Special Report 05-89A: November 3rd, 2005

CONTENTS

I. Introduction

II. Report by Bong Dae Choi and Kab Woo Koo

III. Nautilus Invites Your Responses

I. Introduction

Bong Dae Choi and Kab Woo Koo, researchers at Kyungnam University, write: “The mid- to late-80s saw the sidelining of farmers’ markets due to government regulations while at the same time, saw the emergence of black markets increase their importance. The presiding factors over the sideline activities and reemergence of farmers’ markets were the physical change in the state distribution system and the binding power of the intangible anti-market sentiment? We will have to wait and see how the latest reversal in policy is seen by the marketeers of North Korea.”

The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Nautilus Institute. Readers should note that Nautilus seeks a diversity of views and opinions on contentious topics in order to identify common ground.

II. Report by Bong Dae Choi and Kab Woo Koo

-“North Korea’s State Ration System”
by Bong Dae Choi and Kab Woo Koo

Introduction

Currently, interest is focused on the changes in North Korea’s agricultural economy. The North’s planned economy was on the verge of complete paralysis as the shortage of foodstuffs and other necessary items led to the breakdown of the national ration system in the latter half of the 1990s.

Signs of change, centered on the daily lives of North Koreans, could be seen in this socialist economy that previously allowed little private ownership. Changes based on examples set by other socialist countries suggest the possibility of North Korean structural shifts. Furthermore, the North Korean government embarked on “Economic Reform Measures” in July 2002. In March 2003, existing farmers’ markets were reorganized into general markets base on these measures. A North Korean official press release justified the change by stating that markets were a more proper tool than the state for meeting the demands of the society, and a more constructive policy would be forthcoming. The propensity for structural changes and the extraordinary attention given to related matters is a key component here, as we wait to see the outcome of the North’s latest moves to again halt the sale of grain on the market and reinstitute the ration system that seemed to be a thing of the past.

In a ‘classical socialist system, farmers’ markets and similar legal markets are considered to be secondary, playing a supporting role to the Communist party’s monopoly on power and the bureaucratic management system of a nationalized planned economy. Bureaucratic management is built on management through asymmetry of the participants — the vertical relationship between the managed and the managers. Market control operates based on horizontal relationships and spontaneous contracts between participants. This type of socialism is a communist “transition” or “transference” of capitalism. This market activity within a socialist economy cannot help but have some remnants of capitalism, socialist society’s ‘necessary evil.’ It follows that, despite the operation of farmers’ markets and similar market management functions, these legalized black markets do not contradict official ideology.

However, the problem is that this explanation of current socialism can conceal problems within classic socialist structure. We believe that the development of farmers markets and similar market measures is caused by the insufficient economy of classical socialism, and that system’s unbalanced ration program. Our first assumption is that when considering the construction of the classical socialist system, there is no possibility for the existence of farmers’ markets.

However, the existence of these legal and illegal market functions resulting from an inadequate economic system and the increasing activity of these market functions are not cut from the same cloth. When these functions emerge, there is a concern that they could lead to the collapse of the mechanical, planned economy. It is also difficult to explain the relative stability in North Korea during the “Arduous March.” The activity of legal and illegal markets can expand as the anti-market sentiment of the everyday citizen, an ideology officially stressed without end by the government, is weakened. This sentiment is weakened when either the official ideology’s effectiveness is weakened or when the state adopts market reforms as state policy.

Of course, another reason is the change in perspective of those operating under an insufficient economy, and talk of active farmers’ markets gets around. While an economy may be insufficient, if it does not worsen the economic crises then dissatisfaction of the masses does not move toward pre-socialist ideas, and as the bureaucratic system can maintain its justification for power, then the masses facing the transition from the classical socialist system do not necessarily have a shift in perception. The existence of black markets within the classical socialist system increases the role of markets, and this can directly affect a shift in perception of those operating under the system.

The economic structure employed in the DPRK is insufficient. From 1950 to the 1970s this system, and the selective ration system in operation beneath it, explain the existence of farmers’ markets, but the markets never grew because North Korea did not face any serious economic crises. In accordance with DPRK official ideology, farmers’ markets are a function of socialist commerce. However, official ideology was able to employ measures to enforce an anti-market tendency in its citizens. This relegated farmers’ markets to a secondary, supportive role underneath the umbrella of the planned economy.

