NORTH KOREA’S COMMAND ECONOMY
The North Korea's economy remains one of the world's most highly centralized and planned, even by communist standards. Complete "socialization" of the economy was accomplished by 1958, when private ownership of the means of production, land, and commercial enterprises was replaced by state or cooperative (collective) ownership and control. As a result, industrial firms were either state-owned or cooperatives, the former contributing more than 90 percent of total industrial output in the 1960s. [Source: Andrea Matles Savada, Library of Congress, 1993 *]
Unlike in industry, collectives are the predominant form of ownership and production in agriculture; the remaining rural enterprises are organized as state farms. The sole negligible exception to state and collective ownership in agriculture is the ownership of small garden plots and fruit trees, as well as the raising of poultry, pigs, bees, and the like, which are permitted both for personal consumption and sale at the peasant market. Private plots can be no more than roughly 160 square meters in area. State and cooperative ownership and control extends to foreign trade, as well as to all other sectors of the economy, including banking, transportation, and communications.*
In commerce nearly all goods are distributed through either state-operated or cooperative stores. Less than 1 percent of retail transactions are carried out at peasant markets, where surplus farm products are sold at free-market prices.*
As in other Soviet-type or "command" economies, all economic decisions concerning the selection of output, output targets, allocation of inputs, prices, distribution of national income, investment, and economic development are implemented through the economic plan devised at the center and are "blueprinted" by the State Planning Committee. In the face of the worldwide political and economic collapse of communist regimes in the early 1990s, North Korea defiantly continues to sing the praises of a command economy. Attempts to increase production through rigid central control and exhortations and other non-pecuniary incentives have not ceased, as exemplified by the campaign entitled "Speed of the 1990s." On-site industrial visits by President Kim Il Sung and his son and heir-apparent, Kim Jong Il, continue.*
Difficulty Accessing North Korea’s Economic Performance
A lack of reliable data inhibits an accurate quantitative assessment of North Korea's economic performance. In mid-1993 North Korea remains one of the most secretive nations in the world, limiting the release of its economic data to the outside world and, for that matter, to its own population. Until about 1960, North Korea released economic data relatively more freely. Beginning in the 1960s, the publication of economic data began to dwindle dramatically; the withholding of information coincided with the beginning of the economy's slowdown. [Source: Andrea Matles Savada, Library of Congress, 1993 *]
The small amount of data that is published suffers from ambiguities and gaps and--more often than not--is in the form of percentages that do not provide base figures or explain the precise meaning of aggregated data. Moreover, North Korean macroeconomic aggregates such as national income, which is based on Marxist definitions, has to be modified in order to be comparable to customary Western standards. In the 1980s and early 1990s, only limited quantitative or qualitative information about the North Korean economy was available. Quantitative information on foreign trade is a welcome exception because the statistical returns from North Korea's trade partners are gathered by such international organizations as the United Nations (UN) and the International Monetary Fund (IMF), and South Korean organizations such as the National Unification Board.*
Estimating gross national product (GNP) is a difficult task because of the dearth of economic data, the national income accounting procedures based on the Marxist definition of production, and the problem of choosing an appropriate rate of exchange for the wn-- the nonconvertible North Korean currency. The South Korean government's estimate placed North Korea's GNP in 1991 at US$22.9 billion, or US$1,038 per capita. This estimate of economic accomplishment pales next to South Korea's GNP of US$237.9 billion with a per capita income of US$5,569 that same year. North Korea's GNP in 1991 showed a 5.2 percent decline over 1989, and preliminary indications were that the decline would continue. In contrast, South Korea's GNP grew by 9.3 percent and 8.4 percent, respectively, in 1990 and 1991.
Dominance of the Korean Workers' Party Over the North Korean Economy
According to “Worldmark Encyclopedia of National Economies”: “The Korean Workers' Party (KWP) has dominated the North Korean political system since 1948. As a communist party opposed to free enterprise, it controls the economy with little room for private initiative. The state is the country's only economic actor, its only economic planner, and its sole employer. The suppression of any form of political dissent has not allowed opposition parties to advance an alternative economic model. [Source: “Worldmark Encyclopedia of National Economies”, The Gale Group Inc., 2002]
“The constitution, created in 1948 and revised in 1972, 1992, and 1998, calls for a single legislative body called the Supreme People's Assembly, with 687 seats. Though Assembly members are "elected," in fact the KWP supplies a single list of candidates who are elected without opposition. The Assembly members similarly elect the premier, but true executive power lies with the president, Kim Jong Il. There is also a judicial branch whose members are selected by the Supreme People's Assembly.
“The state's ideology and autocracy are responsible for North Korea's economic problems. The North Korean economy proved unstable because it relied on outside financing and socialist ideology, rather than private enterprise. In the absence of a viable private sector, the economy was forced to survive on foreign assistance and trade with the Soviet Union. The Soviet collapse in 1991 brought an end to its aid to North Korea. China's ideological "betrayal" of North Korea in establishing ties with South Korea in 1992 also deprived the North of much financial support. The North Korean government has since then found itself unable to solve its economic problems on its own. Despite the massive national deficit, the country spends vast sums of money (estimated at between US$3.7 and US$4.9 billion in 1998) on the armed services, maintaining one of the world's largest armies while requiring international food aid for the survival of its starving population.
