The Great Confiscation Backfires, Badly

How can we tell that North Korea is in a state of self-inflicted economic chaos? When the regime can’t even conceal it from the barbarians.

AFP, quoting an unidentified Western diplomat via Yonhap, reports that “[a]t the Koryo Hotel where many foreigners stay, the [North Korean won exchange] rate swung from 51 won to 120 in the space of a few hours on January 22.” Another report says that currently, prices in North Korea are “anyone’s guess” and that in shops near the railroad stations, there are “stacks of unsold goods” because no one really knows how much to sell them for.

Another AFP report mostly reinforces what we already know — that North Korea’s “politically motivated currency revaluation” didn’t recollective the economy, but instead created a lot of inflation, chaos, “widespread anger,” and hardship, and that has forced people to barter just to get enough to eat. The report goes on, “This prompted authorities to further strengthen control of market activities. However, the situation is getting worse.” U.N. Special Rapporteur Vitit Muntarbhorn seems to agree it’s not working out so well, as do Marcus Noland and Stephan Haggard:

“Such an effort is doomed to failure as long as the state lacks the resources and capacity to put goods on the shelves,” they wrote. Despite the regime’s “sheer ruthlessness” including reported executions, there was little evidence it had succeeded in stamping out the market entirely, they said.

Open News reports that food prices continue to rise amid the regime’s dithering failure to set food prices:

The hope that North Korea’s monetary reform would bring stability to inflationary prices has already failed. A source in North Korea communicated on the January 17 that prices have shot up over the past 40 days since the reform. In addition as food prices, the standard measurement for inflation, have rose so have the prices of goods on black markets.

In Pyongyang 1kg of rice is selling for 160-180 won and corn for 80-110 won as of the 17th. In Musan rice is sold at 190-210 won and corn at 80-100 won. In Hyesan rice is selling for 180-210 won and corn for 80-120, while in Shinuiju rice is selling for 170-200 won and corn costs 100-120 won.

These prices have increased over 200% on average since just one week before on the 10th of January. Compared to December 24th prices have increased at least 400%, and compared to the days before the monetary reform (average prices for rice = 20won, corn-10 won) prices rose 10-fold (1000%).

Open News reports that even among those North Koreans who were initially happy that the Great Confiscation increased their wages are now growing discontented that inflation has taken that increase away, and made goods harder to buy. Ironically, this means that the state’s last loyal workers may end up suffering more than those who depend on the markets.

Open News also corroborates AFP’s report that merchants are holding onto their stocks because they don’t know what to sell them for. But the good news is that there is food, and eventually, merchants will release it into the marketplace somehow.

How else do we know that all is not well? Because KCNA is running reports about new “up-to-date foodstuffs factories” and scientific breakthroughs in food production. North Korea tends to issue reports like these in times of public anxiety about the food situation.

Thankfully, and as I’ve noted before, North Koreans have become accomplished survivors. Here’s Marcus Noland, addressing the Korea Society in New York:

“The North Korean people have demonstrated absolutely extraordinary resilience over the last twenty years,” Noland reminded listeners, “It is unlikely that even this government could bring to bear the degree of repression that would be necessary to eliminate the market economy. So the market is going to come back. [Daily NK]

It’s already happening. The people aren’t waiting for the government to get its act together. They’re already taking matters into their own hands by smuggling food into North Korea on an unprecedented scale.

It has been reported that from early December to January 15 of this year food has been rapidly smuggled in on large and small scales throughout the Korean peninsula, from the northernmost part of Ohnsung along the Tumen and the Yalu River all the way to the city of Shinuiju in the Northern Pyong[an] province. In fact it is being reported that in a province near the banks of the Yalu River 100~120 tons of food were smuggled in in one night. However even though there are significant amounts of food entering North Korea the food prices have not been affected and are not dropping. [Open News]

And, as quoted previously:

It has been reported that from early December to January 15 of this year, food has been increasingly smuggled in on large scales throughout North Korea, from the northernmost part of Ohnsung along the Tumen and the Yalu River all the way to the city of Shinuiju in the Northern Pyong province. In fact it is being reported that in a province near the banks of the Yalu River 100~120 tons of food were smuggled in in one night.

According to news from a source inside North Korea on January 15, food began to be smuggled in last December because they needed to exceed the amount of food for their importing licenses. Also when the New Year started many food importation licenses expired and there were no legal ways to import food; many turned to illegally smuggling food in instead. In North Korea the food importation license is issued after the lunar New Year, so it is difficult to import food before then.

It is reported that in these provinces that trucks are furiously loaded with food across the frozen river in the late hours of night. On some nights over 100 tons of rice have been smuggled in. In order to operate, these companies and wholesale agents are mobilizing transportation and the means to whisk them away quickly for their profit. In fact the current rate of smuggling is on a large enough scale to create the term “public smuggling.

