After the Collapse: The Formalization of Market Structures in North Korea, 1994-2010

By | June 09, 2014 | No Comments

The entrance to a market in Hyesan; screengrab from "KBS Panorama" | Image: Sino-NK

The entrance to a market in Hyesan; screengrab from “KBS Panorama.” | Image: Destination Pyongyang/Sino-NK

In the second article of his series on Korean research into North Korean contemporary economic history (read the first here), Peter Ward discusses an article by Joung Eun-lee that details how North Korea became home to a market economy and how the market system has changed since the 1990s. — Christopher Green, Co-editor

After the Collapse: The Formalization of Market Structures in North Korea, 1998-2002

by Peter Ward

People interested in contemporary North Korea need to read the work of Dr. Joung Eun-lee (정은이) of Gyeongsang National University (경상대학교). Despite being based in southerly Jinju, she is the writer of some of the best research on the country today. In the second piece in this series, I discuss her article published by KDI Review of the North Korean Economy (북한경제리뷰) in 2010 entitled “An Analysis of the Level Of North Korean Market Institutionalization on the Basis Of The Physical Development Of Public Markets [북한시장의제도화수준에관한분석 – 공설시장의외형적발전을기반으로].” In it,Dr. Joung attempts to construct a chronology of how North Korean markets have evolved over time.[1]

Research Objectives | The main aims of the paper are to trace changes in size, location and form of markets in North Korea over the last twenty years and explore how the Kim dynasty has attempted to sometimes cohabit with and sometimes resist the forces of marketization.

Methodology and Background | Joung utilizes several distinct sources in her attempt to trace major developments in North Korea’s nascent market economy. First, she makes use of videos smuggled out of the North, and images derived from Google Earth (though she seems not to have made use of Curtis Melvin’s extensive database). Second, she employs in-depth interviews with 33 North Korean refugees, 3 Chinese who formerly resided in North Korea (화교), and 6 ethnic Koreans living in China (조선족), as well as interview transcripts from NGOs and journalists who have done work in Northeast China near the border. Finally, she utilizes defector publications in the South (pp. 16-17).

Research Findings | The article takes the form of a descriptive-analytical chronology that I shall discuss in some detail below. In tracing changes in the North Korean market system over the last twenty years, the author combines interview testimony with the “birds-eye view” of a social scientist.

The Anarchy Economy and The Spread Of The Market (1994-1997) | Citing refugee testimonies, Joung paints this period as one of anarchy. As the state “fell into a state of panic,” looting and embezzlement were widespread. A refugee she quotes from Sariwon, North Hwanghae Province, says that “there was so much looting of state property, you could hear people dragging wheelbarrows around throughout the night [during those years]”(p. 17).[2] What was especially significant was the theft of state-produced goods by low to mid-level cadres working in the state distribution system. She cites the testimony of a refugee from Wonsan, who says: “Cadres in charge of warehouses, banks etc. suddenly had the opportunity to loot put right in front of them” (p. 18). Amid this confusion, the state “completely lost its ability to control life and death.” Enveloped in confusion, theNorth Korean people started going to markets en masse to make money within the existing market system (장마당) in order to survive.

Markets in this period grew out of the existing, but marginal marketplaces of the 1980s. They “developed” especially on the sides of rivers and in other places where people could assemble, trade, and then disappear before the security forces arrived. Hence such markets came to be known by such names a “grasshopper markets” (메뚜기장), “ankle markets” (다리목장), and “alley markets” (골목장). They grew rapidly over the course of this period, but while they were much larger than the farmers markets of the 1980s, they were basically the same insofar as there was little variety and the quality of the goods on offer was poor. That said, as this period progressed, traders began to work out of increasingly fixed locations, and intangible market infrastructure and business connections develop quickly (p. 30).

