The Segmented Marketization of North Korea and Its Sociopolitical Implications.
Generally, marketization is thought to be a potential catalyzer of social change or systemic transformation in socialist countries (Przeworski 1991). The spread of markets implies that the North Korean people no longer rely on the state for their survival but rather upon their own initiative. If left unchecked, it was believed marketization would create a North Korean populace psychologically and economically independent of the North Korean state (Suh 2004). With such independence, alternatives to the status quo and criticism of the government would spread, and the social basis for change and transformation would emerge. Under state socialism, it is the market and informal economy's existing independently of the state-planned economy that acts as a threat and a strong mechanism for change (Lee et al. 2009). During the collapse of the former Soviet Union and socialism in Eastern Europe, the spread of markets was instrumental in cultivating critical and democratic alternatives to the status quo (Kornai 1992).
However, in spite of continued marketization, such spillover effects have yet to appear in North Korea. The vast majority of North Koreans utilize markets, and much of the state sector is now reliant on market transactions. Yet, North Koreans have not been able to create a sociopolitical space independent of the state. Indeed, during 2006-2009, the state had attempted to crack down on market activities on a number of occasions. Despite deepening marketization, there is little evidence of social opposition to or criticism of the regime and/or its policies. Most researchers of North Korea's marketization believe that, as a process, it has yet to be accompanied by politically meaningful potential for systemic change.
The control that the Workers' Party of Korea (WPK) and the Ministry of State Security (the country's secret police) exert over society and the effects of successful propaganda are frequently singled out as explanations for why market relations have not developed into potential counter-regime social forces. The tripartite framework of social control--the Party, neighborhood group (inminban in Korean, in which membership is mandatory), and police--exerts significant influence over society. Arguably, it is in the very nature of state socialism as an institution to control popular access to information, thus curtailing and deterring potentially critical political discourse. Hence, civic connections created by the market are prevented from developing into critical civic consciousness. Even where people do become critical in their views of the regime, because such thoughts cannot be translated into action, opportunities for social change or systemic transformation cannot arise.
Although such a line of analysis is not without its merits, it is an oversimplification to argue that the power of the state and police alone has prevented North Korean marketization from metastasizing into a political critique of the status quo. Of course, the state continues to contain and sometimes curtail the power of market forces. However, what is needed is a precise analysis and explanation of exactly how state control acts upon North Korean society. Among these processes of state control, the system of regional self-reliance (charyok kaengsaeng) seems to have fundamentally constrained the spread of markets and marketization. It is important to consider the fact that, while for much of North Korean history at the national level the centrally planned economy was maintained as the very basis of the state socialist system, at the regional level, self-sufficient (charip) production and consumption were encouraged.
Given this feature of the North Korean system, it is reasonable to surmise that North Korean marketization, rapid though it has been, remains regionally segmented and territorially confined, with communication and transactions between regions largely restricted. Within each region, markets are vibrant places, and North Koreans are increasingly reliant on them. However, such is not true at the interregional level due to structural constraints, and the spread of the markets has thus not yielded political and social spillover effects. In this article, I explain this feature of the marketization process in North Korea, a feature I dub segmented marketization, and its sociopolitical implications.
Reexamining the North Korea Marketization Literature
The Formation and Function of Markets in North Korea
To institutionalize the 7.1 Measures of 2002, then North Korean leader Kim Jong-il issued instructions to expand and reform existing farmers markets and turn them into general markets in May 2003. Farmers markets had exclusively sold foodstuffs such as vegetables and fish, but general markets, as the name implies, also sell industrial produce (everything from tiles to toothbrushes) and even imported merchandise (KDB 2015). Prior to their emergence, such goods were traded on the black market. Consequently, the general market represents the institutional combining of the farmers market system with the existing black market.
In North Korea, farmers markets are an intimate part of the lives of ordinary people. Following liberation from Japanese rule in 1945, traditional markets became "people's markets," with those in urban centers known as permanent markets and those on the outskirts of cities and in smaller settlements called periodic markets (i.e., markets that assembled for business periodically). In the early 1950s, Cabinet Order No. 9 converted people's markets into village markets, enabling farmers to trade agricultural produce such as grain. In August 1958, upon the completion of collectivization, village markets became farmers markets. They were places at which collective farms and farmers could sell excess produce to urban dwellers and were meant to help improve both rural incomes and urban consumption.
The 8.3 People's Consumer Goods Movement that began in 1984 resulted in the creation of direct-sales and retail-sales outlets at the city and county levels. What is more, goods produced by household work units and goods imported from China by North Koreans who visited relatives could be sold in such places. Indeed, direct-sales and retail-sales outlets appeared to facilitate market transactions but operated within a system of state planning; they could not be considered as part of a broader market system. However, subsequent to the 7.1 Measures, they became places where market transactions occurred, meaning that part of the state distribution system had come to perform the function of a market and could rightly be categorized as falling within the market system.
It is not easy to determine when market mechanisms began to function in North Korea. Until the 1970s, the public distribution system (PDS) worked comparatively well, while in the 1980s, the 8.3 System (1) was introduced as a midway point between state plan and market to overcome the inefficiencies of the former. However, with the collapse of the Socialist Bloc and the death of Kim Il-sung in 1994, the state economy largely ceased to operate, and the switch to a policy reliant on markets became unavoidable. The period that subsequently became known officially as the Arduous March is believed to have begun around April/May 1995, when the PDS ceased to function for the vast majority of North Koreans. From around this time markets grew in importance. The resulting famine may have killed upwards of 1 million North Koreans; amid such devastation, North Koreans became more mobile, crime and social delinquency became more common, and the number of North Koreans fleeing to the South rose dramatically (Abramowitz and Laney 1998, 8; Spoorenberg and Schwekendiek 2012). (2) Families broke down, regional society hollowed, and the loss of PDS-supplied food led many North Koreans to move in search of food (Kim 1998).
