their strength, will and intelligence not just to survive, but also to succeed.

Posted in 2002 Economic reforms, Civil society, Economic reform, General markets (FMR: Farmers Market), Political economy | Comments Closed

North Korea Development Report 2003/04

Friday, July 30th, 2004

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents

Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Agriculture statistics, Arduous March, Banking, Biotech, Cell phones, Communications, Computing/IT, DPRK Policies, Economic reform, Email, Emigration statistics, Finance, Fiscal & monetary policy, Foreign aid statistics, Foreign direct investment, GDP statistics, General markets (FMR: Farmers Market), Health care, Insurance, Internet, Kaesong Industrial Complex (KIC), KIEP-Korea Institute for International Economic Policy, Mt. Kumgang Tourist Special Zone, Price liberalization, Radio, Rason Economic and Trade Zone (Rajin-Sonbong), Songun, Special Economic Zones (Established before 2013), Statistics, Telephones, Trade Statistics | Comments Closed

Foreign investors brave North Korea

Tuesday, April 13th, 2004

BBC
Lucy Jones
4/13/2004

“Got any nuclear weapons for sale?” is the response Briton Roger Barrett usually gets when he tells people at Beijing cocktail parties that he invests in North Korea.
The country’s admission to a nuclear weapons programme and its listing on George W Bush’s “axis of evil” means most people are staying well away.

But Mr Barrett, 49, a former troop commander in the British army who has 10 years experience of doing business in North Korea, recently opened a branch of his consultancy firm, Korea Business Consultants, in Pyongyang.

A self-confessed “business adventurer”, he says there is growing interest in the country after Chairman Kim Jong-il introduced economic reforms in 2002.

It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market.

Robert Barrett, Korea Business Consultants
He is also the enthusiastic publisher of what must be North Korea’s only business publication – the DPRK Business News Bulletin – which features some of the 250 companies he advises.

“It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market,” he says.

Mr Barrett is not alone.

Even in the middle of a nuclear crisis there are foreign investors in the country, and their numbers are increasing.

They say North Korea is a mineral rich country that needs everything and insist they have to get there first.

They also believe the 2002 economic reform is for real and that the country is gradually moving towards becoming a market economy.

Poverty

The little data there is on the country’s economy is hardly encouraging, though.

There has been a devastating famine and the UN says malnutrition is still widespread.

There are chronic heating and water shortages, and most North Koreans are paid less than £5 a month.

The country also has an appalling human rights record.

A BBC documentary on the country’s gulags this year contained allegations that chemical experiments are being carried out on political prisoners.

Meanwhile, the US says it is “highly likely” that North Korea is involved in state-sponsored trafficking of heroin.

In the political arena, the second round of six-nation talks aimed at resolving the nuclear crisis ended in Beijing in February without agreement, which means US and Japanese sanctions will remain in place.
‘Communism’ tourism

But the foreign entrepreneurs in North Korea are not put off.

Some are helped by UN employees who have worked in Pyongyang (among the few people to have had contact with the regime there) and many have a track record in China.

Pack a torch, conduct business meetings on the street to avoid big brother listening in and have plenty of “Asian patience” for the endless red-tape, they advise.

An Austrian company is reportedly buying pianos from the North Koreans, a French television station uses North Korean artists to produce cartoons, while a Singapore-based firm is developing forestry and tourism.

The Singaporeans intend to offer “adventure” stays on their North Korean forestry plantations.

Meanwhile, Western tourist agencies are gearing up to offer the last chance to see communism in action, and Fila and Heineken have reportedly entered into sponsorship deals with the North Korean regime.

North Korean labour

A German, Jan Holtermann owner of the computer firm KCC Europe, is putting North Korea online.

He hopes that by being there first he will be able to eventually tap into North Korean computer talent.

The country’s small number of internet users currently dial-up to Chinese providers, a costly process at about £1 a minute.

Mr Holtermann’s customers, who he hopes will number 2,000 by the end of the year, will have unlimited access for £400 a month.

As only a few North Koreans are permitted to have telephones, and as the internet service is costly, Mr Holtermann expects his customers to be government ministries, news agencies and aid organisations.

He has invested £530,000 in the venture, intending to get first pick when North Korean software programmers come onto the market.

“They are very talented,” he says.

“It’s this capacity we want to sell in Europe.”

The parcel delivery company DHL has operated in Pyongyang since 1997, when it was invited there by the government, and now has North Korean light manufacturing, textile and beverage companies on its books.

It sees itself as contributing to the country’s “slow but increasingly visible” economic reform programme.

