Marketization in North Korea: Scenarios for economic, political and social change 1/2019

Marketization in North Korea: Scenarios for economic, political and social change 1/2019

 Marketization in North Korea:
Scenarios for economic, political
       and social change
             Ulv Hanssen & Ji-Won Song

Marketization in North Korea: Scenarios for economic, political and social change 1/2019
This paper explores the spread of markets in North Korea and analyzes the potential for
marketization to bring about change in the authoritarian state. Having evaluated four future
scenarios, we conclude that a scenario of moderate change is the most likely future course for
North Korea as it constitutes the least risky option for the state at a time when its means of social
control are being eroded. Moderate change refers to significant economic reform aimed at
utilizing the full potential of markets while trying to prevent meaningful change to the political
system. If the North Korean people credit Kim Jong-un for the improvements in living standards
they are currently experiencing, marketization will boost Kim’s legitimacy. Even moderate change
can be a slippery slope, however, as it might strengthen the position of a generation of young
market traders who are less dependent on and loyal to the state than older generations.

Keywords: North Korea; marketization; political change; jangmadang; sanctions

Ulv Hanssen                                             Ji-Won Song
Lecturer                                                PhD Candidate
Soka University, Japan &                                Stockholm School of Economics, Sweden
Research Fellow, UI

© 2019 The Swedish Institute of International Affairs
Language editing: Andrew Mash
Cover photo: Michael Cederborg
Introduction ................................................................................................................................ 4
   The emergence of a market economy in North Korea .................................................................. 4
   The North Korean state’s response to marketization.................................................................... 6
   How marketization affects North Korean society ......................................................................... 8
Will marketization lead to change in North Korea? Four scenarios ............................................. 10
   Return to ideological purity ......................................................................................................... 10
   Radical change ............................................................................................................................ 11
   No change ................................................................................................................................... 13
   Moderate change ........................................................................................................................ 15
   Keeping expectations in check..................................................................................................... 17
Conclusion.................................................................................................................................. 17

© 2019 The Swedish Institute of International Affairs                                                                                            3
place in North Korea since the mid-1990s.
Introduction                                            The second part analyzes the potential for
Change is happening in North Korea                      marketization to bring about change in
whether Kim Jong-un likes it or not. The                North Korea.
rigid Stalinist economy that characterized
the country throughout the Cold War has
                                                        The emergence of a market economy in
been crumbling since the collapse of the
                                                        North Korea
communist bloc. It has gradually been
                                                        The term ‘communism’ is commonly used
replaced by a market economy, with which
                                                        to describe North Korea but there is very
the vast majority of North Koreans are now
                                                        little communist about North Korea in 2019.
engaged. This process, which is referred to
                                                        In fact, the regime has distanced itself from
as marketization below, has been driven
                                                        communism both nominally and factually.
partly by grassroots forces and partly by a
                                                        North Korea deleted all references to
state with few other options. Marketization
                                                        communism from its constitution in 2009
has had significant transformative effects
                                                        and removed the iconic portraits of Marx
on North Korean society and constitutes
                                                        and Lenin from Kim Il-sung Square in
both a threat and an opportunity for the
                                                        Pyongyang in 2012. More important than
state. It is a potential threat because it
                                                        these cosmetic changes, however, are the
weakens the state’s control over the North
                                                        structural changes it has made to its control
Korean people. As an increasingly large
                                                        economy. The state has far less control over
segment of North Korean society becomes
                                                        the economy today than it did under the
dependent on markets for survival, pressure
                                                        more strictly planned economy of the Cold
on the government to facilitate market
                                                        War-era. A mixed economy featuring
activity is bound to grow. Especially
                                                        aspects of both planning and markets
dangerous for Kim Jong-un is the gradual
                                                        gradually emerged in the 2000s. While small
emergence of a new capitalist class whose
                                                        farmers’ markets have existed at the
goals might not always be compatible with
                                                        margins of the North Korean economy
the restrictions of an authoritarian system
                                                        throughout the country’s existence, it is
and whose wealth constitutes a source of
                                                        only in the past two decades that the
power largely beyond the state’s control.
                                                        market economy superseded the planned
Thus far, the Kim regime has been
                                                        economy in importance and scale. The
successful at cajoling and coercing the new-
                                                        government retains strong control over core
rich but if state interests and capitalist
                                                        industries such as the defense industry and
interests were to conflict at some point, a
                                                        heavy industries, but production of food and
powerful capitalist class could seriously
                                                        consumer goods is mostly left to
jeopardize Kim Jong-un’s power. However,
                                                        increasingly autonomous farm collectives
if he accepts and even accommodates the
                                                        and de facto privatized state-owned
marketization process through a program of
                                                        enterprises, which largely rely on markets
moderate reform, which appears to be the
                                                        rather than the state for procurement and
approach that Kim is taking, he is likely to
                                                        sales. Their products end up in large-scale
succeed in enhancing his legitimacy and
                                                        consumer markets where private individuals
consolidating his power. Either way, change
                                                        trade in all sorts of domestic and foreign
is happening in North Korea and will
continue to happen – it is no longer a matter
of ‘if’, but rather a matter of ‘how much’ and
                                                        The emergence of a market economy has
‘how fast’.
                                                        been nothing short of spectacular.
                                                        Hundreds of large markets have sprung up
The first part of this paper describes the
                                                        all over the country and have long since
marketization process that has been taking

