An Ice Cream Economy?

The Chosun Ilbo has printed a summary of a Financial Times story that may change your model of the North Korean economy, but not much. The story suggests that changes in economic policy in 2002 have in fact launched a limited number of small private businesses, and that those businesses are substantially enriching the people who run them.

The World Food Program’s North Korea director Richard Ragan told the paper the wealthy are concentrated in five cities, including Pyongyang. They are the group that can be seen going to work on their bicycles, which cost triple the average monthly salary in North Korea. The newly affluent work mostly in retail and service industries and include tailors, ice cream sellers and bike repairmen who make money in general markets, which have multiplied to some 300 since 2002. Some farmers selling surplus produce are also part of what passes for a wealthy class in North Korea.

That would be good news if one could extrapolate this trend forward to a point where the benefits would outweigh the costs, but now have a look at the other side of the ledger:

[M]ore than 70 percent are now getting only about half the needed calorie intake from state-run food distribution centers, the Financial Times reported Friday.
. . . .
Most of those working in industrial production subsist below the minimum level, and tens of thousands of industrial workers in towns like Hamhung or Kimchaek are losing their jobs. Among those able to work, 30 percent are unemployed, and 70 percent of the population receives 250-380 grams of food a day from state-run food distribution centers — no more than half the necessary daily intake of nutrients.

Worse, with inflation running at 130%, it seems unlikely that state wages will keep up with the cost of living.

In his book, The Great North Korean Famine, Andrew Natsios explained how workers depend on the wages at their factories and could not expect any help from a state social welfare system. That meant that when workers lost their jobs, or when their factories ran out of money, they were forced to seek alternative strategies to survive. Jasper Becker describes how some workers and managers looted their factories’ machinery and sold it to China to obtain food. You may recall this report from Der Spiegel, which I noted when it was first published in the New York Times:

For example, Becker obtained details about the biggest labor demonstrations in North Korea’s history, which took place in 1998 in the industrial city of Songrim. The protests began on a cold February morning after the public execution of eight men, all managers at the Hwanghae Iron and Steel Works. Their crime? In an effort to provide food for the workers and their families, they sold parts of the factory to Chinese businessmen.

Even though many of Songrim’s inhabitants were starving at the time, the attempt to circumvent the defunct public supply system to obtain food was considered sabotage and treason. The deal with wealthy comrades from the other side of the border was quickly exposed when Chinese grain freighters were seen openly unloading cargo designated for Songrim at the port of Nampo. When the bodies of the eight functionaries, including two Central Committee members, fell into the dust, a woman in the crowd yelled: “They did not try to enrich themselves, but to help the workers. Shooting them is brutal.” The courageous woman was one of the town’s most respected citizens. As a nurse working in an elite hospital in Pyongyang, she had even taken care of the country’s leaders. But that didn’t protect her. Three soldiers grabbed the woman and shot her on the spot. The crowd, deeply fearful and horrified, quickly dispersed. A few hours later, however, the factory’s employees stopped working. The peaceful protest was short-lived. The next morning, tanks broke through the factory gates and mowed down the demonstrators. According to eyewitness reports, hundreds lost their lives. Several days later, dozens of suspected agitators were shot, and countless so-called counter-revolutionaries and their families were taken away to labor camps. This was apparently not an isolated incident.

Becker’s book details other incidents of this kind. When even the machinery is gone, the country is looted of its raw materials. Thus, state industries lose their machinery, their materials, and their skilled workers.

How long can an economy base itself on an ice cream vending industry? For explanations by smarter people than myself, I recommend Marcus Noland’s Korea After Kim Jong-Il and Nicholas Eberstadt’s The End of North Korea (Eberstadt admits that he failed to predict the success of North Korea’s aid-seeking strategy, but his analysis of the North Korean economy itself is sound). An economy that fully participates in the greater global economy can prosper as a service economy if its services generate sufficient income to allow it to import the goods it needs. North Korea will not mirror the experience of, say, Singapore because it lacks the means to produce goods for its own use or for trade, the connectivity to participate in the global economy, and the foreign exchange to purchase what it needs from abroad.