From the mid-1990s until the promulgation of the 7.1 Measures of 2002, North Koreans relied on income and commodities obtained via market transactions occurring in black markets, not on the wages received from state enterprises or rations provided by the PDS. The 7.1 Measures absorbed many unofficial economic activities into a new set of institutions and brought dramatic changes in the areas of economic management, prices, wages and finance, production, distribution, and trade (Kim 2006). In January 2001, Kim Jong-il enunciated "a new way of thinking," and then proceeded to advocate for practical socialism through the Measures for the Improvement of Economic Management in October 2001 (Lim 2008, 249-257). (3) These measures emphasized the need for the decentralization of planning, the operation of socialist markets for the exchange of goods, the assessment of companies on the basis of profitability alone, distribution on the basis of results, the combination of technology and science with production, the modification of prices and wages, and the management of irrationalities in the welfare system. Subsequently, in September 2002, the Military-First [Songun] Economic Construction Line left heavy industry and the defense industries under state control, but set out reforms to steer light industry, agriculture, and commerce in a market-orientated direction (Kim 2006, 79).
In addition, the North Korean authorities instructed retail sales outlets "to not check who the person is or the source of the products they want to sell" when North Koreans sought to sell second-hand or homemade merchandise (NIS 2010, 763). (4) This speaks to the urgent need the regime had to push forward with marketization at the time. The 7.1 Measures-related materials state that there is "no equality, and nothing is free" (Park 2007, 454). Up until then, people had been paid the same regardless of how much work they had done--equalitarianism. Now, "people would be paid as much as they worked." What is more, these materials said, "there were too many things that were free ... From now on, everyone must earn their own living" (Park 2007, 452).
Along with the November 2009 currency reform, the regime attempted to shut down general markets and revert to a system of farmers markets. However, the ensuing economic turmoil and social tumult led Pyongyang to fear potential unrest, and it restored the general market system in February 2010. North Korean authorities clearly see markets as a temporary measure in the face of famine, but when the economic situation normalizes, they seek to close general markets and revert to a farmers-market system. Markets, based on the free movement of capital and commodities and the trade of labor, play an important role in educating the North Korean people about the market economy and capitalism. The regime sees markets as a hotbed of capitalistic and antisocialist crime. For this reason, it sees markets as a potential threat that can change the consciousness and values of the North Korean people.
Marketization means that the primary locus of economic activity has gone from "plan" to "market" and the existing social order premised upon planning is reformed around the market (Lee et al. 2009, 9). If the market is defined as "the abstract space or realm in which goods and services are changed and sold as commodities" (Cho, Kim, and Park 2010, 4), the spread of markets promotes the distribution of commodities and capital and the free exchange and sale of labor. As marketization has progressed and deepened over the last fifteen years, the number of people going to and from China has risen, and many North Koreans have come into contact with information from South Korea and the outside. Thus, the expansion of markets has promoted the trade and exchange of commodities, capital, and labor. In fact, the growth of markets along the Chinese border correlates with the increasing number of North Korean women in the region who arrive in South Korea (Ernst and Jurowetzki 2016). Since Kim Jong-un's reign, amid the depletion of its state coffers, the state has come to rely heavily on private loans (Lankov 2016). The daily lives of North Koreans are alienated from the state and are mostly dominated by the markets (Smith 2015). This has remade the existing order. According to the informalization hypothesis, the proportion of the market or informal sector tends to increase with the development of the socialist economy; the expansion of market activity could indicate the incapacitation of the plan and its replacement with market mechanisms (Lee et al. 2009).
What is important in the marketization process is that it has brought changes to the worldview and attitudes of North Koreans. Fundamentally, markets are based upon the free trade and exchange of capital, commodities, and labor. And beyond the borders of a particular region, markets operate on the premise of free trade between places and nations. In the process, new private, discursive spaces are formed around trade: networks of traders operating between different regions and states, traders at market, retailers, and wholesalers. Although there are still many inefficiencies, these networks are personal and maintained through private connections and thus maintain confidentiality and bring high levels of solidarity (Lee 2008).
The Size of Markets and the Realities of Marketization
Most researchers investigating North Korean marketization agree that the majority of North Koreans are dependent on markets for their income and survival. Surveys of refugees indicate that markets dominate the economic lives of North Koreans. Seok-sam Park (2002) estimates that 98 percent of North Korean household income is from unofficial economic activities. Young-hoon Lee (2007) estimates that around 90 percent of North Korean household income comes from markets. Kim and Song (2008) arrived at the conclusion that around 78 percent of North Koreans' income is from unofficial economic activities. Suk Lee (2009) estimates that market incomes range from between 70 percent and 90 percent of all North Korean household income.
However, this begs the question: If so much income comes from market sources, why has marketization not led to transition at the systemic level? While markets play a disproportionate role in the lives of the North Korean people, markets have had few of the expected sociopolitical effects in North Korea. Market activities have created new networks and led to the spread of private discourse space. Nevertheless, markets have yet to encroach upon the state-planned economy to the point of destabilizing the existing order.