Suppression and Adjustment (1998-2002) | The year 1998 is an important one in North Korea’s official political history: Kim Jong-il became Chairman of the National Defense Commission (NDC), and the era of military-first politics (선군정치) began. In this new political era, the regime understood that it had little choice but to cohabit with the market economy because of a lack of external aid and the loss of Kim Il-sung’s “charisma” (this term is Joung’s). Thus the regime pursued a twin approach of cracking down on informal, non-permanent markets (see above) while creating “Public Markets” managed and controlled by the state (p. 19). The author describes the creation of the latter taking the form of six stages, as follows:

The six-stage processing showing suppression and adjustment of North Korean markets, 1998-2002. | Image: Sino-NK/Destination Pyongyang

Joung’s six-stage process shows the suppression and adjustment of North Korean markets, 1998-2002. | Image: Destination Pyongyang/Sino-NK

As a result of this process, the appearance of North Korean marketplaces changed dramatically. Over the course of the four-year period, marketplaces became well defined, gates were installed at their entrances, initially wooden fences were erected, and, eventually, marketplaces came to be housed in open-air concrete buildings (although this became more common in the 2003-2006 period below). As the infrastructure improved, marketplaces began to play host to merchants specializing in specific items,be it rice, vegetables, or seafood. Merchants began to receive fixed stalls on which to sell their wares, and facilities like cloak rooms, toilets, and bicycle stands (bicycles became more common around this time) also opened up in the marketplaces (pp. 31-4).

Unsurprisingly, marketplaces became increasingly crowded as the number of merchants increased. This meant that there was often not enough space to house all those who wanted to trade, and illegal markets continued to proliferate around the new, official public marketplaces.

The Spread of Markets and the Corruption Economy (2003-2006) | In 2003, the North Korean government changed the status of markets. Before, markets had been restricted to selling foodstuffs and other agricultural produce, but after 2003 the sale of industrial produce was allowed (p. 21). “Farmers Markets” (농민시장) became “General Markets” (종합시장). Taking satellite imagery of markets from around this period, the author demonstrates that the early 2000s were a period of rapid expansion and qualitative transformation of North Korean markets (pp. 22-23).

Leading up to this period, the North Korean government began a set of tentative pro-market reforms, including Kim Jong-il’s 2001 directive “On the Improvement of the Socialist Management System in Line with the Demands of the Construction of a Strong and Prosperous State,” and the “July 1 Economic Management Improvement Measure”  of 2002. The new economic line was epitomized in Kim Jong-il’s instruction to “get rid of all the free stuff;” the regime began to pursue an avowedly pragmatic attitude toward markets and traders (pp. 23-25).

From interviews and other North Korean refugee materials, as well as Google Earth satellite imagery, Joung notes further improvement of marketplace facilities in this period. As stated above, purpose-built open-air concrete buildings began to play host to merchants, management facilities were given their own separate buildings, and the market authorities began to sell usage rights to specific stalls in the market. These stalls became a form of real estate, with the more prominent and convenient ones selling on the black market for high prices. In particular, the nouveau riche “Money Masters” (돈주), the nascent capitalist class, learned to obtain supplementary stalls in the names of others and then hire staff to act as sales assistants (pp. 34-37).

Joung concludes that during this period the market economy became a significant source of revenue for the regime, and a means by which many party officials survived.The policy also allowed the regime to put the burden of “breadwinner” status onto women, who were permitted to engage in market activities, all the while ensuring that the vast majority of men continued to attend their state-assigned workplaces (pp. 24-25). However, by allowing markets to thrive, the regime accepted a measure of wealth accumulation and the rapid spread of corruption.

Outside a market in Hyesan; screengrab from KBS Panorama | Image: Sino-NK

Outside a market in Hyesan; screengrab from “KBS Panorama.” | Image: Destination Pyongyang/Sino-NK

Readjustment (2007—present) | According to Joung, from 2007 the North Korean market economy entered a downturn. Citing materials published by the North Korean emigre magazine Rimjingang,[3] she draws the following conclusions about the state of North Korea’s market economy.

