North Korea Bulletin
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The Rise of North Korea’s
Merchant Class
DONG Yong-Sueng
THE ISSUE
Traditionally North Korean society is divided
into three main classes; laborers, farmers and
intellectuals. Other subclasses include soldiers,
students, party members and dependents but
these are not recognized as an official class, but
rather as job- or age-based designations. From
the 1990s however, social changes swept across
North Korea, paving the way for a totally new
class. Merchants have been growing in number
with the revitalization of the North Korean
market. However, despite progressively establishing their status, merchants have yet to be officially acknowledged as a social class.
It is difficult to accurately assess the exact number of merchants in North Korea. However,
each of the 3,000 or so villages in North Korea
has at least one permanent market with 50 to
100 stands. Smaller markets also exist where individual merchants operate their stands. As
such, there are likely 500,000 to a million professional merchants in North Korea today.
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The Rise of North Korea’s Merchant Class
In line with their surging numbers, the demand
and scope of activities has also become more diverse, compelling merchants to call themselves
an “in-between class.” As well as not belonging
to a particular class, merchants include members from all strata of society, breaking the
mold of the traditional social class system. Despite the ambiguity of their social identity, what
is clear is that merchants are at the center of not
only a shift in North Korea’s social regime but
also the gradual move towards marketization.
Accordingly, examining this new breed of capitalists is vital to understanding North Korean
society. This paper will try to characterize
North Korea’s merchant class, examine the various forms of their business activities and deduce their implications for the future.
DEFINITION
Originally, the word “merchant” in North Korea was of no practical significance. Simply put,
workers at fish factories were called factory laborers and those in distribution or services were
called sales persons or servers. Value added
through economic activity naturally belonged
to and was controlled by the government. However, the newly emerging merchant class has
abandoned this system; and is now directly
reaping the fruits of its own labor.
All means of production in North Korea are officially controlled by the government. As such,
in principle, no individual can claim any value
added that he or she has created. In farmers
markets (first established in the 1950s), farmers
would sell their produce to purchase needed
farming equipment rather than to earn a profit.
However, from the 1980s onwards, as the North
Korean economy began to deteriorate, activities in farmers markets began to resemble actual business transactions. By the 1990s, merchants began to appear in earnest and profits
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earned through sales became the main or sole
source of income.
Initially, everyone had to participate in trade to
make a living but they were all still affiliated to
a specific class. Among them, those who traded
as an occupation rather than out of necessity
began to appear. The majority of those who
made up this group were 40s-plus home makers
and retirees in the 60s or above cohort, otherwise known as “dependents.” Dependents refer
to those who do not have a particular job and as
a member of a household are supported with
provisions supplied by the government. However, as commercial activities increased, the number of dependents has risen. North Korean authorities tend to readily acknowledge remaining
family members as dependents if at least one
member is tied to an organization. When the
North Korean economy nosedives, these dependents turned to commerce for their families’
livelihoods, and then gradually made it their
profession.
Accordingly, as the market began to expand,
merchants with outstanding abilities were able
to earn large profits and more diverse business
methods began to appear. Many merchants
have now secured stands at permanent markets
and have become full-time professional traders.
Progressing in such a way, merchants have
found their way into other sectors, including
manufacturing, making “entrepreneur” a more
suitable title than “merchant.”
SCOPE OF OPERATIONS
Manufacturing: Small Businesses Make
Their Debut
The 8.3 Peoples Consumer Goods Production
Campaign aims at “self-reliance.” Under the
heading ‘Household detail,’ factories are to not
DONG Yong-Sueng
only produce designated commodities but also
utilize byproducts (5~10 percent) to manufacture products that residents might need. When
the sluggish economy made factory operations
difficult, however, these work details began to
expand. Instead of receiving wages, more and
more people began receiving subsidiary materials to put together at home and sell on the market as finished products.
Over time, this process has evolved to resemble
a form of manufacturing. Although 8.3 products are deemed to be of the lowest quality, they
are still widely used. The production of popular
products has intensified and in some cases, a
particular work detail is requisitioned by an individual who then requisitions a factory. In such
cases, existing factory employees are reemployed and put in charge.