British consultants

Former bank employee Mr Barrett is convinced North Korea is opening up much quicker than people think.

There are opportunities in banking, minerals, agriculture and telecommunications, he insists.

“There is the odd story of something going wrong,” he says.

“But when you walk around you notice construction going on.

“The people are feeling a change.”

High level contacts

But how to do business with one of the most isolationist regimes on earth?

Contacts are essential, say businessmen.

Though even knowing a North Korean minister is not enough, says Gerald Khor of Singapore-based forestry company Maxgro Holdings.

“You have to go above the ministers to the cabinet. You don’t have to know a member but you need to know people who can influence them,” he says.

“It is very important to get the favour of the dear leader (Kim Jong-il). Because when he says something, it gets done.”

Through a former UN employee, Maxgro got Kim Jong-il’s attention and has invested $2m in forestry, agreeing the state gets 30% of the profits.

“Kim Jong-il is an environmentalist,” Mr Khor says.

“We are confident we’ll get a return.

“We have dwindling supplies and this is high quality wood.”

To locate the forests elsewhere would cost much more, he adds.

Forced to change

Economic reforms introduced by the government in 2002 are seen as the first move away from central planning since the country adopted communism in 1945.

The government has been forced to change in order to survive, especially now it can no longer barter with Eastern Europe and the former Soviet Union, experts say.

“There is no real option not to carry out these reforms,” says UK-based Keith Bennett, who has taken trade missions to Pyongyang.

“But people don’t know where they will lead.

Chinese leaders have impressed on Kim Jong-il that there can be economic reform without fundamental political change.”

Way up on North Korea’s border with Russia and China is the Tumen economic zone, which was established in 1991 with UN help to lure investors.

The project has only had limited success and may indicate the type of problems those investing elsewhere in North Korea may face.

The North Korean section of the zone, Rajin-Songbong, hosts foreign-run hotels, telecommunications and restaurants, but that is about all.

“The North Koreans have sometimes been very co-operative and sometimes not, maybe because of policy change,” says Tsogtsaikhan Gombo, from the UN’s development agency.

“They were also disappointed when they didn’t see the investment.”

Vibrant Chinese economic zones nearby have put up fierce competition.

But even opening the door just slightly to let in capitalism has greatly improved the lives of the 150,000 people living in the zone, says Mr Gombo.

And many foreigners insist that small investments elsewhere in the country may have similar results.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Animation, Arduous March, Banking, Cell phones, Communications, Drug smuggling, Energy, Finance, Foreign direct investment, Forestry, Illicit activities, Internet, Korea Business Consultants, Korea Computer Center (KCC), Labor conditions/wages, Light Industry, Manufacturing, Mining/Minerals, Telephones, Tourism | Comments Closed

Through a glass, darkly

Thursday, March 11th, 2004

The Economist
3/11/2004

So far as a visitor can tell in this secretive land, North Korea’s economic reforms are starting to bite. But real progress will require better relations with the outside

COMMUNIST North Korea has started to experiment with economic reform, and opened its door a crack to the outside world. Though its culture of secrecy and suspicion stubbornly persists, it was deemed acceptable for your correspondent to visit Pyongyang’s Tongil market last week. Here, stalls are bursting with plump vegetables and groaning with stacks of fresh meat. You can even buy imported pineapples and bananas from enthusiastic private traders.

But how about a photograph? Most foreigners think of North Korea as a famished nation, and the authorities are evidently keen these days to tell the world about the great strides their economy has made since reforms were introduced in July 2002. Logic might seem to suggest that a snap showing the palpable result of the reforms would be acceptable too. But it is not. The officials were friendly but firm: no pictures of fat carrots.

The July 2002 reforms were ground-breaking for North Korea: the first real step away from central planning since the dawn of communism there in 1945. The government announced that subsidies to state-owned enterprises were to be withdrawn, workers would be paid according to how much they produced, farmers’ markets, hitherto tolerated, would become legal and state enterprises would be allowed to sell manufactured products in markets. Most of these enterprises, unless they produced “strategic items”, were to get real autonomy from state control.

Almost two years on, how to assess the success or failure of these reforms? That climate of secrecy makes it deeply frustrating. Even the simplest of statistics is unavailable. Li Gi Song, a senior economist at Pyongyang’s Academy of Sciences, says he does not know the rate of inflation. Or maybe he is not telling. After all, he says, “We can’t publish all the figures because we don’t want to appear bare before the United States. If we are bare then they will attack us, like Afghanistan or Iraq.” So what follows can be little more than a series of impressions.

