How North Korea Makes Money

This video is sponsored by CuriosityStream. Use the link in the description to watch thousandsof documentaries and get access to our new streaming service, Nebula, at no extra cost. About a three-hour drive from North Korea’scapital, Pyongyang, lies what might be the world’s most isolated ski resort. Masik Pass offers 11 runs and 4 lifts, plusa gear rental shop. The attached luxury hotel features 120 rooms,complete with a swimming pool, sauna, bar, and karaoke room. Snowmobiles were imported from China and chairliftsfrom Austria, after a Swiss company refused to sell them, which North Korea called a “serioushuman rights abuse”. The resort has four and a half stars on TripAdvisor from genuine, happy tourists. The majority of its visitors, however, comefrom within North Korea. While the country is almost exclusively portrayedas a poor, starved relic of the past, recent reports from defectors have begun to painta much more nuanced picture. In reality, Pyongyang cafes are filled withpatrons reading from tablets and teenagers making phone calls, some driving BMWs andMercedes. The key to understanding who is really incharge, whether a revolution will ever occur, and what daily life is like, is to see howNorth Korea – both the state and the people within it – make money. After Swiss cheese, bad haircuts, and emptybuildings, North Korea is best known for seemingly wanting to end the human race in a giant nuclearexplosion.

When Kim Jong-Un finds his country unusuallyhungry or one of his yachts, in need of repairs, the country turns into that annoying kid onthe playground who will not shut up until you share your Hot Cheetos. Insults are hurled, threats made, and missileslaunched. Inevitably, the U.S. sees no choice but torespond, agreeing to ease sanctions or grant food aid in exchange for a return to normalcy. Now, with their mouths freshly fed, Kim andhis compatriots will suddenly turn from murderous dictators to charming, levelheaded, although,admittedly, stylistically eccentric… diplomats. Then, 6, 12, 18 months later, like clockwork,we’ll all have Déjà Vu. But while Kim’s seeming obsession with nucleartoys attracts nearly all the media attention, in reality, it’s just one of many strategiesthe world’s most secretive regime has for accomplishing its much larger goal: stayingalive. The fundamental challenge for North Koreais that it cannot truly, verifiably, and permanently give up its nuclear capabilities without becoming,at best, irrelevant. At the same time, it cannot truly thrive withthe level of international sanctions that come with threatening to sink an entire U.S.state. Thus, all three generations of leadershiphave been forced to master the art of negotiation: to extract just enough aid to stay afloatwhile never actually giving up its one and only source of leverage. Before founding the Democratic People’sRepublic of Korea, Kim Il-Sung was an unlikely leader. Having fought alongside Chinese communistsand later in the Soviet army, the first Kim was well prepared, militarily, but lackedthe more soft skills considered necessary to oversee a communist republic. His education was poor, Korean mediocre, andunderstanding of Marxist theory deemed insufficient.

Despite this initial hesitation, he was eventuallyselected to lead the new state, although, with much oversight. Soviet advisors drafted North Korea’s constitutionand approved all of its major speeches in advance, making it a near-perfect puppet-state,or, in gentler terms, a “Soviet Satellite Regime”. By the end of the Korean War, Kim Il-Sunghad become a national hero and icon – praise which fueled grander ambitions. His devotion to socialism soon morphed intoa strong sense of nationalism – a desire to be more than Moscow or Beijing’s puppet. Many Soviet officers were purged from governmentpositions and for several decades, North Korea intentionally positioned itself between theSoviet Union and China, realizing it could play them off each other. Whatever Moscow gave or promised, Beijingwas sure to match, and then some, and vice versa. Both countries knew they were being played,of course, but preferred this to the far worse alternative: ceding influence to the other. This dynamic of reluctant support, in fact,has more or less continued to this day. Conventional wisdom portrays China as NorthKorea’s only ally, or even puppet-state. The reality is North Korea hasn’t been atrue puppet-state for many decades, and with China, it has less a marriage and more anopportunistic relationship. China’s strategic interests overlap withNorth Korea’s continued existence, not necessarily success or prosperity. At a base level, what Beijing wants is nothing- stability. By far, its worst-case scenario is a dissolvedor failed North Korea, after which, up to 25 million, unskilled, culturally dissimilarrefugees will flood into some of its most economically-weak North-Eastern provinces. Even worse would be the accompanying advanceof American forces on China’s doorstep. The North, in other words, acts as a nicebuffer from U.S. troops stationed in the South. As long as the North doesn’t push tensionstoo high, China is happy more or less maintaining the status quo. Ideally, it would like to see Kim Jong-Unfollow its own example of economic reform and opening up, making it less dependent onnuclear threats for survival, and potentially justifying a retreat by American forces. Realistically, though, China also knows itsinfluence is limited. China is indeed North Korea’s largest tradepartner, by a mile, but it’s easy to overstate the leverage from trade with a country whosepropaganda can offset almost any internal challenge.

