Goods traded on the country’s burgeoning black market are not limited to drugs; everything from household necessities to luxury electronic gadgets can be purchased illegally. The increasing amount of economic activity performed under the table is a reflection of poor economic conditions, fueled by a lack of foreign currency. With the virtual worthlessness of the North Korean won (KPW) and the huge disparity between official and black market rates for many products, the North Korean economy is hostage to its foreign currency supply. A basketball produced in China may cost the KPW equivalent of USD $500 in official stores, but only USD $6 on the black market, where buyers are expected to pay in U.S. dollars. Likewise, a five-KPW metro ticket is so cheap by black market rates that an American penny exceeds the price of one ticket. Because of the disparity, many North Koreans buy a significant portion of their goods outside state-sanctioned channels, but these markets are also the distribution mechanisms for items that, unlike a basketball or metro ticket, are illegal independently of how they are acquired.
Meth production took off in the 1990s as a civilian solution to the economic destruction wrought by a famine that killed over one million people. Speculation inevitably surrounds any discussion of North Korea, but according to reports, former President Kim Jong-il set out to punish the private producers when he first learned the extent of the meth epidemic in 2003. However, meth proved too profitable for him to shut down its trade. The government soon allowed the industry to grow, going so far as to order the construction of state-sponsored meth labs in cities like Hamhung for the mass production of the drug. But the government’s inability to meet soaring black market demand — both domestic and international — has seen production shift back towards private, amateur “chefs” working in underground labs or even home kitchens.
Meth has become so prevalent in North Korea that even children consume it. The drug’s popularity is explained largely as a relief from the daily hardships of life under a repressive dictatorship. Meth’s painkilling properties have made it popular among the elderly and chronically ill. Because of its ability to suppress the appetite, the drug can temporarily alleviate the hunger pangs that are endemic in a country in which one in every three children is malnourished. For others, meth is simply the easiest and cheapest available escape — the drug of choice when needles for injecting heroin are too hard to come by.
High demand means that the number of professional drug dealers and freelancers across the country has multiplied. They are often looking to supplement their official sources of income: There are reports that civil servants, who have stable jobs but make a monthly salary of 6,000 KPW — barely enough to buy a pack of cigarettes and a lighter — have found facilitating cross-border drug trafficking to be a lucrative side job. Illegal and semi-legal black markets are widespread, with unauthorized economic activities accounting for 40 to 70 percent of citizens’ daily lives. Many doubt that the government will tackle the problem. Shutting down the meth industry or curbing the drug’s distribution would be such a major undertaking for the troubled state that the DPRK seemingly has no choice but to tolerate illicit market activity. Even if North Korean politicians wished to shut markets down, there is little indication that the government would have the wherewithal to do so. Past policy failures have become warnings to the state not to meddle in the expanding free market. State policies on agriculture, electricity and health care have been a series of disastrous experiments. The Public Distribution System, designed to distribute food to North Korea’s urban populace, is notoriously ineffective, leaving many in the country without food and necessities.
This difficulty is compounded by previous state efforts to bring the underground economy under control. During a failed experiment with currency reform in 2009, the state seized all privately held foreign currencies in an attempt to centralize their use and force citizens to use the near-worthless KPW. Without foreign money, the black market shrank, leaving merchants in distress and citizens without affordable goods. Today, foreign currencies, which provide the purchasing power that the KPW cannot, have returned as the primary means of exchange on the now abundant black markets.
These markets resurfaced because of the lack of legal trading options. Politics surrounding the DPRK’s numerous sanctions and its only trading partner, China, have made it difficult for legal trade to exist — other than with North Korea’s tightly controlled state-owned enterprises (SOEs). The dearth of legal channels for commerce has pushed many merchants underground.
Meanwhile, unofficial trade with China has actually bolstered the illicit economy by providing an influx of cash and high demand for North Korean drugs. China’s northeastern province of Jilin is home to two Korean autonomous zones, Yanbian and Changbai. These provinces have become major transit points for the North Korean drug trade as they flow through these points to inland China and eventually abroad to South Korea and Japan. The profits are then deposited in South Korean and Chinese banks and later delivered in cash by middlemen to the North Korean producers. Although the statistics are murky, border patrol agencies in these provinces have, since the late 2000s, repeatedly seized large shipments of meth. In July 2010, Yanbian border patrol seized over three pounds of meth and USD $19,300 of drug money and arrested a North Korean drug kingpin known as “Sister Kim.” The occasional effectiveness of law enforcement does not seem to have stemmed the tide of drugs.
China tolerates this illegal trade out of fear that instability in North Korea will produce a refugee crisis in its northeastern provinces. Given the region’s history of political volatility, the Chinese government tends to handle it with caution. But China has an economic reason to tolerate the black markets as well. Despite China and North Korea’s official trade relationship, North Korean SOEs often fail to pay for Chinese goods. Black market operations mean a quicker — and sometimes more reliable — payoff. Small-scale Chinese businesses are better off trading outside the government’s purview, because they can avoid North Korea’s cumbersome customs procedures.
While the North Korean government certainly has an economic incentive to turn a blind eye to black markets, their prevalence represents a threat to the authoritarian regime. Underground trade is the antithesis to North Korean official economic policies. Black markets, with their streamlined distribution systems rooted in free market principles, ultimately signal a desire for change in economic policies. Additionally, the wealth accumulated by these traders can be read as an early indication of the emergence of a middle class. Once emboldened by success, these merchants push even harder on the boundaries of commercial activity and form a market economy.
South Korea’s government has, for years, aimed to catalyze political reform in its northern neighbor at the grassroots level by filling gaps and correcting inaccuracies caused by the North’s propaganda machine. There are radio stations dedicated to providing news for the North Koreans and television shows and e-books smuggled in on USB sticks. The illegal distribution of these goods has not only been crucial for the material well-being of DPRK’s citizens, but also for the spread of information and ideas into the Hermit Kingdom.
But there is little in the way of a reform mentality in Pyongyang. When President Kim Jong-un emerged as his father’s successor, the world was hopeful that the young, Western-educated leader might enact state-orchestrated reform. It was widely hoped that his uncle, Jang Song-thaek, and other key military figures would also form a behind-the-scenes power elite that would implement more modern economic policies, comparable to those of Deng Xiaoping in China during the 1970s. However, Jang was executed last December after a Shakespearean power struggle over the military’s control of lucrative state-owned fishing grounds. With his death, there remains little hope for top-down economic reforms.
The hope that the emergence of this grassroots economic reform movement will spearhead political change in the near future is premature, as today the North Korean people lack the means for protest or uprising. Widespread meth addiction illustrates desperation within the status quo. However, the stage is being set for change. Citizens can’t alter the oppressive regime, but by using black markets, they can certainly subvert it. Poverty, the failures of centralization and an influx of outside information have all led to a dissatisfied populace, while the expansion of black markets hints at the beginnings of a liberalized economy and an accompanying middle class, even if it’s a middle class of drug dealers and black market merchants. For now, these are structures that the regime is tolerating — a stance which it may one day regret.
Art by Emily Rief