The
secret world of North Korea's new
rich By Andrei Lankov
SEOUL - When people in the West talk about
North Korea, they usually imagine a country of
hunger and floods, populated by starving children,
subsistence farmers and goose-stepping female
soldiers. These stereotypes - like nearly all
stereotypes - are not completely unfounded, but
misleading nonetheless.
North Korea is a
poor place, no doubt, even though recent reports
about looming famine seem to be part exaggeration
and part deliberate stratagem, initiated by the
regime to obtain aid from the international
community. Nonetheless, 2011 Pyongyang has a
booming restaurant scene and the traffic on its
broad streets - once notoriously empty - is
steadily increasing in volume.
Well-fed
North Koreans are frequenting newly opened sushi
bars and beer houses as well as a local hamburger
joint. On the streets of the North Korean capital,
one can see a lot of visibly
undernourished people, but
also a number of women clad in designer clothes.
One should not be surprised by these
sights, which can be encountered not only in
Pyongyang, but also in a number of major North
Korean cities.
The past 20 years saw the
slow-motion collapse of a hyper-centralized
economy that was once a defining feature of North
Korea's "nationalist Stalinism". Grassroots
capitalism has replaced state socialism and this
quiet transformation predictably brought in a
remarkable income inequality.
North
Korea's new rich made their fortunes amid the
economic chaos and social disruption of the great
famine of 1996-1999. This new bourgeoisie matured
in the next decade as the North Korean economy
started to partially recover from the disastrous
1990s.
As a North Korean female refugee
said to this author a few days ago: "Until 2005,
all but officials lived similar lives. But after
2005, everybody can see the difference between
rich and poor." Perhaps the change is difficult to
associate with just one year, but on balance she
seems to be correct.
Who are they - the
North Korean new rich? The upper crust of this
social group consists of high-level officials.
Some of them have gained their wealth through
illegal means, but many have seen their business
activities permitted and even actively encouraged
by the government. Most of the money is made in
foreign trade, with China being by the far the
most significant partner.
Many North
Korean companies, despite being technically owned
by the state, are effectively private and are run
by top officials and their relatives.
That
said, these people are not that frequently seen on
the streets of Pyongyang. They live in their own
enclosed world, of which not much is known.
But if we go one or two steps down, we
will encounter a very different type of North
Korean entrepreneur - somebody who has made his or
her (yes, surprising many of them are women) money
more or less independent of the state.
Complete independence is not possible
because every North Korean businessman has to pay
officials just to make sure that they will not ask
too many questions and turn a blind eye to
activities that are still technically illegal. In
many cases, North Korean entrepreneurs prefer to
disguise their private operations under the cover
of some state agency.
Take for example
Pak. In his early 40s, he runs a truck company
together with a few friends. The company has seven
trucks and largely specializes in moving salt from
salt ponds on the seacoast to major wholesale
markets. The company employs a couple of dozen
people, but officially it does not exist. On
paper, all trucks are owned by state agencies and
Pak's employees are also officially registered as
workers of state enterprises.
Pak bought
used trucks in China, paying the Chinese owners
with cash. He then took them to North Korea where
he had the vehicles registered with various
government agencies (army units are the best
choice since military number plates give important
advantages). Pak paid officials for their
agreement to "adopt" the trucks. This is so common
in the North that there is even an established
rate of how much fake registration of a particular
type of vehicle costs at which government agency.
Kim was a private owner of a gold mine.
The gold mine was officially registered as a state
enterprise. Technically, it was owned by a foreign
trade company that in turn was managed by the
financial department of the Party Central
Committee. However, this was a legal fiction, pure
and simple: Kim, once a mid-level police official,
made some initial capital through bribes and
smuggling, while his brother had made a minor
fortune through selling counterfeit Western
tobacco.
Then they used their money to
grease the palms of bureaucrats, and they took
over an old gold mine that had ceased operation in
the 1980s. They restarted the small mine and hired
workers, bought equipment and restarted
operations. The gold dust was sold independently
(and, strictly speaking, illegally) to Chinese
traders.
The brothers agreed with the
bureaucrats from the foreign trade company on how
much money they should pay them roughly between
30-40% and the rest was used to run the business
and enjoy life.
One step below we can see
even humbler people like Ms Young, once an
engineer at a state factory. In the mid-1990s, she
began trading in second-hand Chinese dresses. By
2005 she was running a number of workshops that
employed a few dozen women.
They made
copies of Chinese garments using Chinese cloth,
zippers and buttons. Some of the materials was
smuggled across the border, while another part was
purchased legally, mostly from a large market in
the city of Raseon (a special economic zone which
can be visited by Chinese merchants almost
freely).
Interestingly, Ms Young
technically remained an employee of a
non-functioning state factory from which she was
absent for months on end. She had to pay for the
privilege of missing work and indoctrination
sessions, deducting some $40 as her monthly
"donation". This is an impressive sum if compared
with her official salary of merely US$2.
The North Korean new rich might
occasionally feel insecure. They might be afraid
of the state, because pretty much everything they
do is in breach of some article of the North
Korean criminal code. A serious breach indeed -
technically any of the above described persons
could be sent to face an execution squad at the
moment the authorities change their mind.
Indeed, such was the sorry fate of a
significant number of first-generation North
Korean businessmen, those who began to make money
in the early 1990s, immediately after the collapse
of the Juche (self-reliance)-style
Stalinist economy. In 1994-1995, the execution of
profiteers and embezzlers, occasionally conducted
in public, was a part of a large campaign launched
by the central government. The fear still lingers,
but over the past 15 years such large-scale
campaigns have never been conducted on a
nationwide level. But for any business person, the
risk is quite real.
