Sino-NK

The entrance to a market in Hyesan (screengrab from “KBS Panorama”). | Image: Sino-NK

Economists and political scientists looking at North Korea agree that the country’s economy has “marketized” — i.e. that a phased transition to capitalist modes of exchange has taken place. Most observers also accept that in spite of some quirks specific to the North Korean experience, marketization north of the 38th parallel exists on a spectrum of economic transitions elsewhere, including the hybrid systems of the Soviet Union, China, Vietnam, Laos, and acros broad swathes of eastern Europe. Today’s questions concern the true extent of North Korean marketization, the winners and losers in the integration of political and financial forms of power relations, the role of hard currency and exports of goods and labor, and the impact of marketization on political stability at both the local and national levels.

Here at Sino-NK we have spent a year rigorously analyzing South Korean marketization scholarship. We have found that initial (1994-1997) market growth was anarchic; that early trade coalesced around existing, but marginal, market structures; that these organic market structures were slowly co-opted after 1998 in a six-stage process; that in the period 2003-2006 markets became a very lucrative income source for regime elements; and that a rocky period arose concurrent with the slow rise of Kim Jong-un. Finally, we have established that the commercial arms of party, Cabinet, and military agencies now dominate North Korea’s extractive institutional structure, rendering meaningless the idea of North Korea having both official and unofficial market structures living side by side.

In the fifth part of our contemporary marketization series, Philo Kim (Kim Pyong-no) takes a sociologist’s lens to the North Korean economy. In 2012, the same year that political scientist Park Hyeong-jung wrote part four in this series, Kim looked at the question of markets and systemic stability from a sociological perspective. He reached the same conclusions as Park, but by a different route. This only served to strengthen both sets of findings. Kim’s heterodox approach is what makes his work so valuable. –– Christopher Green, Co-editor

Local thus Limited: The Role of Segmented Marketization in Systemic Threat

by Peter Ward

In 2012, Philo Kim, a professor of sociology at Seoul National University (SNU), published a paper entitled “Segmentalized Marketization and Its Sociopolitical Implications in North Korea” in the regular journal of the Korean Association of North Korean Studies (북한연구학회). In it, he sought answers to the question of why the marketization process in North Korea had not yet led to a systemic transition or transformation¹⁾Full citation in Korean: 김병로, “북한의 분절화된 시장화와 정치사회적 함의,” 북한연구학회보 제16권 제1호 (2012): 93-121쪽.. “Despite the progress of marketization,” he noted, “there has been no indication of critical voices emerging from society, and in the 20 years since the end of the Cold War there have been almost no sign of a critical consciousness or the formation of social forces that could precipitate systemic collapse.” [시장화의 진전에도 불구하고 정치사회 비판과 관련한 어떤 현상이 나타나지 않고 있고 탈냉전 이후 지난 20년 동안 체제붕괴를 촉발하는 비판의식이나 사회세력의 형성이 거의 발견되지 않고 있다.] (p. 95)

Research Objectives | Kim is a sociologist, and as such is interested in the economic process of marketization as it is rooted within social and political contexts. He seeks to explain how marketization has not led to the emergence of anti-regime ideas or social forces, as it did in Eastern Europe and the former Soviet Union. The underlying assumption of the question is that marketization can and does create the basis for social dissent; in other words, that socio-political transition is the product of social structures that emerge from complete marketization.²⁾For references to incompleteness, see p. 114.

Methodology and Background | Reviewing existing scholarship on the marketization of North Korea, Kim arrives at the conclusion that many works may be exaggerating the degree to which North Koreans rely on the market as a source of income and consumption. He argues that if figures of between 70 and 90 percent of income are coming from markets (as claimed by some scholars, among them Kim Byung-yeon and Lee Seok) were correct, then society would not have remained as stable as it has. From here, using North Korean official sources including the works of Kim Il-sung and Kim Jong-il, North Korea’s official economics journal Economic Research [경제연구], North Korean commercial law, and surveys of illicit trade on the border, he demonstrates that North Korea has yet to become fully marketized, and markets remain largely confined to the local level.