Organization, Isolation and Management of the North Korean Economy
Since the government is the dominant force in the development and management of the economy, bureaus and departments have proliferated at all administrative levels. There are fifteen committees--such as the agricultural and state planning committees--one bureau, and twenty departments under the supervision of the State Administration Council; of these, twelve committees--one bureau, and sixteen departments are involved in economic management. In the early 1990s, several vice premiers of the State Administration Council supervised economic affairs. Organizations undergo frequent reorganization. Many of these agencies have their own separate branches at lower levels of government while others maintain control over subordinate sections in provincial and county administrative agencies. [Source: Andrea Matles Savada, Library of Congress, 1993 *]
North Korea's reliance on a command economy has led to an inward-looking development strategy, demonstrated in policies on domestic industrial development, foreign trade, foreign capital, imported technology, and other forms of international economic cooperation. Priority is assigned to establishing a selfsufficient industrial base. Consumer goods are produced primarily to satisfy domestic demand, and private consumption is held to low levels. This approach is in sharp contrast to South Korea's outward-oriented strategy begun in the mid-1960s, which started with light industry in order to meet the demands of growing domestic and foreign markets and export expansion. *
As a consequence of the government's policy of establishing economic self-sufficiency, the North Korean economy has become increasingly isolated from that of the rest of the world, and its industrial development and structure do not reflect its international competitiveness. Domestic firms are shielded from international as well as domestic competition; the result is chronic inefficiency, poor quality, limited product diversity, and underutilization of plants. This protectionism also limits the size of the market for North Korean producers, which, in turn, prevents them from taking advantage of economies of scale.*
Beginning in the mid-1980s, and particularly around the end of the decade, North Korea began slowly to modify its rigid selfreliant policy. The changes, popularly identified as the opendoor policy, included an increasing emphasis on foreign trade, a readiness to accept direct foreign investment by enacting a joint venture law, the decision to open the country to international tourism, and economic cooperation with South Korea.
Economic Planning in North Korea
Although general economic policy objectives are decided by the Central People's Committee (CPC), it is the task of the State Planning Committee to translate the broad goals into specific annual and long-term development plans and quantitative targets for the economy as a whole, as well as for each industrial sector and enterprise. Under the basic tenets of the 1964 reforms, the planning process is guided by the principles of "unified planning" (ilwnhwa) and of "detailed planning" (saebunhwa). [Source: Andrea Matles Savada, Library of Congress, 1993 *]
Under "unified planning," regional committees are established in each province, city, and county to systematically coordinate planning work. These committees do not belong to any regional organization and are directly supervised by the State Planning Committee. As a result of a reorganization in 1969, they are separated into provincial planning committees, city/county committees, and enterprise committees (for large-scale enterprises).*
The various planning committees, under the auspices of the State Planning Committee, coordinate their planning work with the existing planning offices of the various economy-related government organizations in each of the corresponding regional and local areas. The system attempts to enable the regional planning staffs to better coordinate with economic establishments in their areas, which are directly responsible to them with regard to planning, as well as to communicate directly with staff at the CPC. "Detailed planning" seeks to construct plans with precise accuracy and scientific methods based on concrete assessment of the available resources, labor, funds, plant capacities, and all other necessary information.*
There are four stages in drafting the final national economic plan. The first stage is collecting and compiling preliminary statistical data. These figures, which are used as the basic planning data on the productive capacities of various economic sectors, originally are prepared by lower level economic units and aggregated on a national level by respective departments and committees. Simultaneously, the regional, local, and enterprise planning committees prepare their own data and forward them to the CPC. Through this two-channel system of simultaneous but separate and independent preparation of statistical data by economic units and planning committees, the government seeks to ensure an accurate, objective, and realistic data base unfettered by local and bureaucratic bias. The second stage is preparing the control figures by the CPC based on the preliminary data in accordance with the basic plan goals presented by the Central People's Committee. In the third stage, a draft plan is prepared.*
The draft plan, prepared by the CPC, is the result of coordinating all draft figures submitted by the lower level economic units, which, in turn, base their drafts on the control figures handed down from the committee. In the fourth stage, the CPC submits a unified national draft plan to the Central People's Committee and the State Administration Council for confirmation. After approval by the Supreme People's Assembly, the draft becomes final and is distributed to all economic units as well as to regional and local planning committees. The plan then becomes legal and compulsory. Frequent directives from the central government contain changes in the plan targets or incentives for meeting the plan objectives.*
Although the central government is most clearly involved in the formulation and evaluation of the yearly and long-term plans, it also reviews summaries of quarterly or monthly progress. Individual enterprises divide the production period into daily, weekly, ten-day, monthly, quarterly, and annual periods. In general, the monthly plan is the basic factory planning period.*
The success of an economic plan depends on the quality and detail of information received, the establishment of realistic targets, coordination among different sectors, and correct implementation. High initial growth during the Three-Year Plan and, to a lesser extent, during the Five-Year Plan contributed to a false sense of confidence among the planners. Statistical overreporting--an inherent tendency in a economy where rewards lie in fulfilling the quantitative targets, particularly when the plan target year approaches--leads to overestimation of economic potential, poor product quality, and eventually to plan errors. Inefficient utilization of plants, equipment, and raw materials also add to planning errors. Lack of coordination in planning and production competition among sectors and regions cause imbalances and disrupt input-output relationships. The planning reforms in 1964 were supposed to solve these problems, but the need for correct and detailed planning and strict implementation of plans was so great that their importance was emphasized in the report unveiling the Second Seven-Year Plan, indicating that planning problems persisted in the 1980s.*
