Command and Conquer: The Co-option of Market Forces in the DPRK

By | December 31, 2014 | No Comments

The Hindu god, Shiva,simultaneously represents both creation and destruction. | Image: Michele Ahin/Wikipedia, Creative Commons 2.0

The Hindu god, Shiva, simultaneously represents creation and destruction, a key characteristics of market economies. | Image: Michele Ahin/Wikipedia, Creative Commons 2.0

One of the lasting contributions of Karl Polayni’s The Great Transformation is the argument that the modern market economy is a constructed institution, the result of deliberate government policies meant to separate the social from the economic. The contention that markets are political constructs–products of “great transformations”–is as valuable to the study of North Korea today as it was of 19th century England (the time and place of Polyani’s study). So is Daron Acemoglu and James Robinson’s recent work Why Nations Fail, a contemporary study of the factors that explain why some nations thrive and others crumble. Acemoglu and Robinson argue that the better politics and markets are separated, the more dynamic a nation is (and vice-versa). In the latest in a series of review essays on the North Korean marketization literature (in Korean), Christopher Green distills and analyzes Park Hyeong-jung’s “Towards a Political Analysis of Markets in North Korea” [북한 시장에 대한 정치학적 분석]. The implicit influence of Polyanyi is clear and the direct influence of Acemoglu and Robinson (whose work Park draws upon) is present. Political economists take heed. — Steven Denney, Managing Editor

Command and Conquer: The Co-option of Market Forces in the DPRK

by Christopher Green

Down the years, few South Korean scholars of North Korea have achieved name recognition outside the Korean peninsula. Within the small group that does have a presence in the international community today, Park Hyeong-jung is one of the most prominent. A senior researcher with the state-run Korea Institute for National Unification (KINU), in December 2012 Park published “Towards a Political Analysis of Markets in North Korea” in the Bulletin of the Korean Political Science Association [한국정치학회보], the journal of the Korean Political Science Association [한국정치학회].[1]

An essential work in the theoretical canon of the late marketization era, the article emerged almost a decade after the material covered in part one of Peter Ward’s North Korean Contemporary Economic History Review Series was published, and two years after the writings of Joung Eun-lee and Yang Mun-su that constitute parts two and three.

Research Objectives | In “Towards a Political Analysis of Markets in North Korea” Park argues for a reappraisal of the contemporary marketization process; for a political approach to be used alongside the customary economic one. A political approach is important, he states, because it “pays attention to [the fact] that the economic structure including the market reflects politics and power distribution in… North Korea.”

Park notes that most jumping off points for analysis of the North Korean economy and marketization have hitherto been economic: the process of “marketization from below” by independent economic actors, for example, or the idea of a dual economy comprised of formal and informal sectors. A political approach reconsiders these themes, reimagining the notion of markets and market expansion as threatening to not only the socialist planned economic system but also the Kim regime itself. While Park acknowledges the value of research outputs rooted in economics, he argues for the need to adopt a new perspective in order to cleave closer to contemporary North Korean reality.

The strongest suit of the political approach Park describes is that it lays bare the influence of political structures and power distribution on the North Korean economic structure: one is a reflection of the other, and over the long run cannot be otherwise. A political analysis takes the “market” as a fundamentally political concept, and acknowledges the extensive impact of power and power relations upon it.

Methodology and Background | In contrast with the first three parts of Peter Ward’s North Korean Contemporary Economic History Review Series, Park’s work is primarily theoretical in nature. It uses a range of established works in the international academic literature on market transitions from state socialism, as well as institutionalist approaches to analysis of state structures. But first it explains what is meant by a political analysis of North Korean marketization.

In sum: political power relations have a great impact on markets and market economic structures, no matter where those markets happen to be located. No market is free of political influence, and the foundations of any political power system are bound to be reflected in that state’s economy, policy mix, and, importantly for Park and the Sino-NK reader alike, market system. Since there are many different states and all have divergent frameworks in which power relations are constituted and articulated, it follows that there are many different types of market system.

Over the long run, the distribution of resources in any state is highly likely to accord with the distribution of political power, as a result of the fact that politically powerful groups in society are bound to move towards acquiring a share of economic resources that roughly equates to their political power. To put it more bluntly, the politically powerful will work to establish the rules of the economic game, and do so in their favor. Park argues that economic analyses of North Korea’s marketization process risk downplaying the role of such power relations in the market system.

