THE MYSTERY OF NORTH KOREA

North Korea’s economy was stagnant. Recently accessible classified North Korean documents confirm what many had suspected earlier: the peak of the production of most critical types of industrial goods was reached by the 1970s and ’80s. Since then, the production of steel, cement, and mineral fertilizers slowly and steadily declined.

Nevertheless, North Korea managed to stay afloat. This was primarily due to the foreign policy it pursued—or, to be more precise, to the skill of North Korean diplomats. Both the Soviet Union and China—North Korea's two main sponsors—were not overly fond of the North Korean regime. However, they operated under the belief that, ultimately, the existence of this regime served their long-term interests. The Union of Soviet Socialist Republics (USSR) was interested in maintaining stability in North Korea, first because it served as a buffer zone, partly shielding the Soviet Far East from undue proximity to American troops stationed in South Korea. Second and most significantly, both Moscow and Beijing were willing to pay North Korea to remain neutral in the Sino-Soviet conflict. This conflict, now almost forgotten, once played a decisive role in international relations in the Far East.

The economic aid coming from abroad, primarily from the Soviet Union and its allies in eastern Europe, allowed North Korea to stay afloat. The standard of living in the country was low; the average Korean diet mainly consisted of corn and barley, with rice being a luxury and meat rationed to the majority of the population on a card system every couple of months.

While there was no widespread famine in the country, by the standards of wealthy nations, most North Koreans were undernourished. Serious discontent was also not observed. On the one hand, the mechanisms of police repression were effective: the percentage of the population in camps for political prisoners (those detained for political crimes) placed North Korea at a level comparable to the USSR in the later years of Stalin's rule. On the other hand, the effectiveness of the system of control described in the previous lecture, as well as the country's isolation from the outside world, significantly reduced the chances of residents forming dissenting views.

However, around 1990, this era of stability, which lasted for over three decades, began to unravel rapidly. The leading cause of the crisis was, of course, the collapse of the Socialist Bloc, which North Korea was heavily dependent on. It's worth noting that this dependence was practically never acknowledged in North Korea. Officially, it was believed that the country received no external assistance and lived solely in accordance with the ‘revolutionary principle of self-reliance’. With the end of the Cold War in the late 1980s, the Soviet Union (and its geopolitical successors) no longer had reasons to spend significant resources to support North Korea as a buffer zone. However, the complete normalization of Sino-Soviet relations in 1989–90 was even more critical for Korea. The confrontation between Moscow and Beijing ended, and with its conclusion, North Korea lost its former strategic significance—the very significance that skillful diplomacy had allowed North Korean diplomats to ensure the uninterrupted flow of foreign aid.

As a result, Russian and eastern European foreign trade organizations, along with private enterprises, began to approach North Korea solely from a commercial perspective. Neither Moscow nor Budapest imposed any measures against trade with North Korea, nor did they establish any blockades. However, under the new circumstances, Russian and Eastern European firms were only willing to engage in trade with North Korea if their side could pay for the goods and services in hard currency and at close to international market prices.

However, these new conditions were unacceptable to Pyongyang: North Korea simply didn't have the funds to meet such requirements. Consequently, trade with the outside world began to decline rapidly. To illustrate the point, between 1988 and 1994, the volume of trade between the Democratic People's Republic of Korea (DPRK) and the USSR-RF plummeted from $2.7 billion to $0.13 billion, a decrease of more than twenty-fold. It's important to note that a significant portion of the trade with the USSR and other socialist countries wasn't proper trade but external aid disguised as trade instead. Due to geopolitical considerations, the USSR, eastern European countries, and China engaged in trade with North Korea at a loss for several decades. However, this practice was discontinued under the new circumstances.

The new situation led to a sharp deterioration in the country's economic condition. Through the 1990s and 2000s, North Korea's industrial production decreased by approximately half. However, the near cessation of distribution of grains ration and local supply systems in the early 1990s was even more significant for most of the country's population, proving catastrophic for North Korean residents.

Since 1957, when compulsory rationing was first introduced, the vast majority of the country's inhabitants had relied exclusively or almost exclusively on what they received through their ration cards.