The Ch'ongsan-ni Method, or Chngsan-ri Method, of management was born out of Kim Il Sung's February 1960 visit to the Ch'ongsan-ni Cooperative Farm in South Pyongan Province. Kim and other members of the KWP Central Committee offered "on-the-spot guidance" and spent fifteen days instructing and interacting with the workers. The avowed objective of this new method is to combat "bureaucratism" and "formalism" in the farm management system. [Source: Andrea Matles Savada, Library of Congress, 1993 *]
The leadership claimed that farm workers were unhappy and produced low output because low-ranking party functionaries, who expounded abstract Marxist theories and slogans, were using incorrect tactics that failed to motivate. To correct this, the leadership recommended that the workers receive specific guidance in solving production problems and be promised readily available material incentives. The Ch'ongsan-ni Method called for highranking party officials, party cadres, and administrative officials to emulate Kim Il Sung by making field inspections. The system also provided opportunities for farmers to present their grievances and ideas to leading cadres and managers.*
Perhaps more important than involving administrative personnel in on-site inspections was the increased use of material incentives, such as paid vacations, special bonuses, honorific titles, and monetary rewards. In fact, the Ch'ongsan-ni Method appeared to accommodate almost any expedient to spur production. The method, however, subsequently was undercut by heavy-handed efforts to increase farm production and amalgamate farms into ever-larger units. Actual improvement in the agricultural sector began with the adoption of the subteam contract system as a means of increasing peasant productivity by adjusting individual incentives to those of the immediate, small working group. Thus the increasing scale of collective farms was somewhat offset by the reduction in the size of the working unit. "On-the-spot guidance" by high government functionaries, however, continues in the early 1990s, as exemplified by Kim Il Sung's visits to such places as the Wangjaesan Cooperative Farm in Ssng County and the Kyngsn Branch Experimental Farm of the Academy of Agricultural Sciences between August 20 and 30, 1991.
Taean Work System and Industry in North Korea
The industrial management system developed in three distinct stages. The first stage was a period of enterprise autonomy that lasted until December 1946. The second stage was a transitional system based on local autonomy, with each enterprise managed by the enterprise management committee under the direction of the local people's committee. This system was replaced by the "oneman management system," with management patterned along Soviet lines as large enterprises were nationalized and came under central control. The third stage, the Taean Work System, was introduced in December 1961 as an application and refinement of agricultural management techniques to industry. The Taean industrial management system grew out of the Ch'ongsan-ni Method. [Source: Andrea Matles Savada, Library of Congress, 1993 *]
The highest managerial authority under the Taean system is the party committee. Each committee consists of approximately twenty-five to thirty-five members elected from the ranks of managers, workers, engineers, and the leadership of "working people's organizations" at the factory. A smaller "executive committee," about one-fourth the size of the regular committee, has practical responsibility for day-to-day plant operations and major factory decisions. The most important staff members, including the party committee secretary, factory manager, and chief engineer, make up its membership. The system focuses on cooperation among workers, technicians, and party functionaries at the factory level.*
Each factory has two major lines of administration, one headed by the manager, the other by the party committee secretary. A chief engineer and his or her assistants direct a general staff in charge of all aspects of production, planning, and technical guidance. Depending on the size of the factory, varying numbers of deputies oversee factory logistics, marketing, and workers' services. The supply of materials includes securing, storing, and distributing all materials for factory use, as well as storing finished products and shipping them from the factory.*
Deputies are in charge of assigning workers to their units and handling factory accounts and payroll. Providing workers' services requires directing any farming done on factory lands, stocking factory retail shops, and taking care of all staff amenities. Deputies in charge of workers' services are encouraged to meet as many of the factory's needs as possible using nearby agricultural cooperatives and local industries.*
The secretary of the party committee organizes all political activities in each of the factory party cells and attempts to ensure loyalty to the party's production targets and management goals. According to official claims, all management decisions are arrived at by consensus among the members of the party committee. Given the overwhelming importance of the party in the country's affairs, it seems likely that the party secretary has the last say in any major factory disputes.*
The Taean system heralded a more rational approach to industrial management than that practiced previously. Although party functionaries and workers became more important to management under the new system, engineers and technical staff also received more responsibility in areas where their expertise could contribute the most. The system recognizes the importance of material as well as "politico-moral" incentives for managing the factory workers. The "internal accounting system," a spin-off of the "independent accounting system," grants bonuses to work teams and workshops that use raw materials and equipment most efficiently. These financial rewards come out of enterprise profits.*
A measure of the success of the Taean Work System is its longevity and its continued endorsement by the leadership. In his 1991 New Year's address marking the thirtieth anniversary of the creation of the system, Kim Il Sung said that the "Taean work system is the best system of economic management. It enables the producer masses to fulfill their responsibility and role as masters and to manage the economy in a scientific and rational manner by implementing the mass line in economic management, and by combining party leadership organically with administrative, economic, and technical guidance."