Why? A critical reexamination of the informalization hypothesis has occurred, and alternative theories have been proposed. Suk Lee (2009, 138) used official PDS data when hinting at the possibility that markets may be smaller than refugee testimony has indicated. Lee estimates the percentage of the economy now marketized may actually be between 18 and 35 percent of the entire North Korean economy. Thus, for the average North Korean, market transactions may be the source of 70-80 percent of income, but for the core class (comprising 20-30 percent of the population), the PDS is still the major source of income. Hence, as a percentage of all resources allocated and distributed, the market still is far from dominant.
This alternative theory explains the lack of systemic transition from a broader perspective. The central state is unable to realize self-reliance and thus it has left regional governments and state companies to fend for themselves. As a result, the central state has removed itself from much of the PDS system, leaving regional governments and state companies to find foodstuffs to supply their employees. In the process, both export industries and domestically oriented enterprises have been given some autonomy. Such autonomy and decentralization aim for greater efficiency (Lee et al. 2009). The central government devolved control over noncore, nonmilitary industries to regional governments and state companies, and the latter, when faced with collapse under this new system, generally engage in market activities to survive. But without holistic changes, the market system has remained at a quite primitive level (Lee et al. 2009). Certainly, such activities represent a change in the existing economic system, but marketization remains in its early stages.
Cho, Kim, and Park (2010, 21) argue that for marketization to transform North Korea, several conditions must be satisfied. Prices must be liberalized in order to facilitate the optimal distribution of resources through competitive pricing; producers and consumers must be free to participate in markets; a system must be put in place that permits the private ownership of the means of production; and the system must allow profits and surplus from market activities to revert to producers and consumers. They also note the importance of nonstate actors in foreign trade and the movement of capital. Such liberalization and opening must occur at the national level, at a minimum, and between North Korea and other states, in order to ensure that markets foster systemic change.
The above can be summarized as follows: North Korean marketization has not brought about systemic transformation because marketization remains in its early stages and/or because it has not been accompanied by economic liberalization and opening to the outside world. The role and function of markets in the North Korean economy and in the lives of North Koreans have expanded, and the state is far more dependent upon markets than it once was. However, the state continues to own the means of production and regulate access to markets, enabling it to maintain economic control. Thus, the market system is in a period of transition.
Given that markets dominate the economic lives of North Koreans, this explanation appears insufficient. Although North Korean marketization may still be in an early stage of development and markets may well be in a period of transition, we need to fundamentally reexamine North Korean marketization. In particular, we need to consider the phenomenon within the broader context of North Korean state development strategy and structure. When seen from the perspective of the Parallel Development of Economy and National Defense Line that the North Korean state claims to pursue, the salient features of marketization in North Korea are brought into focus.
Regional Self-Reliance and Decentralized Marketization
Regional Self-Reliance in North Korea
Military-first politics has been declared North Korea's state ideology. It was emphasized in North Korean political discourse throughout the 2000s, but its roots can be traced back to the early 1960s. From 1961, the role of the military became a pronounced part of the state, and the Parallel Development of Economy and National Defense Line became official state policy in 1962. From there, military needs were grafted onto economic development strategy. One element of this was the development of heavy industry for economic and military needs and the inclusion of military and civilian production lines within relevant enterprises. Another was the creation of a regional economic-defense framework on a region-by-region basis to ensure regime survivability and victory in the event of war (P. Kim 1999).
The Parallel Development of Economy and National Defense Line prepared the country for war but also created a system on a permanent war footing. In his graduation thesis, which he allegedly authored in 1964, Kim Jong-il commented on the importance of regional, county-level self-reliance to prepare for the possibility of war:
Victory or defeat in contemporary warfare is highly contingent on whether access to human and material resources can be sustained over potentially extended periods. Hence, a deep interest in the rear [i.e., supply lines, logistics, etc.] is called for. We must be ready to convert from before a war begins civilian systems to military use and be able to sustain production. (Kim 1982, 428)
The creation of a foothold for the county by developing the regional economy is very important even from the perspective of national defence.... We must solve all our problems from a war perspective.... To prepare for the possibility of war, we must construct more small and medium sized factories at the county level to allow people there to survive by their own means if needed. (Kim 1985, 11)
In North Korea, the city/county is seen as the basis for regional administration, and it is the basic unit for regional economic and military self-sufficiency. Of course, the provincial unit in a loose form is also involved in regional administrative and economic self-sufficiency. However, the region serves as a bridge between the center and the county in matters of the placement and operations of industrial facilities, thus facilitating the creation of a regional system of self-sufficiency. The actual system functions at the city/county level. Hence, it is the county that is generally perceived as the basic unit for development.
A visible feature of this system is the creation of potentially self-sufficient forms above the city/county level. In other words, each city/county has its own agricultural and industrial areas. Generally, cities concentrate on industry and commerce, being urbanized, while counties are agricultural. The city is composed of precincts (guyok) and/or districts (dong), while the county is composed of eup and ri. However, North Korean cities have been made to include agricultural areas, and rural villages include industrial areas in order to create regionally self-sufficient administrative units (P. Kim 1999, 55-58). The country is thus composed of 200 city/county units that are the basic units of self-sufficiency (S. Kim 1999).
From the 1960s, the plans for such a system were put in place as part of the state's development strategy, and with the start of the Arduous March, from April to May 1995, it came into operation. This is what refugee testimony indicates. Thus, before food problems became yet more acute as a result of flood damage in August 1995, and before aid was officially requested at the UN, central distribution of food had ceased and responsibility for the survival of the North Korean people had already been delegated to the region with the implementation of regional self-sufficiency.