Issues with the distribution of products through ration cards began around 1991–92, and by 1995, similar problems were seen even in major cities. Initially, the population was told that the products were simply delayed and that they just needed to wait a little longer, showing consciousness and patience. However, the rations never arrived, and by 1995, there was a famine in certain parts of the country.

The catastrophic floods that occurred in 1995–96 exacerbated the situation. On Kim Il Sung's initiative, the country actively pursued a policy of creating terraced fields. Kim Il Sung adopted this technology from southern China, an area with completely different climatic conditions, transforming steep mountain slopes into giant spaces for farming. While this worked effectively in southern China, its implementation in North Korea contributed to an ecological and political disaster. In 1996, unusually heavy rainsithough not ‘unique’ as later claimed by North Korean propaganda led to massive flooding. A significant portion of the terraced fields were washed away, and ordinary crops suffered greatly. As a result, in 1996, the grain harvest in North Korea amounted to less than 3 million tons, whereas to feed the population according to the established ration norms, at least 5 million tons of grain were required. The consequences were predictable: famine broke out.

In discussions of the North Korean famine of 1996–99, it's often claimed that ‘2–3 million people’ perished. We can only note that this is undoubtedly greatly exaggerated without delving into where and why this figure originated. Demographic experts have concluded that the actual number of deaths from starvation during that time ranged from 400,000 to 900,000 residents. However, even if we take the minimum figure—around half a million deaths—this famine can be considered the worst humanitarian disaster to have occurred in Asia in recent decades.

Nevertheless, as the Korean proverb goes, ‘Even if the sky falls, there will still be holes to escape through.’ Half a million North Koreans did indeed die from starvation, but approximately 22 or 23 million survived. But how did they manage this?

Simply put, the spontaneous emergence of a market economy became a lifeline for the North Korean population. This market economy, effectively eradicated in North Korea by the authorities in the late 1950s, resurfaced when families found themselves without food. Men and, importantly, women set out in search of food. Initially, they engaged in barter trades. However, new commodity-money relations soon began to play an increasingly significant role in the country. Markets, once small and operating sporadically on the outskirts of cities, began to rapidly expand. Many Koreans, primarily women, started engaging in various trading activities, opening small eateries and restaurants and sewing clothes and shoes at home. Those living in rural areas, breaking existing bans, began cultivating illegal private fields on the slopes of Korean mountains. These slopes theoretically fell under the control of forestry management, but in practice, there were usually no trees growing there. These small fields, or sot’ochi, played a crucial role in the survival of both North Korean peasants and the residents of small towns, where the famine was particularly dangerous and devastating in the initial stages.

Many North Koreans living near the border with China began to leave the country in large numbers. Doing so was easy because, until the early 2010s, the border between North Korea and China was effectively unguarded. North Koreans went to China to take on jobs that local residents considered too difficult, dangerous, or dirty, typical of work for labor migrants worldwide. Working as laborers on large Chinese farms, they could earn $50 a month, with both food and housing traditionally provided by the owner. These opportunities were very attractive for many Koreans, and they seized them.

As expected, by the end of the 1990s, there were people in North Korea who had quite a lot of money at their disposal. They wanted to invest this money in relatively large projects and were willing to hire labor. Although formal laws in North Korea still strictly prohibited such actions, North Korean entrepreneurs managed to find a serious loophole in these laws. And, of course, they took advantage of it.

According to the standard practice since the late 1990s, a North Korean investor-entrepreneur planning to establish a sizable enterprise could register it as state property. Let's say, for example, there was a woman named Aunt Kim who earned a decent income in the tough times of the 1990s by selling soy curd products. Around 2001 or 2002, when the famine began to ease, Aunt Kim wanted to open her own restaurant. Fortunately, she had already saved enough money for such a venture and had the necessary connections. In this scenario, our hypothetical aunt would likely visit the local municipality (People's Committee) and negotiate with the officials there to open a restaurant that was registered as state property in the city.

The fact that our hypothetical (yet very typical) story features a character named Aunt Kim isn't just a nod to political correctness. It reflects the significant role played by women in the new private businesses that emerged in North Korea during the 1990s. This was because, according to North Korean law, all men were required to have jobs in state-run enterprises. Unemployment simply didn't exist in North Korea. Those without state employment, or who didn't regularly go to work, were officially labeled ‘idlers’ and faced punishment, including administrative imprisonment for several months. Even during difficult times, these rules were generally enforced, meaning the vast majority of North Korean men had to report to their assigned state enterprises every morning, even if the enterprise had ceased normal operations.

