Markets and the Development of Social Trust in the Everyday Politics of North Korea: Chinese Entrepreneurs’ Perspectives

ABSTRACT

The growth of markets in North Korea has spurred discussion about the prospects for social change in the country. This article explores whether and how marketisation increases social trust among market participants and its implications for everyday politics in North Korea. We draw insights from the literature on social trust as well as empirical evidence from interviews conducted with Chinese business entrepreneurs operating in North Korea to better understand the relationship between market activity and trust in North Korea. We argue that market participants rely on a variety of strategies to navigate North Korea’s ambiguous political and economic climate. These strategies are often adopted to increase transparency, access information, reduce uncertainty, and resolve business disputes between parties. Ultimately, each of these strategies is linked to building trust among North Koreans. At the same time, the North Korean state has also inserted itself into trust networks to extract additional resources from markets and (re)establish political control. Thus, in the everyday politics of North Korea, participation in informal markets reflects socialisation into norms and behaviours that increase trust while simultaneously providing support to the state.

KEYWORDS:

• North Korea
• markets
• social trust
• everyday politics
• China

Introduction

The growth of markets in North Korea has spurred lively discussion and new insights about the prospect of social change in one of the world’s longest running autocratic regimes (David-West, 2013; Park, 2015; Smith, 2015; Yeo, 2020; 2021). Unfortunately, heavy sanctions beginning in 2016 and stringent COVID-19 border lockdowns from 2020 have dampened the more optimistic expectations about marketisation and its impact on North Korea’s economy, society, and politics. Nevertheless, research on markets and their role in everyday politics has paradoxically become even more important as North Koreans further depend on markets to secure food and essential goods to weather a pandemic-induced humanitarian crisis.

Ample academic research now exists regarding North Korean markets and their significance for the survival and change of both the regime and ordinary people (Hastings, 2016; Kim, 2017; Kim & Yang, 2015; Daily NK, 2017; Smith, 2015; Yeo, 2021). What remains underexplored, however, are the micro-foundations of change driven by markets in North Korea that occur at the level of everyday politics (Habib, 2016). In keeping with the theme of this Special Issue, we examine the role of markets in everyday politics by exploring whether and how marketisation increases social trust among market participants, and the implications that trust-building carries for longer-term social change.

In doing so, we build on the theoretical framework and insights of an earlier report by Hastings et al. (2021) on North Korean market participation and the potential development of civil society building blocks. They argue that market participants rely on a variety of strategies to navigate North Korea’s ambiguous political and economic climate. These strategies are often intended to resolve business disputes, enforce contracts, reduce uncertainty, and increase access to information. In their formulation, the strategies North Koreans use to survive in market activities may (perhaps inadvertently) create a public sphere beyond direct state control, and the norms, relationships, and interactions that constitute this public sphere may eventually create the building blocks for a civil society in North Korea.

This study makes new contributions to scholarship through its analysis of the experiences of Chinese entrepreneurs operating in North Korea and its focus on the role of social trust in market participation. First, we provide additional insights into the study of North Korean markets by downplaying the distinction between state and society, instead exploring the everyday practice of market actors and the central role of social trust. We address market participation strategies in the context of everyday politics in North Korea as articulated by the authors of the introductory essay to this Special Issue (Dukalskis & Silberstein, 2024). Whereas most existing research distinguishes the public sphere from the state, we focus on the interactions between state and market participants, and between market participants themselves, in a context where there is both accommodation with, and resistance to, state policies. At its base, market participation is closely associated with the everyday politics of survival for both regime officials and ordinary private actors. At the same time, because the survival strategies adopted by market participants also often require funnelling income to state officials and interaction with the state more generally, these strategies inevitably provide some degree of support to the state. To a certain extent, they also allow the state to surveil market participants, although the market also presents surveillance challenges for the state.

Second, we develop a theory that connects each of these strategies to trust-building among market actors during everyday politics. As Hastings et al. (2021) have noted (but without further elaboration), one of the outcomes of the market participation strategies is the development of social trust within an extremely challenging political economic environment. The challenges in North Korea include policy uncertainty, ambiguous rules, extensive surveillance, and restrictions on information flows. Indeed, the survival strategies market participants use to socialise those participants into norms and behaviours can increase social trust outside of state structures. At the same time, increased social trust in North Korea does not necessarily lead to active resistance against the regime. The North Korean state (and state actors) has also co-opted market participants and inserted itself within informal trust networks through measures to increase income extraction from the markets and (re)establish political control. Hence, if markets are comprised of networks of trust among private actors, and between private actors and government officials, even if they are undergirded by corruption, the state apparatus may no longer be the sole source of power and legitimacy within North Korea.