To construct a regionally self-sufficient economic-military system, civilian and military industries must be self-contained. The central budget is national in scale, and it takes in, redistributes, and dispenses funds. Conversely, for regional budgets, "under the leadership of the central government, regionally sovereign institutions manage their own affairs, providing and using their own funds" (SSPH 1985a, 215). Each city/county obtains funds from institutions and enterprises under the regional budget and manages its own fiscal affairs without support from the state. It is thus argued that the regions, by controlling their own income and output, lessen the burden placed on the central state in regional economic development and help the central state achieve its development priorities.
On the principle of self-reliance, the city and county are administratively placed to finance themselves through the development of agriculture and regional industry. The role of the county is strongly emphasized in the resolution of farming and food issues. In North Korea, the county is the core regional unit in the leadership of agricultural production. The county is described as "directly working toward the resolution of food issues through the processing of agricultural produce and auxiliary production in food processing facilities, basic food stuff factories, and with household production units. Products produced here contribute to satisfying the demand of county residents" (Lee 2005, 19). Industry management departments in the county are responsible for the specialization and concentration of production. The City/County People's Committee is responsible for regional industry under the leadership of the City/County Party Committee (Kim 2000).
The regional budget's funding is composed of "trade profits, state enterprise profits, repayments on fixed assets, regional maintenance payments from enterprises and institutions under the central and regional governments, as well as sale of state assets and other income" (SSPH 1985b, 443). The city/county can finance its budget through the free sale of agricultural and consumer goods (everyday consumer nondurables) and must develop regional industry, agriculture, fisheries, people's services, and the retail sector. While each region is different, around 60-70 percent of industry is run by the central government, with the remaining 30-40 percent run by the region. As of the late 1980s, a full 53.4 percent of light industry production was done by regional industry, while as of 1998, 21.8 percent of total industrial output was produced by regional industry (Lee 1999, 10; S. Kim 1999).
To construct a self-reliant system at the city/county level, a certain amount of labor power must be allocated to regional industries. Thus, control of movement beyond the city/county level was a natural step to take. Sudden and rapid movements of people outside the region could have a highly negative effect on regional economic activities, making it necessary to maintain a certain population of working people in each region. Therefore, freedom of residence is strictly limited, and even freedom of domestic travel was only recently legalized in the revised constitution of September 1998. Before that, freedom of movement was the only fundamental right not mentioned in North Korea's constitution--a document that included freedom of the press, assembly, publishing, association, and religion. It shows clearly how crucial it is to limit the freedom of travel to maintain the North Korean system. Although freedom of residence is established in Article 75 of the constitution, travel permits are required for travelers. Article 30 of the People's Security Enforcement Law stipulates that "the People's Security Agency shall exercise control over violations of travel regulations and disorderly wandering on the street," mentioning travel regulations of the general population are still strict (Do et al. 2017, 119). This is an indication of just how important controlling movement has been in maintaining this system of regional self-sufficiency.
Militarily, to maximize the efficiency of the national defense strategy, industrial facilities were not concentrated in a particular area; instead, a regional industrial dispersion strategy was put into effect to ensure their equal distribution by region. The country was roughly divided into east and west, and then again into provinces, cities, and counties, with the placement of industry decided on this basis. Furthermore, to prepare for war, each region was to put its own self-defense framework in place. In other words, the regional military committee, hitherto a temporary body, had regional defense powers delegated to it, and regional defense through military-civilian solidarity was encouraged under mass movements presided over by the Party Central Military Committee (Kim and Kim 2009, 77-78). The Army-People Are One Model County Creation Movement of 1992 and the SoWangChung Frontier County Creation Movement of 1995 are representative examples. (5) In 2003, the Ministry of People's Armed Forces created a civil defense command and brought regional defense--that had centered on civilians--under army command, thus raising the level of regional defense activity.
At the macro level, socialist institutions and production methods are in force in North Korea, with industries under central control and collective farms' continuing to produce along socialist lines using socialist distribution methods. Thus, at the national level, the capitalist market economy does not exist. Yet, while the system remains socialist at the national level, within the regions people engage with markets in order to obtain food and other daily necessities and services and to earn foreign currency. North Koreans are learning about private profit and the market mechanism of exchange. Of course, private property remains restricted, and private economic activities remain limited to household unit production, collectives, or consignment. The regional system of economic self-reliance is a sort of North Korean-style market socialism in which the micromarket mechanism operates within the macrosocialist system.
The regional self-reliant system bears the hallmarks of a survival strategy put in place by the regime to ensure survival, being unable to provide many areas with state supplies. Marketization precedes implementation of the 7.1 Measures and the establishment of the general market system, with the latter's merely representing an institutionalization of markets. Until the 1980s, state provision was sufficient, and thus the regional system of self-reliance existed only on paper. It was designed to function in the event of an emergency on the scale of a war, hence it was not put into operation prior to the food crisis.
However, with the halt of PDS rations and the outbreak of famine in 1995, the system became operational; self-reliance was the banner of the Arduous March, and those who failed to adapt this new system subsequently died. In September 1998, Kim Jong-il's government officially took office, and the 7.1 Measures of 2002 were an attempt by this regime to use markets as a means to achieve regional self-reliance. The cabinet orders issued on May 5, 2003, relating to the operation of general markets stated that one or more general markets should be established in each city/county (Park 2007, 459). The conversion of existing farmers markets to general markets would mean that markets would now become a space for the distribution of all products, and the sale of industrial goods was henceforth permitted. New general markets were built in major cities, and in smaller settlements, existing farmers markets were extended or rebuilt. As a result, some 300 markets nationwide became general markets, distributed evenly across cities and counties to maintain the regional system of economic self-reliance.
