After the end of the Korean war, North Korea was a virtually cashless society - everyone
worked for the state and was provided for by the state.
And in the Communist bloc context of the day, it worked - in 1989 North Koreans were more
than twice as wealthy as their comrades in China.
Now we think of them as a hermit kingdom and not trading very much.
William Brown spent his career analyzing North Korea for the CIA.
But actually they were integrated reasonably well into the Soviet plan system of countries.
The loss of support from the Soviet Union, after its collapse in 1991, and a series of
droughts and floods lead to a great famine in North Korea.
The famine pretty much ended the public distribution system in which the North Korean state
fed everybody through the ration system… the government couldn’t supply food
so people launched off on their own.
Since then, a strange hybrid economy has emerged, part government-controlled - where rations
are allocated by the state - and part grey market, where currency
is earned in the market economy.
For example: A typical textile worker in the state-run Pyongyang textile mill earns around
3,000 won per month - which has a street value of about 40 cents.
But that worker pays nothing for housing or utilities and receives food rations.
Her sister might legally work for an export oriented company.
She’s allowed to get 30,000 won per month but with fewer perks.
Another sister could work for a Chinese company and earn 300,000 won per month but with zero
perks from the government.
All the state workers get paid through this incredibly low wage system and are dependent
on rations that often don't show up.
The ideal situation is for one person in a family to work for the state system and then other
people in the family work out in the market place and earn real money.
It is a highly inefficient system.
In per capita income terms, North Koreans are now 8 times poorer than Chinese and over
20 times as poor as South Koreans.
Rather than reform, the government sought to fill a shortfall in hard currency by trafficking
illegal goods abroad.
According to numerous reports, this illegal business is run by an agency known as Office 39
It's an office that's organized principally to raise US dollars for the ruling Kim party
A study from a Washington-based human rights group traces the regime’s criminal ventures
back to the 1970s when about a dozen North Korean diplomats were expelled from Scandinavian
countries for smuggling alcohol, cigarettes, and hashish.
Later the government switched to foreign organized crime syndicates to sell things like counterfeit
pharmaceuticals and heroin, manufactured from state-mandated poppy farms.
North Korea’s government has dismissed such claims and some analysts
have also questioned the data.
Since 2005, intercepts of North Korean smuggling have fallen sharply… though more recently
claims of cyber theft have proliferated.
Meanwhile Kim Jong Un has started speaking to South Korea about opening up for investment
in restricted economic zones and he’s also talking about switching to a more China-like economic system.
Whether that's a true change of heart, or just a tactical retreat in the face of sanctions
remains to be seen.