A Primer on North Korea’s Economy: An Interview with Andrei Lankov
From 1961 onward, argues Charles Armstrong, North Korea’s internal economic and political structures were such that the onset of economic malaise was only a matter of time. Time caught up with North Korea in a hurry following the collapse of the Soviet Union and a series of misfortunes that hit the ill-equipped state shortly thereafter. The structure of North Korea’s economy has undergone many fundamental changes since it nearly collapsed in the 1990s. This much we know. But what, exactly, is the North Korean economy like today?
In this interview, Peter Ward and Dr. Andrei Lankov engage in dialogue on everything from diversion within the (still functioning) Public Distribution Service (PDS) to the mode of transportation (bicycles) in the era of marketization. The result of their conversation is a primer on North Korea’s modern economy and with it a framework for understanding state-society relations, the military-industrial complex, and the structure of foreign trade and employment in the DPRK today. — Steven Denney, Managing Editor
A Primer on North Korea’s Economy: An Interview with Andrei Lankov
by Peter Ward
Peter Ward [PW]: In your opinion, what percentage of the population is currently receiving full distribution?
Dr. Andrei Lankov [AL]: I cannot give you exact figures for this, but judging by what I have heard and read I would guess the number to be around one-third of the urban population. This includes most people in Pyongyang and some in other major population centers; it also includes people who work in the “military-industrial complex” as well as all government and party officials, commissioned officers and their family members.
PW: What is the standard of distribution like for everyone else?
AL: Other demographics have rather sporadic access to the distribution system. At special times of the year, usually before national holidays, pretty much everyone is issued a few days or sometimes a few weeks of rations.
PW: So we do not know how much food the average person outside the privileged groups gets from the state on a day-to-day basis?
AL: Yes. Plus, the situation seems to vary greatly from year-to-year and from one area to another. It is clear, however, that the majority of people are now operating outside the aforementioned system, either through markets and/or subsistence agriculture.
PW: What percentage of North Korea’s food is produced on collective farms?
AL: In borderland areas, private plots are very important. These areas are filled with mountains, and are places where traditional agriculture has never done very well and where there are plenty of high, steep areas that can safely be siphoned off for private production (소토지). In areas of North Hamkyung Province, like Hoeryong and Musan, maybe as much as half of all food is produced on private plots.
At the same time, however, the nationwide average is probably much lower. In the south of the country, where the population density is higher and where there are far fewer mountains that can be used for private farming, the state sector plays are much larger role.
PW: Can we say that most food is produced by the state?
AL: Yes, I would say 85-90 percent is still produced by the state–but please keep in mind that this is a guess.
PW: So, in reality, most food in North Korea is produced by the state?
AL: Yes; at least that is the case to the extent that one simply counts calories. We should not forget that vegetable and livestock production is dominated by the private sector. Nonetheless, North Korea is poor country, and poor people eat to get calories. The best way to do so is from cereals.
PW: Where does the state-produced food go-in other words: Who gets it and how?
AL: Part of it goes into the civilian rationing system, and part of it goes to the military. However, much of it is diverted to the market for private sale.
PW: Who is doing the diverting?
AL: It is not completely clear, but what is clear is that diversion is happening, and the people responsible for the distribution system are doing it. I would say that between one-quarter and one-third of food seems to be diverted to the market.
PW: Who is selling the diverted food?
AL: Wholesalers and vendors who get it from go-betweens.
PW: What effect does diversion have on the production of food?
AL: Basically none. The diversion is not being done by producers or low-level managers, so these people have no incentive to increase production, because they get the same fixed rations and a token wage anyway.
PW: So you are describing a widespread case of institutionalized corruption. How long has this been going on?
AL: Obviously since the partial recovery of North Korean agriculture around 2002–this is when they began to once again produce nearly enough to feed the population.
PW: What is the state doing about it?
AL: There have been cases of executions of people accused of selling government property, but I haven’t heard about such things for a while.
PW: Do you think the state can actually stop diversion? If so, does it want to?