Shoe factories are prime examples. As paying
workers became difficult, materials to make
shoes were given instead. Parts such as soles
which needed to be processed in factories were
premade and provided along with other materials that could be assembled by hand at home
and sold on the market. As certain shoes gained
popularity, work details would take over production and factory employees would be employed to produce and sell the shoes.
As well as not belonging
to a particular class,
merchants include
members from all strata of
society, breaking the mold
of the traditional social
class system.
Another example is motor factories. A byproduct of making motor parts, electric fans became
the product of choice to pay for operational
costs once the economy took a downward turn.
Eventually, the electric fans would become the
main product. Restaurants are another notable
example. People make noodles or bread at
home to be sold on the market. Those who are
particularly successful are able to set up noodle
factories or develop ties with institutions to
open restaurants.
Distribution: Wholesale Merchants Appear
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The Rise of North Korea’s Merchant Class
The majority of the merchant class in North Korea works in distribution, selling their products
from stands at permanent markets or stalls at
open markets. Among them, there are those who
produce their products and others who sell products they have obtained from factories or trade
businesses. North Korea’s distribution sector has
been divided and now there are also middle distribution stages. Wholesalers procure products
from factories, collective farms and/or traders to
distribute to lower wholesale merchants at the
markets who then sell to retail sellers.
In recent years, there has been a trend toward
segmented distribution channels that specialize
in particular items like electrical appliances,
clothing, shoes, and grain etc. Within Pyongyang, entire markets specializing in an item are
emerging. Although these markets are not totally specialized as of yet, they are becoming
more specialized through word of mouth.
Selling grain is a prime example. Merchants secretly siphon a certain amount from collective
farms or from foreign aid to supply to the markets. Collective farms report output to be lower
than what it actually is and sell the remainder at
a much higher price than the national purchasing price. Currently, the retail price of rice in
North Korea is 8,000 KPW per kilo which
wholesalers acquire for 1,000~2,000 KPW. As
for grain diverted from foreign aid, the supply is
bought from the respective institutions that receive the aid. When middle men are included in
the distribution process, the price at which the
customer eventually buys the product is over
three times the original price. Food wholesalers
are believed to now have a nationwide distribution network, and the simultaneous fluctuations
of market rice prices in Sinuiju, Pyongyang and
Hyesan are evidence of this.
It is likely that many other industrial products
are also being networked throughout the North.
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In fact, the government has had to issue public
apologies and reopen Pyongyang Market and
Sunam market which were forcibly closed in
February 2010 after the sudden currency revaluation in November 30, 2009 provoked a public
backlash.
Finance: The Rise of Loan Sharks
Although there are many banks in North Korea, the lack of interest rates and loans make
them irrelevant to the North Korean people.
Moreover, minuscule official wages make it difficult, if not impossible to save. Nevertheless, as
trade and commerce becomes vigorous, saving
and loans have become a necessity, creating ideal conditions for the emergence of loan sharks.
Similar to pawnshops, loan sharks take goods
put up as collateral for loans or provide loans
on an acquaintance basis. These loans have interest rates that can go up to 30 percent. Despite
usurious rates and high risks, the growing need
for business loans and the lack of alternatives
has bolstered the development and expansion of
private lenders.
Surprisingly, North Korea also has numerous
foreign exchange booths, providing services at
market rather than official rates. People use
them instead of banks as banks require customers to reveal the source of the foreign currency
as well as their entire assets; the only customers
at banks’ are official trade businesses. Exchange
dealers base their activities within the markets,
managing as much as $100,000 on average. It is
said that one can exchange $1 million at public
markets in Pyeongyang within the space of just
one hour. The speed at which this can be done
shows how ubiquitous the dollar is in North
Korea. In actual fact, North Koreans tend to
keep dollars rather than their unstable home
currency. Accordingly, exchange dealers can
make a significant profit, although there are
high risks involved.
