Thursday, September 15, 2011

The Complexities of Trade, in a Picture

In an e-mail received quite a lot more than a year ago from Professor Stephan Haggard, the co-author of 'Witness to Transformation' and a number of other critical tracts in the English-speaking world of North Korea analysis advised me that any serious scholar of North Korea in the modern age who did not possess a pretty firm grasp of economics (very broadly defined) would soon enough be a scholar left behind in the dust.

Though I am aware that it did not actually require a professor of political science to recognize that fact, coming from him it nevertheless had more of an impact. And it is a truism that is only becoming truer with the passing of time. The economic and political landscape of North Korea, a thorny topic at the best of times, seems now to be changing rapidly, and in some interesting ways.

For example, it is the view of the president of The Daily NK, Park In-ho, that the days when we can talk of North Korea having 'markets' or a 'jangmadang' should be put behind us. This is not to say that there are no markets; on the contrary, they are beginning to thrive again after the November, 2009 currency redenomination, although prices are too high given the ongoing lack of capital for many.

No, what Mr. Park actually means is that by referring to 'markets' or 'the jangmadang' as if they were one unit, we are basically hindering our capacity to understand what is going on in North Korea's capitalist economic sector. It was once a useful designation, then, but in many ways has ceased to be so.

What Mr. Park wants us to recognize is that North Korea now has formal and informal markets. These are more instructive terms, in that they tell us many things about the nature of the markets in question.

That being said, if you turn around and say to me, "But Chris, both these markets sell the same stuff, and are co-located to a very high degree," I'll only agree with you. In terms of demand, you'd be correct. After all, an informal market and a formal market do get their goods from many of the same sources, and do serve exactly the same people, with the same tastes in smuggled DVDs and Chinese clothing. Equally, they really are on two sides of one wall in many cases; on one side in a formal setting with multiple 1m x 1m stalls for which traders pay a fee and get the right to trade in exchange, the other on the street, with no stall fees, and no stalls; only goods, set up ad hoc on whatever is nearby. Therefore, they look somewhat different, but act in much the same way.

On the supply side, however, the distinction between formal and informal is more important, notably since the authorities persist in only allowing women of a certain age (and with a certain amount of clout with the powers-that-be, in most cases) to trade in the formal market. This form of arbitrary discrimination would be disastrous for those prohibited from trading if there were no alternative. However, there is an alternative and it is, obviously, the informal market.

Thus, while it is beyond my remit to suggest policies that might employ these facts, it is to be hoped that policy-makers in Washington, where Mr. Park was speaking, and elsewhere appreciate that somehow attempting to 'support the development of the jangmadang' or 'encourage capitalist activities in North Korea' is likely to result in supporting and developing some people (the wives of cadres being the quintessential example) who do not need it. More nuance is needed if such an ambition is to bear any fruit.

Second, if we move marginally up the commercial chain, we come to the subject of cross-border business. To which end, I bring you some art (see above)...

This is a recreation of a diagram penned by Professor Haggard when he visited The Daily NK a few months ago. Utilizing it, he pointed out one of the main things that characterize cross-border trade in the present day; most of it is being done by larger enterprises.

While small-scale private smuggling does still go on with some frequency, particularly in more rugged areas as shown by type-B transactions, it is true to say that most A-type transactions are no longer like that, involving as they do significant commercial entities on both sides of the Sino-North Korean border.

Whether or not this is bad is rather hard to decide, which may be why few people are prepared to try. On the positive side, these enterprises are both sustaining their own staff and, more importantly, feeding domestic traders' need for products in the form of C- and D-type transactions. On the negative side, they do pay their dues to the Party in the form of loyalty payments and such like, making them complicit tools in the perpetuation of the Kim dynasty, much like a formal market trader paying her stall fee to the market management office.

So there you are; just two good economic reasons why being against the North Korean regime and for the North Korean people is only going to get more complicated as time goes by, all without so much as mentioning a trans-Korean gas pipeline or the words 'Mount Geumgang'. Those are a whole other issue completely...