The work draws particularly fruitfully on Acemoglu and Robinson’s 2012 text Why Nations Fail. In it, the two authors divide institutions, systems, and economies into those that bring about prosperity and those that do not, asserting that general prosperity is fostered by systems rooted in what they define as “inclusive institutions.” Such systems are characterized by low barriers to entry, encouragement of competition and, vitally, “creative destruction,” the process by which actors rise and decline freely in a natural process of destruction and creation over time, in the process generating economic surpluses.

Extractive and inclusive systems both have markets, elections, media and so on, but the functions of these elements are very different. Above all, inclusive systems seek to separate economics and politics to a substantive degree, whereas in an extractive system the economic and political spheres are much more closely linked, to the detriment of processes of creative destruction.[2]

Hoeryeong Market and Customs House | Image: Daily NK

A market on the outskirts of Hoeryeong in North Hamkgyong Province and a nearby customs house, as seen from China. This image implies the nature of the lips and teeth relationship between state, state trading companies, and market in North Korea. | Image: Daily NK

Research Findings | Park’s work does not hesitate to acknowledge past instances and experiences of bottom-up marketization. However, it concludes that the impetus behind market expansion in the contemporary era comes from a different place: namely, the commercial arms of party, Cabinet, and military agencies, which are known in shorthand as “state trading companies.”[3] These firms thrive as expressions of the country’s extractive institutional structure: in the absence of secure property rights and the rule of law, they operate by political fiat and end up fostering multi-layered inequalities that advantage those with political power to the exclusion of the disadvantaged remainder of the population.

While an economic analysis may speak of such “state trading companies” and recognize their economic role in import and export, production and distribution, etc., such an analysis will not necessarily recognize the way in which those companies survive thanks primarily, if not entirely, to their links to political power. However, this is a vital point, since the North Korean market system is based upon hierarchical, oligopolistic relations wherein state trading companies operate near-monopolies of extraction.[4]

These companies acquire licenses to trade certain products, mostly marine, mined natural resources, etc., direct from the top of the political structure. As such, the center of political power is positioned to distribute economic power on political grounds. This guarantees the profits of the trading companies and extracts loyalty to the extant political system at the same time, all while allowing a percentage of profits to flow back to the center, where it underwrites the “gift politics” [선물정치] of the autocratic dictatorial regime.

As an aside, Park asserts that this contemporary market reality means that notions of a “planned economy and official sector” and an “unofficial economy and market sector” are artificial. Close links between the nominally official and unofficial are myriad: the official economy requires the unofficial to survive, and vice versa. It is nonsense to speak of the two as fundamentally different.

Implications | Park concludes that political intervention and regulation of market mechanisms in North Korea mean that even though the market system does present a bureaucratic and ideational challenge to the political system and process, it does more good than harm for the maintenance of national security and regime cohesion. The dictator in North Korea’s “personal dictatorship with neopatrimonial characteristics,” as Choe Bong-dae puts it, keeps control of his elites mostly through the establishment of oligopolistic system of exclusive economic rights, meaning a system of highly extractive economic institutions.

Market expansion is thus driven by the commercial activities of trading companies owned and run by powerful arms of the military, the party, and the Cabinet. These contribute greatly to regime maintenance and the regime’s grip on the economic system at large. Political power intervenes regularly and clearly in the process of market expansion, shaping it in favor of rent extraction. It is for these reasons that Park concludes that marketization in North Korea today does more to defend the political system than to undermine it.

[1] Full citation in Korean: 박형중, 『북한 시장에 대한 정치학적 분석』, 한국정치학회보 46(5), 2012.12, 207-224 쪽. All translations by Christopher Green from the original Korean. However, Dr. Park was kind enough to read the above review prior to publication, whereupon he revealed that an English translation of the paper has also appeared. For more see: Korean Social Sciences Review 3, no. 2 (2013): 195-216.

[2] China is a specific focus of interest in the original text, since to some it appears to offer a long-term alternative (“state capitalism”) to the invisible hand of the free market. The authors disagree, saying that China has moved some way from extractive toward inclusive institutions, but it is still an example “of growth under extractive institutions” in which little creative destruction take place.

[3] These trading entities began to emerge in the 1970s when, faced with the need to secure funds to realize the Kim Jong-il succession system, specific party bodies were encouraged to begin earning hard currency (외화벌이). Other agencies began doing the same in the 1980s, and by the early to mid-90s the earning of hard currency in this way was a universal constant.

[4] Park concludes that Victor Nee’s 1989 term “market-like second economy” is most appropriate for the case of North Korean marketization.

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