Mass Production Campaigns in North Korea
Parallel to management techniques such as the Ch'ongsan-ni Method and the Taean Work System, which were designed to increase output in the course of more normalized and regularized operations of farms and enterprises, the leadership continuously resorts to exhortations and mass campaigns to motivate the workers to meet output targets. The earliest and the most pervasive mass production campaign was the Ch'llima Movement. Introduced in 1958, and fashioned after China's Great Leap Forward (1958-60), the Ch'llima Movement organized the labor force into work teams and brigades to compete at increasing production. The campaign was aimed not only at industrial and agricultural workers but also at organizations in education, science, sanitation and health, and culture. In addition to work teams, units eligible for Ch'llima citations included entire factories, factory workshops, and such self-contained units as a ship or a railroad station. The "socialist competition" among the industrial sectors, enterprises, farms, and work teams under the Ch'llima Movement frantically sought to complete the Five-Year Plan (1957-60), but instead created chaotic disruptions in the economy. The disruptions made it necessary to set aside 1959 as a "buffer year" to restore balance in the economy. [Source: Andrea Matles Savada, Library of Congress, 1993 *]
Although the Ch'llima Movement was replaced in the early 1960s by the Ch'ongsan-ni Method and the Taean Work System, the regime's reliance on some form of mass campaign continued into the early 1990s. Campaigns conducted after the Ch'llima Movement have been narrower in scope and have concentrated on specific time frames for a particular industry or economic sector. Often, the mass production movement takes the form of a "speed battle"-- the "100-day speed battle" being most common. The fact that the leadership has to resort to these campaigns points to the weakness or improper functioning of the regular day-to-day management system, as well as to a lack of incentives for workers to achieve the desired economic results. The leadership frequently resorts to speed battles toward the end of a certain period (such as a month, a year, or a particular economic plan) to reach production targets. The "Speed of the 1990s" is designed to carry out the economic goals of the decade.*
Dominance of the Military in the North Korean Economy
Blaine Harden wrote in the Washington Post when Kim Jong-il was still in power: “North Korea's military has grabbed nearly complete command of the nation's state-run economy and staked out a lucrative new trade in mineral sales to China to make money for its supreme commander Kim Jong-il. As it deepens its dominance over nearly every aspect of daily life, the Korean People's Army is also deploying soldiers to take first dibs on all food harvested in the isolated, chronically hungry country, according to the latest assessments of analysts. [Source: Blaine Harden, Washington Post, November 3, 2009]
“The army has earned hundreds of millions of dollars selling missiles and weapons to Iran, Pakistan, Syria and other nations. But its two nuclear tests, the most recent of which occurred in May, have triggered U.N. sanctions that are now choking off arms sales. So the army has come up with a new business model, taking over the management of state trading companies to rapidly increase sales of coal, iron ore and other minerals to China, according to trade data and analysts.
“The potential profits are eye-popping: China is one of the world's most voracious consumers of raw materials, and North Korea's mineral reserves are worth $5.94 trillion, according to an estimate by South Korea's Ministry of Unification. China has been critical of North Korea's nuclear program and missile tests, but it also has vastly increased its economic ties with Kim's government.
Kim is increasingly creaming off a significant slice of Chinese mineral revenue to fund his nuclear program and to buy the loyalty of elites, according to "North Korea, Inc.," a recent report by the United States Institute of Peace, a Washington-based group funded by the U.S. Congress.
The report echoes the views of North Korean analysts in South Korea, Japan and the United States, who say the military has elbowed out other ministries and the Korean Workers' Party to take control of exports that earn hard currency. The military is also sending trucks to state farms to haul away as much as a quarter of the annual harvest for its soldiers, analysts say. "The military is by far the largest, most capable and most efficient organization in North Korea, and Kim Jong Il is making maximum use of it," said Lim Eul-chul of the Institute for Far Eastern Studies in Seoul.
