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     Jul 7, 2012

North Korea's pools of prosperity
By Andrei Lankov

What does the average readers of the Western media think when they hear the words "North Korea"? Admittedly, there are a number of associations, none of which are particularly flattering or pleasant. North Korea is thought to be a "Stalinist country", a "crazy and irrational dictatorship" and is of course, a "destitute and starving nation".

Most of these images are only partially true at best. North Korea might still maintain a rather compelling Stalinist facade, but its society is no longer Stalinist. North Korea might appear irrational and hysterical in its actions and words, but there is a clear method in its madness (and actually, there is no madness involved, since the country's international actions are quite rational and calculating). Finally, is North Korea really destitute? To some


extent it is, but significantly less so than most people would assume.

Every autumn, readers of the international media are bombarded with reports about an unusually dire food situation in North Korea, which is said to experience another famine soon unless some counter-measures are taken. Such articles usually start popping up in October or November, but in a couple of months the topic disappears, for good reason: no famine actually happens in the spring. This fact is not usually noticed by the international media, so the pattern repeats itself annually.

For a long-time observer of North Korean politics, it appears obvious that these scare stories have two major sources. First, the international aid community and its representatives in North Korea are prone to disseminating such alarmist reports. Indeed, such reports help attract more aid to a country, which is, after all, in dire need of such assistance. Second, it seems that the North Korean authorities have also learnt how to complain loudly enough. Gone are the days when its officials presented their country as a paradise on earth. Nowadays they are far more likely to exaggerate the extent of their country's economic difficulties in order to maximize outside aid.

Therefore one should not be surprised that the average Western visitor to Pyongyang is bewildered by the scenes he or she is likely to encounter on arrival in the North Korean capital. Nowadays Pyongyang decisively does not feel like a city whose population faces the constant threat of death by starvation - even though it remains backward, anachronistic and poor by the standards of both Europe and East Asia.

There are numerous signs of steady improvement in the economic situation in North Korea - or, at least, in Pyongyang and other major cities. The huge avenues of Pyongyang, once infamous for their complete lack of traffic, are now reminiscent of the streets of 1970s Moscow - traffic is not too heavy, but clearly present. In older parts of the city, where streets are not that wide, one can occasionally even encounter minor traffic jams, once completely unthinkable in North Korea. Visitors and Pyongyangites alike can feast on numerous delicacies in a multitude of posh restaurants, which have been popping up around the city in recent years.

More expensive shops stocking luxury goods are becoming more numerous as well. Gone are the days when a bottle of cheap Chinese shampoo was seen as a great luxury; one can easily now buy Chanel in a Pyongyang boutique; and, of course, department stores offer a discount to those who spend more than one million won on a shopping spree. One million won is roughly equivalent to US$250 - not a fortune by the Western standards but still a significant amount of money in a country where the average monthly income is close $25.

The abundance of mobile phones is much talked about. Indeed, North Korea's mobile network, launched as recently as late 2008, has more than one million subscribers. It is often overlooked that the old good landline phones also proliferated in the recent decade. A phone at home ceased to be seen as a sign of luxury and privilege, as was the case for decades. Rather, it has become the norm - at least, in Pyongyang and other large cities.

The capital remains badly lit in night, but compared with the norm of some five or 10 years ago, the situation has improved much. The electricity supply has become far more reliable, and in late hours most of the houses have lights switched on.

Of course, this affluence is relative and should not be overestimated: many people in Pyongyang still see a slice pork or meat soup as a rare delicacy. The new posh restaurants and expensive shops are frequented by the emerging moneyed elite, which includes both officials and black/grey market operators (in some cases one would have great difficulty to distinguish between these two groups). In a sense, Pyongyang's prosperity also reflects the steadily growing divide between the rich and poor that has become a typical feature of North Korea of the past two decades.

Nonetheless, those foreign observers who have spent decades in and out of Pyongyang are almost unanimous in their appraisal of the current situation: Pyongyang residents have never had it so good. It seems that life in Pyongyang has not merely returned to pre-crisis 1980s standards but has surpassed it.