Finally, by drawing more extensively on information from Chinese entrepreneurs who have direct experience engaging in North Korean markets, we offer both a deductive and inductive approach to understanding the relationship between markets and processes of social interaction. Given the diminishing number of North Korean defectors since the pandemic border lockdown, future researchers may need to rely more extensively on insights from Chinese entrepreneurs who continue to engage with North Korean counterparties on a regular basis.

Following this introduction, our article is structured as follows. First, we provide a brief background on markets and their operation during the Kim Jong-Un era. Next, we build on theoretical insights from the literature on trust to address how market survival strategies facilitate trust in deeply authoritarian contexts such as North Korea. In the third section, we address how market activity and trust-building have become embedded in everyday politics, particularly regarding the survival of the North Korean people and state. Additionally, as noted in Dukalskis and Silberstein’s introductory essay, market activity and trust-building reflect the ‘dualisation’ of everyday life. That is, market participation (a manifestation of capitalism) may reflect unintentional resistance or opposition to regime policies, but at the same time, also enhance the regime’s material capabilities. We conclude by discussing how everyday politics sheds light on the micro-foundations of political and social change.

Data

To make our claims, we draw on insights from the literature on trust, building on the extant literature on North Korean economics and society. We also rely on empirical evidence from interviews conducted with Chinese business entrepreneurs operating in North Korea to glean further information about markets and trust in everyday politics. As part of a larger project on North Korea’s trade relationships with the rest of the world, we conducted 48 interviews between 2013 and 2017 with Chinese officials and businesspeople doing business with North Koreans. Twenty-two of those interviews were used in this article (see Appendix). The focus of the information extracted from the interviews for this article was not on Chinese trade networks with North Korea, but on the relationship between market participation and social trust development in particular as a manifestation of everyday politics.

This approach has some limitations. First, because there was no opportunity to interview North Koreans in this project, the interviews cannot directly speak to how North Koreans themselves view the relationship between market activities and social trust. Chinese businesspeople dealing with North Korea are likely to be systematically different from North Koreans given that they are outsiders to North Korea, and they are only optionally subject to the North Korean regime – if Chinese businesspeople are unsatisfied, they always have the option of going back to China, while North Koreans can only remove themselves from North Korea through defection. As a result, the consequences of a lack of social trust are significantly lower for Chinese businesspeople than for North Korean businesspeople, and this is likely to colour their strategies for market participation.

Although interviews with Chinese entrepreneurs cannot directly tell us how North Koreans conduct business with each other, the interviews do help reveal how market participants view the business environment in North Korea, and the strategies they adopt to thrive in markets. Although we asked Chinese businesspeople about their market participation strategies, their counterparties were always North Korean. Furthermore, many of the Chinese businesses were operating in North Korea (often in domestic service industries such as restaurants and automobile repair), and the officials they interacted with were mostly North Korean. We therefore have a high degree of confidence that North Korean market actors are also engaging in strategies that facilitate trust with some degree of mutual learning occurring between North Korean and Chinese market actors, and among North Koreans, or at least that they were familiar with these strategies due to these interactions.

Moreover, Chinese perspectives provide evidence that even in a very difficult environment such as North Korea, it is possible to build trust. Chinese entrepreneurs often complain about the lack of trustworthiness from their North Korean counterparties, and sometimes cite this as a reason to modify their business strategies (for example, by minimising their logistical footprint in North Korea) (Hastings, 2016; Hastings & Wang, 2017). That Chinese entrepreneurs and North Korean businesses are nonetheless still able to do business suggests that it is important to understand how they build trust in the context of everyday politics.