© 2019 The Swedish Institute of International Affairs
replaced the state as North Koreans’ main               with market pricing in the industrial sector
source of subsistence (Haggard & Noland,                as early as the second half of the 1980s
2010, p. 139). Markets, known as                        (Park, 2016). However, the turn toward
jangmadang in North Korea, are legal but                more substantial marketization, which
come with a number of restrictions on what              includes the participation of private citizens
it is permissible to sell. Moreover, prices are         rather than just state-owned factories and
not fully fluent because local authorities, at          enterprises, did not mainly occur thanks to
least on paper, determine price ceilings for            reform-minded leaders. Rather, it was a
the various products that can be sold in the            result of a disastrous famine in the 1990s
markets (Ward, 2018b). Vendors are                      which led to desperation but also increased
allowed to operate stalls inside the market             creativity among people trying to survive.
in return for payment of a relatively small             Until the 1990s, North Koreans had
fee to the state. Merchants who are unable              obtained food and other necessities from
or unwilling to pay this fee often sell their           the state through what is known as the
products outside of the jangmadang, but                 public distribution system (PDS). The
such unlicensed market activity is illegal.             collapse of the communist bloc had
North Korean markets are brimming with a                disastrous effects on North Korea and the
wide variety of products, such as food,                 PDS. When Russia and China stopped
alcohol, cigarettes, medicines, soap,                   providing North Korea with products at
household appliances, clothing, cosmetics,              subsidized ‘friendship prices’, North Korea
books, bicycles, DVDs and electronics. It is            found itself unable to pay for essential
often said that the only thing you cannot               products such as oil, fertilizer and spare
buy at the jangmadang is a cat’s horn – a               parts. North Korea’s foreign trade plunged
North Korean way of referring to something              from US$4.1 billion in 1990 to US$ 2.6
that does not exist. The products are mainly            billion in 1991 and US$ 1.6 billion in 1998
Chinese but South Korean goods are                      (Kim, 2017, pp. 172–173). Trade relations
sometimes also present despite the fact                 with Russia suffered most, as the volume of
that their sale is illegal. The number of               bilateral trade fell from US$ 3.5 billion in
domestically produced goods has increased               1988 (with the Soviet Union) to a mere US$
dramatically in recent years.                           0.1 billion (with Russia) in 1995 (Smith,
                                                        2015, p. 188). This, combined with torrential
The website Daily NK used North Korean                  rain, bad harvests and perennial
undercover journalists to document the                  mismanagement, led to a famine that killed
existence of 387 official markets across the            between three and five per cent of the
country (Park, 2017) but the real number is             entire population (Haggard & Noland, 2017,
likely to be even higher. The official markets          p. 6). The breakdown of the PDS compelled
are usually located in large enclosures near            the authorities to allow a certain degree of
urban areas. An average official market                 market activity and this has since become
contains more than 1500 stalls. North                   increasingly institutionalized.
Korean households earn more than 60 per
cent of their income from these markets                 The capitalist turn in North Korea
(Kim, 2017. p. 65), and possibly much more              predictably has its downsides. Corruption is
(DuMond, 2017; Kim, 2018, p.8). In reality,             rampant and income inequality worse than
these markets function as a lifeline for most           ever (Haggard & Noland, 2010, p. 144).
North Koreans today.                                    Corruption is a natural effect of the market’s
                                                        many trading restrictions. Police and
There is evidence that the North Korean                 security officers can make good money by
government began carefully experimenting                eliciting bribes from vendors in return for

© 2019 The Swedish Institute of International Affairs                                                5
ignoring illegal market activities, such as             reform, such as the so-called Economic
trading in illegal goods or selling goods at            Management Improvement Measures
prices that exceed the permitted price                  introduced in 2002. This radical reform
ceilings. Most low-ranking officers in law              brought state-controlled prices more in line
enforcement have little choice but to take              with market values, increased salaries,
bribes, as their official salaries are                  partially abolished the PDS, decentralized
insufficient for survival. Through interviews           state planning, gave greater autonomy to
with defectors, a study by Kim Byung-yeon               state-owned enterprises, established a
(2017, pp. 188–190) found that an average               more accurate exchange rate for North
North Korean household spends almost 9                  Korea’s currency (the won) and sought to
per cent of its budget on bribes, which                 increase productivity by giving workers
makes North Korea one of the most corrupt               material incentives (Gray & Lee, 2017, p.
countries in the world. Kim (2017, p. 190)              56). Legalization essentially decriminalized
estimates that bribery makes up as much as              activity in which almost everyone was
6–7 per cent of the country’s GDP.                      engaged. It looked like North Korea was
Marketization has also created a growing                finally liberalizing its economy.
gap between rich and poor. Those who lack
the entrepreneurial skills to cope with the             The trend did not last, however, and
transition to capitalism are struggling. Thus,          eventually Kim Jong-il changed course and
it is those who have been most dependent                tried to roll back many of these measures in
on the state and the PDS who are now                    an effort to reinstate a more centralized
North Korean society’s biggest losers. For              control economy (Haggard & Noland, 2010,
most North Koreans, however, the turn to                p. 142; Lankov, 2015, pp. 122–125; Park,
capitalism has been a welcome                           2009). His most infamous attempt to
development that has brought them                       reverse capitalism in North Korea was the
unprecedented material comforts. Even the               disastrous 2009 currency reform, aimed at
spread of corruption has been a blessing for            halting the emergence of a middle class.
more than a few North Koreans, as bribes                The reform stipulated that all citizens had to
can increase social and geographical                    exchange their old won for newly printed
mobility in an otherwise rigid system. Bribes           currency but the government set an upper
are used to circumvent restrictions on travel           limit equivalent to about US$ 30 on how
and contraband trade. Payments to the                   much money could be exchanged,
right people can also get you an education              effectively eliminating any savings of North
and a job that would otherwise be reserved              Koreans in excess of this upper limit. The
for a member of the elite.                              reform also devaluated the won by making
                                                        one new won worth the equivalent of 100
The North Korean state’s response to                    old won. However, the government
marketization                                           inexplicably decided that employees of
As noted above, marketization was                       state-run enterprises, factories and other
grudgingly accepted during the famine. Kim              institutions were to remain on their old
Jong-il, who ruled North Korea from 1994 to             salaries. This effectively amounted to a
2011, never fully embraced the markets and              hundredfold wage increase overnight and
saw them mostly as a stop-gap measure                   naturally led to hyperinflation. The reform
until the economy recovered and the PDS                 generated enormous discontent among
could be reinstated. Nonetheless, the                   average North Koreans, severely damaging
markets were officially acknowledged and                people’s trust in the government and
formally legalized in 2003 and he                       toxifying the North Korean won. As a result,
experimented with significant economic                  today no one saves won for fear that

