Before the Collapse: The Micro-foundations of Marketization in North Korea

By | May 27, 2014 | No Comments

A 100 won banknote, removed from circulation around 1992 | Image: Mike Rowe/Flickr Creative Commons 2.0

A 1992 edition 100 won note, no longer in circulation | Image: Mike Rowe/Flickr, Creative Commons 2.0

It is unfortunate that English-language research into North Korean economic matters remains limited in scope, despite the fact that nigh on twenty years have now passed since the death of Kim Il-sung on July 8, 1994. The passing of the nation’s founding father, one of a number of grave economic and political shocks administered to North Korea in the late 1980s and early 1990s, triggered rapid growth in the country’s (heavily distorted) free market. This was the public’s primary response to skyrocketing food insecurity and the encroaching stench of famine, and is a vital element in understanding the country as we see it today.

While South Korea also suffers from a major deficit of research into North Korean affairs, the situation is not comparable to that in major Western centers of academic inquiry. A number of research institutions, mostly in and around Seoul, place moderate budgets and personnel at the service of understanding the troublesome North Korean Other, and the fruits of this effort are consistently worthy of review and citation.

That this does not happen with sufficient frequency is, of course, a function of linguistic limitations as much as anything else. Fortunate, then, that one key rationale behind the existence of Sino-NK is to provide a solution to this problem: rather than leveraging linguistic skill sets so as to be gatekeepers of data and knowledge, we seek to share it.

Here, Peter Ward, research assistant to Andrei Lankov and student of Korean history, takes up the mantle. In a new series, he reviews the key published Korean-language research dealing with the North Korean economy and its markets (장마당). In his first such review article, Ward discusses the work of two Korean sociologists at Kyungnam University and their reassessment of the role of Farmers’ Markets in the Kim Il-sung period. — Christopher Green, Co-editor.

Before the Collapse: The Micro-foundations of Marketization in North Korea

by Peter Ward

In 2003, Choi Bong-dae (최봉대) and Koo Kab-woo (구갑우) published “Farmers’ Markets in Sinuiju, Chungjin and Hyesan in North Korea, 1950-1980” [북한도시 ‘농민시장’ 형성과정의이행론적함의: 1950-1980년대신의주, 청진, 혜산의사례를중심으로] in Contemporary North Korean Research (현대북한연구), the premier academic publication on North Korea.[1] The authors, using defector interviews as their primary mode of investigation, produced a primer on the early structural changes to North Korea’s socialist economy. In hindsight, these changes marked the nascent period in the country’s marketization.

Research Objectives | The main aims of the paper are to understand the micro-foundations of North Korea’s marketization and assess the function of the city as a comparatively autonomous space within a highly centralized political and economic system (pp. 135-136). The authors choose their case studies (Chongjin, Hyesan, and Sinuiju) for two reasons:

1. There are a comparatively high number of refugees originally from the borderlands now residing in South Korea, meaning that more people from these places are accessible to researchers. This makes research easier.

2. Although the three cities are the administrative capitals of their respective provinces,[2] they each have their own distinguishing features. Sinuiju is a distribution hub and center of light industry. Chongjin is (or rather was) a center for heavy industry. Hyesan, a town that was upgraded to the status of a city in 1954 with the creation of Yanggang Province, is an urban area specializing in forestry and mining (p. 136).

Methodology and Background | The authors consider markets to have been primarily a “coping mechanism,” in that markets allow consumers living in “economies of shortage” to spend their savings on satisfying personal needs (pp. 137-138).[3] They briefly discuss the political priorities that undergird the state’s consumer goods distribution system (p. 139).[4] Of course, they are quick to point out that markets are ideologically suspect under “socialist” systems, and are therefore only tolerated to a very limited extent as a transitional vestige of capitalism (p. 139). They also note that in the 1980s, North Korea’s state economy entered a period of deepening crisis, the result of which was expansion of the market economy. As this happened, many North Koreans became acquainted with market mechanisms and the market’s “spontaneous order” for the first time; this helps explain the gradual shift away from the state-directed economy and toward the “black market.” They make an effort to point out, however, that this process happened at different times in different places (p. 141).

Choi Bong-dae is a leading advocate of refugee interviews as a research tool in North Korean studies,[5] and this paper is based on 49 such interviews.[6] Indeed, researchers are forced to rely almost exclusively on the testimony of refugees, because official documents and publications from the period  are inaccessible. The authors note upfront that their data may not be representative, therefore, and that relying on the memories of past decades is intrinsically problematic (p. 143). Nevertheless, with a lack of alternative methods, they proceed.

They also discuss the North Korean government’s official attitude toward markets at some length. The state “co-operatized” consumer goods production in the late 1950s, and until the 1980s, almost no private (illegal) household handicrafts made their way into farmers’ markets (pp. 145-146). Further, agricultural production was collectivized at around the same time and distribution of food became the purview of the state’s own “retail” institutions. The state allowed farmers to keep private plots of up to 30 pyong (평; around 99 square meters), and it was only produce from these plots that could be sold legally in farmers’ markets (p. 146-147).

Market in a small village in Onchon County, South Pyongan Province. | Image: Stephanie Kleine-Ahlbrandt

Market in a small village in Onchon County, South Pyongan Province. | Image: Stephanie Kleine-Ahlbrandt

Research Findings | Chongjin had three major farmers’ markets in the late 1950s; two of these markets were engaged in a roaring sea food and fish trade, but they shrank dramatically as a result of the “co-operatization” of consumer goods—the third basically disappeared as a result of the Korean War (p. 149). Sinuiju played host to two major markets: the consumer goods shops in one became distribution channels for state-produced consumer goods, while the other was on the outskirts of the city and continued to play host to farmers (every 10 days). Hyesan also had a farmers’ market that opened every ten days, but it was in the center of town (p. 151).