“Kim's top priority is a ferocious military that can deter a preemptive strike on the nuclear facilities that make North Korea an actor on the international stage, according to Bruce Klingner of the Heritage Foundation, a former CIA intelligence analyst who specialized in North Korea. But Kim also demands that the military be the primary engine of national prosperity. Outside economists describe that strategy as absurd because defense spending usually crowds out sustainable economic growth. North Korea, though, thinks differently. "Once we lay the foundation for a powerful self-sustaining national defense industry, we will be able to rejuvenate all economic fields," said the Nodong Sinmun, the main government newspaper.
Role of the Military in Daily North Korean Economic Life
Blaine Harden wrote in the Washington Post: “North Korea is perhaps the world's most secretive and repressive state, but it makes no attempt to hide the ubiquitous role the military plays in the daily lives of the country's 23.5 million people. Soldiers dig clams and launch missiles, pick apples and build irrigation canals, market mushrooms and supervise the export of knockoff Nintendo games. They also guard the country's 3,000 cooperative farms, and help themselves to scarce food in a hungry country. "The army is the people, the state and the party," the government has declared. All references to the word "communism" were removed this year from the North Korean constitution. They were replaced with the word "songun," which means "military first." Defectors and outside experts agree that "military first" is a literal description of how the economy works, how citizens are forced to organize their lives and how Kim remains powerful -- and wealthy. [Source: Blaine Harden, Washington Post, November 3, 2009]
“In a cold, mountainous country chronically short of food, it is no small trick to feed more than a million soldiers every day. In the "military first" era, the army has come up with muscular solutions. "At harvest time, soldiers bring their own trucks to the farms and just take," said Kwon Tae-jin, a specialist on North Korean agriculture at the Korea Rural Economic Institute, which is funded by the South Korean government.
“In the far north, where food supplies are historically lean, the military takes a quarter of total grain production, Kwon said. In other areas of the country, he said, it takes 5 to 7 percent. To make sure that workers at state farms do not shortchange the military, Kwon said, the army stations soldiers at all 3,000 of them. He said that when tens of thousands of city dwellers are brought to the farms to assist with the fall harvest, soldiers monitor them to make sure they do not steal food.
“The permanent deployment of soldiers on the farms has led to a pattern of corruption, Kwon said: Farm managers pay off soldiers, who then turn a blind eye to large-scale theft of food that is later sold in private markets. Disputes among groups of corrupt soldiers periodically lead to fistfights and shootouts, according to a number of defectors and reports by aid groups. And chronic malnutrition among low-level soldiers persists. In the past month, Good Friends, a Buddhist aid group with informants in the North, reported on a fight between soldiers and guards at a state farm. In a scuffle over a piece of corn, one soldier was reportedly stabbed with a sickle.”
Ration System in North Korea
Bong Dae Choi and Kab Woo Koo of the Natilus Institute wrote: “In 1946, DPRK authorities established a foodstuff rationing system for limited classes such as students and office workers. This system was gradually expanded. As this expansion occurred, in November 1957, the Cabinet banned the independent sale of cereals by passing articles 96 and 102. By employing a state rationing system for all citizens except farm workers, the state completed its efforts to systematically enforce a ban on the participation of city residents in farmers’ markets. [Source: Bong Dae Choi and Kab Woo Koo, Natilus Institute, November 3, 2005]
In 1958, North Korean authorities instituted a total ration system that provided laborers and workers with an average of 700 grams of food per person per day until the beginning of the 1970s. The system was not equal. Members of 'wavering class', composed of the peasants and workers who generally followed the party line received dog meat while core class, comprised of elites, got pork or beef. There was a beer ration, in which men were given vouchers every month.
Under the North Korean ration system, North Koreans have traditionally exchanged coupons for subsidized rice and other foods once a month at a distribution center. The aim of the food rationing was to provide an adequate diet for all North Koreans. Many supplemented their rations by buying foods at local markets and from vendors.
In the 1960s and 70s food rations were distributed twice a month and included flour, corn and just three kilograms of rice per person. People grew vegetables at home and often collected wild plants for food. Some people secretly brewed beer and sold it on the black market.
Housing and food rations traditionally have been heavily subsidized. However, the party, state, and military elites have traditionally had access to better foods than the average citizen. Natural disasters in the 1990s led to a breakdown in food rationing and many North Koreans fled to China in search of food. [Source: Library of Congress, July 2007**]
There are five categories of social control: residence, travel, employment, clothing and food, and family life. Change of residence is possible only with party approval. Those who move without a permit are not eligible for food rations or housing allotments and are subject to criminal prosecution. The ration system does not recognize individuals while they are traveling, which further curtails movement.
