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Kim Jong Eun, capitalism, and the future of North Korea

The rise of market activity

After the death of Kim Jong Il, pundits debated the role that Kim Jong Eun would play in the future of North Korea. This discussion made little mention of the role that the North Korean people would play in determining the future of their country. Pundit’s underlying assumption is that the people are merely robots or puppets of the regime, and are passive players in the direction their country takes. This is untrue.

Kim Jong Eun does not matter as much to North Korean citizens as most seem to assume. This is because, although the North Korean people may not be politically free, they are, to a surprising degree, economically free.

For the past 15 years, the North Korean people have been part of one of the fundamental institutions of capitalism: the market. Yes, marketplaces do exist within North Korea. And even more surprisingly, they are plentiful and often huge.

Several recent studies show that it is not just a small minority who are active in this playground of capitalism, but that nearly everyone is.

This involvement includes everyone from collective farmers (who are now engaged in illegal private farming) to party officials who are using their power to become some of the wealthiest merchants in society. The current level of marketization in North Korea is far more developed than it was in the USSR and the Eastern Bloc. So many Koreans are trading in the markets that it is hard to find people who are not involved, except perhaps Kim Jong Eun and his immediate network of cronies.

Furthermore, these markets do much more than supplement state handouts and salaries; they are the primary source of income for most North Koreans, providing almost all income, according to the findings that North Korean economy experts Stephen Haggard and Marcus Noland published in January 2011. Markets have completely undermined the peoples’ dependence on the state.

This cuts strait to the heart of the assertion that Kim Jong Eun is less  important than most have assumed.

North Korea was unique among communist states in that it fed, clothed, and housed its people through a Public Distribution System (PDS). The PDS was successful in providing everyone in the country with enough food and other goods to keep citizens satisfied and working productively.

This happened because of an implicit bargain implied by the PDS; the state would ensure that citizens had enough to eat and be happy, and, in turn, citizens owed their labour and loyalty to the state.

This compact broke down, however, with the outbreak of the famine in the 1990s, which coincided with Kim Il-Sung’s death in 1994.

Kim Il-Sung successfully rebuilt the Northern half of Korea after the Korean war, to the extent that development in the North was more extensive than that in the South until as recently as 1975. It was precisely because Kim Il-Sung was seen as having single-handedly built the country from the ground up, and had provided for everyone in the North, that North Korean citizens expressed such sorrow at the announcement that he had died at age 82.

The death of Kim Il-Sung and the outbreak of famine had two important consequences, respectively: Kim Jong-Il took power, and people began trading in markets to survive. After the famine, Kim Jong Il’s greatest failure was that the PDS was never successfully reinstated. Approximately 70 per cent of North Korean defectors in China and South Korea agreed or strongly agreed that the food situation had not improved over the last decade and a half under Kim Jong-Il.

In the face of Kim Jong Il’s failure to quash market activity, marketplaces have continued to grow and expand. They are so prolific today that 75 per cent of defectors view marketplace trade as the easiest way of making a living. It seems that the people of North Korea today, like many people elsewhere in the world, simply care more about making a living than politics and state ideology.

Although the people have loosened themselves from the noose of state rule,  Kim Jong Eun still holds enormous power and influence. Kim Jong Eun has been knighted the “supreme commander” of North Korea’s million-strong army and now controls the nuclear weapons that his father developed. Furthermore, he also is at the head of a strong, coercive state apparatus, and it is only Kim Jong Eun who can decide if the North Korean state will  reform. But precisely because of the proliferation of the markets and their influence, the state leadership will almost certainly not take this path.

Marketization in North Korea has already developed significantly from below, meaning that any opening of the borders will further erode the structure of the regime. This is precisely because market-traders and merchants pose the biggest threat to the regime at this time. They have considerable access to information through their contacts in China and have become a new pseudo-middle class who have gained their wealth outside of the state structure.

By loosening the restrictions on private trade through reform, the North Korean government will allow this class to become even wealthier; this group already controls the trade networks and will best be able to capitalize on those reforms. For the Kim Jong Eun administration to enact some sort of economic liberalization from above, it must first regulate the marketization that has occurred from below.

This is not to say that the leadership hasn’t tried. Pyongyang has attempted to control markets – with mixed results. In July 2002 North Korea enacted reforms that effectively legalized some marketplaces and forms of trade, aiming to regulate them. In contrast, the 2009 currency reform, which created shockwaves in the economy, was seen as an attempt to undercut the merchants and to transfer power back to the state; this was seen as a failure, even by the leadership.

Kim Jong Eun’s greatest challenge will be to take control of the prolific capitalism that is present in his country. Until he does, the people will go on with their lives, making a living on their own through trade and, by so doing, further eroding the structure and authority of the State.

Noteh Krauss is a U1 Political Science student who conducted an independent study on North Korea. He can be reached at