From the late 1950s to the 1970s, these markets were marginalized or closed. In the case of Hyesan, the market was moved to behind a state-run department store (pp. 161-162). Chongjin’s markets similarly shrank, though they seem to have continued opening every 10 days. In Sinuiju things went slightly differently, as efforts by the state to restrict and close markets led some to start trading on the streets, in blatant violation of the law, from the mid-1970s onward. Some markets in the city then began to open daily to cope with consumer demand. However, Sinuiju’s market system was very much the exception that proves the rule; markets in Hyesan and Chongjin were located on the margins of their respective cities and thus played a marginal role in the economic lives of their respective population’s economic lives (pp. 161-163). Eventually, markets were replaced by a near comprehensive system of state distribution that was managed through workplaces and neighborhood associations (인민반).

The authors also catalog the gradual decline of the state economy beginning in the 1970s, leading to delays in food distribution and other major changes that began to appear in the early 1980s. Economic problems also became manifest in the way the state began to treat women: women were less likely to be given state jobs after leaving education and many women were also laid-off from their factory jobs (pp. 152-165).

The 1980s were also the time when North Korean women got  involved in the state’s “3rd August People’s Consumer Goods Movement,” which was launched in 1984.[7] However, this led to an increasing amount of illegal production of consumer goods, where factory workers would steal raw materials from their workplaces (light industrial facilities) and turn them over to their wives, who would then produce goods for market or just the family itself (pp. 166-167). Such activities became quite common in Chongjin from the early 1980s, and the late 1980s saw a lot of theft from Sinuiju’s shoe factory. From around the late 1980s, workers began to steal thread from Hyesan’s garment factory and sell it—though such activities were far less pronounced in scale than in the other two cities. Cadres also sometimes diverted cadre-grade distribution to the market for sale (pp. 167-168). From the late-1980s, both Chongjin and Sinuiju marketplaces began to play host to an increasing amount of Chinese goods—clothes and shoes, principally. These goods were often brought in by Korean residents in China. Hyesan, yet again, saw fewer such activities (pp. 169-170).

Markets in Chongjin did not change all that much. Farmers’ markets were mainly attended by old people (the average person did not go) and these old people would mainly be buying and selling vegetables they farmed on small plots; there was also a place near the market where people met to sell Chinese goods (in order to avoid getting in trouble with the authorities, these activities were not done in the market itself) (p. 175). In Sinuiju, the influx of Chinese goods was more pronounced, and though the state tried to force their sale to be done through state-run stores, it failed to stamp out the trade. Hyesan, a small city compared to the other two, and with much less in the way of industrial infrastructure, had a far smaller market for black market goods (pp. 175-176).

Implications | It is clear that non-state production and markets only played a peripheral role in North Korean economic life prior to the 1990s famine (pp. 180-181). Nonetheless, even small amounts of illegal black market activity in at least two of North Korea’s major economic centers before 1994 is in itself significant. Through their work, Choi and Koo offer us a base from which to understand the marketization of North Korea during the great famine and beyond. While many think of it as a rapid process that occurred as the command economy collapsed in the mid-1990s, the first signs are to be found in the 1980s as the state began to recede amidst mounting economic chaos. Understanding how and why North Koreans took to markets as they did in the 1990s requires that we understand how North Korean socialism collapsed. It did not collapse in a year, or even five. Rather, as Choi and Koo show, Kim Il-sung’s North Korea began to transform quite rapidly from the early 1980s.

[1] Full citation in Korean: 최봉대 & 구갑우, 『북한도시 “농민시장” 형성과정의이행론적함의  – 1950~1980년대신의주, 청진, 혜산의사례를중심으로』, 현대북한연구제6권제2호, 2003.12, 133-187쪽.

[2] Chongin in North Hamgyong Province, Hyesan in Ryanggang Province, and Sinuiju in North Pyongan Province.

[3] In this analysis, the authors make liberal use of Janos Kornai’s work. Kornai, a Hungarian economist, is well known for his theories related to the functional pathologies of state socialist economies. His book The Socialist System: The Political Economy of Communism, (Princeton University Press: Princeton, 1992) is recommended reading for anyone interested in why North Korea’s planned economy was comprehensively outperformed by its southern rivals.

[4] In discussing political priorities that undergird distributive priorities in state socialist economies the authors draw upon the work of Andrew Walder, a renowned sociologist of Maoist and post-Mao’s China. His seminal study on the Chinese economy under Mao: A. Walter, Communist Neo-Traditionalism: Work and Authority in Chinese Industry, (Berkeley: University of California Press, 1985) is recommended to all who have an interest in the Chinese economy under Mao, a model that Kim Il-sung drew a level of inspiration from.

[5] See: 최봉대, ‘탈북자면접조사방법’, 306-334쪽; 경남대학교북한대학원엮음,『북한연구방법론』, (서울: 한울, 2003) [Choe Bongdae, “The method by which to undertake interview investigations with North Korean Refugees,” in North Korean Research Methodology, 306-334, The University of North Korean studies, Kyungnam University (ed.) (Seoul: Hanul, 2003)].

[6] Twenty two former residents of Chongjin, fifteen former residents of Sinuiju, eight former residents of Hyesan, and four people from other parts of the country.

[7] The authors discuss this movement in depth on pp. 171-173. The premise of the movement was to take factory waste products, unused materials and surplus, and create consumer goods. The movement was used as a cover by factory managers, other factory officials and workers to illegally make products for market.

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