B00BY4HXME EBOK (20 page)

The international media often engage in the endless (and useless) speculations about the factional struggle in Pyongyang, telling us about the technocrats, also known as “pragmatists,” who allegedly fight the conservative ideologues and military hard-liners. Such struggle might indeed go on even though most media reports are often based on speculations and unreliable hearsay. However, the oft-repeated description of the alleged reformers as “pragmatists” is misleading. If such people actually exist, they are better described as “dangerous idealists” or “starry-eyed romanticists” whose reformist program, if ever carried out, will hasten the regime’s demise and lead to their own downfall (which would be good for a majority of the North Koreans—but this is an altogether different matter).

Pyongyang reformers will face a sad (should we say tragic?) paradox: no matter how successful their reforms will be if judged in objective terms, the majority of North Koreans would still perceive even the most brilliant success as a failure when using the fabulously rich South as the natural benchmark.

However, even if reform-minded individuals exist, they are a minority. What the mainstream North Korean elite want is to return to the year 1984—not that of the Orwellian dystopia, but the last year when Kim Il Sung’s system was still functioning properly (though admittedly, the properly functioning Kim Il Sung society had a number of remarkable similarities with an Orwellian dystopia). The economic policies of the regime are largely driven by the desire to revive the hyper-Stalinist model of the past. It is possible that many people on the top sincerely hope that this model might somehow work, but even if they do not succumb to such fantasies, they still have no choice: due to the existence of the rich South,
the hyper-centralized and highly controlled Stalinist economy seems to be the only type compatible with maintaining political stability.

When we described the North Korean “capitalism from below,” it is important to remember that most of the new entrepreneurial activities have been technically illegal, even if the government is willing to turn a blind eye to what is happening at the marketplace. In the midst of the famine, North Korean authorities still sporadically cracked down both on markets and on so-called capitalist profiteering. Usually, such crackdowns ended in naught, being quietly sabotaged by the low-level officials who either depended on markets themselves or understood that excessive pressure was likely to further aggravate the already disastrous situation.

In 2002, however, Pyongyang’s negative attitude toward the emerging market economy appeared to change. On July 1, 2002, North Korean leaders introduced a set of measures that are frequently described in the foreign media as the “2002 reforms.” With the word “reform” regarded as too radical, even subversive, the state media never accepted this description and the policy is officially known in North Korea as the “7.1 measures” (that is, “July 1 measures”).
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As usually happens at the first sight of any change in North Korea’s policies, the measures were heralded overseas as the sign of the long-awaited reforms and received an enthusiastic reception in the international media. This started a wave of the usual speculations about North Korea finally doing the right thing and turning the Chinese way. Newspaper headlines were sanguine: “With Little Choice, Stalinist North Korea Lets Markets Emerge,” “Signs That North Korea Is Coming to Market,” and “North Korea Experiments, With China as Its Model.”
¹³
This optimism was completely unfounded, as we see later.

The 7.1 measures in fact included several different sets of policies. First, consumer prices were raised dramatically. For example, for decades rice
was “sold” within the PDS at the purely token price of 0.08 North Korean won per kilogram. After the reforms, the price increased by a multiple of 550 (!) to 44 won per kg, approximating the market price at the time. Official wages increased as well, albeit on a smaller scale. According to Yim Kyong-hun’s calculations, retail prices on average increased by a multiple of 25, whereas wages increased merely by a multiple of 18.
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Second, the 7.1 measures introduced changes in the management of state companies that increased the power and independence of company managers. Not only were managers allowed to use the market to acquire resources and sell finished products, but they were also given more freedom to design incentives for workers—like, say, a right to pay performance bonuses.

Third, the 7.1 measures envisioned the establishment of “general markets” (
chonghap sichang
), a move that in the foreign media was often described (misleadingly) as “lifting the ban on private market trade.” Of course, one could not possibly lift a ban that never existed, as by 2002 a majority of North Koreans were already earning their living through private market activity of some kind.

The formal establishment of general markets was less significant a change than it might have appeared. Essentially, it was a belated and grudging acceptance of what the government knew it could not control. One might be surprised to learn that the majority of the market vendors whom the present author interviews regularly (many dozens of people) simply have no idea about any reform happening in 2002! They did not hear about the measures that supposedly legalized their businesses and changed their lives—and with good reason: the much-hyped measures had little impact on the actual working of the markets, apart from changing their official name and making them (eventually) a bit more regulated. The vendors continued to do what they had been doing for years.

Nonetheless, the 7.1 measures and associated policies indicated that the Pyongyang leadership acknowledged and, to an extent, accepted spontaneous “de-Stalinization from below.” This relaxation did not last long, however. Soon afterward, the North Korean authorities began their attempts to reverse the changes that had spontaneously occurred in the previous decade.

This approach might be bad for the economic growth, but it is good for the political stability that is Pyongyang’s overwhelming concern. The North Korean leaders understand that spontaneous liberalization was dangerous and never felt at ease about the markets. Thus, in 2005 they decided that this was the time to launch a decisive offensive against the informal economy.

