Entrepreneurial Class Growing Rapidly in North Korea

A commentary by Andrei Lankov
 north-korea-restaurant-april-2013.jpg Diners eat in one of several rooms on the restaurant boat "Taedonggang" in Pyongyang, Apr. 25, 2013.

Some knowledgeable sources recently reported a rather insignificant but still curious and, indeed, quite unusual incident.

A North Korean refugee who arrived in South Korea two years ago ran into serious financial difficulties but was rescued by a transfer of U.S. $1,500 from his close relatives in North Korea.

This sounds rather strange, doesn’t it?

After all, South Korea is immeasurably richer than its northern brother.

While it is impossible to be precise about the gap between the two Korean states (largely because North Korea ceased publishing any meaningful economic statistics decades ago), existing guesstimates put the per capita income gap between the two Koreas as being at least 15-fold and as wide as 40-fold.

Given such a huge income disparity, it comes as no surprise that North Korean refugees in the South (there are some 26,000 at present) frequently send money to their relatives north of the border via a network of brokers.

Such remittances are, strictly speaking, illegal, according to laws on both sides of the border, but are usually transferred with impunity, nonetheless.

With such a gap, it might appear rather strange that somebody would be both willing and capable of sending money from North to South.

However, it is not quite as strange as it sounds.

North Korea nowadays is a country of gross income inequalities.

While the average North Korean is far poorer than the average inhabitant of the affluent South, there is a small but growing number of North Koreans whose income would be considered substantial in the South as well.

‘Outdated and misleading’

Although the world media loves to label North Korea as the world’s last surviving Stalinist state, this label is outdated and misleading.

Since the 1990s, the North Korean economy has come to be dominated by markets, with the centrally planned economy (the cornerstone of the Stalinist economic system) being marginalized.

This switch to the market occurred more or less spontaneously, very often against the explicit demands of the authorities, but it happened nonetheless.

Most North Korean businesspeople started small, from running semi-legal eateries, selling cheap items on the market or providing basic services (like hairdressing) for a fee.

In no time, the logic of capitalism set in: innovative, ruthless, hardworking, cunning and lucky people prospered and soon began to make money well in excess of the average income of ordinary North Koreans.

When foreigners go to Pyongyang, they are often surprised to see crowded restaurants in which the average meal would cost the average salary of a North Korean professor, or the presence of a housing renovation boom.

It is often assumed that these restaurants are patronized by high-ranking officials, and that the expensive furniture is also within grasp only of the regime’s closest and dearest.

This is only partially true.

Most spending power comes from the new—and fast-rising—entrepreneurial class, not the old nomenklatura.

Unequal society

It might be that North Korea is now one of the most unequal societies on earth.

The official salary, if calculated according to black market exchange rates, is merely U.S. $1 a month, while the average income of the average family (which relies on the market for most of its income) is estimated to be around U.S. $30-$40 per month.

Nonetheless, rich entrepreneurs, some of whom are running large businesses such as mines or trucking companies enjoy a monthly income amounting to many thousands of U.S. dollars.

The recent hike in real estate prices in Pyongyang (and some other cities) is a test of the purchasing power of North Korea’s new rich.

A good apartment in Pyongyang now costs around U.S. $60,000-$80,000, while prices more than U.S. $100,000 are not unheard of.

As a matter of fact, the family that helped one of their relatives who lives south of the border belongs to this class.

They run a retail business specializing in selling household electric goods.

Their exact income is unknown, but it is likely that such commercial activities would bring in around U.S. $500-$1,500 a month.

Thus, they clearly can afford to support a relative who decided to move to the South but has run into trouble.

As a matter of fact, such success does not necessarily preclude escape, as this story demonstrates once again.

Even rich North Koreans might choose to move to the South to avoid trouble with the North Korean authorities, for instance, or because they worry about their children’s education.

I cannot rule out that in due time, some North Korean families will send their kids across the border to take advantage of better education opportunities to be found there.

While it’s true that on average North Korea is very poor, it does not mean that all North Koreans are similarly poor.

Andrei Lankov, a professor at Kookmin University in Seoul, is a Russian historian, North Korea expert, and regular RFA contributor.


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