Research Findings | Philo Kim begins his discussion of “segmentalized marketization” (his term) with what he considers to be its theoretical root: the “regional self-sufficiency system” (지역자립체제).  Kim cites the graduation thesis of Kim Jong-il while discussing the concept (p.102), explaining that regional self-sufficiency was meant to be a system implemented in times of war, wherein the state would require that most production be taken care of at the local (county/town/city) level, with the provincial government acting as mediator between self-sufficient local administrative entities and the central government. (pp. 103-104) The system was implemented as official state development policy sometime between April and May 1995, prior to the massive floods of August 1995 that incited widespread food shortages, and prior to official requests for food aid. (p. 103) He alleges that institutions and companies under the purview of the regional budget were to take care of their own financial concerns, thus enabling the central state to use its resources in more productive ways. (p. 104) Citing North Korean figures, Kim concludes that 21.8 percent of “industrial product” is produced by regional industry. (p. 105)

From here, Kim sets out his theory of segmentalized marketization. First, he argues that the Kim Jong-il regime sought to use markets as a means of fostering regional self-sufficiency. The July 1 Economic Measures (7.1경제관리개선조치) were part of this strategy, as was the May 5, 2003 Cabinet Directive with respect to the Operation of General Markets which stated that one or more general markets should be established at the local level. (p. 106) Individuals, state companies, and cooperative organizations were thus able to utilize markets, which were controlled by Market Management Offices (시장관리소), instead of the state-run distribution system. (p. 107) He acknowledges that distribution has become extensively liberalized, with prices set by markets, and the use of cash between government institutions now accepted, institutionalized practice. (pp. 107-108)

Next, Kim asserts that while trade within localities is indeed marketized, trade between regions remains dominated by government institutions and is thus only partially marketized. Leading commercial entities (상업지도기관) receive instructions from state planning institutions, with distribution managed by state haulage and postal services. (p. 108) He also states that the state monopolizes foreign trade, and central state foreign trade companies control the purchase and distribution of most imports through their regional branch offices. (p. 108) Kim also notes the fact that because residents cannot move beyond their locality without permission, there does not exist a national market for labour (p. 109).

Therefore, segmentalized marketization is a process in which markets have come to exist within only a certain segments of the economy, i.e. individual localities, and a national market remains absent. Kim also points out that the concept of market socialism that has been applied to North Korea by other writers is compatible with his framework as the planned element of the economy still exists at the national and regional levels.

Within this context, Kim notes that since the system is not integrated, it is thus unstable. Certain parts of the country have come to specialize in particular products (특산물), and this regional specialization encourages inter-regional trade and thus the destabilization of the segmental market structure and emergence of a unified market. (p. 111) He points out that as imports have grown, a unified national wholesale market system has begun to emerge with the regional markets in Pyongyang, Chongjin (North Hamgyong), Rason (North Hamgyong), Sinuiju (North Pyongan), Pyongsong (South Pyongan), and Hamhung (South Hamgyong) serving as hubs. (p. 112)

Kim does not forget the “money masters,” the nascent capitalist “donju” (돈주) class that has emerged in North Korea after beginning life as traders in the 1990s. He states that this group has risen as a successful merchant class, and has begun to engage in inter-regional business activities like private lending, distribution, real estate, haulage and transport, and trade. (p. 112) He sees these activities as an indication that the cohort has overcome inter-regional travel constraints.

However, he goes on to point out that while some countervailing forces to this segmentized market system exist, a number of issues preclude the emergence of a truly national market system: 1) underdeveloped transport systems and a lack of investment in social overhead capital; 2) continued restrictions on the free movement of labour; and 3) the fact that the state still controls almost all foreign trade. (pp. 113-114)

Implications | Philo Kim concludes his discussion of North Korea’s market system by addressing the implications for systemic change, evolution, and revolution. He argues that because market activities are largely concentrated at the local level, each locality is largely cut off from other regions and localities. This has resulted in economic discontent and political criticism being confined to individual areas, not spreading or agglomerating into a national movement for systemic change. (p. 115) Even as private transport infrastructure continues to develop, mobile phone usage rises, labor is “freer” than ever before, and the scope of markets continues to expand into sectors that had hitherto been the sole preserve of the state, support for the regime endures. (pp. 115-116)