Markets, food, and trade: steps forward, leaps backward (Pts. 1, 2 & 3)

~   Part 1   ~

Do you still remember March, when the “May 30 measures” were the next wave of “drastic” perestroika that would change North Korea? Those measures were supposed to “give[] autonomy management of all institutions, companies, and stores,” including “control over production distribution and trade from the state to factories and businesses,” and thus awaken “the inner potential of the country.” But today, Andrei Lankov, who has been one of the most forward-leaning predictors of economic reform in recent years, tells us that the regime is backing away from the reform proposal:

The ‘May 30th Measures’ envisioned that the new system would be expanded to include all North Korean enterprises, but this is not what has happened. Reports emanating from North Korea in the last two months leave little doubt that the expected transformation has at best been postponed, at worst, cancelled entirely. Right now, only a minority of North Korean industrial enterprises have been allowed to implement the new model.

What happened? Frankly, it is unlikely we will receive a definite answer to this question any time soon. Of course, it is quite possible that Kim Jong Un suddenly changed his mind and decided to stop reformist activities that he found to be politically dangerous and ideologically suspicious. It is also possible that the reforms faced determined opposition from conservative members of the bureaucracy and military. Last, but not least, it is also possible that North Korean leaders have come to understand the problems that such reforms would face without prior and proper changes to the financial system.

Whatever the reasons, it is clear that the North Korean government has decided to slow down the reform process. At the same time, there has as yet been no reversal. [Andrei Lankov]

I’m still not convinced that either the reforms or the retreat are real, but I won’t let that stop me from suggesting two more alternative theories. For example, Lankov cites the example of the Musan Iron Mine, which was paying its workers 300,000 to 400,000 won per month, “exorbitant wages by North Korean standards.” But in the case of Musan, power shortages and the squeeze on exports to China have led to reports of mass layoffs. The regime may have decided that it couldn’t afford either the higher wages or the risk of creating a pool of angry, unemployed workers. Or, the entire program may have been disinformation all along, meant to mollify workers at a time when state-run industry is demoralized, and when workers seeking steady pay vastly prefer scarce jobs at foreign currency-earning enterprises.

Either way, reform rumors often seem to cause more excitement on Massachusetts Avenue and the Yonsei campus than in Chongjin or Hamheung:

“A lot of top officials in North Korea are not sure which direction Kim Jong Un is taking them in,” says Park. “He doesn’t know how to be a leader. He doesn’t know politics, economy, culture or diplomacy.”

Initial plans for a more open market economy modeled on China was soon dumped, says Park, once it became clear opening up could jeopardize Kim’s iron grip on power.

“People are struggling to survive and are trading on the black market so the official economy is barely functioning.” Park adds “a lot of people are trading foreign currency and running small businesses but the power of the state to control that money is weakening.” [CNN]

One can observe this same gap in expectations with the so-called “6.28 measures,” which would let farmers keep a greater share of what they grow. The 6.28 measures also generated much optimism here, in Lankov especially, but failed to materialize in 2012, 2013, and 2014. North Koreans have heard these promises enough to stop believing them. From their perspective, “nothing has changed.” In Ryanggang Province last year, their shares of the harvest were actually about half of what the state promised. They’ve lost faith in the state, its collectives, and its excuses:

“As the state fails year after year to distribute a fare share to the workers, motivation among collective farmers continues to decline,” he explained, adding that the high hopes the bunjo system once instilled in people have largely fizzled out, only to be replaced with more misgivings.

He went on to say that the state’s failures have given way to a population that “no longer believes in state policies,” and is fully aware that the state “simply hides behind excuses of ‘aid to the military, shortfalls of production targets, and purchasing seeds for the next harvest'” to explain away its broken promises. “We’re not going to be fooled again this year,” the source noted. [Daily NK]

As Marcus Noland and Stephan Haggard have argued, what foreigners are tempted to describe as “reform” in North Korea often amounts to state policies catching up to what citizens have already established as a fact of life, legally or otherwise. Even if the 6.28 measures are real, unanswered questions about how they will be implemented will determine how much of a difference they will really make in the availability and production of food. Perhaps 2015 will be the year when the regime finally implements the 6.28 measures, but the reform North Korean farmers really want — and the change they’re making a fact of life now — is private, individual, for-profit agriculture, sometimes called sotoji farming.