© 2019 The Swedish Institute of International Affairs                                                6
another government reform might render                  this has brought desperately needed
them worthless. North Koreans stockpile                 personal incentives to the agricultural and
and conduct trade in foreign currencies,                industrial sectors and – at least initially –
such as the Chinese yuan and the US dollar.             output increased significantly. The 2013
The North Korean government eventually                  harvest was the best for decades and, for
realized its mistake and issued a rare                  the first time since the 1980s, North Korea
apology to the people (McCurry, 2010). It               almost produced enough food to feed itself
subsequently executed a senior official who             (Gray & Lee, 2017, p. 62). However, food
was scapegoated for the currency reform                 production is reported to have fallen in 2016
failure (Branigan, 2010).                               and 2017 (Ward, 2018c) so the jury is still out
                                                        on the effectiveness of the reforms (cf.
Kim Jong-un, who came to power after his                Katzeff Silberstein, 2015).
father died at the end of 2011, seems to
have a more positive attitude to                        Implementation of the June 28 and May 30
marketization and capitalism. Rather than               measures – and the fact that there are no
reversing the trend, he has accelerated it.             signs of a roll back – suggest that the North
While Kim                                               Korean state has finally come down in favor
Jong-il’s legacy was tainted by the famine,             of the marketization of North Korea. If this
Kim Jong-un’s tenure has coincided with a               really is the case, capitalist development
period of unprecedented wealth and social               seems bound to continue. In fact, it would
freedom. Kim Jong-un seems to understand                be very difficult to reverse the trend for
that he has more to gain from taking credit             marketization even if there was the political
for these developments than from                        will to do so. The state lacks the resources
obstructing them. The increasing affluence              to provide an adequate alternative to the
under Kim Jong-un has arguably made him                 market, and both government officials and
more popular than his father. This suggests             military officers have become highly
that it is not certain that North Korean                engaged in and dependent on the markets
economic liberalization will threaten the               for survival. Many of them leverage their
regime; in fact, it may even consolidate it.            elite privileges to engage in foreign trade,
                                                        often in cooperation with private
Perhaps realizing this, Kim Jong-un has                 entrepreneurs, thus blurring the distinction
initiated some significant reforms that are             between the private and the official
reminiscent of the economic reforms                     economies (Hastings, 2016). Furthermore,
undertaken by China in the late 1970s and               since the state can no longer finance its
early 1980s. The reforms, known as the June             institutions, government departments,
28 measures of 2012 and the May 30                      agencies and even parts of the military are
measures of 2014, have essentially                      now expected to be self-funded (Kim, 2018).
decollectivized the agricultural sector,                The only way for most state and military
allowed farmers to keep and sell a far bigger           institutions to stay in operation is therefore
share of their crops, increased the number              to engage in market activities. Since they
of special economic zones and de facto                  have strong, vested interests in the
privatized many state-owned enterprises                 continuation of the markets, it is unlikely
(Gray & Lee, 2017). The latter are still                that government officials would
nominally owned by the state but often run              enthusiastically enforce market crackdowns
by private managers who pay a share of                  if such orders were to come from above.
their profits to the state – a testament to             The whole state apparatus is simply too
how intertwined the private and official                involved in and too economically dependent
economies have become (Ward, 2017). All                 on the markets to abolish them.

© 2019 The Swedish Institute of International Affairs                                                 7
How marketization affects North Korean                  empowered North Korean women by giving
society                                                 them money, agency and increased
Marketization has been a blessing for most              opportunities.
North Koreans, who are currently enjoying
an unprecedented level of social freedom                Women are not the only beneficiaries of the
and a level of material wealth unmatched                semi-legalization of market activity.
since at least the 1970s. The demographic               Marketization has produced a number of
group that has perhaps benefited most                   positive effects for society as a whole, such
from marketization is women. North Korea                as new privately owned bus services that
is in many respects a patriarchal society               make domestic travel much faster and
where women are expected to obey men                    easier than in the past, when travelers had
and take care of the household.                         to rely on North Korea’s notoriously
Traditionally, many North Korean women                  decrepit railroad (Ah, 2014). This had made
were housewives without any formal                      geographically scattered markets
income. During the famine in the 1990s this             increasingly interconnected. A license is still
lack of a formal job was an advantage.                  needed to leave the city or county but such
While men were forced to attend their                   licenses are now easy to obtain through
virtually non-paying jobs, women were free              bribes, although Pyongyang remains off-
to gather food and procure goods to barter              limits for non-residents. North Koreans can
or sell in makeshift markets. Women also                even obtain permits to travel to China for
benefited from being exempt from the                    trade and work. The lack of
grueling 10-year military service that North            interconnectedness between the various
Korean men have to undergo, although                    regional markets inside North Korea has
enlistment reportedly became mandatory                  been identified as a key reason why
for women in 2015 (Min, 2015a). Moreover,               economic change has so far failed to
the government was less suspicious of                   translate into political change (Kim, 2018).
women participating in market activities                The loosening of travel restrictions and
than men because it was ‘normatively                    improved means of transportation could
accepted that it was the woman’s job to                 therefore be of great significance in the long
provide food for the family’ (Smith, 2015, p.           run.
206). These factors enabled women to a far
greater extent than men to engage in                    Marketization has also coincided with the
market activities when the state was no                 rapid spread of mobile phones (Choe, 2016).
longer able to provide necessities for its              In cooperation with an Egyptian firm, a
people. In many cases women became the                  state-run mobile network operator,
breadwinners of the family and their                    Koryolink, was set up in 2008. Koryolink was
entrepreneurialism and thrift laid the                  first reserved for the elites but is now
foundations for marketization in the                    available to anyone who can pay the rather
country. Still today, the vendors in the                hefty subscription fee. The number of
markets are almost exclusively women.                   network subscribers has expanded from
North Korean women’s increased access to                about 10,000 in 2008 to about 3 million a
money has also enabled them to flee the                 decade later. This is a significant number in
country, which is often a very costly                   a country of some 25 million people. As
undertaking. There was a notable increase               elsewhere, the latest phone has become an
in the proportion of female defectors in the            important status symbol in North Korea.
2000s and in 2015 women constituted 80
per cent of all defectors (Isozaki & Sawada,            The mobile network blocks international
2017, p. 193). Marketization has thus                   calls and internet access (a special North