The indications are that the reforms are having a big impact. For a start, North Korea has recently acquired its first advertisement (pictured above)—for foreign cars, assembled locally by a South Korean majority-owned company. Or, to be more basic, take the price of rice, North Korea’s staple. Before the reforms, the state bought rice from state farms and co-operatives at 82 chon per kilo (100 chon make one won, worth less than a cent at the official exchange rate). It then resold it to the public through the country’s rationing system at eight chon. Now, explains Mr Li, the state buys at 42 won and resells at 46 won.

North Korea’s rationing system is called the Public Distribution System (PDS). Every month people are entitled to buy a certain amount of rice or other available staples at the protected price. Thus most North Koreans get 300g (9oz) of rice a day, at 46 won a kilo. According to the UN’s World Food Programme (WFP), that is not nearly enough. Anything extra has to be bought in the market.

In theory, even in the market the price of staples is limited. Last week, the maximum permitted rice price was marked on a board at the entrance to Tongil as 240 won per kilo. In fact, it was selling for 250. WFP officials say that in January it was selling for 145 won, which points to significant inflation, for rice at least. This is not necessarily a bad thing, since it means that the price is coming into line with the market.

The won’s international value is also adjusting. Since December 2002, the euro has been North Korea’s official currency for all foreign transactions. In North Korean banks, one euro buys 171 won. In fact, this rate is purely nominal. A semi-official rate now exists and the price of imports in shops is calculated using this.

Last October, according to foreign diplomats, a euro bought 1,030 won at the semi-official rate. Last week it was 1,400. A black market also exists, in which the euro is reported to be fetching 1,600 won—which implies that the won is approaching its market level. It also means, however, that imported goods have seen a big price-hike. For domestically-produced goods, like rice, prices may well go on rising for a good while longer.

What about earnings? Before the 2002 reforms, most salaries lay in the range of 150-200 won per month. Rent and utilities, though, were virtually free, as were (and are) education and health care. Food, via the PDS, was virtually given away. Now, pay is supposed to be linked to output, though becoming more productive is not easy for desk-bound civil servants or workers in factories that have no power, raw materials or markets.

Rents and utilities have gone up, though not by crippling amounts. A two-bedroom flat in Pyongyang including electricity, water and heat costs just 150 won a month—that is, about a tenth of a euro.

Earnings have gone up much more: a waitress in a Pyongyang restaurant earns about 2,200 won a month. A mid-ranking government official earns 2,700. A worker at a state farm earns in the region of 1,700, a kindergarten teacher the same, and a pensioner gets between 700 and 1,500. A seamstress in a successful factory with export contracts can earn as much as 5,000 won a month. Since that seamstress’s pay equates to barely three euros a month, wages still have a long way to adjust.

The prices of food and other necessities, to say nothing of luxuries, has gone up much more than rent has. According to the WFP, some 70% of the households it has interviewed are dependent on their 300 gram PDS ration, and the WFP itself is targeting 6.5m vulnerable people out of a total population of some 23m. Not all suffer equally: civil servants in Pyongyang get double food rations from the PDS.

There are some encouraging stories. In Pukchang, a small industrial town 70km (40 miles) north-east of Pyongyang, Concern, an Irish aid group, has been replacing ancient, leaking and broken-down water pipes and pumps, and modernising the purification system. This has pushed the amount of clean water available per person per day from 80 to 300 litres. Kim Chae Sun is a manager at the filtration plant, which is now more efficient. Before July 2002 she earned 80 won a month. Afterwards she earned 3,000 won. Now she earns 3,500.

As Mrs Kim speaks, three giant chimneys belch smoke from the power station that dominates the town. All workers have been told they can earn more if they work harder, but certain groups have been told they will get even more money than everyone else. In energy-starved North Korea these include miners and power workers. Mrs Kim says her husband, who works in the power plant, earns an average of 12,000 won a month. Her rent has gone up from eight to 102 won a month, and in a year, she thinks, she will be able to buy a television or a fridge.

A lot of people, in fact, are buying televisions. The women who sell the sets from crowded Tongil market-stalls get them from trading companies which they pay after making a sale. The company price for an average set is 72,000 won, the profit just 1,000 won. After they have paid for their pitch, the traders can expect an income of 10,000-12,000 won a month.

