North Korea Moving Towards a 'Criminal' Market Economy: Report

North Korea appears to be privatizing its illicit economic activities—from drug trafficking to currency counterfeiting—in programs benefiting politically powerful people, a new report said Tuesday, providing evidence of an evolving "criminal" market economy in the reclusive state.

The report, released by the Washington-based Committee for Human Rights in North Korea (HRNK), analyzed the evolution of North Korea's illegal economic activities, which have provided a lifeline for the Kim family regime long said to be on the brink of collapse.

Entitled "Illicit: North Korea’s Evolving Operations to Earn Hard Currency," the 113-page report was authored by Washington-based Brookings Institution's East Asia expert Sheena Chestnut Greitens, who identified three stages of North Korea’s involvement in illicit activities.

She said during the first phase from the 1970s to mid-1990s, North Korean officials trafficked a range of illicit products at locations where Pyongyang had diplomatic and trade ties, while in the second phase from the mid-1990s to the mid-2000s, the country focused on the production of illicit merchandise and outsourced their distribution to criminal organizations.

In the post-2005 third phase, criminal activity that is clearly sponsored and controlled by the regime has declined in scale and proportion, she said.

"No longer limited to elites, the drug trade and other illicit activities now encompass a broader swath of North Korean society than before," the report said.

"This means that a wider array of North Koreans, elite and ordinary, have opportunities for economic activity that is not dependent on the state and benefit economically from illicit trade."

Central conclusion

A central conclusion of Greitens’ analysis is that amid North Korea's eroding state control over the legal aspects of economy, illicit activities in the nuclear-armed but impoverished country are also being “privatized” by the elite.

The report cited decreased regime monopoly or the absence of its involvement in certain illicit activities.

It also said that new distribution networks by organized crime groups subcontracted by North Korea have been concentrated inside the country and across the land border into China’s northeastern provinces.

The report provides “evidence that a market economy is developing in North Korea, in this case a criminal one that is feeding off the suffering and deprivation of the population," said HRNK Co-chair Andrew Natsios.

He said the report was "about the absence of the rule of law on a grand scale in North Korea and in a way that criminal activity is now being privatized."

"It is very useful in understanding the perverse transformation the country is undergoing.”

Hard currency sources

In addition to illicit activities including drug production and trafficking and arms sales, the report detects six other major sources of hard currency for the North Korean regime—the inter-Korean joint industrial complex in Kaesong; trade with China; tourism; export of labor; remittances sent to families in North Korea by defectors; and the “informal taxation” of domestic economic activity through the sale of cellular phones and mobile phone service plans.

North Korea poses a greater challenge than fragile or failing nations since state assets such as currency printing presses have been used in the execution of illicit operations such as drug production and trafficking, foreign currency counterfeiting and distribution, or cigarette counterfeiting, the report said.

"Even foreign currency operations that appear legitimate on the surface are in a gray area, just as, for example, North Korea’s extractive industry supply chain is tainted by the use of prison and military labor, and the workers it officially sends overseas face appalling working conditions," HRNK’s Executive Director Greg Scarlatoiu said.