In order to stimulate market activity, market management offices (MMOs) were created at the regional level, and the market-related functions of the commercial management offices were transferred to the new MMOs. In North Korea's distribution system, the state-run retail system in each city and county takes a leading role, with shops run by cooperative farms and farmers markets that sell individually produced output from private farming plots both playing a supplementary role. Structurally, North Koreans are forced to buy all nongrain foodstuffs and other industrial products in state-run department stores, supermarkets, direct-sales outlets, local shops, and collective farm shops, which are the basic commercial units that buy and sell everyday essentials (all products that are not grain) to the North Korean people. Wholesale enterprises acquire products from productive enterprises on the basis of supply plans and then supply products to retail enterprises (retailers); retailers then allocate and supply products according to orders submitted over the quarter and annually. Under the 7.1 Measures, retail stores were permitted to sell products on consignment, including products produced by individuals, at market or similar prices (Lee et al. 2009). Hence, their function was expanded to allow individuals, state enterprises, and cooperatives to sell products at market, and with the creation of the MMOs, the market retail system replaced the state retail system (KDB 2015).
Authorities dramatically expanded the autonomy of the retail sector in order to stimulate markets. State-owned enterprises and collective organizations were permitted to buy and sell products in markets, and market prices were liberalized. Measures were also put in place to stimulate the state-controlled retail sector, and state institutions and enterprises were permitted to use cash to buy supplies or products (Park 2007). Individuals, cooperatives, and state enterprises were all permitted to rent space (stalls) at general markets (Kim 2006; KINU 2005). At least on paper, state institutions, enterprises, cooperatives, and individuals were all permitted to sell commodities. These measures to institutionalize markets sought to maximize their function within each region of the country. However, without the necessary productive capacity, there were few capital transactions and little circulation of commodities. Additionally, interregional exchange was not allowed, thus markets have been almost entirely confined to within the region.
The most serious issue is the fact that most interregional transactions occur between government institutions. The central commercial managing institution receives all commodities from the state planning institution, and commodities are then distributed to the province (directly governed city), and provincial transportation and communications institutions aid in their further distribution to the county level (NIS 2010). (6) Officially, retail markets are legally obliged to receive their supply of marketable commodities from wholesale markets, which operate separately. Wholesale markets allow state enterprises and cooperatives to market their produce to retail markets, as well as provide a venue for foreign trade companies to sell imported products and for individuals to sell to retail markets. In June 2005, separate imported goods exchange markets were established to facilitate the import and supply of materials and goods needed by state enterprises, collective farms, mines, and so forth (Lim 2009, 142). The Korean Central Import Materials Exchange General Corporation, under the Trade Ministry, allegedly has offices and storage facilities in every province, as well as in every major harbor (including Nampo, Songrim, Wonsan, and Chongjin).
Government institutions also control international trade. Government ministries, committees, and provincial administrative organs have their own trade companies, and these engage in trading activities on an industry-by-industry and regional basis. The so-called decentralization of foreign trade has allowed central and local government institutions to control trade. The WPK, the Ministry of People's Armed Forces, and other power institutions have their own departmental trade companies that operate independently, with Office 39 of the WPK also operating its own bank. Each government ministry has its own trade company, and there are estimated to be several thousand government trade companies (Lim 2008). They have their own subsidiaries in the regions, and they distribute products they import through these to the regions. While some foreign trade companies exclusively operate in a particular region, they have combined to create a nationwide distribution network. The State Planning Committee sets the assortment of products to be imported and how they are to be priced through the Waku system. (7)
From 2002, the responsibility for collecting state revenues devolved from central government institutions to regional ones, further strengthening the regional budget system (Kim 2006). The North Korean economy is divided into central and regional enterprises: the central government operates central enterprises, and regional enterprises are autonomous but required to contribute to the central government budget. Within this structure, centrally managed industries--heavy and military industries--provide the bulk of finance for the central government budget, while a portion is provided by the regions. The regions are also responsible for providing for the North Korean people. Regional industries cannot receive supplies centrally, thus they operate according to the principle of self-reliance. The principle of self-reliance is the market mechanism.
These measures have rapidly expanded the scale of markets within North Korea's regions and have strongly influenced the economic lives of North Koreans. However, market activities are restricted to within the individual North Korean regions, and a combined national market, which requires interregional movement, has limits imposed upon it. Such a phenomenon can be described as marketization with segmentalization, or segmented marketization. In other words, the spread of markets has only occurred within cities and counties, while trade between regions remains largely restricted. Therefore, we must be careful not to exaggerate the role and function of markets in North Korea as a whole when referencing refugee testimony or examining a particular part of the country. Market transactions and distribution have progressed rapidly at the regional level but not beyond.
This state of affairs has been termed market socialism, and it can be seen as such in the sense that market socialism is an intermediate stage in the transition from socialist planning to a socialist market economy, with a decentralized socialism in which market and plan coexist (Suh 2004, 139-143). The central government has lost much of its capacity to fulfill economic functions, so it has released control and planning to the regions; decentralization, markets, and autonomy govern a new system of market socialism. Such an analysis and observations reveal the features of segmented marketization. When seen in such a light, as the economic crisis deepened, the regional system of self-reliance was maintained and markets and decentralization became more prominent.
Segmented marketization has led to the mobilization of the North Korean labor force at the regional level, as well as individual capital, to energize regional economies and support the system--thus it has a strong mass mobilizational character as an organizational form. Faced with the need for economic self-sufficiency at the regional level, markets are an important means by which to sustain the survival of the North Korean people and regional economies. North Korean-style marketization, with the stateplanned economy still in place, has thus progressed without reform. In this respect, it is "marketization without liberalization," as Hazel Smith (2002) termed it. Marketization without fundamental institutional reform has seen the regime attempt to use the market mechanism as a means of popular mobilization.
