by Ralph Hassig
The North Korean authorities have been reluctant to reveal much to foreigners about the hundreds of markets now operating in the cities, small towns, and countryside. Foreign visitors are rarely allowed to enter or photograph them, as if they are something shameful. The attempt to hide their existence is another irony, considering that the outside world views them as one of the most promising aspects of the North Korean economy. In 1999, after the markets had already expanded to include nonfarm products, the Korean Central News Agency (KCNA) labeled a Japanese news story about them “a wholly unfounded fabrication” and insisted that the only thing happening at the farmers’ markets was the sale of surplus agricultural products.18
Farming
Another economic adjustment made by the Kim regime around 2002 was a further move to abandon the socialist farming system. In 1946, even before the official founding of the North Korean state, the communists distributed much of the landowners’ holdings to the peasants. After the Korean War, as Kim Il-sung embarked on the nationalization of the economy, the land was taken away from farmers and given to agricultural collectives of up to five hundred families. Today, most farms are still collectives. Each is assigned a quota of farm products to be remitted to the state, and any surplus is to be distributed among the members of the collective, although in practice the party cadres help themselves to a disproportionate share. People are assigned to work on farms usually because their parents are farmers. State planners tell farms what crops to grow, and the government is supposed to supply seeds, fertilizer, and machinery free of charge. The farm managers, who are party cadres, assign teams of workers to specialized tasks, such as cultivating rice, repairing farm equipment, tending mulberry trees, and raising poultry. All workers receive food and other basic necessities from the collective rather than from the PDS. Each family is also permitted to cultivate a small garden plot of about one hundred square meters where table vegetables such as peppers can be grown.
In 1964, Kim Il-sung’s “Theses on the Rural Question” advocated converting collectives to state farms, where workers would be paid a basic wage, just as if they worked in a state-run factory. Interestingly, the opposite has happened, and for economic reasons the collectives have become more like large collections of private farms than like agricultural factories. The obvious problem with both collective and state farms is that farmers do not directly benefit from their labor. Hard-working farmers receive the same rations and pay as lazy farmers. Political connections, bribery, and party affiliation are the main determinants of reward. Under these circumstances, many farmers do as little work as possible in the fields, pilfer as much as they can, and devote their attention to their private plots or to working outside the farm.
To combat the problem of what psychologists call “social loafing,” managers have organized workers on collectives into ever smaller work teams. By this means performance can be more accurately measured and payments more equitably calibrated. These work teams originally comprised fifty to one hundred people, but in the 1990s, collectives introduced the concept of “sub–work teams,” which had a dozen members or fewer, often all members of one family. Each work team or sub–work team is given an output quota and may dispose of any surplus as its members wish. This devolution of responsibility is as far as the regime is willing to go toward decollectivizing the farms. However, as part of the July 1, 2002, economic measures, private farming was introduced on an experimental basis in a few places.19 Individuals and families are granted a plot of land and allowed to farm as they wish. Former North Koreans report that individual farms range in size from six hundred to thirteen hundred square meters (a sixth to a third of an acre), depending on the fertility of the land. The government takes a portion of the harvested crops to pay for seed, fertilizer, and fuel. In a complicated system of many gradations, land-use fees are assessed, but they are never referred to as taxes because the government has always boasted that North Korea is the only country in the world without taxation.
The life of the North Korean farmer has always been hard. Despite fifty years of government campaigns to improve the standard of living in rural areas, most people would prefer to live in the city if they had a choice. City dwellers may complain about shortages in housing, electricity, and clean water, but these are worse in the countryside, where North Koreans are living as South Koreans and Chinese did in the 1960s.
During planting and harvesting seasons, Koreans from all walks of life— office workers, soldiers, students—are sent to the countryside to assist the farmers for two months in the spring and two weeks in the fall. The party sends agitators to erect red flags in the fields to motivate the people engaged in this “rice-planting combat.” Even people who happen to be traveling in the countryside may be abducted by officials to help with the farmwork. The seasonal farmworkers live in farmers’ houses and village halls and are issued special ration cards for food, although more often than not they rely on the local farms for food. The North Korean media boast that representatives from foreign embassies and organizations volunteer to help in the countryside in a show of solidarity. But for all this effort, North Korea comes up short in food production almost every year.
Money and Banking
North Korea’s primitive banking system is one of the factors preventing the economy from making the kind of giant leap forward that the Kim regime dreams about. Before markets became popular, people had little to spend their money on, creating an “overhang” of savings that most people preferred to keep under their mattresses rather than deposit in a government bank under the scrutiny of party officials. Even state organizations have avoided using banks. A 2006 article in the party’s economic journal virtually implored government organizations to use banks, even quoting Kim Jong-il on the subject. Those who deposit their money in banks find that they are sometimes unable to withdraw their savings because the bank is short of cash, and in this case, since the government owns the bank, the depositors can do little to retrieve their savings. Now that people are forced to shop in the markets, where prices are far higher than in the PDS, some personal savings may have been soaked up, but people are understandably reluctant to disclose the amount of their savings for fear that government officials will confiscate some of it under one pretense or another. Instead of depositing money in banks and going there for loans, North Koreans who want to invest do so as part of small cooperative groups of friends and acquaintances (usually groups of housewives), which are also popular in South Korea.