© 2019 The Swedish Institute of International Affairs                                                 8
Korean intranet is available) but other forms           North Korean regime is far from
of technology are increasing North Koreans’             straightforward, it is undeniable that
access to information from the outside                  outside impulses often induce critical
world, especially South Korea. The                      thinking and behavior among North
penetration of Chinese memory cards, USB                Koreans in various ways. In a 2013 defector
sticks, DVDs, mobile phones and computers               survey, 84 per cent of respondents reported
into North Korean markets has made file                 that South Korean dramas had influenced
sharing easy. As a result, bootleg South                their decision to escape North Korea (Lee &
Korean movies, TV shows and music have                  Soo, 2013, p. 199).
become widespread and extremely popular
in North Korea. Although the sale or                    In the west, those in their 20s and 30s are
consumption of foreign, and especially                  often referred to as millennials. In North
South Korean, popular culture is forbidden,             Korea they are known as the jangmadang
this is becoming increasingly difficult to              generation. Unlike their western
control due to technological advances.                  counterparts, who are often stereotyped as
Defector interviews indicate that 70–80 per             lazy, North Korean ‘millennials’ are known
cent of North Koreans regularly watch                   to be extremely industrious and creative.
foreign movies or TV dramas (Baek, 2016, p.             They went through their adolescence during
185). It is difficult to overstate the impact of        the famine years of the 1990s and they are
South Korean popular culture on North                   accustomed to making money without
Korea. Inspired by their capitalist brethren            relying on the state. They are therefore
in the south, an increasing number of North             believed to be less loyal to the state and
Koreans wear flashy (by North Korean                    more rebellious than their parents. In a
standards) clothes, dye their hair, undergo             recent documentary on the jangmadang
rudimentary eyelid surgery and even use                 generation, a North Korean defector
South Korean slang when among friends. In               describes them as ‘bold and audacious’,
short, the influx of South Korean popular               without much respect for the regime’s
culture is changing how North Koreans look,             social control and rules (Liberty in North
talk and perhaps think (Baek, 2016).                    Korea, 2017). This observation is
Importantly, South Korean popular culture               corroborated by Baek (2016, pp. 184–185),
has once and for all debunked North Korean              whose study on North Korea’s ‘hidden
propaganda claims of South Korean poverty               revolution’ characterizes North Korean
and economic inferiority. (Even the                     millennials as ‘capitalistic, individualistic,
Pyongyang government has long since                     and more likely to take risks’, as well as
given up making such easily falsifiable                 ‘significantly less loyal to the state and its
claims.) North Koreans today know very                  leadership’. Many therefore pin their hopes
well that their half of the peninsula is                for change on the jangmadang generation,
lagging far behind the south by almost                  which makes up 25 per cent of the North
every metric. There are also more than                  Korean population (Baek, 2016, p. 183).
30,000 North Korean defectors living in                 Thae Yong-ho, a former deputy ambassador
South Korea who can attest to the                       to London and one of the highest ranking
enormous discrepancy in affluence. Many                 North Korean defectors ever, shares this
defectors keep in touch with their families in          hope. In an interview with Voice of America
the north and even support them financially             he stated that ‘If this process [of
through a new system of underground                     marketization] continues, the country will
money transfers (Lankov, 2013). Although                reach a tipping point where the people
the causality between exposure to foreign               begin to stand up for not just their
popular culture and disillusionment with the

© 2019 The Swedish Institute of International Affairs                                               9
economic rights, but also their political                    This certainly sounds promising, but can
rights’ (cited in Lee, 2017).                                marketization really lead to political

Will marketization lead to change in North Korea?
Four scenarios
The answer to this question depends on                       Korea: radical change, moderate change, no
what is meant by change. It is possible to                   change and a return to ideological purity.
envision four future courses for North

Table 1 Four scenarios for change in North Korea

 Radical change                    Moderate change         No change               Return to
                                                                                   ideological purity
 A complete                        Considerable            The state continues     Markets are
 transformation of                 liberalization of the   to fluctuate between    abolished and
 North Korea through               economy. Some           accommodating           replaced with a
 either                            improvement in civil    markets and cracking    planned economy
 democratization,                  rights (mainly to       down on them. The       similar to that which
 coup or war.                      facilitate market       state maintains an      characterized North
                                   activity) but not in    ambivalent stance       Korea during the
                                   political rights.       toward markets and      Cold War. Ideological
                                                           market activity.        purity is emphasized.