The North Korean government ceased to publish virtually any economic statistics half a century ago, so most of the statistics cited in the media are estimates often based on the thinnest of data samples. The world's leading authority on the North Korean economy, Marcus Noland, loves to repeat that "one should not believe any data about North Korea if it comes with a decimal point attached". Even this warning seems to be slightly optimistic, since the normal margin of error is definitely much higher than a fraction of a percentage point. Nonetheless, almost all estimates agree that North Korea has experienced mild economic growth over the past 10 years.

It is remarkable that this minor economic boom began around 2006-7, that is, roughly around the time the country was subjected to an increasingly harsh (on paper) sanctions regime.This speaks volumes about the efficacy of the international sanctions.

All this leaves us with two important questions to answer: how representative are developments in Pyongyang - ie how prosperous is the rest of the country? And, of course, who and what has bankrolled these developments?

Both questions are not easy to answer. It is clear from visitors' reports that the countryside has changed far less than the cities although certainly life is better than it was 10 years ago. The North Korean village remains a world of pre-modern technology, where oxen and pushcarts remain the major means by which cargo is hauled, and electricity is supplied at best for a couple of hours a day.

Starvation seems to be very rare or absent, but malnourishment is still a fact of life for many, if not most, North Koreans outside Pyongyang. It seems to be the case that the gap between Pyongyang and the countryside, which has been yawning for many decades, has increased even more, but this does not mean that the situation in the countryside keeps deteriorating. This appears to be the tide which rise all boats, albeit with very different speed.

What about the source of this economic expansion? We cannot know for certain, but there seem to be three main reasons behind it.

The first seems to be the growth of private economic activity. Estimates vary, but most experts agree that the average North Korean family gets well over half its income from a variety of private economic activities. Many (if not most) of the above mentioned new restaurants in Pyongyang, for example, are owned privately, even though, for the sake of legal rectitude, they are registered as government enterprises.

Many of the cars that get caught in emerging traffic jams in Pyongyang are also owned privately, even though they usually have number plates marked with the credentials of a particular state agency - this can be easily arranged by paying a small bribe to an official of the said agency (private cars are theoretically allowed, but due to many reasons car owners prefer to obtain a fake registration with some government agency).

The North Korean authorities were very suspicious about the spontaneous growth of markets and have waged a number of campaigns to curb unwelcome changes. None of these campaigns has been particularly successful, and at least one of them, the currency reform of 2009, was positively disastrous. The private economy continues to grow, and it seems that it has finally begun to generate economic momentum. This is happening against the government wishes, but it is happening nonetheless.

The second reason is the gradual adjustment of what is left of the state-controlled economy. Nowadays, North Korean industrial managers do not sit by helplessly when they cannot get spare parts or fuel from the state - as was often the case in the 1990s. Instead, they try to find what they need, often getting the necessary supplies from the private market. They also enter into deals with other managers of other state enterprise. Often the line between government and private economic activities has become blurred, and many state enterprises have learned to sustain themselves through capitalist methods of management, acquisitions and sales.

The third reason is, of course, Chinese economic assistance and investment. In the early 2000s, the trade between North Korea and China, long stagnant, began to grow dramatically. In 2011, the growth was spectacular: trade between China and North Korea increased almost 50% compared with 2010. Once again, this speaks volumes about China's attitude to the international sanctions regimes dealing with North Korea.

So there is little doubt that the current improvement has been significantly backed by Chinese money. Nonetheless, it is not known to what extent that money comes from long-term projects or results from one-off payments (for example, the sale of mining rights, or port access rights). Some people in the know believe that the newly found prosperity of Pyongyang has largely been bankrolled by sales of mining rights to Chinese companies. If this is the case, the current prosperity is not going to last, but we simply do not know enough to be certain about this.

One should not misconstrue what is said to the effect that North Korea has become a moderately prosperous state. North Korea remains Asia's poorest country, and the gap between North Korea and its booming neighbors continues to grow.

Nonetheless you cannot help but be skeptical when you see statements about the exceptional destitution of North Korea. It is a very poor, very brutal and repressive place, no doubt about it, but in the last five to seven years, the life of the average North Korean has changed for the better.

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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