As Economy Grows, North Korea’s Grip on Society Is Tested

New apartment towers along Ryomyong Street in Pyongyang, North Korea, which has experienced a construction boom. Credit Wong Maye-E/Associated Press

SEOUL, South Korea — Despite decades of sanctions and international isolation, the economy in North Korea is showing surprising signs of life.

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Scores of marketplaces have opened in cities across the country since the North Korean leader, Kim Jong-un, took power five years ago. A growing class of merchants and entrepreneurs is thriving under the protection of ruling party officials. Pyongyang, the capital, has seen a construction boom, and there are now enough cars on its once-empty streets for some residents to make a living washing them.

Reliable economic data is scarce. But recent defectors, regular visitors and economists who study the country say nascent market forces are beginning to reshape North Korea — a development that complicates efforts to curb Mr. Kim’s nuclear ambitions.

Even as President Trump bets on tougher sanctions, especially by China, to stop the North from developing nuclear-tipped missiles capable of striking the United States, the country’s improving economic health has made it easier for it to withstand such pressure and to acquire funds for its nuclear program.

While North Korea remains deeply impoverished, estimates of annual growth under Mr. Kim’s rule range from 1 percent to 5 percent, comparable to some fast-growing economies unencumbered by sanctions.

But a limited embrace of market forces in what is supposed to be a classless society also is a gamble for Mr. Kim, who in 2013 made economic growth a top policy goal on par with the development of a nuclear arsenal.

Mr. Kim, 33, has promised his long-suffering people that they will never have to “tighten their belts” again. But as he allows private enterprise to expand, he undermines the government’s central argument of socialist superiority over South Korea’s capitalist system.

There are already signs that market forces are weakening the government’s grip on society. Information is seeping in along with foreign goods, eroding the cult of personality surrounding Mr. Kim and his family. And as people support themselves and get what they need outside the state economy, they are less beholden to the authorities.

“Our attitude toward the government was this: If you can’t feed us, leave us alone so we can make a living through the market,” said Kim Jin-hee, who fled North Korea in 2014 and, like others interviewed for this article, uses a new name in the South to protect relatives she left behind.

After the government tried to clamp down on markets in 2009, she recalled, “I lost what little loyalty I had for the regime.”

Unofficial Activity

Kim Jin-hee’s loyalty was first tested in the 1990s, when a famine caused by floods, drought and the loss of Soviet aid gripped North Korea. The government stopped providing food rations, and as many as two million people died.

Ms. Kim did what many others did to survive. She stopped showing up for her state job, at a machine-tool factory in the mining town of Musan, and spent her days at a makeshift market selling anything she could get her hands on. Similar markets appeared across the country.

After the food shortage eased, the market in Musan continued to grow. By the time she left the country, Ms. Kim said, more than 1,000 stalls were squeezed into it alongside her own.

Kim Jong-il, the father of the North’s current leader, had been ambivalent about the marketplaces before he died in 2011. Sometimes he tolerated them, using them to increase food supplies and soften the blow of tightening sanctions imposed by the United Nations on top of an American embargo dating to the Korean War. Other times, he sought to suppress them.

But since 2010, the number of government-approved markets in North Korea has doubled to 440, and satellite images show them growing in size in most cities. In a country with a population of 25 million, about 1.1 million people are now employed as retailers or managers in these markets, according to a study by the Korea Institute for National Unification in Seoul.

Unofficial market activity has flourished, too: people making and selling shoes, clothing, sweets and bread from their homes; traditional agricultural markets that appear in rural towns every 10 days; smugglers who peddle black-market goods like Hollywood movies, South Korean television dramas and smartphones that can be used near the Chinese border.

At least 40 percent of the population in North Korea is now engaged in some form of private enterprise, a level comparable to that of Hungary and Poland shortly after the fall of the Soviet bloc, the director of South Korea’s intelligence service, Lee Byung-ho, told lawmakers in a closed-door briefing in February.