As is evident from Table 1, ‘change’ is                      leaders might attempt to bring about a
treated as encompassing economic,                            return to the ideologically pure days of Kim
political and social change. The analysis                    Il-sung. This would naturally entail a return
below examines the potential for each of                     to a heavily planned economy with few, if
these courses against a backdrop of rapid                    any, market elements. This is precisely what
marketization in North Korea. The scenarios                  Cha (2012, p. 58) predicted at the beginning
are ordered according to our assessment of                   of the Kim Jong-un period. Cha speculated
the degree of probability, from least to                     that North Korea would attempt to return
most likely: return to ideological purity,                   to the Kimilsungism of the 1950s, 1960s and
radical change, no change and moderate                       1970s – an era when North Korea was at its
change.                                                      most ideologically pure. Cha dubbed such
                                                             an eventuality ‘neojuche revivalism’,
Return to ideological purity                                 referring to the country’s Cold War ideology
Marketization has likely evoked strong                       of juche, or self-reliance. In his New Year
displeasure among many leaders in                            speech on January 1, 2019, Kim Jong-un did
Pyongyang, who are worried that growing                      indeed stress the ‘might of the independent
individualism and materialism might                          socialist economy’ and a policy of making
threaten the socialist system and, by                        the national economy ‘Juche-oriented’,
extension, their own power. It is therefore                  perhaps signaling a reversion to a more
possible to imagine that North Korean

© 2019 The Swedish Institute of International Affairs                                                   10
closed and self-reliant economic system                 (Myers, 2010). Reviving the dubious ‘glory
(NK News, 2019).                                        days’ of the 1950s and 1960s would be
                                                        impossible without economic support from
However, such a reversion would appear to               an ideologically likeminded communist
be both unwise in theory and almost                     bloc. In the absence of heavily subsidized
impossible in practice. Reversing the                   imports and grants from the Soviet Union
modest economic freedoms that North                     and China, North Korea simply does not
Koreans have enjoyed since the mid-1990s                have the means to reintroduce a fully
would be a recipe for disaster. If there is one         functioning distribution system. Regression
thing that North Koreans have responded to              to the ideologically pure days of Kim Il-sung
with violence, it is attempts by the state to           is therefore the least likely of the four
rein in their new-found economic freedoms.              scenarios.
When the government closed off the
markets to women under 50 for a brief                   Radical change
period in 2008, there were reports of riots in          Radical change could come in many forms,
some cities (Lankov, 2015, p. 125). In 2015 a           such as democratization, a coup d’état or
‘massive brawl’ between merchants and                   war. Since war is partly determined by the
security guards erupted at a market in                  actions of external forces, such a scenario is
Musan in the northeast of the country (Min,             beyond the scope of this paper. We are
2015b). The incident, which led to an                   mainly interested here in the potential for
unknown number of fatalities, was                       state-driven change toward democracy and
apparently precipitated by attempts by the              anti-state mobilization by grassroots or elite
security guards to confiscate certain goods             forces with the aim of overthrowing the
from vendors. These and similar incidents               government.
(cf. Cha, 2012, pp. 452–453) suggest that
average North Koreans might be willing to               It is of course possible, albeit probably
confront the ruthless authorities if their              overly optimistic, to view Kim Jong-un’s
livelihoods are threatened (cf. Park, 2017, p.          unexpected rapprochement and
35). If the North Korean state were to                  engagement with the outside world in 2018
reverse marketization and return to a fully             as the beginning of a slow drift toward a
planned economy, it is not impossible that              more open and democratic society. A more
the people’s discontent would spill over and            democratic and market-driven North Korea
turn into overt protest and perhaps riots.              would be more palatable to western
Even if Kim Jong-un were willing to take                investors and could therefore serve North
that risk, a reversion to a fully planned               Korea’s longstanding goal of becoming a
economy would still be almost impossible in             ‘powerful and prosperous state’ (kangsong
practice. One of the main reasons why Kim               taeguk).
Il-sung’s North Korea was relatively
successful was that it benefited from both              However, such a turn does not appear likely.
economic and ideological support from the               A democratic turn would entail a sudden
communist bloc. Kim Il-sung was adept at                expansion of people’s social rights (freedom
taking advantage of Sino-Soviet rivalry,                of assembly, freedom of speech, freedom of
often obtaining beneficial trade deals by               the press and so on). This would be a highly
threatening to switch ideological allegiance            risky strategy as it would undermine the
to one side or the other (Lankov, 2015, p.              oppression and fear that the system is built
21). Despite the adulation for juche and self-          on and could seriously jeopardize Kim Jong-
reliance, North Korea has always been                   un’s power. In the words of Cha (2012, p.
highly dependent on outside assistance                  447), ‘The greatest vulnerability for a regime

© 2019 The Swedish Institute of International Affairs                                               11
like North Korea is when a population loses             would undoubtedly be arrested and perhaps
its fear of the government. Once the fear is            publicly executed as a warning to others
gone, all that is left is the anger’. This makes        against further disturbances. The spread of
it very unlikely that radical change would              bribery may have made it possible to get
ever be initiated by the North Korean                   away with minor transgressions but open
leadership. This becomes even more                      displays of political resistance and revolt are
evident if one considers that the official              still virtually impossible. This might change
North Korean explanation for the fall of                in the long term if the weakening of state
communism is ideological decay rather than              power outlined below (in ‘no change’)
economic mismanagement. The state                       continues unabated, but for now a
narrative is that the communist countries               politically motivated bottom-up revolution
succumbed to dangerous influences from                  seems highly unlikely.
the outside and reformed themselves to
death. The lesson that the North Korean                 Second, the Korean Peninsula’s divided
leadership drew from the events of the late             nature has implications for the likelihood of
1980s and early 1990s is that reform is                 elite coups. It is true that the massive
dangerous. We should therefore not expect               transfer of labor from the official to the
radical reform to emanate from above.                   private economy has diminished the state’s
                                                        revenues and left the ruling coalition with
It is also possible to speculate about the              less money and fewer perks to dole out to
potential for a bottom-up revolution or a               party and military elites in return for their
military coup. Some scholars go so far as to            loyalty. In addition, this trend has been
claim that ‘it is difficult to imagine a more           exacerbated by the increasingly strict
plausible alternative to a collapse or coup             sanctions regime to which North Korea is
situation on the Korean peninsula’ (Richey              subjected due to its missile and nuclear
et al., 2017, p. 3). Without rejecting this             programs. There is of course a possibility
possibility, such scenarios are improbable at           that party and military elites might turn on
present for two reasons: the state’s extreme            the current leadership once the money and
brutality and North Korea’s peculiar                    perks they have hitherto enjoyed in
situation as the backward half of a divided             exchange for their loyalty dry up. However,
nation. First, the North Korean state is still          North Korea differs from other dictatorships
simply too oppressive for an Arab Spring-               in one important regard: it is the backward
style uprising to take place. The magnitude             half of a divided nation. This means that if
and extensive nature of North Korea’s                   there were to be a regime collapse leading
instruments of social control are, in the               to a temporary power vacuum in North
words of Haggard and Noland (2017, p. 30),              Korea, there is a considerable risk that
‘legendary’. The state controls an                      South Korea would seize the opportunity to
impressive surveillance network that                    reunify the peninsula through absorption. In
extends all the way down to neighborhood                this case, most, if not all, of the party and
informers (inminban), who are responsible               military elites would lose their power, and
for reporting ‘suspicious’ behavior by                  some could even face charges of crimes
neighbors (Tudor & Pearson, 2015, p. 121).              against humanity (Nebehay, 2017). It is
Such institutions make any kind of                      therefore obvious that elites in the Workers’
collective action difficult to conceal, and any         Party and the military have a vested interest
attempt at mass mobilization of resistance              in the survival of the regime, and will
would be nipped in the bud long before it               probably put up with reduced amounts of
made it to the streets. Even if a gathering of          Cognac and Cuban cigars as long as they are
protestors were to take to the streets, they

