It can be argued that the development of North Korea’s famed clandestine economy is a narrative that reflects the ineptitude and/or apathy of the Kim Jong-il regime towards ensuring the survival of its own populace. In the mid-1990s, the state rationing system on which the vast majority of North Koreans were existentially dependent collapsed due to maladministration – the diversion of resources to sustaining the ‘cult of the Kims’. The system’s collapse left the country’s citizens with little choice but to barter their possessions in exchange for rice, thus spawning a simple market. The regime found turning a blind eye to nascent capitalism a much more convenient and cost-effective option than attempting to rectify rationing arrangements. The ultimate outcome we see today is the network of sophisticated private companies which include oil refineries and Sino-NK trading firms.
While Kim and his cronies were blindly indulging themselves in the proceeds of tyrannical corruption, the perceived atmosphere of indifference towards the newly formed informal markets began to erode one of the chief tenets of North Korean life – loyalty to the party. Workers’ Party membership, once the sole conduit to economic security, diminished in importance as the market grew. Many North Koreans now forego formal participation, the main reason being that Party-related obligations infringe on personal time that could be better spent trading in the marketplace.
Of course, as underground markets in the North have matured, so too has the nature of commodities. The sustenance-driven trade of North Korean resources for Chinese food products has, at least among more audacious traders, been replaced by an insatiable appetite for consumer electronics such as mobile phones. The implication of importing such devices is greater exposure for North Koreans to the outside world, and thus growing mistrust in the regime and its legitimacy.
All eyes were on the recent Workers’ Party Congress to see whether Kim Jong-un would respond to burgeoning informal markets through formalisation or liberalisation reforms. The young dictator has in the past not only acquiesced to market activity and its expansion, but is the first ruler of the Kim dynasty to implement reforms that have encouraged market growth. One such reform was Deng Xiaoping’s Four Modernisations-inspired move to allocate state-owned agricultural land to individual farming households for cultivation, who were in turn rewarded with a percentage of the final harvest (although this ultimately did not pan out as anticipated).
Those expecting significant changes at the congress, however, were ultimately left disappointed by the tepid and ambiguous five-year economic plan presented in tandem with a defensive nuclear armament strategy referred to as the ‘byeongjin’ (parallel development) policy. Kim’s ironic criticism of Chinese-style reform at the congress set the tone for what some analysts have interpreted as a re-alignment towards puritan socialist construction and more specifically a re-emphasis on the North’s Juche (self-reliance) ideology. The evident difficulty in implementing such an approach is that the North has never truly been self-reliant – only support from the Soviet Union and China based on ideological and geostrategic imperatives has kept the country’s economy afloat.
Despite the rhetoric about the re-adoption of a pure Juche approach to economic development, the regime will remain unavoidably dependent on trade with China, of which an increasing quotient is realised in the black market. Kim is said to be attracted by the notion of instituting a form of authoritarian capitalism or ‘developmental dictatorship’ responsible for the meteoric rise of Taiwan and South Korea to the ranks of prosperous sovereignties. However such reforms, as is the case in China, were accompanied by the bestowal of greater personal freedom, a move that in North Korea’s case would further weaken the regime’s frail foundations.
Regardless of Kim’s economic development approach, one thing is clear – the North must repair its strained relations with its economic lifeline China, which recently acceded to the latest round of UN sanctions, a source of ostensible grief for Pyongyang. Business partners in China are crucial not only for the high-value commercial trade conducted by the North Korean elite with Chinese firms, but more importantly for the 99% engaged in the cross-border informal transaction of basic goods such as consumer items and medicines.
The only method for North Korea to achieve bilateral reconciliation with China is through compromise and cooperation vis-à-vis its nuclear program and a toning-down of its virulent provocations. This will inevitably mean abandoning the nuclear element of the ‘byeongjin’ policy among other concessions. In light of an announcement by the Chinese side regarding its intention to halt oil exports to the North and the implication of this in terms of the North’s capacity to sustain its mammoth armed forces, failure by Kim to positively re-engage with China would have inevitably profound consequences for national defence.
The underground market has become the new normal of the North Korean economy and continues to gnaw away at party influence among the country’s citizens. As its development and sophistication progresses unabated, the Kim regime faces the dilemma about how to manage free economic activity without compromising the central tenets of Kim’s brand of communism. This will be a close to impossible task without China’s cooperation as a trading partner and political ally, a relationship which will only be restored if Kim concedes to the pressures of sanctions and alters his rhetoric on nuclearisation.
Michael Parker is the East Asia Fellow for Young Australians in International Affairs.
Image credit: John Pavelka (Flickr: Creative Commons)