However, as North Korea entered the 1980s and its economic crisis grew, the inflow of foreign materials and the failure to reach the production expansion goals of the national planned economy led to an increase in activity in not only farmers’ markets but black markets as well. As the measures that had been holding back the spontaneous order of markets began to disappear, residents in cities began to learn market economics in order to grasp the changes, and set off the expansion of farmers’ markets, as well as black markets both within and separate from the farmers’ markets. The most important factor here is the weakening of the DPRK citizens’ sense of anti- marketism. The overlapping of farmers’ and black markets in the 1980s was a result of North Korea’s failure to offer material incentives to workers, and the economic undertakings of North’s citizens desiring some level of autonomy.

Until at least the early part of the 1980s, North Korea’s ‘restricted activity’ farmers’ markets did not break out from under the control of administrative policy. There are many reasons for this, but following the establishment of farmers’ markets, supplementary systemic measures put in place by the North Korean authorities in order to limit side effects were not unrelated. These measures went beyond the role of restricting the market when these supplementary systemic tools did not work smoothly, they created a tense relationship with the planned sector.

After the socialist restructuring, authorities saw to it that there was no chance of a revival of the idea of those outside of the agricultural realm selling at markets. In anticipation of an outcry from traders, in 1946 the authorities created joint cooperative trade groups in cities and farming communities, and in 1947 combined production and sales in the “Farming Communities’ Family Workers and Businessmen,” gradually expanding this group of cooperative producers. Following that, with the official announcement of the socialist reorganization in 1958, these groups were completely incorporated into the planned system as they transformed into cooperative production and consumer groups. Even up until the 1970s, it was practically impossible to find peddlers in cities or in agricultural towns. In the latter half of the 1980s, when the economy faced stiff stagnation, temporary, illegal markets and family businesses reappeared, and functioned reasonably effectively.

In order to repress supply to the farmers’ markets, authorities decided to seize goods that had the potential to be delivered to the markets. This was because even up until after the Korean War, individual peddlers were not just satisfied with getting into the grain business, but individuals wanting to get into the business of selling daily-use items were procuring the necessary raw material by forming individual relationships with farm workers. This drove the State to strengthen and expand operations in order to bring individual farmhouses under the umbrella of the farming cooperatives. In 1957 the subject of selling from cooperative farms was addressed and the supply of all agricultural products, with the exception of some daily allowances, was carried out by the state through the state purchasing mechanism and cooperative trade groups. By taking hold of the production base, the North Korean authorities were able to control both the volume and type of agricultural products that could be sent to farmers’ markets.

On the premise of operating a state system of planned distribution of foodstuffs and everyday items for its citizens, the North Korean authorities decided to restrict city residents from participating in farmers’ markets. It followed that the sale of agricultural goods that were on the required purchase list was forbidden, and this could be seen as one measure restricting the participation of city residents in farmers’ markets. Authorities reinforced the systemic structure by replacing the markets’ cereal distribution function with a food rationing system based on state-mandated prices. In 1946, DPRK authorities established a foodstuff rationing system for limited classes such as students and office workers. This system was gradually expanded. As this expansion occurred, in November 1957, the Cabinet banned the independent sale of cereals by passing articles 96 and 102. By employing a state rationing system for all citizens except farm workers, the state completed its efforts to systematically enforce a ban on the participation of city residents in farmers’ markets.

The Weakening Rationing System and Citizen’s Empirical Realization

North Korea’s private sector consumables production has come under pressure for a number of reasons since 1960. These factors perpetuated tensions within the North’s economic management system. This can be seen, for example, in the North’s discussions on the limitations to the strategy for extended economic growth and its coming to grips with a plan to overcome them during the late 1960s.

As these problems caused tensions within the planned economy in the early 1970s, they brought about a weakening of the distribution system for foodstuffs and daily necessities. After putting a total ration system into effect in 1958, North Korean authorities provided laborers and workers with an average of 700g of food per person per day until the beginning of the 1970s. However after 1973, citing the war as a reason, rations were reduced by two out of every 15-day’s worth. In addition, in contrast to the previous system, children’s supplements began to be redistributed ‘reduced according to age.’ Also, additional reductions were in incurred under the flag of nationalism so that at the end of the 1970s, one month’s worth of rations had been reduced by 10-15 percent. This time also saw the ration system in rural cities supplying food once every two or three days, and so the early 1970s saw the emergence of markets to fill in for the food rations.