© 2019 The Swedish Institute of International Affairs                                                12
allowed to remain in their positions of                 fluctuate between accommodating and
relative privilege (Lankov, 2016b).                     cracking down on the markets, which has
                                                        been the case for the past 20 years? In such
More or less the same argument could be                 a scenario, the government would
made about North Korea’s new economic                   sporadically attempt to resuscitate the PDS
elite – the so-called donju. Donju means                and continue to regard the markets as a
‘money masters’ and refers to the class of              stop-gap measure. Reforms, if carried out,
North Korean new-rich that has amassed                  would be prone to sudden reversal. This
tremendous fortunes though capitalistic                 scenario is suggested by Buzo, who argues
enterprise over the past 20 years. The donju            that as long as North Korean leaders
could potentially be a force for radical                continue to value regime survival over
change due to their unrivalled economic                 everything else, change will be kept to an
power, but thus far they have been the                  absolute minimum. Buzo (2018, p. 252)
opposite. The new-rich have joined forces               rejects the notion that Kim Jong-un is more
with the political elites in a bid to                   reform-minded than his father, and argues
consolidate their own power and maintain                that the reforms seen under Kim Jong-un
the political status quo. Sometimes the                 are merely an attempt ‘to wring whatever
donju cooperate with the political elites               can be wrought from the existing system
through business operations in which                    without modifying it’. Kim Jong-un, Buzo
government officials secure the necessary               writes, has ‘shown strong continuity with his
licenses and the more resourceful donju                 father’s policies in rejecting reform options’,
take care of the commercial management.                 even if he has been a little less prone to
At other times they join forces in a more               repress the markets than his father (Buzo,
literal sense – through marriage (Tudor &               2018, p. 247).
Pearson, 2015, p. 166). In the past it would
have been shameful for a member of the                  While far from implausible, this is a very
political elite to marry someone of lower               pessimistic reading of current events –
status but that has changed with the                    albeit that given the number of past
emergence of the North Korean new-rich.                 disappointments in regard to change in
As in other countries, money and power                  North Korea, pessimism is perhaps
have a way of finding each other. Finally,              warranted. It is also possible to make an
like the political and military elites, the             argument that is the exact opposite of
donju have an interest in political stability. If       Buzo’s claim that Kim Jong-un needs to
North Korea were to collapse and be                     avoid change to stay in power. Perhaps
absorbed by South Korea, the primitive                  avoiding change would in fact reduce his
business ventures run by the donju would                chances of staying in power. In an era when
stand no chance against South Korea’s                   the people rely more on the markets than
mighty conglomerates (Lankov, 2016a). We                they do on the state, the state may be
should therefore expect neither the political           gradually losing its power. If so, this loss of
and military elites nor the donju to be the             power will continue for as long as the state
instigators of political change. On the                 fails to adapt to changing realities and could
contrary, they may turn out to be significant           eventually jeopardize the continued
veto players against any action that could              existence of the political system.
lead to radical change.
                                                        How is marketization weakening the power
No change                                               of the state? Traditionally, the North
How about the option of no change? Could                Korean state has been able to demand
the government continue its tendency to                 absolute loyalty and obedience through

© 2019 The Swedish Institute of International Affairs                                                13
three sources of power: (a) a state                     many of the deeply entrenched state
monopoly on the ‘legitimate’ use of force;              narratives, many North Koreans learned for
(b) a monopoly on information; and (c)                  the first time that South Koreans did not
legitimacy that stems from the role of the              live in extreme poverty, but what looked
state as provider for the people. However,              like unimaginable affluence. This realization
today all of these sources that sustained the           poses perhaps the greatest long-term
power of the state have been severely                   threat to the North Korean regime as there
weakened by marketization-related                       is simply no easy way to explain the
changes.                                                discrepancy between north and south other
                                                        than the different political systems, thereby
First, while the state still has a monopoly on          acknowledging the flaws of North Korean
the use of force – and does not hesitate to             socialism.
use it against potential threats – the rapid
spread of corruption among law                          Third, the legitimacy of the state is suffering
enforcement officials now ensures that                  because reciprocal relations between the
there are ways to avoid punishment for                  people and the state have broken down.
many offenses. Consumption of foreign                   Until the 1990s the state provided food,
media, smuggling, unlicensed trading and                housing, education and basic welfare in
illegal travel, to name a few, are crimes               return for absolute loyalty and sacrifice. The
people can now get away with in return for              rigidity and brutality of the state were
bribes. It is even possible to buy your way             tolerable because the state gave something
out of North Korea’s dreaded prison camps.              back. However, the breakdown of the PDS
Needless to say this empowers potential                 and the semi-privatization of many social
regime challengers as it gives them options             services, such as education (Unification
for circumventing government repression.                Media Group, 2018) and healthcare (Soh,
That said, the state’s monopoly on the use              2016), mean that the reciprocity that
of force is still its most effective means of           sustained relations between the state and
social control, and its weakening due to                the people has disappeared. The state
corruption should not be overstated.                    today hardly gives anything back to the
                                                        people. Official monthly salaries are the
Second, the state’s monopoly on                         equivalent to US$ 0.5–1.75, which makes it
information has been dramatically                       impossible to survive on official salaries
weakened by the emergence of outside                    alone. The minimum sustenance
information. Before outside information                 requirement for a family of three or four
began to seep into North Korea in the                   people is approximately US$ 15 per month
1990s, the government had the ability to                (Lankov, 2015, pp. 125–127). These
control the narrative on all aspects of social          unsustainable salaries force North Koreans
life. North Korea’s failures were glossed               to the markets but the state still demands a
over and when they became too obvious to                de facto market tax. The jangmadang
ignore they were blamed on the hostile                  generation have never experienced a
policies of the US. Moreover, the successes             functioning socialist system and most have
of other countries, especially South Korea,             never received much from the state. This
went unreported in the North Korean                     could diminish their sense of loyalty to the
media, which meant that North Koreans                   regime and its leaders. If some measure of
lacked reference points from which to                   reciprocity is not reinstated in relations
assess their own country’s progress.                    between the people and the state, the
However, as the influx of foreign                       legitimacy of the state will continue to
information in the 1990s began to challenge             dwindle.