The Social Consequences of Segmented Marketization and the Creation of an Integrated Market System
The most evident social consequence of segmented marketization is growing regional inequality. The North Korean authorities are well aware that variation in the natural environment and the productive capacity of the regions has led to differences in output and consequent inequalities in the lives of North Koreans, and they account for this in differences in the distribution of commodities (Won 1998). However, the central government has lost much of its ability to control distribution, and its inability to regulate and ameliorate regional variation has meant inequalities have continued to widen. Instead of attempting to use its distributive and regulatory apparatus, the central government has instead emphasized regional self-sufficiency. It would be a violation of the selfreliance principle if more advanced regions helped more backward ones or if the state were to concentrate its resources helping more deprived areas (Won 1998). (8)
As regionally centered marketization has continued, another result has been the emergence of region-specific product markets. The North Korean authorities, under the principle of economic benefit, have encouraged such developments (Park 2009). Thus, if agriculture is developed in a county, then it is supposed to be developed in a multifaceted fashion with grain production increased, along with handicrafts and other regional specialties, with resources rationally divided (Hong 2008). Prior to marketization, regional specialties were not considered to be all that important; however, competition over such region-specific products has begun in each region. While some such specialties are produced within regions--be they agricultural produce, marine products, or minerals--regions also have their own specialized imports. For instance, Pyongsong Market in South Pyongan specializes in electrical appliances and light industrial goods, while Rason and Chongjin specialize in seafood, Hyesan and Musan in medicinal herbs and metals, and Hamhung also in metals (Lim 2009).
To lessen the gap between regions and stimulate trade in regional produce requires that market transactions occur across the country rather than just within a given region. Trade between regions stimulates the growth of regional production and improves utilization of resources. Such interregional exchange and trade, however, remain relatively marginal. Backward transport infrastructure is among the impediments. Free trade in produce between regions could facilitate the emergence of an integrated market system. However, this would necessitate the movement of products across regional boundaries and, therefore, mean that merchants would also frequently do the same. It will thus require the increased mobility of the North Korean people. As a consequence, the segmented marketization structure would break down, threatening the system of regional economic self-sufficiency. Hence, the development of regional specialization and interregional trade would dissolve basic structures undergirding the North Korean economy of today.
The increasing scale of trade and foreign currency earning operations also destabilizes the segmented market system and promotes the emergence of an integrated market. Because domestic production is lacking, most goods are imported from China. In 2013, Sino-North Korean trade volumes hit an all-time high of $6.5 billion and decreased to $5.4 billion in 2015 (Lee et al. 2016). Following the death of Kim Jong-il, up until 2016, North Korea received 500,000 tons of food aid and another 500,000 tons of crude oil (Shin 2016). Imports go through wholesale markets like Unification Street Market in Pyongyang, Sunam Market in Chongjin (North Hamgyong province), Rajin-Sonbong Market (Rason, North Hamgyong province), and Sapo Market in Hamhung (South Hamgyong province) and are then distributed through the nationwide distribution channels to each region. As more products are being distributed, an integrated market system is emerging.
Nascent groups of capitalists operating on a nationwide scale are playing the most important role in the emergence of a national market. Merchants--the market's suppliers--are a diverse group, ranging from the so-called financiers (donju) who have substantial cash holdings, running merchants and resellers (who travel the country buying low to sell high), stall/shop merchants, and grasshopper merchants (who sell at impromptu, unofficial markets). Trade, both regularized and illicit, in Chinese products is handled in sixteen trade zones along the border including Sinuiju, Namyang, Hoeryong, and Musan (Kim et al. 2008). In Dandong, on the Chinese side of the border, there is a sixty-store Pyongyang Marketplace serving Chinese merchants with permanent residency in North Korea who buy goods there to sell back in North Korea. Five buses a week operate on the Pyongyang-Dandong route, making it far easier for goods to enter and be distributed within North Korea (Lim 2008, 120-121). With growing Sino-North Korean trade, there has been a growing demand for passenger services from large cities like Pyongyang to Sinuiju--the latter, along with Pyongsong (which is quite close to Pyongyang), has come to serve as an unofficial terminal. Privately run, long-distance haulage firms have been created; individuals contract with regional People's Committees and provide interregional travel. Capital markets have also crossed regional boundaries, with private loans, real estate, transport, and trade occurring on a nationwide scale. The financiers collude with powerful state institutions, participate in lucrative government projects, operate nationwide, and have broken free of controls restricting movement.
Consequently, changes that transcend the borders of segmented markets are happening, but factors that inhibit further development along such lines remain. As mentioned, the underdeveloped transport system is one of them. The current state of transportation is partially due to the North Korean socialist system's consideration of social overhead capital to be an unproductive asset, but this is not the only reason. It is also the result of the localization of production and consumption under the system of regional economic self-sufficiency in which trade and exchange between regions was not encouraged. Sixty percent of freight and 90 percent of passenger travel is handled by the rail network, while the road network is largely undeveloped. So, it is the roads, used by the buses and trucks, that have become the principal conduit for market transactions across regions. Thus, backward transportation infrastructure stymies the smooth movement of goods and labor between regions, perpetuating the processes of segmented marketization.
