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Hints of Change in North KoreaDisplay at Cheil Paekhwajom department store. Photo by Rudiger Frank (copyright).

Hints of Change in North Korea

In impoverished North Korea, Rudiger Frank of the University of Vienna observes modest changes in the direction of a market economy.

By Margaretta Soehendro
Staff Writer

It's really important to understand that North Korea is not really a country on Mars.

While studying one semester at Kim Il-Sung University in 1991, Rudiger Frank, now a professor of East Asian economy and society at the University of Vienna, tried to purchase one of the ceramic cups he saw lining the shelves of Cheil Paekhwajòm, a department store in North Korea. But when Frank told the "comrade saleswoman" he wanted to purchase one, she said they didn't have any. Thinking his Korean may have slipped, he asked again. She said no with a "panicked look" and walked away.

Sharing the anecdote at a lecture sponsored by the UCLA Center for Korean Studies on Feb. 29, 2008, Frank said that he learned afterward that the products on the shelves weren't necessarily the ones on sale. They were on display so that the shelves would not be bare in case the Great Leader, Kim Il-Sung, stopped by. The goods on sale were located in cabinets underneath the shelves. Customers, who had no idea what they would find in the cabinets, bought whatever was in stock and later bartered for what they really needed.

"Selling products in a socialist economy makes no sense. It's a burden for everybody. It's burden for the sales people because they have to work…. It's a burden for the manager because he has to refill the store…, and it doesn't do them any good because their jobs are safe," said Frank. "Their income does not depend on how much they sell, so selling really doesn't make any sense."

In 2005, he returned to the same store and saw the same cups still lining the shelves. But while the "decorations" hadn't changed, North Korea had. Though small, these changes in the direction of a market economy continue and are irrevocable, according to Frank.

"It's really important to understand that North Korea is not really a country on Mars," he said. "It's a country on earth, so all theories of social science that we've got are perfectly applicable to North Korea. The major thing to do when you deal with North Korea is contextualizing."

Frank showed photos of a store advertising a "Party Foundation Day" sale and a clothing store advertising semi-illegal food services.

"Now that's so amazing. That's not supposed to happen in North Korea because that implies an interest in selling," said Frank.

He also showed an advertisement for bank-issued ATM cards, "plastic money" that points to the existence of a middle class. Middle-class people tend to be conservative, educated, economically powerful and politically ambitious, and they potentially could foster opposition to the regime. Frank said the democratization of South Korea finally took off in 1987 after decades of protests because the middle class joined the students.

Additionally, the nation's three currencies–one for locals, one for foreigners from "friendly" countries, and one for foreigners from capitalist countries–were condensed to one currency in 2002. Inflation is now accounted for.

Ideological changes have also occurred. In 1998, amendments to the constitution protected private property and allowed the use of economic tools to "fine-tune the national economy."

"Such a socialist system stands on only one leg and that's ideology. That's all they've got. And if this weakens, the system can collapse at anytime. That's why ideology is enormously important for them," said Frank.

South Korea's sunshine policy, which aims to achieve reconciliation and possible reunification of the Korean peninsula, was also well received. There are now direct flights between Incheong and Pyongyang. South Koreans waved reunification flags at North Korea's Arirang festival, a two-month celebration commemorating Kim Il-Sung's birthday. A South Korean business is rebuilding a Buddhist temple in North Korea for South Korean tourists, South Korea's Woori Bank opened a branch in North Korea, and South Korean companies have built factories that employ locals in Gaeseong, a city in the North. Other cities are getting foreign investment, too.

Frank cautioned, though, that the positive signs did not mean the world should expect a revolutionary change. North Korean socialism is normalizing to what Eastern Europe was like decades before the Soviet Union collapsed, he said. Even if North Korea wanted to introduce a market economy at this time, the country's food shortage prevents it. From a humanitarian perspective, the poor would die having less money to purchase food. From the regime's perspective, the poor would rise up to overthrow them. Currently, the government rations are insufficient for a person's dietary needs; that creates a system, albeit a fragile one, that encourages producers since citizens are left to get the rest of their food through market mechanisms.

"And it works the better the more food is on the market, which is why I strongly support every effort that brings food into North Korea," said Frank. "It is, of course, for humanitarian reasons, but it also will help [in] destroying the system. And it's perfect economic logic that can support this argument."

Center for Korean Studies