One approach the government used in the past to get people to put their money in banks was to replace the currency periodically. People with the old currency had to bring it to a bank and exchange it for the new, often with a limit on how much could be exchanged. The limit was imposed based on the assumption that citizens of a socialist economy, where wages are low, have no legitimate means of amassing large amounts of cash.
The government can also soak up hidden cash by selling bonds. This method had previously only been employed during the Korean War, but in March 2003 it was announced that a new series of bonds would go on sale, despite the fact that communists have always denounced bond issues as an evil of capitalism that robs working people of their money. In an attempt to counter this argument, the vice president of the DPRK’s central bank gave the following nonsensical explanation of the new People’s Life Bonds on national television:
Generally speaking, capitalist countries issue bonds to take away what is in people’s pockets and use it to maintain and strengthen their oppressor institutions and wage wars of aggression. These capitalist countries pay back the bonds with taxes that they squeeze from people. Therefore, bonds in capitalist countries definitely are a further exploitation of the working popular masses. Contrary to this, bonds in socialist countries, in essence, are issued to temporarily mobilize and use people’s unused cash funds to develop the people’s economy and improve people’s lives. They are people-oriented because all the mobilized funds are returned to the people.20
The part about returning the funds to the people is difficult to verify in a society as secretive as North Korea’s. Bond purchasers are eligible to win lotteries. In the first two years (2003 and 2004), a lottery was held twice a year, with winners receiving prizes corresponding to the size of their bond investment. After that, drawings have presumably been held once a year. For example, among those holding 1,000-won bonds, one lucky winner is supposed to receive 50,000 won with other prizes of 25,000 won, 10,000 won, and 5,000, including the returned principal. Those who do not win the lottery began receiving their principal (but no interest) beginning in 2008 “on a phased basis,” with all money finally to be repaid by 2013.21
Purchase of the bonds was supposed to be entirely voluntary, but officials let it be known that purchasing bonds was the patriotic thing to do. For example, purchasers of 1-million-won bonds received a Letter of Commendation for Patriotic Deed and a state decoration. Local people’s committees in the neighborhood and workplace put considerable pressure on people to purchase these bonds because these committees had been given bond quotas to meet. Even so, bond sales, which apparently ended in December 2003, were sluggish. A Korean Central Television news report at the end of 2007 announced the winning numbers for the latest prizes but did not indicate who held the numbers or how large the prizes were.22 By then, most people had presumably forgotten about the bond scheme, considering it to be just another form of taxation rather than a legitimate financial investment.
Foreign Trade and Investment
Given the dire straits into which the North Korean economy has fallen, it very much needs foreign trade and investment, neither of which directly affects the lives of most North Koreans, who rarely come into contact with foreigners and are unable to purchase foreign goods other than inexpensive Chinese products that are trucked across the border. Because the North Korean media have imposed an almost total blackout on foreign news, only party members who work for trade organizations know anything about the international market.
In 1984, as it became clear that the North Korean economy was faltering, the government promulgated the Foreign Joint Venture Law. Kim Il-sung had visited China in 1982 and made another visit the following year to observe the success the Chinese were having with their own Joint Venture Management Enterprise Law. However, North Korea’s law was not particularly successful in attracting investment for several reasons: its provisions were not detailed enough to satisfy skeptical foreign investors, the government had long since reneged on its foreign debt, and North Korea’s transportation, communication, and power infrastructures were grossly inadequate to support modern business ventures. Most of the foreign investors who took advantage of the joint venture opportunity were Chinese and pro-DPRK Koreans living in Japan, with the total amount of investment estimated to be only $150 million, not the billions being invested in China.
From the beginning, the Kim regime was wary about foreign investment because it would inevitably be accompanied by foreign influence, which would poison the artificial political culture of Juche ideology and Kim cult worship. In China, foreign investment was initially concentrated in a few trade zones where the government could limit the impact of foreign culture and keep an eye on the foreigners, and following this conservative model, the North Korean government decided to funnel foreign investments into its own trade zone. To maximize the economic impact of investment, a trade zone would ideally be located near a big city or port, which would offer the best infrastructure and the most skilled workers. But because political considerations took priority in the North Korean case, the first trade zone was located as far from Pyongyang and other business centers as possible, over three hundred miles away as the crow flies, in the remote and undeveloped northeast corner of the country.