Controls on the movement of labor between regions do the most to perpetuate segmented marketization, however. Of course, there are North Koreans who travel between regions in search of food and trade opportunities and to earn foreign currency. Frequent mobility has increased among the 25 percent of North Korean workers who have little work to do in their state job (Kim et al. 2017). Rising mobility has also resulted in increased corruption, especially bribery. However, due to the system of travel permits, travel between regions is restricted for the average worker; thus, supply and demand for labor is usually dealt with within the region. Merchants who have rights to distribute goods within provinces working with state institutions could be said to be creating an interregional labor market; however, under the current system such activity is very limited.
All of the problems mentioned above have promoted interregional mobility and demonstrate the possibility that segmented marketization will eventually lead to an integrated market system. However, state institutions hold a monopoly on the distribution of imported goods, and markets function only within the regions. Markets have been institutionalized and their expansion encouraged; however, such transactions involve state intervention, and the market mechanism remains incomplete. Labor markets remain closed and travel restricted for the average North Korean; thus, it will likely be difficult for an integrated market to emerge. Travel for survival and commercial purposes continues to grow, and we must wait to see how the system will develop. However, so long as the North Korean state does not revise its regional self-sufficiency development strategy, the emergence of a nationwide, integrated market appears a distant possibility.
The Political and Social Implications of Segmented Marketization
As discussed above, an important reason why marketization has not shaken the planned economy and brought about systemic change is that it has occurred only at the regional level. The principles of a capitalist, market economy imply a smooth system of exchange of products whose manufacture is determined by the comparative advantage of different regions. Therefore, if marketization is to demonstrate true power institutionally, it must progress toward a nationwide, integrated market system. In other words, industry must develop efficiently, accounting for natural conditions, labor, and financial circumstances, and economic transactions should be based upon comparative advantage. The free movement of goods and labor between regions is essential for this to happen. Otherwise, marketization will inevitably be stymied. Because interregional travel is restricted, commodities, capital, and labor are not freely exchanged. Thus, while a high level of marketization has occurred within regions, at the national level, markets remain segmented with little in the way of synergistic effects.
Generally, if economies stagnate and the average person suffers, discontent with government policy and criticism of the political system emerge. In East Germany, the economy collapsed around 1981, and it only took another eight years for the system to collapse in 1989 under the weight of popular discontent (Hisberg 2012). It has been over twenty years since food shortages led to mass starvation in the North, yet there is little if any criticism of the government. This is because the regional self-sufficiency system has not only restricted the spread of information between regions but also contained economic dissatisfaction and political criticism within regions, and it is difficult for North Koreans to act and communicate outside their own region. Inhibiting the spread of critical consciousness has helped hold the system together. The spread of markets has not led to changes in political perspective.
Recent surveys indicate that it is not trade or individual enterprise but education and living standards that are crucial in the formation of civil society in North Korea. When asked, respondents were most likely to say that social control (score of 71 out of 100) was the major reason why a civil society and prodemocracy consciousness had not emerged in North Korea. The use of media (37.5), interactions with neighbors (33), and interest in social problems (41) scored lower (Hyun 2012). This indicates that social control has delayed democratization and the emergence of civil society. Social control is achieved through organizational life, control over information, and surveillance organizations, with control over moving between regions and also changing residence being at its core. Because segmented marketization has taken place within such an institutional structure, growing dependence on markets has not led to demands for reform, openness, and politically critical consciousness.
However, the regional inequalities that have arisen from segmented marketization have caused significant political problems for the regime. Regional inequality, coupled with growing power conflicts between the center and the regions, has been accompanied by growing collusion between political power and markets and corruption. Collusion between officials and private individuals creates a ring of corruption filling the gap between individual and market. Financiers, wholesale traders, and people running transportation businesses gain authorization from the government or through collusion with officials; they are able to manage transactions between regions and thus promote the integration of markets and change in the system. According to a recent survey, individual contractors make up as much as 20 percent of manufacturing, 40 percent of distribution and trade, and 50 percent of the service sector (Kim and Yang 2012). If markets continue to encroach on the planned economy, then political change could happen.
In addition, if transportation infrastructure develops, it could allow goods and people to move far more freely and have substantial economic effects. The lack of transportation infrastructure is a significant factor in explaining segmented marketization, hence concentrated investment in social overhead capital will lead to a more active movement of commodities and people and promote the emergence of an integrated national market. The development of telecommunications has had such effects of late. There are more than 3 million mobile phone users in North Korea, and most of these phone users are merchants engaged in trade with China. Thus, mobile phones are catalyzing the emergence of a nationwide market system. They may help make up for the lack of transport infrastructure development.
The growing mobility of the North Korean people, which continues to bridge the gulf between different regions, has provided further opportunities for information to circulate--including information from the outside world. It has also eroded the institutions of organizational life, mutual and self-criticism sessions, and educational activities. This has helped to weaken the power the regime has on the consciousness of the North Korean people. Seventy percent of workers are believed to be involved in irregular and private economic activities. They are potentially a floating population that could become completely unmoored from organizational life. Rising mobility among merchants and the less affluent is breaking down the current segmentation of the market system and facilitating systemic change.
Another reason why it has taken so long for a nationwide integrated market to emerge appears to be the continued fear of war. The North Korean people are worried about a military provocation attempted by South Korea, and they are thus more supportive of the ideology and their leader. According to a 2016 survey, 63 percent of North Koreans are estimated to support Chairman Kim Jong-un and to have pride for the juche ideology (Kim et al. 2017). The fear of war has led to emphasis on regional economic self-reliance (Lee 2005). (9) As long as such fears remain, the logic of regional economic self-reliance and demands for a free labor market and integrated market system are unlikely to rise to the surface. Hence, the majority of North Korea's people use markets to survive, and dependence on markets is high, yet anxiety about market methods and transactions means that the social and political impact of markets will not easily emerge. This indicates that conflict and military confrontation in inter-Korean relations and a consequent sense of crisis have had an impact on North Korean marketization.