During the mid 1970s the changes to the rations for city laborers’ household necessities was not insignificant. The authorities had already established the sale of non-foodstuffs in 1967, however in 1974 they broadened the list of products not available for independent sale, thus increasing their control over the distribution of necessities. In addition, during this time, ration cards for foodstuffs, industrial products, and fuel were issued, and a household ration card system was put into effect. The card system was an experiment in micro-management of the distribution of daily requirements.

In reality, the scarcity of necessities and goods available to the average citizen shopping at the government stores became widespread during this time. The mid 1970s saw the deterioration of the distribution system for food and necessities, and the lives of city residents as consumers were considerably more restricted than before. Local party officials, military and security, and ‘powerful’ administrators, as well as those working in the distribution sector or in the government stores and some service providers such as those in the education and medical fields did not face food shortages, and individuals or couples working in low level skilled jobs, laborers, office workers, and the like faced no particular trauma due to food shortages; but for the elderly, non-food items and clothing had to be purchased, and cash was short at hand.

On the other hand, unlike those in the ‘habadak’ social class, food shortages at the end of the 1960s caused more than a little difficulty. For example, those households on collective farms on the outskirts of the city found it difficult to get by on only what was provided by the ration system. In addition, death was striking many of those urban laborers living in households with many children. Other regions were similar, with these houses solving shortages by purchasing provisions from within the neighborhood.

After the introduction of the ration card, non-food supplies and industrial products became more difficult for the average citizen to obtain. Soy sauce, dwenjang (Korean paste made with soy beans), and other products, despite their low-grade quality, were at least still distributed through the end of the 1980s. Eggs, clothing, shoes, and other materials were not always available, and could only be bought when they could be found in the stores. Toward the end of the 1970s, department stores were running out of manufactured goods that could actually be sold rather than just used for display. For those working on collective farms, cloth, shoes, and other clothes favored by farmers were procured by trading grain, or money gained from the sale of vegetables was spent on the purchase of other necessities. Those living in the city faced similar or worse conditions.

However, overall, residents did not face any severe difficulties as a result of the cutbacks in the rations. Compared to the 1960s, certain sweets and deserts were more difficult to come across in the state-run stores during the 1970s, as some non- essential items became gradually more scarce, however the general consensus was that as the ration system was reduced, there was no real problem with adjusting. Despite the shrinking food rations and opportunities to purchase daily necessities, many defectors have cited the maintaining of the national ration system as the reason for peoples’ living on the edge of poverty. Also, goods normally difficult to find in state stores, such as cooking oil, pork, and seafood, or luxury items such as alcohol and tobacco, were occasionally received as ‘gifts’ on certain state holidays, and these supplied no small amount of supplementary support. This is not to say that during the 1960s and 1970s there was not some side work undertaken by those looking to improve their conditions or meet certain goals. Women, for example, could earn additional income by working at a factory’s or enterprise’s small-working party or cooperative.

Up until the end of the 1970s, independent shops operated legally within the unregulated sector, and had very little connection with the farmers’ markets. The consumption crisis was not directly related to the emergence of the farmers’ markets. The continued propping up of the state ration system was also important, but more than anything, the North Korean peoples’ anti-market sentiment was a reason for the prevention of the spread of farmers’ markets. This collective anti-market mindset began to weaken as the 1980s rolled in.

The 1980s led to the failure of the state ration system, especially the collapse of the food ration system, and the accompanying mass famine that followed in the 1990s. As North Korea’s economic situation gradually worsened from the 1980s on, citizens had increasing difficulties purchasing foodstuffs and necessities. In the latter half of the 1980s, with the exception of ‘gifts’ received from the state on particular holidays, purchases at state stores for residents of the three cities were limited to the likes of dwenjang and soy sauce. Throughout the 1980s the food rations continued, albeit at a sub-par levels, and after nationwide ‘commandeering’ of flood relief supplies provided to South Korea in 1984 and requisitioning of supplies in 1989, supposedly in preparation for the Pyongyang Student Festival, residents faced great hardships.

After the mid 1980s, measures were enacted to reduce the hiring of female workforces in factories, enterprises, and businesses as even more serious problems with the food ration system became evident. In addition to these measures, state-appointments in offices for women having finished high school were less noticeable. The worsening ration system meant the previous 700g the state had been responsible for rationing was reduced to 300g. As a result, many of these women were reduced to becoming housewives or street women.