AL: To answer the second question: I think it wants to. If there are people in favor of reforms, then these people want to deal with this kind of inefficient corruption. People who want to go back to the old system also want to deal with corruption. To answer the first question: I am skeptical as to whether the government can stop it. There are many people making money out of this arrangement who cannot all be well policed, bought off, or shot.
PW: In November 2009, there was the infamous “currency reform.” It seems that at the same time as they embarked on a radical attempt to “bring back” the state economy by stealth, they would have cracked down on diversion. Was that the case?
AL: I am not aware of it. Though I do suspect that many people involved in diversion lost a lot as a result of the reform, because by the very nature of their business they had to use domestic currency for most transactions.
PW: Aside from state-produced food and private domestic production, where does North Korea’s food come from?
AL: Foreign aid, mainly coming from China at present.
PW: What percentage of North Korea’s food comes from foreign sources?
AL: In order to feed its population, North Korea needs between 5.2 million and 5.5 million tons of grain every year. The annual harvest has fluctuated around the 4.3-4.5 million mark for the last decade.
PW: This is the official harvest?
AL: These are UN estimates, which may partially include private production.
PW: What about foreign sources?
AL: This means that they need around 0.5 million tons of grain coming from foreign sources. They usually get it.
PW: And where does this grain go?
AL: Aid? Good question. It is meant to go largely into the civilian distribution system; it is partially diverted to the military, and perhaps more frequently diverted to the market.
PW: Are there any estimates on diversion?
AL: Many, but I am rather skeptical as to their accuracy. I think that with the aid the diversion rate is significantly higher than the regular harvest. Ironically it is because it is less well controlled. I can give you an example. Someone is in charge of distribution in a certain center and has been allocated a certain amount of food aid. The task is to get food aid from the port where it has been delivered to your county. You need transportation and you have none, so you have to make a deal with some officials who have trucks–and of course, you pay them in kind. The grain therefore quasi-legally ends up in the market; the officials with trucks are getting paid and they sell their pay at the market.
PW: Do the Chinese know this is happening?
AL: Of course they do, but why should they worry? Food aid is fungible, like money. Rice is rice is rice, once it is inside the country, the food aid can be used to feed kindergarteners, but it just means that food that would have been eaten by them will be eaten by the military, and visa-versa.
We should also not demonize the North Korean government excessively. For them, the survival of population is not very high on their agenda, but it is somehow present there.
PW: Something that I think many people are interested in is the relationship between the state and the market. It is not clear how much of the state economy is still functioning. From what you say about agriculture, it seems that the production side of the state economy in this sector is still basically dominant. What about other sectors?
AL: We do not know. We know that North Korea’s military industry is doing okay. Aside from missiles and nuclear weapons, they have also begun production of new, large battle tanks; they also continue to produce guns, ammunition and the like.
PW: So the military-industrial complex is still basically fully operational?
AL: Maybe not fully, but to a very large extent it is operational.
PW: What percentage of North Korea’s economy is military?
AL: In publications one can sometimes see figures of 25-30 precent, but I would not take such estimates seriously.
PW: How many people work in the military-industrial complex?
AL: Again, this is in the realm of complete guesswork, but if we accept the highly unreliable figure of 25-30 precent of GDP coming from the military, we could guess that a comparable amount of the population: somewhere around 20-25 percent of all workers–and you expect higher productivity in this sector, so fewer workers than the GDP generated.
PW: What about the rest of the state sector? How much of it is functioning?
AL: Well, we have seen a minor mining boom in the last couple of years. This is largely due to Chinese investment and Chinese demand for minerals. There is some outsourcing of light industry from China; this stuff is then exported to China and then sometimes to the West.
The railways and the electrical grid are operational, though very inefficient and unreliable.
PW: Is the state making most of North Korea’s electricity then?
AL: No, it makes all of North Korea’s electricity, if we forget about small household generators.
PW: What about trains. Are trains the main form of intercity travel?
AL: Yes, but their importance is decreasing rapidly thanks to significant growth in bus and truck inter-city travel. Fifteen years ago, trains were the sole means of long distance travel. The railways still remain very important, but have got serious competition.
