The underground economy in Stalinist North Korea is growing rapidly, spy agencies believe. A South Korean security official said, "It seems the planned economy remains in name only while in fact the capitalist underground economy prevails."
◆ The New Rich
A class of transport tycoons is emerging who own and operate passenger buses throughout the North, according to a source familiar with North Korea.
Individuals are in principle banned from owning cars, despite the regime's habit of buying the loyalty of party officials with gifts of luxury cars. But many people now import vehicles from China or other countries and register them in the borrowed names of agencies or enterprises to which they pay kickbacks of 10 to 15 percent of their profits.
Other entrepreneurs buy small 3 to 5-ton wooden boats equipped with Chinese-made motors and GPS navigation and then hire villagers to catch fish or dig for clams. Some entrepreneurs have whole flotillas of fishing boats.
Other rich North Koreans invest money in new kinds of business, including extraction of natural resources. One North Korean tycoon has procured equipment and materials for a state-run coal mine where he extracted coal by employing about 20 workers, the source said.
Money lenders do not merely practice usury but act as informal banks by paying trade bills as middlemen for both North Korean and Chinese traders.
◆ Failing Planned Economy
The rationing system, the backbone of the socialist planned economy, has nearly collapsed. Some 4 million people still live on rations -- 2.6 million in Pyongyang and 1.2 million soldiers.
But a senior South Korean government official said 20 million North Koreans rely absolutely on the underground economy.
"A North Korean family needs 90,000-100,000 North Korean won for living costs per month, but workers at state-run factories or enterprises earn a mere 2,000-8,000 won," the source said. "So North Koreans have no choice but to become market traders, cottage industrialists or transport entrepreneurs to make up for shortages."
Many stores, restaurants, and beauty parlors are privately owned. Private tutors teach music or foreign languages. Carpenters have evolved as quasi-manufacturers who receive orders and make furniture on a massive scale. They earn 80,000-90,000 won per month on average.
It is common to find people in front of railway stations or in markets who wait to earn a few extra won by carrying luggage or purchases in their handcarts. Like taxis, their fees are calculated on a basic fee and the distance covered.
In the countryside, people earn money by selling corn or beans grown in their own vegetable gardens in the back yard or in the hills. They can harvest 700 kg of corn a year from a 1,600 sq.m. lot. And by selling 50 kg of corn a month they make 30,000-40,000 won on top of their daily living costs.
"Ordinary North Koreans have become so dependent on the private economy that they get 80-90 percent of daily necessities and 60-70 percent of food from the markets," the security official said.
◆ Redistribution of Wealth
The growing private economy has led to a redistribution of resources from the planned economy to the market. This has weakened the regime's financial capacity while boosting the economic power of individuals.
"Massive aid of food or daily necessities from outside would only revive the dying planned economy and rationing system, while increasing the regime's ability to control the market," another senior South Korean government official said. "We need to be prudent in giving lavish aid, which could just be used by the regime to oppress people."