Third, the selection of interviewees may be biased in terms of their experiences in different locations and different types of investment, trade, and business – market participation strategies may have different connections to social trust depending on location, type of business activity, and industry. We attempted to address this by selecting interviewees from across several Chinese cities along the border (namely, Shenyang, Dandong, Changchun, Dalian, Yanji, Baishan, Hunchun, and Changbai) who dealt with North Koreans and/or operated in North Korea. The businesspeople, while not necessarily representative of Chinese businesses involved with North Korea as a whole, were involved in a variety of activities in North Korea, including import from and export to North Korea, and foreign investment in capital projects within North Korea. Furthermore, we attempted to select across a variety of industries, including general import and export, trade in specific goods (seafood, forestry products, minerals, machinery, medical supplies, cigarettes, and electrical products), construction, investment, and service industries (auto repair, restaurants, and tourism).¹

Fourth, because of the timing of the project, the interviews were all conducted before the Covid-19 pandemic from January 2020 onward, and in many cases even before the arrival of the hardest-hitting UN sanctions (and the accompanying Chinese enforcement of sanctions) in 2016 and 2017. It is particularly difficult to find recent information about social trust and markets from either Chinese or North Korean businesspeople in light of North Korea’s Covid-19 border closure, which has resulted in very few people entering or leaving North Korea since 2020. As a result, we have attempted to theorise and discuss more general relationships between market participation and social trust that can transcend changes in the political environment within North Korea.

Markets under Kim Jong-Un

Before addressing how marketisation and trust-building appear in everyday North Korean politics, we first provide some background context by describing market growth and the ensuing political environment under Kim Jong-Un (2011 to present). Informal markets (jangmadang) first developed in North Korea as a response to mass famine in the 1990s which exacerbated the country’s already dire economic situation following the collapse of the Soviet Union and the withdrawal of Soviet and Chinese aid (Haggard & Noland, 2007). While the regime under Kim Jong-il was never comfortable with marketisation, it had little choice but to allow the existence of markets given the state’s low capacity and inability to provide for its population. After the worst of the famine subsided, the North Korean state moved gradually to repress markets, even redenominating the North Korean won in 2009 (Haggard & Noland, 2010), but the regime was never able to stamp out markets entirely.

Since taking over the helm of the country in 2011, Kim Jong-Un has pursued a multi-pronged strategy to stay in power. First, he has generally moved towards consolidating political power at the centre. In the first years of his rule, this meant a significant increase in the frequency of state personnel changes across the country (Haggard et al., 2014). As a result, foreign businesspeople complained that they did not have time to establish solid relationships with local officials before they were transferred out (various interviews with Chinese businesspeople). Kim also replaced his father’s confidants, most spectacularly Jang Song-thaek, who was purged and executed in December 2013, along with personnel loyal to him (Choe, 2016). In doing so, Kim re-energised the Workers’ Party of Korea as the central institution of the North Korean state (INSS, 2017).

Even as he was re-centralising political control, Kim Jong-Un generally did not interfere with market activities. The Byungjin line, the official state policy from 2013, prioritised both nuclear weapons development and economic development. Furthermore, in 2014, the North Korean government began to implement the ‘Socialist Corporate Responsibility Management System’, which theoretically gave greater autonomy to state enterprises to manage themselves. The regime also encouraged foreign trade and private investment by North Koreans (Ward, 2017). This toleration of market activities ran parallel to a significant increase in the frequency of nuclear weapon and missile tests between 2013 and 2017 (the second prong of the Byungjin line), which in turn led to increasingly draconian United Nations sanctions that stifled North Korea’s legal trade, including in mundane items such as seafood and textiles (Ha, 2019). By April 2018, Kim Jong-Un declared that North Korea had achieved its nuclear ambitions (specifically a credible, deliverable nuclear deterrent), and thus was moving to focus solely on economic development (KCNA, 2018).

The strategy of centralising political power while tolerating market activity has created a somewhat unpredictable relationship between the state and markets, particularly in recent years. The state attempts to extract revenue and establish political control over market participants, but it does so without killing the goose that lays the golden egg. Regarding revenue extraction, some local governments have begun implementing taxes on members of women’s organisations (women being the primary informal market participants) (Kim, 2019). The central state announced plans to force state enterprises to buy public bonds to raise money for the state (Jang, 2020). With the onset of the Covid-19 pandemic, the state closed the China–North Korea border from January 2020. Smugglers were even barred from crossing, thus resulting in shortages of goods in North Korean markets (Kang, 2020a). While smuggling was already illegal (by definition) in both North Korea and China, in fact Chinese and North Koreans had relied on it to bypass North Korean government dysfunction, and did so with the implicit approval of the North Korean and Chinese states (Hastings & Wang, 2018). During the border closure, the state permitted only politically favoured enterprises to engage in trade (Ha, 2020). It also cracked down on the use of foreign currency (White & Kang, 2020), and attempted to re-impose price controls on some goods (Kang, 2020b), suggesting a desire to re-assert political control. Top-down efforts to redefine the relationship between the market and state, whether successful or not, will no doubt continue as Pyongyang navigates the economic fallout of the Covid-19 pandemic and ongoing international sanctions.