Even the National Security Agency and the Military National Headquarters, along with other North Korean regulators are said to be overlooking this situation. [Open News]

It’s difficult to overstate the significance of this. First, it means there probably won’t be famine in the spring, because merchants won’t wait forever for the state to set prices. Eventually, they’ll sell that food for something of value.

But the rise of large-scale food smuggling right under the noses of the Anjeonbu also portends needed economic and even political change. It means that the system is now so frayed and corrupt that smugglers can move goods of any kind into North Korea in quantity. Today, of necessity, the cargo is food. Tomorrow, the cargo will be consumer goods. But next will come information — books, bibles, pamphlets, radios, computers, flash drives, cell phone repeaters that can be lashed to remote treetops, and camera phones. It opens up the possibility for a North Korean opposition to galvanize, organize, coopt and corrupt regime officials, and effectively challenge the power of the state.

3 comments

  1. kushibo says:

    Excellent overview, as always. I made a post directing people here.

  2. David Woolley says:

    I am so pleased to see that you now think “political change” is in the air.

    Unlike you, I think there will be a “revolution” in North Korea this year, and that it has been underway since 2001. The Great Confiscation is the dying Party’s attempt to stave it off. It will not be “freedom” but will instead be the total control of government by the regular military, with the approval of China.

    North Korea presently has five elements — the party, the military, the urban proletariat, the peasants and the outcasts (merchants, politically suspect categories, Christians, Koreans in China.)

    The outcasts are our sources of information (and your blog and your link to Good Friends are each wonderful.) By force of miserable circumstance, the outcasts have been forced to become entrepreneurial, and paradoxically they are the grease that keeps the system running by smuggling. (But smuggling, even of 120 tons of food daily, is a drop in the ocean of starvation.) The outcasts are a source for information and discontent, but not for change, because there is no external Lenin or Simon Bolivar around which they can form.

    The proles and the peasants don’t count as revolutionary forces because they have no weapons, no organization and no rallying point. The proles and the peasants have been kept lethargic by deprivation, upheaval (the “struggles”) and uncertainty through the work of informers and local police. The only stability came from small profits in the market and the bribery that accompanied it. The struggles have failed, the police are as hungry as their victims, bribery is difficult without small money — and starvation over the next three months is again certain. Still, they won’t rebel nationally.

    BUT and it is now a central BUT, they supply the entire intake of of the lowergrade Korean military. They suffer in the military — but with the Great Confiscation, the conscripts see their families suffering far more than they. Their misery will be transmitted upwards to their majors and colonels, and it from these young officer cadres that the takeover will come. This year.

    In the upper ranks of the octogenarian Marshallate, there is a struggle — between the infantry types, whose equipment is outdated, whose men are starving, and who have just had all their foreign currency confiscated — and the pretty nuclear forces, whose political linkage with the Party and Kims has caused the present disaster.

    The Party is in disarray. It works in Pyongyang, but nowhere else. Following the clear failure of the Party in the starvation years, the military took on the ascendancy. Military farms for food (pigs in nuclear bunkers), military mines and factories, military work camps, military foreign earnings all made for a totally independent army — and the local market policy came from the military rather than the party planners. The constitution has been rewritten in favor of the military, and the senior council is in fact a military-weighted one.

    The Great Confiscation, your wonderfully apposite phrase, appears to be the Party’s attempt to curb all non-Party activities — which is an attack on the military. It is a horrible failure, and the lack of any pricing mechanisms let alone the lack of stable prices or adequate goods shows the Party has lost the ability to organize or lead. It has been accompanied by attempts to reassert the Party’s monopoly on terror (for instance by transferring reidence records from local police to Party police) but these appear to be minor afflictions — except that they may indicate that the local police are no longer trustworthy in Party eyes.

    Now the reports are of an unusual mid-January nationwide military drill, of troops and reserves. If, as it appears, the military can feed the workers and proles from military stores in mid-winter while the Party has failed, the military will have bought the loyalty of the population, to their relief. All that is then needed is for the Kims to die and the Marshals to be replaced by young officers, and for the new military regime to sell their nuclear weapons and facilities to China (and only to China) for food and materials. The new Chinese road to Rason would make sense, and the military would still have all that lovely hard currency from their mining operations. China wants that too, because the prospect of a unified Korea with the South Koreans holding a nuclear bomb is insufferable.

    I think this will happen this spring — and there’s nothing we can do about it. Wait for the border to be closed on the Chinese side.

  3. Greg says:

    All China has to do is “loan” a few billion dollars to North Korea, and their puppet regime is saved.

    I don’t think a regime collapse will ever happen in North Korea.

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