This market activity is driven in part by frustration with the state’s inefficient and rigid planned economy. North Koreans once worked only in state farms and factories, receiving salaries and ration coupons to buy food and other necessities in state stores. But that system crumbled in the 1990s, and now many state workers earn barely a dollar a month. Economists estimate the cost of living in North Korea to be $60 per month.

“If you are an ordinary North Korean today, and if you don’t make money through markets, you are likely to die of hunger,” said Kim Nam-chol, 46, a defector from Hoeryong, a town near the Chinese border. “It’s that simple.”

‘Competition Is Everywhere’

Before fleeing in 2014, Mr. Kim survived as a smuggler in North Korea. He bought goods such as dried seafood, ginseng, antiques and even methamphetamine, and he carried them across the border to sell in China. There, he used his earnings to buy grain, saccharin, socks and plastic bags and took it back to sell in North Korean markets.

He said he had paid off border guards and security officers to slip back and forth, often by offering them cigarette packs stuffed with rolled-up $100 or 10,000-yen bills.

“I came to believe I could get away with anything in North Korea with bribes,” he said, “except the crime of criticizing the ruling Kim family.”

Eighty percent of consumer goods sold in North Korean markets originate in China, according to an estimate by Kim Young-hee, director of the North Korean economy department at the Korea Development Bank in the South.

But Kim Jong-un has exhorted the country to produce more goods locally in an effort to lessen its dependence on China, using the word jagang, or self-empowerment. His call has emboldened manufacturers to respond to market demand.

Shoes, liquor, cigarettes, socks, sweets, cooking oil, cosmetics and noodles produced in North Korea have already squeezed out or taken market share from Chinese-made versions, defectors said.

Regular visitors to Pyongyang, the showcase capital, say a real consumer economy is emerging. “Competition is everywhere, including between travel agencies, taxi companies and restaurants,” Rüdiger Frank, an economist at the University of Vienna who studies the North, wrote recently after visiting a shopping center there.

A cellphone service launched in 2008 has more than three million subscribers. With the state still struggling to produce electricity, imported solar panels have become a middle-class status symbol. And on sale at some grocery stores and informal markets on the side streets of Pyongyang is a beverage that state propaganda used to condemn as “cesspool water of capitalism” — Coca-Cola.

Leaning On Private Sector

When Kim Jong-un stood on a balcony reviewing a parade in April, he was flanked by Hwang Pyong-so, the head of the military, and Pak Pong-ju, the premier in charge of the economy.

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North Korea’s leader, Kim Jong-un, arriving for the official opening of the Ryomyong residential area in April.CreditWong Maye-E/Associated PressThe formation was symbolic of Mr. Kim’s byungjin policy, which calls for the parallel pursuit of two policy goals: developing the economy and building nuclear weapons. Only a nuclear arsenal, Mr. Kim argues, will make North Korea secure from American invasion and let it focus on growth.

Mr. Kim has granted state factories more autonomy over what they produce, including authority to find their own suppliers and customers, as long as they hit revenue targets. And families in collective farms are now assigned to individual plots called pojeon. Once they meet a state quota, they can keep and sell any surplus on their own.

The measures resemble those adopted by China in the early years of its turn to capitalism in the 1980s. But North Korea has refrained from describing them as market-oriented reforms, preferring the phrase “economic management in our own style.”

In state-censored journals, though, economists are already publishing papers describing consumer-oriented markets, joint ventures and special economic zones.

It is unclear how much of recent increases in grain production were due to Mr. Kim’s policies. Defectors say factories remain hobbled by electricity shortages and decrepit machinery while many farmers have struggled to meet state quotas because they lack fertilizer and modern equipment.

More broadly, the economy remains constrained by limited foreign investment and the lack of legal protections for private enterprise or procedures for contract enforcement.

Plans to set up special economic zones have remained only plans, as investors have balked at North Korea’s poor infrastructure and record of seizing assets from foreigners, not to mention the sanctions against it.