Pressure on the North Korea’s Ration System in the 1970s
Bong Dae Choi and Kab Woo Koo wrote for the Natilus Institute: “After 1973, citing the war as a reason, rations were reduced by two out of every 15-day’s worth. In addition, in contrast to the previous system, children’s supplements began to be redistributed ‘reduced according to age.’ Also, additional reductions were in incurred under the flag of nationalism so that at the end of the 1970s, one month’s worth of rations had been reduced by 10-15 percent. This time also saw the ration system in rural cities supplying food once every two or three days, and so the early 1970s saw the emergence of markets to fill in for the food rations. [Source: Bong Dae Choi and Kab Woo Koo, Natilus Institute, November 3, 2005]
“During the mid 1970s the changes to the rations for city laborers’ household necessities was not insignificant. The authorities had already established the sale of non-foodstuffs in 1967, however in 1974 they broadened the list of products not available for independent sale, thus increasing their control over the distribution of necessities. In addition, during this time, ration cards for foodstuffs, industrial products, and fuel were issued, and a household ration card system was put into effect. The card system was an experiment in micro-management of the distribution of daily requirements.
“In reality, the scarcity of necessities and goods available to the average citizen shopping at the government stores became widespread during this time. The mid 1970s saw the deterioration of the distribution system for food and necessities, and the lives of city residents as consumers were considerably more restricted than before. Local party officials, military and security, and ‘powerful’ administrators, as well as those working in the distribution sector or in the government stores and some service providers such as those in the education and medical fields did not face food shortages, and individuals or couples working in low level skilled jobs, laborers, office workers, and the like faced no particular trauma due to food shortages; but for the elderly, non-food items and clothing had to be purchased, and cash was short at hand.
“Those households on collective farms on the outskirts of the city found it difficult to get by on only what was provided by the ration system. In addition, death was striking many of those urban laborers living in households with many children. Other regions were similar, with these houses solving shortages by purchasing provisions from within the neighborhood.
“After the introduction of the ration card, non-food supplies and industrial products became more difficult for the average citizen to obtain. Soy sauce, dwenjang (Korean paste made with soy beans), and other products, despite their low-grade quality, were at least still distributed through the end of the 1980s. Eggs, clothing, shoes, and other materials were not always available, and could only be bought when they could be found in the stores. Toward the end of the 1970s, department stores were running out of manufactured goods that could actually be sold rather than just used for display. For those working on collective farms, cloth, shoes, and other clothes favored by farmers were procured by trading grain, or money gained from the sale of vegetables was spent on the purchase of other necessities. Those living in the city faced similar or worse conditions.
“However, overall, residents did not face any severe difficulties as a result of the cutbacks in the rations. Compared to the 1960s, certain sweets and deserts were more difficult to come across in the state-run stores during the 1970s, as some non- essential items became gradually more scarce, however the general consensus was that as the ration system was reduced, there was no real problem with adjusting. Despite the shrinking food rations and opportunities to purchase daily necessities, many defectors have cited the maintaining of the national ration system as the reason for peoples’ living on the edge of poverty. Also, goods normally difficult to find in state stores, such as cooking oil, pork, and seafood, or luxury items such as alcohol and tobacco, were occasionally received as ‘gifts’ on certain state holidays, and these supplied no small amount of supplementary support. This is not to say that during the 1960s and 1970s there was not some side work undertaken by those looking to improve their conditions or meet certain goals. Women, for example, could earn additional income by working at a factory’s or enterprise’s small-working party or cooperative.
Collapse of the Rationing System in the 1980s and 90s
Bong Dae Choi and Kab Woo Koo wrote for the Natilus Institute:“The 1980s led to the failure of the state ration system, especially the collapse of the food ration system, and the accompanying mass famine that followed in the 1990s. As North Korea’s economic situation gradually worsened from the 1980s on, citizens had increasing difficulties purchasing foodstuffs and necessities. In the latter half of the 1980s, with the exception of ‘gifts’ received from the state on particular holidays, purchases at state stores for residents of the three cities were limited to the likes of dwenjang and soy sauce. Throughout the 1980s the food rations continued, albeit at a sub-par levels, and after nationwide ‘commandeering’ of flood relief supplies provided to South Korea in 1984 and requisitioning of supplies in 1989, supposedly in preparation for the Pyongyang Student Festival, residents faced great hardships. [Source: Bong Dae Choi and Kab Woo Koo, Natilus Institute, November 3, 2005]
“After the mid 1980s, measures were enacted to reduce the hiring of female workforces in factories, enterprises, and businesses as even more serious problems with the food ration system became evident. In addition to these measures, state-appointments in offices for women having finished high school were less noticeable. The worsening ration system meant the previous 700 grams the state had been responsible for rationing was reduced to 300g. As a result, many of these women were reduced to becoming housewives or street women.
The food rationing system was weakened further by the cut off Soviet aid after the collapse of the Soviet Union in the early 1990s. The system collapsed in various parts of the country during the mid and late 1990s due to famine and shortages. In the winter of 1996-97 during the great famine the nationwide food ration had a fallen to 100 grams (3.5 ounces a day), the equivalent of half a bowl of rice or about 350 calories. The U.N. minimum daily level of food for refugees is 500 grams or 1,750 calories.