PW: What about buses? Does the state run the bus system?
AL: To a large extent, no. Many inner-city buses are privately-owned, even though owners take care to register their vehicles with state institutions in order to disguise them. Buses inside cities are almost exclusively state-owned and inter-city buses are seemingly largely private. You should also remember that most North Korean cities do not have bus services. People have to walk; sometimes they can use trolley buses, or ride bicycles. The trolley bus system is still owned by the state of course. It would be very difficult to import trolley buses from China and build your own trolley rails.
PW: Aren’t bicycles banned?
AL: No, they were banned in Pyongyang until the early 1990s, and most foreigners only visit Pyongyang and therefore could not see any. But these restrictions were lifted and now it’s very easy to see bikes across the country.
The vast majority of the adult population has a bike. It is the equivalent of having a car in the United States. You can live without one, but it’s very bothersome to do so outside a large city. The same in North Korea: you can do without a bike in Pyongyang, but even there it can sometimes be troublesome. Outside Pyongyang? Forget it; without a bike, you cannot commute, shop, or do anything.
PW: Was this always the case?
AL: No, until the famine–that is, until the early 1990s, most cities had relatively reliable transport systems, and most people just commuted to their workplace, which was nearby. There was no need to move merchandise to and from market places. Bikes have become essential with marketization: “bikes are the wheels of North Korea’s market system.”
PW: What about North Korea’s old manufacturing sector?
AL: Most of North Korea’s manufacturing seems to have died out. It suffered greatly during the famine, and probably most of the factories that used to produce non-military equipment are dead or almost dead. No one needs the out-dated equipment they used to produce things, and they do not have the capital needed for modernization. The same seems to be applicable to light industry in the country–most of it seems to have collapsed, having been squeezed to death by Chinese imports.
PW: North Korean men have to attend their workplaces. So most of these people go to work and do nothing?
AL: Not most, but perhaps half of North Korea’s state workforce have manufacturing work to do. Much of the time they are mobilized to do “voluntary” labour, like helping on local construction sites, agriculture, and such. Or they just spend a few hours at work and then go home.
PW: These people are not given much food or money by state, are they?
AL: If they work in military production (as above, maybe around 20-25 percent of all workers), they are given full rations. Others may be given rations occasionally, especially if they produce something that is sold to China. So I would estimate that a significant proportion of people who work in factories get regular-but-partial or full rations.
We should remember that full rations can do little more than keep you alive. Officially, the average worker is supposed to get 540g of cereals. But people need vegetables and clothes too, and they have to pay for their kids education–and education is increasingly commercialized.
PW: What about North Korea’s state service sector?
AL: The restaurant industry is estimated to be 70-80 percent private–this figure is from Professor Yang Moon-soo [of the University of North Korean Studies]. Retail has also been largely privatized.
PW: What about state retail?
AL: Most of it is now private. On paper it is state property, but managers usually act as if they are running their own shop. They have to send money to the state budget, but this is not much different from taxation. They buy their produce from wholesalers and sell it at commercial prices for profit.
PW: What about North Korean lawyers and doctors?
AL: They exist. What is funny is that many activities that are seen as “professional” and “prestigious” in the West are not necessarily seen as such in North Korea. For instance, doctors in North Korea are just average white-collar workers paid a wage little different from bank tellers. Medical practice has become increasingly privatized. Government salary and rations are not enough for survival. Doctors expect their patients to pay for their service–even though this is illegal. Medicine is also never free of charge; if someone needs medicine then they have to find and buy it.
PW: You mentioned earlier that education is becoming increasingly commercialized?
AL: First, schools are underfunded, and parents have to make up the shortfall. Additionally, stationary, books, and similar goods are no longer provided; they have to be bought. If you are a socially mobile and ambitious person and you want to get your children admitted to a good school, then bribery is also essential.
Teachers expect to be given presents by parents to ensure that their children are well educated. Kids can get better marks if their parents give the teacher a small sum. At the same time, there is a growing industry of private teaching, somewhat similar to South Korea. Private teaching is largely for rich people, but education is not free any more–like medicine.