In this article I have reassessed North Korean marketization through the lens of segmentation. The segmented nature of marketization has meant that the sociopolitical effects of markets have not been as large as expected. Marketization is the core mechanism by which the socialist system is transformed, yet it has occurred at the city/county level in a segmented fashion, thus inhibiting its wider influence. The system of economic regional self-sufficiency was introduced in the 1960s as a system to be implemented in case of war and ultimately began operating when North Korea faced a national emergency in the 1990s. It accelerated the development of a segmented market system. Marketization has been a localized phenomenon; interregional market activities and integrated market exchanges remain largely unrealized.
This segmented marketization resulted from the operation of local markets aimed at fostering regional self-sufficiency at the city/county level during the food crisis that followed the death of Kim Il-sung. It appears as if markets have had a profound influence on regional economies and on the lives of North Koreans; yet, at the national level, the plan arguably remains far more significant. Just as regional self-sufficiency has been a basic condition in localizing production and consumption within the regions and maintaining regional labor forces, segmented marketization has also inhibited the emergence of a combined market in commodities and distribution and keeps the labor market segmented. In this respect, they are officially called markets, but in reality they are arguably a conduit for mass mobilization aimed at regional self-sufficiency.
Seen in such a context, even if planned elements are replaced by market elements, unless the Parallel Development of Economy and National Defense Line--the state's macrodevelopment strategy--is substantially revised, we can hope for little in the way of economic effects from markets, let alone any sociopolitical impact. In this regard, changes in military-first politics, with its stress on investment in heavy industry and strengthening national defense, must be accompanied by the liberalization of travel restrictions and measures that would make it possible for market exchanges to occur between regions in order for the effects of marketization to develop into systemic change.
Recently, the market system has begun to change qualitatively. The central government has been unable to alleviate regional inequalities aggravated by segmented marketization. By just emphasizing self-sufficiency of individual regions, it will be difficult to deal with such inequalities, and if such practices are continued, the demands of regions left behind could become a source of political conflict. The growing mobility of the North Korean people is eroding these divisions in the market system. This also means that information, including information about the outside world, is spreading throughout the country. The North Korean system is maintained through the control of information; hence, the movement of materials and people is a threat to the system.
The system of regional self-sufficiency--to be implemented in an emergency--and segmented marketization is an inheritance of the Kim Il-sung and Kim Jong-il eras. The serious inefficiencies that have resulted from the system of regional self-sufficiency are becoming more of a concern for North Korea. There is much interest in whether Kim Jong-un, who needs to articulate a new vision for the country's future, will put in place reforms that will help create an integrated market, overcoming segmented marketization to "ensure that the people do not have to tighten their belts once again" (Kim 2012). The issue is whether to prioritize military-first politics or economic development. Either way, economic change is unlikely to progress smoothly.
Philo Kim is associate professor at the Institute for Peace and Unification Studies, Seoul National University, Seoul, Korea. He has written more than 150 books and articles on North Korea and Korean unification issues. His recent books are Reading North Korea by Chosun Korea (in Korean, 2016) and Dreaming Unification Again (2017). He can be reached at philo@snu .ac.kr. This article was supported by the Korea Research Foundation Grant funded by the Korean Government (KRF-010-361-A00017).
(1.) Known as the 8.3 Mass Movement of Creation of People's Consumables, which was introduced on August 3, 1984.
(2.) North Korean authorities have reported that 300,000 people died from food shortages, and research institutions in the United States and South Korea generally estimate that they have lost more than 1 million lives, but based on DPRK census data, it is estimated to have suffered an additional loss of life of 240,000-420,000 people in the 1990s, and 600,000-850,000 people died during the period 1993-2008.
(3.) Kim Jong-il's speech on October 3, 2001, titled "In Order to Improve and Strengthen Socialist Economy Management in Accordance with the Demand of the Construction of the Strong and Prosperous Nation."
(4.) Article 38 of the Socialist Commercial Act, revised on June 24, 2004.
(5.) Army-People Are One Model County Creation Movement is a mass movement in which local residents and the army cooperate to defend the regional county unit. This annual movement began in 1991 after Chairman Kim Jong-il was elected Supreme Commander of North Korean People's Army on December 24, 1991. SoWangChung Frontier County Creation Movement is a mass military movement to protect the nation by fortifying the regional county unit like the SoWangChung, which was one of the bases of the anti-Japanese movement in Northeast China in the 1930s.
(6.) Article 11 of the Socialist Commercial Act, revised on June 24, 2004.
(7.) Waku is slang meaning "frame" in Korean, but it is used to refer to a trade license in North Korea.
(8.) "In the way that the advanced county helps the lagging county, the county cannot increase its own income and the income level of the county cannot go up steadily. By concentrating national support, we cannot completely overcome the crisis of the local county economy. . . . This means that raising the level of income by an effort of the county itself is a crucial condition for eliminating differences that exist among the counties" (Won 1998, 23).
(9.) "When a war breaks out, you have to submit everything to the front, and the conditions of transportation can be very disadvantageous. Under these conditions, it is difficult to feed the food that needs to be consumed without interruption day by day. By setting up production bases and supply conditions that can self-support the problems of food in the county, even if the transportation is paralyzed in case of war, it can contribute to the victory of the war by supplying essential foodstuffs regularly to the People's Army soldiers and people in the area" (Lee 2005, 20).
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