Markets are seen by the regime as, in essence, places for the “profit” of merchants in a negative sense. Therefore, after 2007 the regime began making attempts at restricting trade to products produced domestically or by traders themselves (such as vegetables, domestic livestock, and handicrafts). This intent took the form of top-down regulation. For instance, only women in their forties would be allowed to trade, and trade outside official market places had to stop. While the state recognized that it could not provide all the food and consumer goods the people needed, it called on producers to utilize the state’s network of Commission Stores (수매상점)[4] as outlets for the sale of goods on consignment“as the country becomes a more advanced industrial state” (pp. 26-27).

My own talks with refugees indicate that Commission Stores were (and still are) generally more expensive than markets. Generally they were (and continue to be) utilized by larger export traders as one of many means to sell wares. A refugee contact with a great deal of experience working in the North Korean market economy estimates that commissions on goods sold at Commission Stores could often be up to 30 percent of the final sale price of the item sold. Generally speaking, Commission Stores sold luxury goods like home electronics (refrigerators, TVs, and fans), imported foodstuffs (Japanese instant curry, fruit, and mayonnaise), and higher quality eating utensils (bowels and plates).

This period was also characterized by sporadic crackdowns by the authorities on excessive profiteering and corruption. The execution of a manager at Sunam Market in Chongjin in 2008 and the manager of two rock processing facilities in Sunchon City in July the previous year are cited by Joung as characteristic of this crackdown. The former case concerned embezzlement. Joung cites cases of cosy relations between local authorities and merchants as worrying for the central government (pp. 27-28).

At the same time, Joung explains the policies of this period as having partially resulted from Kim Jong-il’s declining health and the resulting succession issue. In her analysis, the currency reform of 2009 was intended as away in which to propagandize Kim Jong-un (p. 28).

Market structures continued to develop and advance in this era. Utilizing video materials and satellite imagery, Joung notes the following trends: 1) More permanent large concrete structures to house markets have been built; 2) easily assessable street markets with specialized shops have appeared; and 3) the use of relatively better and more refined construction materials and fittings began being used. Further, Joung notes that Commission Stores have been merged with General Markets. As noted above, these stores are not in direct competition with merchants in the market place; Joung notes that the quality of the goods means that Commission Stores usually only cater to the tastes of richer consumers (pp. 37-44).

Implications | Noting the rapid development of North Korea’s market economy over the last twenty years, Joung is optimistic about its prospects. She states explicitly that North Korea’s market economy is likely to continue to develop in the future, and so far she has been proven correct. Indeed, the pressure on markets that characterized the period after 2007 has by and large ceased under Kim Jong-un.Given the rapid development of North Korean capitalism over the last twenty years, her forecast remains compelling.

[1] Full citation in Korean: 정은이, 『북한시장의제도화수준에관한분석 – 공설시장의외형적발전을기반으로』, KDI 북한경제리뷰 2010년 5월, 2010.5, 14-47 쪽.

[2] Joung cites the testimony of a refugee from Pyongyang who said that North Korea’s wandering orphans (꽃제비), a symbol of the famine for the outside world, are the object of pity among many in South Korea, but in North Korea they are hated because they are associated with theft and they are known to even murder to get what they want (p. 18).

[3] Rimjingang now has an English language website.

[4] The same form of state retail outlet in which private citizens could sell their own property on consignment existed in the Soviet Union. They were known as комиссионный магазин‏ (Commission Stores). For more information on Soviet developments in this regard, see:  Julie Hessler, A Social History of Soviet Trade: Trade Policy, Retail Practices, and Consumption, 1917-1953 (Princeton: Princeton University Press, 2004), esp. 265-6; and Natalya Chernyshova, Soviet Consumer Culture in the Brezhnev Era, (Routledge: Oxford, 2013) esp. 98-100. I would like to thank Professor Andrei Lankov for pointing this out.


CORRECTION: The original title read “1998-2002” as the period under review; the correct years are “1994-2010.”

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