~   Part 2   ~

For obvious reasons, no one knows for certain how much of North Korea’s food is grown on sotoji plots, but Lankov has estimated “as much as 60 percent of all food sold on the local market” in some areas. U.N. food and crop estimates say little about private agriculture, but it’s probably one important part of the reason why the state’s border crackdowns haven’t caused a return of famine. The practice is common enough that “[p]eople in farming areas are busy cultivating small individual plots during this season, constantly moving around hilly areas and the banks of the river from dawn to dusk,” and complicating efforts to catch border-crossers. Because the state has monopolized the best land for the collectives, sotoji farmers have cleared plots in the mountains. This, along with the clearing of trees for firewood, has contributed to the North’s deforestation problem.

The regime’s response to sotoji farming has been similar to its treatment of the markets a decade ago — tolerate but squeeze. In previous years, it has confiscated plots, or limited their size to 30, and later, 100 square meters in the immediate vicinity of the grower’s home. This year, the regime is trying to tax the plots to death, raising land use fees by 50% and requiring farmers to pay in produce. Many farmers can’t afford this higher rate and call the decision “absurd” when the regime still can’t provide survival rations. The regime has responded with threats of outright confiscation. In some areas, officials have prohibited the clearing of trees, or ordered residents to plant trees on existing farm plots:

Another source reported that people have expressed frustration about the fact that food security is seen as less of a priority than reforestation. “If trees are planted on hillside plots or strips of land near the roads, there will be less for people to eat. If the state doesn’t guarantee food, people will just move elsewhere and keep cultivating whatever land they can, decimating other forest areas,” he concluded. [Daily NK]

So far, squeezing the sotoji has not caused hardship for most of the people. Food prices were largely stable and well below their usual seasonal levels during the lean season in March and April. The reports credited various reasons for the improved food supply, including aid from Russia, trade with China, and paradoxically, “a program of encouraging people to cultivate smaller plots of land” within the collectives. (Note well: when I argue that the regime itself could and should ease the food crisis through land reform and imports rather than asking foreign donors to fill the void, this is what I mean.)

Meanwhile, we shouldn’t lose sight of the fact that most North Korean still suffer from food shortages, and one in six North Korean kids still suffers from chronic malnutrition. Worse, North Korea is facing a serious drought that could worsen the food crisis next year. Pyongyang could close its food gap easily with a small reallocation and redistribution of the resources it squanders on its military and its oligarchy.

But not all of the news is bad. One area where there is clear evidence of improvement is the jangmadang, or markets. The Daily NK reports that the regime has eased up on market trading, including by dispensing with a widely disobeyed prohibition on women under 50 selling in the markets. This has created significant opportunities for those who make their living by selling on the people’s economy. As a result, the number of market stalls in North Korean cities has increased rapidly in the last three years. One incentive for this is that the “stall fees” officials collect from merchants are increasingly lucrative, which enlists local officials in the growth of the market system. For now, business is good, and vendors pay high prices (RMB 4,500) to officials for market stalls. In addition to this, there has been a proliferation of small fast-food restaurants and coffee shops in the provincial towns.

There are still limits, of course: vendors caught selling South Korean goods risk losing their stalls. But there is evidence that this is a nationwide trend, suggesting a top-down decision to relax the rules. Can it last? A review of the history tells us that markets have waxed and waned as the regime vacillated between cracking down and easing up. North Korean women share this concern:

[M]ost women are perplexed, if cautiously elated, by the leniency shown by a system that has wielded such stringent power and regulation over them for so long. “The shift in sanctions feels like hell has frozen over,” many have remarked, adding that they “finally have the opportunity to make ends meet.” Still, many are wary, noting that “you never know when the authorities will abruptly declare a new policy or revert to stringent clampdowns.” [Daily NK]

~   Part 3   ~

There is also good news on the transportation front. Well-connected merchants called donju have gone into the business of moving goods and people, pressing government-owned trains, trams, and boats into commercial service by renting them from the Ministry of Railways and Fisheries, or by importing old trucks and buses from China and kicking up a cut to officials in exchange for permission to operate. (The donju were also buying electricity from corrupt state officials, paying illegal “electricity taxes” in exchange for a more reliable power supply — up to 10 hours a day for 20 days.) Donju are also starting taxi services in the cities.