© 2019 The Swedish Institute of International Affairs                                                14
A number of analysts argue that the status              kind of change would be likely to bring
quo is untenable. Kim and Roland write that             about better living standards and thus
‘the status-quo will inevitably at some point           offset much of the antipathy the public
lead to a regime collapse given the great               secretly harbors toward the government. It
economic weakness’ (Kim & Roland, 2012,                 would also arguably increase the
p. 512; cf. Frank, 2016, p. 15). Such a                 government’s legitimacy by bringing back
collapse scenario is certainly possible, but            some degree of reciprocity between the
not inevitable. There is a chance that North            state and the people.
Korea will ‘muddle through’ without
substantial top-down change, as it did in the           It is difficult to predict what the exact
1990s when it faced far more dire conditions            content of moderate change might be, but
(Noland, 1997). Nonetheless, maintaining                one possible scenario could start with
the status quo appears increasingly difficult           retroactive legalization of activities that are
for the North Korean state because all three            already taking place. This would mean an
of the factors that sustain its control over            unequivocal legalization of market activity
the people have been weakened. The                      and a relaxation of restrictions on domestic
state’s ability to coerce through force has             travel and assembly. Such an expansion of
been weakened by bribery, its ability to use            social rights could be tolerated because it is
propaganda to justify the political system              to a large extent already happening and is
has been undermined by the availability of              required for economic growth. A possible
outside information and the legitimacy it               next step could be legalization of activities
derived from maintaining relatively                     that would boost production, such as
reciprocal relations with the people has                allowing North Koreans to freely choose
been shattered due to the breakdown of the              their workplace. North Koreans are
PDS and the welfare system. If measures                 currently assigned jobs by the state. Many
are not taken to adjust to the changing                 of these official jobs are extremely
realities, it seems likely that the state’s             unproductive due to chronic shortages of
power will continue to diminish as time                 necessary inputs and a lack of any incentive
passes. If left unchecked, this weakening of            to work hard. (As noted above, official
state authority could reach dangerous                   salaries are tiny.) North Koreans who want
levels. This is not an option if the leadership         to engage in private business – which is to
wants to ensure its political, and perhaps              say nearly everybody – must either do so
even physical, survival.                                after official working hours or pay a monthly
                                                        fee to be legally absent from work. These
Moderate change                                         absence fees can be up to 20 times the
Given the risks and problems connected                  absentee’s monthly wage (Lankov, 2015, p.
with both too little and too much change,               95), which means that factories and
the most sensible and likely course for the             enterprises earn more from absent workers
North Korean regime appears to be one of                than present workers. This is clearly an
moderate change. Moderate change would                  inefficient and unproductive system.
entail efforts to bolster economic growth               Allowing people to choose their work freely,
through market liberalization while keeping             even outside the official economy, would
political change to a minimum. In other                 spur a dramatic increase in North Korean
words, the North Korean state can be                    industrial or manufacturing productivity.
expected to act in a rational way that                  Such measures could form part of a
neglects neither the country’s potential for            moderate reform strategy that aims to spur
economic growth, nor the means of control               economic growth without posing too much
that have hitherto secured its survival. This           of a threat to the political system. In the