In December 1991, a 621-square-kilometer Najin-Sonbong foreign economic trade zone was created, encompassing the towns of Najin (Rajin) and Sonbong. After the two towns were merged in August 2000, the name of the trade zone was changed to Nason (Rason). The zone was within a larger area designated by the United Nations Development Program (UNDP) as an international development area, and the UNDP provided seed money for planning and research. The North Koreans initially had high hopes for the zone because their lack of economic sophistication caused them to think in terms of geography rather than economics. They saw the site as a slice of land advantageously situated at the junction of a navigable river (the Tumen River) along the border with China and Russia, affording the opportunity to become an international hub of economic activity. Add cheap labor and tax incentives, and the zone looked like a fair imitation of China’s successful trade zones set up in Zhuhai, Shenzhen, Shantou, and Xiamen in the late 1970s—with the important difference that China’s zones were located close to the thriving capitalist centers of Taiwan and Hong Kong. One of the first preparations for the Nason zone was to enclose it with barbed wire and replace those of its residents considered to be “politically unreliable” with former soldiers.
The zone was connected to Russia by a dirt road. On the dirt road to China, the bridge over the Tumen River had been built by the Japanese during the colonial period. A rail line ran into the Russian city of Khasan, but the Russians (like the Chinese) complained that the North Koreans tended not to return their railcars. Roads from Nason to Pyongyang and the more developed western region of North Korea were likewise unpaved, and a train ride to Pyongyang could take anywhere from twenty hours to several days. Nason lacked both an airport and a container cargo port.
The zone has had a rocky history, and almost twenty years later, little progress has been made in its development. The original plans were to develop—or, rather, to have foreign investors develop—the zone in three stages, with an investment of $1.3 billion by 1995, another $1 billion by 2000, and yet another $1 billion by 2010. In September 1996, the North Koreans convened a grand business forum to attract foreign interest. A few curious businesspeople came from the United States and Western Europe, but most of the prospective investors were Chinese and Korean Japanese. The South Korean government, angered by the North Koreans’ refusal to extend invitations to over half of the fifty-three South Korean applicants, kept its entire delegation at home.
In a case of extremely bad timing, just three days after the investment conference ended, a South Korean taxicab driver spotted what turned out to be a North Korean spy submarine that had run aground on a South Korean beach. Searchers discovered eleven members of the submarine crew nearby, shot dead in an apparent murder-suicide pact. Another crew member was found alive, and in the days to follow, thirteen commandos who had disem-barked from the submarine were hunted down and killed by thousands of South Korean forces, with one commando escaping back to North Korea. In the course of the manhunt, the commandos killed four South Korean civilians, eight soldiers, and two policemen. The incident reminded prospective investors of how unstable the political situation was on the Korean Peninsula and decisively turned South Korean president Kim Young Sam against reconciliation with the North. Investor confidence was further shaken when Kim Chong-u, the North Korean economic official who presided over the conference, abruptly and permanently disappeared from view along with several of his associates the following year. The best guess is that they were purged for taking financial advantage of their economic positions, something that virtually all North Koreans who travel overseas do.
Although contracts amounting to $286 million were signed at the conference, since then almost the only discernible development in the zone has been the 1999 construction of a Chinese-owned hotel and gambling casino, but even that investment ran into trouble when a Chinese government official who embezzled several million yuan was found to have gambled much of it away at the casino. The Chinese government thereupon pressured the hotel’s owners to close the casino down in 2005, virtually shutting down the hotel as well, although the hotel reopened two years later. In 2007, Nason still reportedly had no traffic lights, no billboards, and only one small market. A Chinese tourist describes his vis
it to Najin as “travel back in time.”23 On the other hand, as a remote tourist attraction, the zone has much to recommend it: the air is clean, the scenery beautiful, and the seafood delicious.
A more successful zone was established in the beautiful mountain region of Kumgang (Diamond Mountain), in the far southeast corner of the country along the border with South Korea. The North Koreans fenced the area off and opened it to foreign (mostly South Korean) tourists, who began arriving in November 1998. The North Koreans chose Hyundai Asan, the branch of the Hyundai conglomerate that undertook the project, because Hyundai’s chairman, Chung Ju-yung, had originally come from North Korea. Yet Hyundai encountered numerous problems along the way, and it is not clear that the investment will ever become profitable, although as a symbol of inter-Korean reconciliation, it has continued to receive a measure of support from the South Korean government.24 In 2004, tourists began traveling to Kum-gang by bus across the Demilitarized Zone rather than by ferry, and in 2008, visitors were permitted to make the four-hour drive in their own cars for a fee of $330. A new hotel and reunion center was built and paid for by the South Koreans. By the end of 2007, over 1.7 million tourists, mostly South Koreans, had visited the mountain resort, and the Kim regime had received over $1 billion from tourist fees and business rights for the project.