Mystery sales
Which makes for a puzzle. Who can afford a good month’s salary for a locally made jacket in Tongil, costing 4,500 won? How come so many people are buying televisions, which cost more than two years of a civil-servant’s pay? How come the number of cars on the streets of the capital has shot up in the past year? Pyongyang still has vastly less traffic than any other capital city on earth, but there are far more cars around than a year ago. Restaurants, of which there are many, serve good food—but a meal costs the equivalent of at least a white-collar worker’s monthly salary. Many of these restaurants are packed.

Foreign money is part of it. Diplomats and aid workers say many new enterprises seem to have opened over the last year. Nominally they are state-owned, but sometimes they have a foreign partner, often an ethnic Korean from Japan. The majority are in the import-export business. Some have invested in restaurants and hotels and some in light industry. Thanks to the 2002 reforms, these firms have a degree of autonomy they could not have dreamed of before. An unknown number of people also receive money from family abroad, but there are still no North Korean-owned private companies.

Farmers are among the other winners: they can sell any surpluses on the open market. But two out of three North Koreans live in towns and cities, and only 18% of the country is suitable for agriculture. The losers include civil servants, especially those outside Pyongyang who do not get double food rations and have no way to increase their productivity.

Factory workers have it the hardest. A large proportion of industry is obsolete. Though Pyongyang has electricity most of the day, much of the rest of the country does not. Despite wild talk of a high-tech revolution, the country is not connected to the internet, though some high-ups do have access to e-mail service. In the east of the country lies a vast rustbelt of collapsing manufacturing plants.

Huge but unknown numbers of workers have been moved into farming, even though every scrap of available land is already being cultivated. The extra workers are needed because there is virtually no power for threshing and harvesting and no diesel for farm vehicles. This requires more work to be done by hand. Ox-carts are a common sight.

The innocent suffer
Markets are everywhere. But this does not mean that there is enough food everywhere. In Pyongyang, where there are better-off people to pay for it, there is an ever-increasing supply. Outside the capital, shortages are widespread.

No one knows how many died during the famine years of 1995-99; estimates range from 200,000 to 3m. In Pukchang, officials say that 5% of children are still weak and malnourished. In Hoichang, east of Pyongyang, schools and institutions tell the WFP that about 10% of children are malnourished. Masood Hyder, the senior UN official in North Korea, says that vulnerable households now spend up to 80% of their income on food.

And yet some things are improving. Two surveys carried out in 1998 and 2002 by the North Korean government together with the WFP and Unicef showed a dramatic improvement in children’s health between those years. The proportion of children who fail to reach their proper height because of malnutrition fell from 62% to 39%, and the figures are thought to be still better now. However, Unicef says that though children may no longer die of hunger, they are still dying from diarrhoea and respiratory diseases—which are often a side-effect of malnutrition.

To a westerner’s eye, a class of 11-year-olds in Hoichang is a shocking sight. At first, your correspondent thought they were seven; the worst-affected look to be only five. Ri Gwan Sun, their teacher, says that apart from being stunted some of them still suffer from the long-term effects of malnutrition. They struggle to keep up in sports and are prone to flu and pneumonia. They are also slower learners.

Pierrette Vu Thi of Unicef says that North Korea’s poor international image makes it hard for her agency, the WFP and others to raise all the money they need. The country is in a chronic state of emergency, she says, and to get it back on its feet it would need a reconstruction effort on the scale of Afghanistan and Iraq.

Such bleak talk is echoed by Eigil Sorensen of the World Health Organisation. He says that health services are extremely limited outside the capital. Medicines and equipment are in short supply, large numbers of hospitals no longer have running water or heating and the country has no capacity to handle a major health crisis.

None of this is likely to change very fast. With no end yet to the nuclear stand-off between North Korea and the United States, American and Japanese sanctions will remain in place. And nukes are only part of it. Last week the American State Department said it was likely that North Korea produced and sold heroin and other narcotics abroad as a matter of state policy. North Koreans who have fled claim that up to 200,000 compatriots are in labour camps. North Korea denies it all.

Reform, such as it is, has plainly made life easier for many. But rescuing the North would take large amounts of foreign money, as well as measures more far-reaching than have yet been attempted. At present, there is no way for the government to get what it needs from international financial institutions like the World Bank. Such aid as comes will be strictly humanitarian, and investment in so opaque a country will never be more than tentative. Domestic reform on its own cannot fix an economy wrecked by decades of mismanagement and the collapse of communism almost everywhere else.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Automobiles, DPRK Policies, Email, Fiscal & monetary policy, General markets (FMR: Farmers Market), Japan, Pediatrics, Price liberalization, Public Distribiution System (PDS), Pyongyang Academy of Sciences, Real estate, UN World Food Program | Comments Closed

North Korean Economy Watch