© 2019 The Swedish Institute of International Affairs                                                15
moderate change scenario, an expansion of               There are always risks connected to change,
social rights is allowed only to the extent             no matter how moderate. Even moderate
that these rights are conducive to a more               reforms could be a slippery slope for the
effective and productive economy. In other              government. Every reform constitutes a
words, social rights that are not directly              new fait accompli and consequently
needed for a stronger economy, such as                  increases expectations for greater change in
freedom of speech, the press, religion,                 future. As the markets become increasingly
political participation, and so on, would               institutionalized as a mainstay in the lives of
remain suppressed.                                      ordinary North Koreans, Kim Jong-un is
                                                        likely to face constant pressure to expand
Judging from Kim Jong-un’s first six years in           the rights of the people even further so that
power, this seems to be the course he has               the full potential of the markets can be
chosen. This is evidenced by his enactment              realized. Such pressures might start with
of the June 28 and May 30 measures                      demands for reforms along the lines
described above and his largely hands-off               described above. Over time, however,
approach to the markets. This is a                      pressures may develop into more
reasonable policy line and probably the only            controversial calls for private ownership and
way he can remain in power for a long                   a greater ability to criticize and influence
period. If Kim Jong-un is able to convince              government policies that hamper the
the North Korean people that he is                      market economy – essentially a degree of
responsible for their newfound affluence,               freedom of speech and perhaps even a
marketization might actually enhance his                modicum of political representation.
popularity.                                             Needless to say, if Kim Jong-un were to
                                                        make such allowances, it could mark the
How effective a program of moderate                     beginning of the end for his regime. Private
change can be under the current sanctions               ownership would be a deathblow to North
regime, however, remains to be seen. UN                 Korea’s crippled socialist system, and
sanctions on North Korea have been in                   freedom of speech, no matter how limited,
place since 2006, but have increased                    would embolden latent regime critics to
dramatically in scope since 2016. While                 push the political discourse far beyond the
earlier sanctions mainly targeted military              control of the state.
and luxury products, the recent rounds have
banned virtually all international trade with           The big question is how far Kim Jong-un is
North Korea. As long as the sanctions                   willing to go to accommodate these
remain in place, reforms will have only sub-            constant pressures from below. Doing
optimal results, due to the inability to                nothing appears less and less like a viable
engage in international trade and attract               option given the gradually deteriorating
desperately needed foreign investment.                  power of the state. Kim Jong-un may never
Kim Jong-un’s diplomatic overtures with                 succeed in reclaiming absolute control over
South Korea, China and the USA in 2018                  law enforcement and information, but it is
were undoubtedly attempts to obtain                     entirely within his grasp to restore a degree
sanctions relief and thereby maximize the               of reciprocity to relations between the
effects of his moderate reform program in               North Korean state and the North Korean
the future. The success of this program is              people, and thus strengthen his own
therefore partly dependent on whether the               legitimacy in the eyes of the public.
sanctions are removed or stay in place.                 However, this can only be done through
                                                        reform. What Kim Jong-un will do in
                                                        concrete terms remains an open question,

© 2019 The Swedish Institute of International Affairs                                                16
but change is no longer a matter of ‘if’, but           Park, 2009), a program of moderate reform
rather of ‘how much’ and ‘how fast’.                    under Kim is desirable for three reasons.
                                                        First, political stability spares the world the
Keeping expectations in check                           prospect of regime collapse and a full-
People should nonetheless keep their                    fledged domestic power struggle, which
expectations in check. The growth of                    most experts predict would be extremely
private markets will not necessarily entail a           bloody and chaotic (Bandow, 2018; Lankov,
political revolution and the overthrow of               2018; Sokolsky & Miller, 2017). Second, it
Kim Jong-un. The possibility must be                    will significantly improve the living
acknowledged that economic reforms                      standards of ordinary North Koreans. Third,
might consolidate Kim Jong-un’s power. If               although it will not lead to denuclearization,
the regime plays the propaganda card well               it may turn North Korea into a more
and succeeds in keeping outside                         responsible nuclear-weapon state. If, and
information to a minimum, Kim Jong-un                   this is admittedly a big ‘if’, North Korea
may be able to sell North Korea’s modest                were to be integrated into the world
but growing prosperity as the fruits of his             economy as a relatively open market
brilliant economic policies. It is entirely             economy, it would have a vested interest in
possible that North Korea will achieve                  regional stability for its own economic
significant economic growth without fully               growth. The establishment of
abandoning its political system, simply by              interdependent relations with the outside
learning from other East Asian nations and              world would probably reduce, if not
liberalizing its economy (Lee, Kim, & Lee,              altogether eliminate, North Korea’s
2009, p. 291). If Kim Jong-un were to                   inclination to make outrageous military
succeed in creating such a ‘developmental               threats against its adversaries. The result
dictatorship’, there is reason to believe that          would be a more restrained and less
this would go a long way toward satisfying              menacing North Korea and, accordingly,
the population, much like similar                       something of a win-win-win situation for
developments satisfied the populations of               the North Korean leadership, the North
China and Vietnam (Lankov, 2016b). North                Korean people and the rest of the world.
Koreans do not want change because they
have a burning desire for democracy – a
concept that is still alien to the vast majority
                                                        The outside world can help North Korea
of the population. Rather, they want change
                                                        along but ultimately change in North Korea
because they want to live more like the
                                                        must be brought about by North Koreans
South Koreans they see in the movies: they
                                                        themselves. Although there should be no
want to eat three meals a day, they want
                                                        illusions about imminent democratization,
decent houses with round-the-clock
                                                        North Korean marketization is a cause for
electricity and running water, and they want
                                                        optimism. The spread of markets is
better opportunities for their children. If
                                                        significant not just because it improves the
Kim Jong-un can fulfill at least some of
                                                        lives of the average North Korean citizen,
these wishes and continue to facilitate
                                                        but because it chips away at the state’s
market activity through moderate reforms,
                                                        ability to control its people. As a direct
he should be able to stay in power for a long
                                                        consequence of marketization, the three
                                                        cornerstones of North Korean state control
                                                        throughout the Cold War – force,
Although this may disappoint those
                                                        information and legitimacy – are withering.
analysts who regard the Kim dynasty as the
                                                        This cannot but have a detrimental effect on
root cause of North Korea’s problems (e.g.
                                                        the state’s ability to control its citizens. As

© 2019 The Swedish Institute of International Affairs                                                17
the state grows weaker it will become more              thought must be given to what can be done
vulnerable to the efforts of change agents              to empower them. The same amount of
such as the jangmadang generation –                     creativity, time and effort should be
disgruntled young men and women who                     devoted to this task as is currently being
have never experienced anything other than              devoted to coming up with new ways to
capitalism and see the government as an                 punish North Korea through sanctions. Over
obstacle and a leech. North Korea will not              time, unyielding bottom-up pressure from
be reverting to Kimilsungism anytime soon               the inside is surely a far more effective
so before long we will be speaking of                   driver of positive change than either
jangmadang generations in plural. Serious               sanctions or inducements from outside.

© 2019 The Swedish Institute of International Affairs                                           18
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© 2019 The Swedish Institute of International Affairs                                                                    19
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