However, it is
difficult to say that they try to keep a low
profile. On the contrary, nowadays one can see a
lot of conspicuous consumption in North Korea,
where the average official figure is misleading -
virtually no North Korean family survives on the
official wage alone.
The average monthly
income is actually higher - thanks to the nearly
universal involvement with the unofficial economy
- and seems to be close to $15. Business people
earn much more. People like Kim or Young usually
make as much as a few thousand dollars a month,
while smaller businesses (like a corner shop or
tobacco workshop) bring in income measured in a
few hundred dollars a month.
It is no
surprise that the new rich enjoy consumption.
Overseas travel is out of the question (it is
permissible only for top business people related
to the upper elite and/or the Kim Jong-il family),
and domestic travel does not seem to be very
popular. Nonetheless, the new rich frequent
restaurants where a good meal will cost roughly as
much as the average North Korean family makes in a
couple of weeks.
They buy houses -
technically the sale of real estate is illegal,
but in the past two decades North Koreans have
developed many techniques that allow the
circumvention of these measures with ease. They
buy all kinds of household appliances, flat-screen
TVs, computers, large fridges, motor bikes. Even
private cars have begun to appear, though in most
cases successful businessmen prefer to register
their used Toyotas and Hondas as the property of
some state agency.
There are some peculiar
problems that the North Korean new rich face. For
example, even Pyongyang, let alone smaller cities,
has a very unreliable supply of electricity. Large
batteries and small power generators are of help,
but only to a certain extent. Batteries are enough
to run a TV or a DVD player, but power-hungry
air-conditioners and fridges need a constant
supply of electricity that is not readily
available.
Surprisingly, many people in
the countryside still buy fridges, even though the
contraptions are unusable most of the time. I have
frequently come across North Koreans who have
boasted of the fridge they own, only to admit that
they do not have electricity to switch it on.
To my perplexed question of why they spent
so much money on such a useless device, my
interlocutors would usually reply that a fridge
was an important and even useful status symbol. An
affluent household nowadays is expected to own a
fridge, even if it is used as a bookshelf (as was
the case with one of my North Korean
acquaintances).
In some cases, fridges are
on all the time - like the air-conditioners which
are seldom bought for prestige purposes alone. At
first glance, a small power generator appears to
be the solution, but this is not really the case.
Such generators are easy come by in the North, but
they are not reliable, consume a lot of expensive
fuel and - last, but not least - are very noisy.
So, even though many rich North Korean families
have such machines, these devices are usually only
used on special occasions.
Surprisingly,
more common is the seemingly exotic practice of
electricity theft. A North Korean of wealthy means
makes a deal with a local military commander or
manager of the local power grid, then an illegal
power cable connects the entrepreneur's house with
a power grid sub-station or military base
(military installations are usually supplied with
electricity even when the common customers are
switched off).
I know of a rich
neighborhood in a relatively affluent borderland
North Korean city where half a dozen households
made an illegal deal with a manager of the power
grid. Each family pays the equivalent of $7 and
has round the clock access to an unlimited
electricity supply. All these houses boast
air-conditioners, a supreme luxury in the
countryside.
What will happen to these
people? What is their role in the future of North
Korea? Ostensibly, there seem to be reasons to be
optimistic. The rising merchant classes in Europe
of the 17th and 18th centuries eventually
destroyed feudal monarchies. So why shouldn't we
expect a similar fate for the Kim regime, which
has a surprising amount in common with the states
of pre-modern Europe?
This indeed might
happen: the growth of the private economy is
slowly eroding the authority and control of the
government and concurrently is bringing dangerous
ideas to North Koreans. Business people themselves
see the state and its officials as a swarm of
parasites (frankly, this feeling seems to be
mutual).
However, there is an interesting
twist. If a North Korean revolution comes, it is
likely to be followed by unification with (or
rather absorption by) the South: the allure of the
rich and free South is seemingly irresistible.
However, if this were to happen, the future of
North Korean nascent businesses would not be rosy.
It is telling that in the countries of the former
communist bloc, surprisingly few bosses of
communist-era black market businesses managed to
adjust to the new, "regular" capitalist
environment.
In North Korea, their peers
are likely to fare even worse, since they will
have to compete with the capital and expertise of
South Korean businesses.
Paradoxically,
the long-term interests of the emerging North
Korean business class might coincide with that of
the Kim regime. Unlike normal people in the North,
both groups - officials and entrepreneurs - have
an interest in maintaining a separate North Korean
state. Unification with the South is bound to
spell disaster for both groups.
A person
who is now running a couple of small shops might
eventually, if North Korean capitalism continues
uninterrupted growth, become an owner of a
supermarket chain. If unification comes, he or she
would be lucky to survive the competition with the
South Korean retail giants and keep the few corner
shops they had.
However, the alliance
between the regime and the newly emerged North
Korean entrepreneurial class does not seem likely:
neither corrupt officials nor greedy black market
operators are that far-sighted. This is probably
very good news for the vast majority of North
Koreans who are likely to benefit much from the
collapse of the regime and possible unification
with the South.
Andrei Lankov is
an associate professor at Kookmin University in
Seoul, and adjunct research fellow at the Research
School of Pacific and Asian Studies, Australian
National University. He graduated from Leningrad
State University with a PhD in Far Eastern history
and China, with emphasis on Korea. He has
published books and articles on Korea and North
Asia.
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