By the Blouin News World staff

In North Korea, a black market flourishes in plain sight

by in Asia-Pacific.

North Koreans take part in a commemoration of the anniversary of the Korean War. AFP/Getty Images

North Koreans take part in a commemoration of the anniversary of the Korean War. AFP/Getty Images

Imagine paying for a cab ride and getting back enough change to fill a bucket or having to lug a bag filled with hundreds of bank notes to a store in order to buy a television set.

Welcome to Pyongyang’s “new normal.” In a scene that sounds too cartoonish to be mistaken for anything resembling reality, a black market is fundamentally transforming North Korea’s capital.

A Reuters article juxtaposes the popular image of workers in utilitarian garb, eschewing all capitalistic pleasures in the name of the collective good, with the reality of wealthier fellow citizens lining up to purchase flat-screen TVs, LED light bulbs, air conditioners and other luxury goods. The article notes:

For the last twenty years. North Korea has been undergoing economic changes, the fruits of which are now more visible than ever in . . . Pyongyang, where large North Korean companies produce a diverse range of domestically made goods to cater to this growing market of consumers. People are spending money they once hid in their homes on mobile phones, electric bicycles and baby carriers.

President Kim Jong Un continues to preach the necessity of rationing and sacrifice to the populace, but nowhere is the power of this underground economy more clearly displayed than in a shopping center ordered built by his predecessor and father, Kim Jong Il. It was he who foresaw in 2010 that the Pothonggang Department Store would play “a big role” in improving the everyday lives of the capital’s residents. It has done that, though perhaps not exactly as the late leader envisioned.

As a result, his son finds himself facing something of a Hobson’s choice, for his government is all too aware of this “gray economy” flourishing in not quite plain sight, yet his father died without having decided whether to quietly encourage more private business.

All of which explains why Kim Jong Un, as the International Business Times writes, has “oscillated from toleration of the private economy to occasional support of the private economy and then back to attempts to eradicate the private economy.”

It has been suggested that, unlike his revered father, Kim is rather friendly to private business interests. But that could be less a desire to see North Korea adopt a market economy and more a realization that this unregulated economy has a momentum of its own and that any attempt to rein it in just might result in his government’s unceremoniously being shown the door.

But wait. What about all those buckets full of money? Well, they, too, seem to have come about due to government inaction or miscalculation. Reuters explains it as follows:

Agricultural mismanagement, floods and the collapse of the Soviet Union led to famine in the mid-1990s. The state rationing system crumbled, forcing millions of North Koreans to make whatever they could to sell or barter informally for survival. The regime penalized this new class of entrepreneurs in 2009 when it redenominated the won by lopping off two zeros and setting limits on the quantity of old won that could be exchanged for the new currency.

That prompted the growing class of new merchants to insist on payment in foreign currency. And that, in turn, spurred two years of hyperinflation, for the black-market conversion rate to the currencies of choice, the U.S. dollar and the Chinese yuan, is eye-popping, to say the least. While the official rate is 105 won to $1, the unofficial rate is 8,400 won to $1 – or 80 times higher. As Reuters puts it while describing a visit to Pothonggang’s:

A Sharp TV was priced at 11.26 million won or $1,340, a water pump at 2.52 million won ($300). Beef was 76,000 won ($8.60) a kilogram. North Korean-made LED light bulbs sold for 42,000 won ($5). At the official rate, the TV would cost over $100,000 [and] the light bulb $400.

North Koreans nearly always pay in dollars or yuan nowadays since one would practically have to tote a wheelbarrow full of won to do the weekly grocery shopping and the black market has made it clear that it has little interest in doing business that way.

Now, that could be taken in official circles as a slap in the face, of sorts, to the Kims’ well-tended cult of personality, for won notes — typically adorned with the president’s image — are being buried in a nation suddenly awash in foreign bills.

Of course, all those U.S. dollars come with other traditional trappings of capitalist society, notably in this case luxury cars, fancy baby items and cash cards used largely to refill mobile-phone accounts.

Fact is, it seems but a matter of time before the use of the cash card and its cousin, the credit card, spreads in North Korea, where foreign investors are already setting up businesses — if not with the explicit blessings of the Kim regime, then at least without many, if any, government roadblocks.

That lack of official oversight may be Kim’s way of signaling that he knows that he actually has no choice but to go along with these unforeseen changes. Like China before it, North Korea appears to be taking decisive, if stumbling, steps to becoming a market-based economy. And when that happens, experts say, the state will finally officially recognize what has been going on for quite a while in the shadows of Pyongyang.