The establishment of an alternative transport system would be good news. It would help break down the regime’s internal controls on the movements of people and information. More efficient transportation of goods would also erode the inequalities between regions (particularly between Pyongyang and other places).

But as North Korea watchers have learned, for every few small steps forward, there is eventually a Great Leap Backward. So can it last? To answer that question, we have to know whether the positive changes are happening because of Pyongyang, or in spite of it. If the latter is more true than the former, it may be that the regime is concentrating on enforcing border and information control at the expense of other internal controls. It certainly isn’t talking about reform and opening, and if there’s general agreement among Korea watchers about anything, it’s that the regime regime remains firmly opposed political reform or change. Pyongyang is clearly determined to seal up the cracks in the information blockade by restricting cross-border travel and snuffing out cross-border communications. That crackdown is backed by the full power and resources of the state, and almost certainly comes from the very top. In April, the regime deployed even more inspection teams to the border, to catch both border-crossers and users of illegal cell phones.

This crackdown is stifling consumer trade. It is making it difficult for traders to cross the border with China, and to obtain merchandise from China. These restrictions have significantly reduced the volume of consumer imports. Traders are also worried about politicized prosecutions of cross-border traders as spies, and inspections designed to root out ”impure members hidden in society;” “narcotics, human trafficking, illegal phone calls, and defections;” and “vibes from capitalist delinquents and punks” entering from China. Throughout much of 2014, Rimjingang received reports of “a series of purges and firing squad executions of Party cadres” in Pyongyang. One official was executed for leaking word of the arrival of a South Korean aid shipment in Nampo. Another, a Chinese resident, was said to be executed for “spying, narcotic trafficking, selling of impure recordings.” According to one Rimjingang source in Pyongyang, the authorities announced the sentence by posting a notice at the Chinese resident association office, possibly “to set an example and to intimidate and warn Chinese residents who often travel to China.” Chinese traders report that they are only allowed to use their mobiles in designated areas — probably so that the state can monitor their conversations — and levies heavy fines on those caught using their phones anywhere else. It’s clear, then, that whatever the economic trends, the political trends are regressive and reactionary.

Can we make any sense at all of this contradictory information? It’s possible that there’s no real pattern here at all, just scattered pixels of uncoordinated and arbitrary decisions and indecisions by officials at every level and in every province. Indeed, some of the information is simply contradictory; some reports say fuel prices have eased, while other say they’re skyrocketed. Most of the positive developments in the preceding paragraphs may well have resulted from local or low-level official abstaining from enforcing the rules, possibly due to corruption or a profit motive. To some extent, a rebound in markets probably represents their recovery from The Great Confiscation five years ago. One must also wonder how long a revival the markets can last when the regime is making it harder to import food and consumer goods from China, and when it’s making it harder for people to grow much of the food that’s sold there. What use is an empty market? One of the best times for North Korea’s jangmadang was 2009, right before The Great Confiscation wiped out the savings of a nascent middle class who had gained a degree of wealth — and critically, financial independence — from the markets. If the state sees that the people are gaining financial independence, it may feel threatened.

I do see two constants in all of this. First, there is the desperation and inexhaustible resourcefulness of the North Korean people. Second, there is the Inner Party’s determination to contain them. There is also a third, dynamic trend — the Outer Party’s growing corruption, which allows the people’s economy to survive, and to fill new voids left behind by the state’s failure.

Every commentary about the economic transition of North Korea can only be a snapshot, or a most a few frames, of a moving picture. Whether you perceive that the small steps forward are outpacing the great leaps backward, or how, depends on when you take the snapshot, and which part of the frame you focus on. It also depends on whether you’re willing to accept reform rumors as true, and to assume they’ll ever come to anything. More often than not, however, behind each of the regime’s reform measures is a much more consequential, latent, market-driven trend that the regime is simply trying to catch up to.