In the 1980s, especially in light of the obviously weakened food and necessities ration system in the mid 1980s on, urban residents relying only on the ration system faced considerably greater hardships than in the 1970s, and those seeking to maintain their family’s standard of living had no choice but to look for means to do so within the unregulated economic sector.

Following the worsening of the ration system for food and other production near the end of the 1980s, the amount of unregulated “sideline” activity going on in cities increased, as did the selling of Chinese goods and illegal 8-3 products, which led to the spread of black markets. Still, farmers’ markets played only a peripheral role in the consumer lives of most of the people. Several causal factors are evident here. Primarily, even up until the end of the 1980s, physical restrictions from state authorities over farmers’ markets were evident. Also, even though rations were sometimes delayed, and portions were reduced, the fact that food rations continued is a slightly more important factor.

However, even more important than these factors is the anti-market sentiment that continued to hold an invisible power over the perceptions of the people. Farmers’ and black markets became most active during the 1980s, but were not yet fully embraced by the people. People’s lives were completely consumed with anti-market sentiment, which was an integral part of the food ration system. Uncertainties about the ability to establish an independent economic ideal can be seen to have been in force at least until the 1980s. Even with the explosive growth in farmers’ markets since the 1990s, it is difficult to see this type of anti-market mentality fading in the near future. However, it is also necessary to recognize the limitations of the food ration system whose weakening is chipping away at the binding power of this anti-market ideology.

Conclusion

North Korea completed collectivization of farms and private industries in 1958, and from then until the end of the 1980s, farmers’ markets were the only legal outlet in the unregulated sector. The authorization of independent sales of agricultural goods raised farms’ incomes, yet despite the fact that the government officially affirmed the legality of ‘limited use’ of markets, the use of state distribution systems for food stuffs and daily necessities, meant that the lives of most city residents saw little change.

In the 1970s, when measures to reduce food rations and implement ration cards for daily necessities led people to the brink of poverty, they still rarely shopped at farmers’ markets. While there was no particular stress on the daily lives of the citizens, the most important reason behind the inactivity of the farmers’ markets was, more than anything, the state’s distribution system for food and daily necessities — a system that, however unable to deliver the necessary amounts, was able to supply rations steadily.

Another important factor that cannot be ignored is the effect of the binding power of the collective anti-market mentality that considered traders as the parasitic products of capitalism. Also worth noting is the almost complete lack of household funds that could be spent on goods outside of food and necessities.

Farmers’ markets, shunted to the side as the state distribution system was employed, played only a subsidiary role in the 1980s as well. As the first half of the 1980s passed, it was slightly more difficult for city residents to get their share of food and daily rations, however, the same factors that played a role in the 1970s continued to see to it that farmers’ markets remained in the periphery.

However, in the mid to late 1980s it became impossible not to rely on the black markets operating within the farmers’ markets. There are several factors behind this as well: 1) As time went by, the state distribution center continued to weaken, and the farmers’ markets previously pushed to the outskirts of the planned economy arose as a tool for supporting one’s livelihood, as theft of goods from factories could be traded for food or supplies as a barter system developed; 2) Since the middle of the decade, Chinese goods increasingly made their way into the country and a wider range of goods became available on the black market; 3) In the latter half of the decade, products previously available only through the state’s direct outlet stores slowly made their way to the black market.

It became impossible to avoid the illegal distribution of these goods, just as the illegal distribution of grains was underway in farming regions, leading to the reemergence of black market traders. It goes without saying that the government decided to strongly clamp down on these activities.

The mid- to late-80s saw the sidelining of farmers’ markets due to government regulations while at the same time, saw the emergence of black markets increase their importance. The presiding factors over the sideline activities and reemergence of farmers’ markets were the physical change in the state distribution system and the binding power of the intangible anti-market sentiment. It follows that these tangible and intangible measures, along with the three factors mentioned previously, worked together to have significant influence over the emergence of markets and market economics. We will have to wait and see how the latest reversal in policy is seen by the marketeers of North Korea.

III. Nautilus Invites Your Responses

The Northeast Asia Peace and Security Network invites your responses to this essay. Please send responses to: bscott@nautilus.org. Responses will be considered for redistribution to the network only if they include the author’s name, affiliation, and explicit consent.