Rise of Shops and Markets as North Korea’s Ration System Weakens
Bong Dae Choi and Kab Woo Koo wrote for the Natilus Institute:“Up until the end of the 1970s, independent shops operated legally within the unregulated sector, and had very little connection with the farmers’ markets. The consumption crisis was not directly related to the emergence of the farmers’ markets. The continued propping up of the state ration system was also important, but more than anything, the North Korean peoples’ anti-market sentiment was a reason for the prevention of the spread of farmers’ markets. This collective anti-market mindset began to weaken as the 1980s rolled in.
“In the 1980s, especially in light of the obviously weakened food and necessities ration system in the mid 1980s on, urban residents relying only on the ration system faced considerably greater hardships than in the 1970s, and those seeking to maintain their family’s standard of living had no choice but to look for means to do so within the unregulated economic sector.
“Following the worsening of the ration system for food and other production near the end of the 1980s, the amount of unregulated “sideline” activity going on in cities increased, as did the selling of Chinese goods and illegal 8-3 products, which led to the spread of black markets. Still, farmers’ markets played only a peripheral role in the consumer lives of most of the people. Several causal factors are evident here. Primarily, even up until the end of the 1980s, physical restrictions from state authorities over farmers’ markets were evident. Also, even though rations were sometimes delayed, and portions were reduced, the fact that food rations continued is a slightly more important factor.
“However, even more important than these factors is the anti-market sentiment that continued to hold an invisible power over the perceptions of the people. Farmers’ and black markets became most active during the 1980s, but were not yet fully embraced by the people. People’s lives were completely consumed with anti-market sentiment, which was an integral part of the food ration system. Uncertainties about the ability to establish an independent economic ideal can be seen to have been in force at least until the 1980s. Even with the explosive growth in farmers’ markets since the 1990s, it is difficult to see this type of anti-market mentality fading in the near future. However, it is also necessary to recognize the limitations of the food ration system whose weakening is chipping away at the binding power of this anti-market ideology.
The ration system still exists. In the 2010s, North Koreans were receiving rations of rice, potatoes and corn. Sometimes the amounts were reduced because of drought or floods. Hwang Myong Sim, a government guide and interpreter at Jangchon, Model Farm shown to Western journalists, said her family of five typically receives rice eggs, soy sauce, oil, salt, bean paste, vegetables and sometimes potatoes in her monthly rations from the state. The allotments are based on household size, she said. [Source: Julie Makinen Los Angeles Times, May 5, 2016]
Foreign Currency Becomes Widely Used in North Korea
By the early 2010s, the Chinese currency and U.S. dollars were being widely used in North Korea as the country’s own money was increasingly worthless as a result of a revaluation of the North Korean currency in 2009 and the impact of economic sanctions over North Korea’s nuclear weapons’ tests. Reuters reported: “The use of dollars and Chinese yuan, or renminbi, has accelerated since a disastrous revaluation of the North Korean won in 2009 wiped out the savings of millions of people, said experts on the country, defectors and Chinese border traders. On the black market the won has shed more than 99 percent of its value against the dollar since the revaluation, according to exchange rates tracked by Daily NK, a Seoul-based news and information website about North Korea. [Source: John Ruwitch and Ju-min Park, Reuters, June 2, 2013].
According to to Radio Free Asia: “When asked about the cost of goods in North Korea, residents told RFA that prices are increasingly referred to in Chinese yuan near the border with China or in U.S. dollars in the capital and in the country’s interior provinces. “[Rice] costs 5 yuan (U.S. $0.80) per kilogram (2.2 pounds),” a resident of Yanggang province who had recently crossed the border to visit China said about the price of the North Korean diet staple. When pressed to reveal the cost in North Korean won, the source had to calculate his answer using the black market exchange rate. “It costs 7,000 [North Korean] won, because 1 yuan in North Korean currency is 1,400 won,” he said. [Source: Radio Free Asia, March 27, 2013]
“According to the official conversion rate, 1 yuan fetches 21 North Korean won. The source said that he was having trouble providing an accurate exchange rate because he had left North Korea several days earlier and the value of the North Korean won had fluctuated wildly since. But he added that it was becoming increasingly rare for people to buy goods in the northern region of North Korea without using Chinese currency. “Nowadays, most people won’t sell their products if the buyer uses North Korean currency,” the source said. “Only vegetable sellers accept the [North Korean] won.”
“Residents of Pyongyang had a similar story to tell, though prices in their local markets are mostly listed by U.S. dollar. Asked about the cost of rice, North Koreans who live in the capital responded, “One kilogram of rice costs almost U.S. $1” or, “If you have U.S. $1, you can buy slightly more than a kilogram of rice.” They said that the dollar, which buys around 7,000 won on the black market, is also a common form of payment in North Korea’s interior provinces. According to the official exchange rate, U.S. $1 is worth 132 North Korean won.
“A resident of the Sinuiju Special Administrative Region, along the border with China in North Pyongan province, said that North Korean won had become virtually unusable in the reclusive and impoverished country. “Trust in the North Korean currency is getting worse among residents, and the won is losing its value as a general means of payment. It’s impossible to rectify this situation,” the source said. “North Korea’s economy could not get any worse—it’s already the worst it could be,” he added.