In simple terms, Beijing could destroy NorthKorea – militarily or economically. It almost certainly also has a plan for regimechange should it ever be deemed necessary. What it lacks is the fine-grained abilityto influence it. And because China wants stability first andforemost, it has no reason, currently, to use its blunt weapon, leaving it with limitedleverage. So while there exists a clear power dynamicbetween the two nations, neither is likely to do anything too dramatic. When Kim met with Xi Jinping in 2018, thesupreme leader was seen obediently taking notes while the Chinese president spoke. China has historically condemned its missiletests and voted in favor of UN sanctions. And yet Xi recently made the first visit toPyongyang by a Chinese leader in 14 years. North Korea, for its part, understands theneed to, at a minimum, not anger the closest thing it has to a friend. It’s all too familiar with the cost of losingan ally. After the collapse of the Soviet Union in1991, North Korea suffered a devastating famine which ultimately killed somewhere between200,000 and three million people. Before this, food was distributed via itsPublic Distribution System – PDS – which had farmers surrender their harvest to the government,who then allocated it amongst the population. This model worked well during the 50s, 60s,and 70s, even making Chinese towns on the border jealous. In the 80s and 90s, however, the system cameviolently crashing down. 450 grams of food rations per day in 1994became 128 grams by 1997. Soon only six percent of the population receivedany food from the government who promised to feed it. This, arguably, was the most pivotal momentin the nation’s history, alongside the deaths of its first two leaders. The PDS has never fully recovered, leavingmost of its 25 million people to fend for themselves. Officially, Capitalism doesn’t exist here- private property and trade are both highly illegal. In practice, however, it can be seen everywhere- from those in poverty all the way to the highest levels of the regime. Almost everyone is assigned a government job,and yet 62% of defectors surveyed in 2010 say they had worked unofficial, gray marketjobs. Married women can register as full-time housewivesrather than work an official job – giving them the freedom to start a private enterprise. Across the country, women can be seen in road-sidemarkets selling food, and homemade or imported goods like Russian cigarettes and Chinesebeer. Ironically, because of this, women’s rightsare surprisingly strong in North Korea, where they tend to make many multiples of theirhusband’s income. As expected, the government is aware of thisillegal activity and could, in theory, eliminate it entirely. But having never recovered from a now-threedecade-old famine, most of the population has come to depend on private markets forbasic survival. Additionally, the majority of this trade isconducted purely for material, not political, reasons.

The poor simply wish to get by and the richonly seek a more luxurious life – not an end to the regime. So the state simultaneously manages marketsthrough selective enforcement and also sometimes even encourages it. The “August 3rd Rule”, for example, allowsone to pay a fee and be exempted from official work – essentially profiting from insteadof cracking down on private enterprise. Still, there are limits. North Korean banknotes were ordered to beexchanged in 2009 with a limit of 100,000 Won per person – wiping out many family savings,and causing the closest thing North Korea has likely ever seen to a protest. This taught North Koreans not to trust theirown currency. So, today, most unofficial transactions involvea foreign currency – usually the Chinese Yuan. And just as individuals resort to Capitalism- so do government committees and departments. For decades, many offices have been givenlimited or no resources, forcing them to generate their own. Anyone with any authority, therefore, is likelyto use their influence to start a business, sometimes using the national military as workers. Those who bribe the right people and playthe game well can become fabulously rich – even by international standards. These newly-wealthy families drive luxurycars, own cell phones, and eat Western food in Pyongyang, which some jokingly refer toas the “Dubai” of North Korea. In this way, and many others, North Koreais two very different countries: the North Korea seen by the outside world, and the onelived by the vast majority of its population. The North Korea of tall buildings and brightlights you see in tours and pictures, and the one, only minutes away, of sprawling fieldsand flickering, if any, electricity. The famous monument to socialism, and theprivate shops selling Western clothes only blocks away. And, finally, an unwavering ally, on the surface,who, in reality, is, at best, ambivalent. For now, the system works. Inevitably, though, someday in the future,like the Soviet-era machines on which its factories run, North Korea will simply stopworking – for any number of potentially trivial reasons. In truth, it’s remarkable how long it hasworked. But, for the time being, this taped-together,occasionally-in-need-of-kicking, jury-rigged machine keeps slowly, inefficiently chuggingalong. For all of its strangeness, the genius ofNorth Korea, the reason for its survival – is its relative self-sufficiency. It knows how little say a small nation likeitself has in the larger world. Similarly, I and many of your favorite YouTubers- from Kurzgesagt to Wendover Productions, CGP Grey, and Real Engineering – are verymuch at the whim of YouTube as a whole and are creating our own, special place, awayfrom the algorithm. Rather than replace YouTube, Nebula is a newplace to watch your favorite channels without programmatic ads and with exclusives, likemy extra-long video coming soon. What’s especially cool about this is thatwe’ve partnered with CuriosityStream, where you can watch thousands of documentaries aboutscience, technology, nature, and history, so you can get access to it AND Nebula atno extra cost with the link in the description. So, for just under twenty dollars a year,you’ll get access to thousands of documentaries and an email with free access to Nebula. You can even try both with the free trialincluded in that same link in the description. Thanks to CuriosityStream for sponsoring thisvideo and, as always, to you for watching.