But there is evidence that the state is growing increasingly dependent on the private sector.

Cha Moon-seok, a researcher at the Institute for Unification Education of South Korea, estimates that the government collects as much as $222,000 per day in taxes from the marketplaces it manages. In March, the authorities reportedly ordered people selling goods from their homes to move into formal marketplaces in an effort to collect even more.

“Officials need the markets as much as the people need them,” said Kim Jeong-ae, a journalist in Seoul who worked as a propagandist in North Korea before defecting.

Ms. Kim fled North Korea in 2003 but has kept in touch with a younger brother there whom she describes as a donju, or money owner.

‘Loyalty Donations’

Donju is the word North Koreans use to describe the new class of traders and businessmen that has emerged.

Kim Jeong-ae said that her brother provided fuel, food and crew members for fishing boats, and that he split the catch with a military-run fishing company.

“He lives in a large house with tall walls,” she added, “so other people can’t see what he has there.”

Called “red capitalists” by South Korean scholars, donju invest in construction projects, establish partnerships with resource-strapped state factories and bankroll imports from China to supply retailers in the marketplaces. They operate with “covers,” or party officials who protect their businesses. Some are relatives of party officials.

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Women selling flowers in Pyongyang in April. Regular visitors to the city say a real consumer economy is emerging. CreditDamir Sagolj/ReutersOthers are ethnic Chinese citizens, who are allowed regular visits to China and can facilitate cross-border financial transactions, and people with relatives who have fled to South Korea and send them cash remittances.

Whenever the state begins a big project, like the new district of high-rise apartment buildings that Kim Jong-un unveiled before foreign journalists in April, donju are expected to make “loyalty donations.” Sometimes they pay in foreign currency. Sometimes they contribute building materials, fuel or food for construction workers.

“Kim Jong-un is no fool,” said Kang Mi-jin, a defector who once ran her own wholesale business. “He knows where the money is.”

Donju often receive medals and certificates in return for their donations, and use them to signal they are protected as they engage in business activities that are officially illegal.

They import buses and trucks and run their own transportation services using license plates obtained from state companies. Some donju even rent farmland and mines, working them with their own employees and equipment, or open private pharmacies, defectors said.

“Donju wear the socialist hide, operating as part of state-run companies,” Ms. Kang said. “But inside, they are thoroughly capitalist.”

A Shifting View

Before Kim Jong-un took power, the government made a last attempt to rein in donju and control market forces. It called on citizens to shop only in state stores, banned the use of foreign currency and adopted new bank notes while limiting the amount of old notes that individuals could exchange.

The move wiped out much of the private wealth created and saved by both donju and ordinary people. Market activity ground to a near halt. Prices skyrocketed, and protests were reported in scattered cities.

The government eventually retreated and is believed to have issued an apology when officials convened villagers for their weekly education sessions. It also executed the country’s top monetary official, Pak Nam-gi.

The crisis is widely considered the moment when the government concluded it could no longer suppress the markets. A year later, Pak Pong-ju, a former prime minister who had been ousted for pushing market-oriented policies, was restored to power. He now manages the economy under Mr. Kim.

As the markets develop, growing numbers of North Koreans will see the vastly superior products made overseas and perhaps question their nation’s backward status.

“Thanks to the market, few North Koreans these days flee for food, as refugees in the 1990s did,” said the Rev. Kim Seung-eun, a pastor who has helped hundreds of defectors reach South Korea. “Instead, they now flee to South Korea to have a better life they learned through the markets.”

Jung Gwang-il, who leads a defectors’ group in Seoul called No Chain, said that with more North Koreans getting what they needed from markets rather than the state, their view of Mr. Kim was changing.

“North Koreans always called Kim Jong-un’s grandfather and father ‘the Great Leader’ or ‘the General,’” Mr. Jung said. “Now, when they talk among themselves, many just call Jong-un ‘the Kid.’ They fear him but have no respect for him.”

“They say, ‘What has he done for us?’” Mr. Jung said.