Impact of Foreign Currency Use in North Korea
Reuters reported: “Experts said the growing use of foreign currency is making it increasingly difficult for Pyongyang to implement economic policy, resulting in the creation of a private economy outside the reach of the state that only draconian measures could rein in For now Pyongyang appeared to be capitulating, rather than trying to stamp out foreign currency use, they said. [Source: John Ruwitch and Ju-min Park, Reuters, June 2, 2013].
“Estimates of how much hard currency is in circulation vary, but an analyst at the Samsung Economic Research Institute in Seoul put it at $2 billion in an April study, out of an economy worth $21.5 billion, according to some assessments. The use of dollars and yuan is now so pervasive there is little Pyongyang can do about it, said Marcus Noland, a North Korea expert at the Peterson Institute for International Economics in Washington.
“The government would increasingly have to force people to provide goods and services to the state and get paid in won, added Noland, who closely studies the North Korean economy. “It's been a tug of war for 20 years where the state would like to get control of the economy, to quash the market and to get everyone to use the North Korean won, but it just doesn't have the capacity to do any of those things," he said. “It just makes it harder and harder for them to govern. Nobody wants what they're selling."
North Korean Economy: Built on Drug Smuggling, Counterfeiting and Ivory Poaching
Lloyd Parry wrote in The Times: Many of North Korea’s traditional industries, such as mining, chemicals and textiles, are in ruins. But the North Korean military and ruling elite have held off political collapse in the years since the end of the Cold War thanks to a web of criminal businesses backed by the power and military might of a well-armed dictatorship. [Source: Lloyd Parry, The Times of London, October 11, 2006]
“Illegal export businesses that North Korea is accused of operating include the manufacture and sale of drugs, counterfeit currency, fake brand goods such as cigarettes, the forging of tax revenue stamps and money laundering. On top of this there is the lucrative trade in weapons, principally missile parts, which is perfectly legal but deplored by the United States and its allies.
“Over the years North Korea’s partners in these enterprises have ranged from Japanese yakuza, Russian drug dealers, Irish republican terrorists, bankers in Macau, ivory poachers in Africa, and the Armed Forces of Egypt, Iran, Libya, Pakistan, Syria, Vietnam and Yemen. North Korean official crime dates back at least to the 1970s when its diplomats based in the four Scandinavian countries were reselling tax-free alcohol and cigarettes.
“Diplomatic bags were frequently abused for the purposes of smuggling drugs produced in North Korean factories, beginning with heroin and opium but diversifying in the late 1990s into crystal metamphetamine or “shabu”, the most popular drug in Japan, South Korea and South East Asia. In 2003, Australian coastguards seized the North Korean boat Pong Su after it dropped off 150 kilograms (330 pounds) of heroin at a beach in Victoria.
“Even harder to pin down are the counterfeit $100 bills known to law enforcement agencies as Superdollar. US security services have seized $50 million of the counterfeits since they began appearing 1989, of a quality so high that they are often detected only when they reach the Federal Reserve. Sean Garland, the leader of the Official Irish Republican Army, a Marxist splinter group of the IRA, is presently fighting extradition from Ireland to face charges in the US that he purchased and distributed North Koran supernotes in Belarus, Russia and Ireland.
“North Korean factories are reckoned to produce 41 billion fake cigarettes a year, for sale in China, Japan and the US. In the past ten years at least six North Korean diplomats have been expelled from Africa for smuggling elephant tusks and rhinoceros horns. Indentured labourers are exported to Russian logging camps and Czech factories as cheap labourers, in wretched conditions. Last year the FBI arrested 59 people at an elaborately staged fake gangster wedding, breaking a Chinese-North Korean racket which sold tens of millions of dollars of contraband every year, including forged notes, postage stamps, tax stamps for cigarettes, Viagra and AK47 assault rifles.
“Most difficult to police is the North Korean arms trade — because, as big Western governments know better than most, the lucrative arms trade is not a crime. The US Government estimated that North Korea’s sales of rockets, missiles, parts and technology amounted to $560 million. In 2002 the Spanish Navy boarded a North Korean ship carrying Scud missiles to Yemen — but had to let it go because it was operating perfectly legally.
Image Sources: Wikimedia Commons.
Text Sources: UNESCO, Wikipedia, Library of Congress, CIA World Factbook, World Bank, New York Times, Washington Post, Los Angeles Times, National Geographic, Smithsonian magazine, The New Yorker, “Culture and Customs of Korea” by Donald N. Clark, Chunghee Sarah Soh in “Countries and Their Cultures”, “Columbia Encyclopedia”, Korea Times, Korea Herald, The Hankyoreh, JoongAng Daily, Radio Free Asia, Bloomberg, Reuters, Associated Press, Daily NK, NK News, BBC, AFP, The Atlantic, Yomiuri Shimbun, The Guardian and various books and other publications.
Updated in July 2021