DONG Yong-Sueng
Construction: First-time Purchases
Predominate
As the private possession of real estate is not legal in North Korea, it is impossible for individuals to operate construction businesses. In practice however, the private sale and purchase of
apartments has become widely accepted. The
current going rate for a south Korean style
99.18m2 apartment in Pyeongyang is $100,000–
$300,000. Accordingly, real estate brokers are
rising in number, providing not only housing
but also (for a commission) employment if
needed, for those moving to the city.
What is notable is that construction must be a
collaborative process. Institutions are granted
planning permission from the government to
“enhance the living environment” for institutional members. Originally, with the permissions, the government also provided the necessar y raw m at er ia ls, however, now t he
institutions have to obtain materials themselves.
Individuals then pay the institutions a commission, procure materials and construct apartment buildings. Once the building is built, each
participant receives two to three apartments to
sell and make a profit. As this process is not officially sanctioned, there are frequent bankruptcies but successful cases are increasing.
Private construction “companies” are reaping
in the benefits of the construction boom in
Pyongyang to achieve a “strong and prosperous
nation.” However, due to the 100 Thousand
Homes project under Jang Song Taek, Vicechairman of the National Defense Commission
and uncle of North Korean leader Kim JongUn, privately built homes and those built separately by institutions are being forcibly included
in the tally, with threats of permit cancellations.
Furthermore, although commissions are paid
for the homes, the amount is far below the profit
rate of a private sale, inducing even more re-
sentment.
Others
Even North Korea has intercity buses. However, these are neither regular nor actually “buses.”
Individuals buy vehicles and register them under a particular institution for a regular fee to
operate a form of transportation service. Drivers with homemade signs gather at a particular
location and depart when enough people have
gathered.
Another form of transportation service is baggage carriers. People carrying A-frames in front
of markets and train stations are a familiar
scene in the North. With commerce and travel
ever expanding, more people need their luggage
transported. For a small fee, baggage carriers
will carry anything from shopping from the
market to luggage at train stations or airports
for returning travelers.
There are also an increasing number of people
who have turned their homes into repair shops
for electrical appliances, which have become increasingly common in North Korea. As the demand for repairs and parts rises, former workers of appliance factories or those specialized in
machine repair have set up shops to cater to this
demand.
In any apartment complex there are bound to
be general stores. In North Korea, these stores
carry anything from grain to living necessities.
Owners even fill up wheelbarrows with products to provide door to door services. Although
prices are slightly higher than the markets, they
are popular with residents due to the convenience.
IMPLICATIONS
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The Rise of North Korea’s Merchant Class
North Korea’s merchants are increasing at such
a pace that even without official status their
presence and status is undeniable. They have
become a role model for many and a target of
envy and malice for some. Nevertheless, their
success still relies heavily on illegal activities of
siphoning money and products from the government.
the ability to move away from illicit activites to
profit through officially sanctioned means.
Translation: KIM Aimee
Keywords
North Korea’s merchant class, North Korean market,
social change, loan sharks
Merchants are also changing the social and industrial landscape of the North. Manufacturing
and distribution have been separated, and distribution channels and products have become
more expansive. In the past, hand-crafted products were taken to be sold at the market. Today,
more and more people are selling their products
to merchants who will in turn sell them to shop
owners. From another perspective, a growing
majority of North Koreans are shifting away
from the old communist ideals in favor of materialism. With the rise of the merchant class,
many North Koreans dream of earning a living
through trade. What is more, among those who
have defected from North Korea, some have
said that they had no difficulties making ends
meet in the North, and that their reason for defecting was that they could earn even more in
the South.
The changes to North Korea’s social regime
have put the government on high alert. As
countermeasures, the government enforces regular currency changes, population mobilizations and market containment drives, while
continuously promoting the normalization of
the official economic plan. However, if the merchant class continues to expand at the current
rate, despite its efforts, the government will be
unable to reverse the changes and will have to
eventually concede. To expedite the shift, the
North Korean people themselves would have to
spearhead the changes. Foreign assistance will
also be needed so that the merchant class can
diffuse more rapidly and widely, and develop
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DONG Yong-Sueng is a senior fellow at SERI. His areas of expertise include North Korean issues and international relations,
and he is adviser to Korea’s National Security Council and Ministry of Unification. He holds an MA in Economics from Yonsei
University. Contact: [email protected]