However, this rule didn't apply to women. After marriage, a citizen of North Korea could officially register as a housewife, granting her the right to have no job in the state sector. However, until the late 1980s, no other sector in the North Korean economy existed. In practice, this meant that North Korean women had enough free time, allowing them to work in the private sector and run their own businesses since the 1990s. At the same time, their husbands were obliged, willingly or not, to show up at their official workplaces and spend some time there even if there was no actual work to be done.

Men also had another option. From the late 1990s, the ‘August 3 payments’ scheme became widespread. The person making these payments effectively bought the right to be unemployed. By making a certain contribution to an enterprise's budget,ithese were official payments to the fund of the enterprise a person was assigned to, not bribes the worker gained the right not to show up for work. In some cases, they could even avoid participating in ‘organizational life’, meaning they could skip meetings and political lectures. But such a luxury came at a high price. The August 3 payments usually far exceeded official salaries.

However, under the new circumstances, it quickly became apparent that wages were utterly useless. In the past, when the rationing system functioned normally, grains, other essential food items, and basic necessities were distributed at very low, almost symbolic prices. However, in the new reality, people had to buy these goods at market prices. This wasn't about purchasing luxury items since the primary concern was buying grains, the main and almost sole source of calories in North Korea. Grains and other vital goods were traded in the market for amounts of money that were far from symbolic. By the mid-1990s, one could only buy 1 or 2 kilograms of rice or 4 to 5 kilograms of corn or barley with their official monthly salary. Of course, surviving on this wage was absolutely impossible, though by then, no one was surviving on it anyway.

The expansion of private business in North Korea wasn't confined to just cafeterias or shoe repair workshops. By the early 2000s, relatively large private enterprises began to emerge, registered as state-owned entities under the scheme we have already discussed. By 2005–10, small private coal mines, cement factories, and minor oil refineries had become common.

The rise and growth of private businesses played a crucial role in ending the famine of 1996–99. After the year 2000, starvation-related deaths ceased in North Korea, and skillful diplomacy played a part here as well. Leveraging soft nuclear blackmail, as will be discussed later, North Korea managed to secure significant economic assistance from the outside world. From 2008–10, the country experienced a modest economic boom that lasted until 2019–20.

Kim Jong Il and his inner circle’s stance toward the spontaneous growth of markets and market relations was complex and underwent several changes. From Kim Jong Il's rise to power in 1994 until 2002, the North Korean government was not inclined to strongly oppose the private economy's expansion. Periodically, attempts were made to crack down on it, but they were in vain. In most cases, the North Korean authorities simply turned a blind eye to what was happening. From 2002 to 2005, Kim Jong Il’s government implemented reforms aimed at developing market relations, which in many ways foreshadowed the reforms carried out by Kim Jong Il's son Kim Jong Un from 2012 to 2018. It is worth noting that the planning and execution of these reforms were carried out by the same individuals, primarily the well-known senior economic leader Pak Pong Ju.

In 2005, it was decided to reverse the reforms and attempt to reinstate the old command-administrative economic system to the greatest extent feasible. The reasons behind this decision of Kim Jong Il remain unknown, and we are unlikely to learn them anytime soon. However, it can be speculated that the North Korean leadership was alarmed by the political consequences of the ongoing changes. Nevertheless, the attempt to reverse the situation and contain market dynamics ended in predictable failure. The population and the lower apparatus actively sabotaged the implementation of decisions aimed at restricting markets.

Eventually, the government attempted confiscatory monetary reform. Its primary goal was to seize the large cash reserves accumulated in the hands of private entrepreneurs by then. This reform undertaken in late 2009, conducted extremely incompetently and with several serious errors, triggered a dangerous political crisis. For a while, the country was practically on the brink of rebellion. However, faced with such a turn of events, the North Korean government was forced to backtrack. Since 2010, it has returned to its previous policy of simply turning a blind eye to the growth of market relations.