By that time, the famine was over, even though malnourishment remained widespread (and still is). A large role in the economic recovery was played by the generous foreign aid. However, it would be an oversimplification to think that it was foreign aid alone that put an end to the disaster of the late 1990s—the partial recovery was helped by the emergence of the private economy (private fields in particular) and the adjustment of what remained of the state sector. Improved harvests played a role, too. The North Korean government saw this mild but palpable improvement as a sign that it could do what it wanted to do—revive the pre-crisis system.

As an interesting illustration of this attitude, consider a remark made by a North Korean official in October 2005. When asked by a visiting South Korean scholar whether the government indeed had restarted the rationing system, the official replied: “Now, when we have a good harvest and plentiful reserves of rice, are the private sales of rice at the market necessary?”
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The underlying assumption is clear: ideally, the economy should be based on administrative distribution and rationing, whereas markets and retail trade should be tolerated only as a means of coping with emergencies.

In October 2005, roughly when the above-quoted conversation took place, the government announced that the long-defunct PDS would be restored in full, albeit with some modifications. The North Korean populace was assured that from now on everybody would be given standard rations on a regular basis, as had occurred under Kim Il Sung. The price of rations was fixed at the post-2002 official level—rice, for example, was 44 won per kg. By the time of the announcement, however, the actual market price for rice had already reached 800–900 won, and by 2009 was fluctuating around the 2,000 won mark, so the new PDS price
of 44 won per kg still remained a token.
¹⁶
The decision to reinstate the PDS was accompanied by the revival of the government’s monopoly on grain purchases. It was said that private trade in grain would be banned—or, rather, authorities reconfirmed the ban that had technically existed since 1957, was never formally lifted, but ceased to be enforced in the early 1990s.

The attempted revival of the PDS was presented as a sign of a “return to normality” and was officially referred to in the North Korean parlance as the “normalization of food distribution” (
siklyang konkup chongsanghwa
). Most of the North Korean populace would agree with this description: after all, a majority of the North Koreans would have lived most of their lives under the PDS and indeed would perceive the system as “normal.”

The revival proved to be a very partial success. In subsequent years the rations began to diminish again. As of 2012 anyone living outside of Pyongyang has to be an official or work at a military plant in order to get a full or nearly full ration. The ban on the private sale of grain lasted for merely a few months. By late 2006 rice and corn were again sold and bought freely, as the police and low-level officials were unwilling to enforce the new regulations. As we will see below, this was a typical outcome of many attempts to revive the old patterns: the government efforts seldom meet open resistance, but are quietly sabotaged by the low-ranking officials and population alike.

Attempts to regulate or limit market activities intensified after 2005. In December 2006 authorities prohibited able-bodied males from engaging in market trade. Men were allowed to trade at the markets only if the aspiring vendor was not the primary breadwinner of the household but a dependent.
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Indeed, in Kim Il Sung’s North Korea all men were expected to work a “proper” job—that is, be employed in the government sector.

There is a rational (indeed, very rational) reason behind the seemingly bizarre policy of keeping workers at nonfunctioning factories: the North Korean surveillance system operates on the assumption that every adult has a proper job with a state-run enterprise; thus, indoctrination and police surveillance are centered on the workplace, where the entire “organizational life” takes place.

The ban did not have much impact, however, on actual market activities, since men seldom trade in North Korea. Conversely, the government’s decision a year later, in December 2007, to extend the ban on market trade to women below 50 years of age was much more important.
¹⁸
The decision reportedly led to riots in March 2008, particularly in the city of Chongjin.
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For a brief while the police and officials tried to enforce the ban, so the younger female vendors had to use a number of tricks. The most common way to evade regulations was to bring along an elderly mother-in-law or other aged female relative when going to the market. If police asked questions, the vendor explained that it was actually her highly esteemed mother-in-law who did trading, while she just dropped by to briefly help the old lady. This ruse could work, admittedly, only as long as the police were not too serious about enforcing the ban—and this was actually the case. Within a few months the ban was forgotten completely. Once again, the quiet resistance won.

Nonetheless, the North Korean government did not give up and in late 2008 prepared a decisive move against the markets. In November the local authorities were officially notified that beginning in 2009, the private markets would be allowed to operate only three days every month. No sales of industrial goods would be allowed on the markets, either. The leadership made explicitly clear that improvement in the North Korean economic and social situation would make markets obsolete.
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At the last moment, however, the plan was cancelled.

The backlash, however, was not limited to the markets. After 2005 the authorities increased control over the porous border with China. This led to a dramatic decline in the number of refugees hiding in China, falling from estimates of 200,000 in 1998 to a mere 20,000 to 40,000 in 2010.
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Although a number of factors, including improvement of the food situation, contributed to this dramatic drop in refugees, increased efficiency of the North Korean border control played a major role. It has become far more difficult to cross the border river without bribing the border guards.

The antimarket policies of the North Korean authorities culminated in the currency reform of 2009. It was designed to destroy the unruly markets once and forever. However, it shared the fate of the earlier antimarket measures: it failed, and this failure was quite a spectacle.