Saturday, February 09, 2013

North Korea’s Thriving Informal Economy

I have been saying that the informal economy, or what I call as guerrilla capitalism, has functioned as an unorthodox source of wealth operating outside the government’s radar screen.

One good example seems to be the informal economy in North Korea.


From the Economist, (bold mine)
When there have been crackdowns on the markets, as during a disastrous currency experiment in 2009, Mr Noland reckons large chunks of the economy may have seized up because of shortages of basics, such as cement. This may have taught the authorities to turn a blind eye to the illegal activities. Even remittances from defectors in South Korea seem to be tolerated, provided officials get a cut. A system loosely akin to Islamic hawala has developed, in which money flows between banks in South Korea and China and brokers deliver the cash equivalent to family members in North Korea. Sokeel Park of Liberty in North Korea, a group which works with defectors, says this is how some people acquire cash to escape.

Enterprise, North Korean-style

It is not just the elite who have benefited from what Messrs Haggard and Noland call “entrepreneurial coping behaviour”. Lee Seongmin, a 27-year-old defector in Seoul, had no such privileges when, at the age of 12, he started to sneak into China to find food as famine ravaged North Korea. At 17, however, he was caught, imprisoned and severely beaten. When he came out he decided to take a more enterprising route, befriending border guards and acquiring an illegal mobile phone from his sister in China. He started importing car parts, using his phone to call China for deliveries. The soldiers at the border would pull the merchandise across the Yalu river with ropes, he says, and he would pay them off. He would then use his job working for a state distribution company to truck the parts around the country. He made so much money that he had to bury it under his kitchen floor, and often regrets his impulsive decision to defect.

These illegal markets, Mr Lee says, have produced a class of new rich who sometimes flaunt their wealth—and pay off the authorities if they become too suspicious about it. Those with hard currency also instantly became relatively richer after the 2009 currency experiments, which had the effect of severely devaluing the North Korean won.

Since then, conspicuous consumption appears to have increased. Mr Lankov writes of rich people going to expensive sushi bars and buying illegal property, TVs and refrigerators. Their main complaint is the unreliable electricity supply. Perhaps the biggest luxury is a dedicated line to the local power substation, paid for by bribing a corrupt official or military commander.
Repressive regimes hardly stops people from contriving efforts to survive and progress.

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