In light of the above measures, North Koreans face an everyday political economic environment shaped by a North Korean state ambivalent to markets. The North Korean government did not initially create markets, and by and large markets operate either illegally or in legal gray areas, without overall guidance from the top (Haggard & Noland, 2007). Private property is technically illegal, and private businesses have no legal protection. State attitudes and policies towards markets and market participants are apt to change quickly and unpredictably, and the effects of those policies are likely to vary based on the (changing) political status of the participants and the type of activities they engage in (Hastings & Wang, 2018).

At the same time, North Koreans have become increasingly dependent on markets and entrepreneurial activity for their livelihood as the ability of the state to provide for its population has receded (even if the desire to control it has not) (Hastings, 2016; Haggard & Noland, 2007). Participation in market activities has thus spread throughout society and has come to include people trading in physical markets, private entrepreneurs operating informally, and state officials making money either on the side or by virtue of their official positions. The state has also become dependent on market activities, as the economic activities of state officials and state companies, and the rents collected from market participants, provide de facto revenue to the state for its own activities (Hastings, 2016).

In everyday politics, this state ambivalence, combined with the necessity of market participation, has resulted in a situation where the state cannot, or will not, shut down market activities completely, but it offers no protections for market participants or their activities. Furthermore, the state periodically attempts to rein in or regulate market activities to squeeze more revenue from, and establish political control over, market participants. The extent to which market participants need to interact with the state varies with the scope and type of business, as well as the identity of the participants. Small-time entrepreneurs may only need to bribe local officials for the ‘right’ to work in the markets, while larger enterprises may need to establish longstanding patron–client relationships with the state (Hastings & Wang, 2018). Trading companies may need licences for the right to engage in cross-border trade (Lankov, 2013a; 2013b).

Within this environment, in the everyday politics of surveillance, the North Korean state restricts information flows through inter-provincial travel permits, censorship and control of media, bans on Internet access and possession of foreign media, and prohibitions on international calls on mobile phones, as well as ubiquitous state surveillance through secret police and informants (Williams, 2019). These restrictions on information flow and communications create costs and barriers to market activity as well, but market participants have been adept at circumventing information controls by finding enforcement loopholes, bribing officials, and relying on close personal networks to exchange information (Dukalskis & Joo, 2020).

Market Participation and Trust

Kim Jong-Un’s policies have resulted in a difficult political economic environment for market participants. The North Korean state encourages foreign investment and generally permits informal markets to operate, but there is no independent institution or mechanism that can resolve business disputes (Hastings, 2016). This is true even among legal businesses, let alone between informal market actors, meaning that market participants need to find alternative dispute resolution mechanisms (Haggard et al., 2012).

As interviews with Chinese entrepreneurs reveal, the deep ambivalence of the state to markets, and the drive to (re)establish political control, also lead to significant policy uncertainty (Hastings & Wang, 2018). The import and export of specific goods might suddenly be banned, as seafood exports were in 2012 (Chinese businessman #14). The regime might revalue the North Korean won (Haggard & Noland, 2010), or borders might close without warning, as North Korea did with Ebola (Chinese businessmen #21, #25) and Covid-19. Officials who provide protection to market actors or who engage in market activities themselves might also be purged or transferred without warning (Chinese businessman #14).

Because the North Korean state does not enforce contracts consistently, market activities often fall in a legal gray area, and the state’s means of control are designed to minimise the access that North Koreans have to information. Trust between market participants can therefore be low. Market participants may violate their agreements, disappear with goods, or refuse payments, or betray their counterparties to authorities to reap rewards or get out of bad deals. Market participants often have little access to information about the trustworthiness of their counterparties, and there may be little reputational cost for betrayal. In addition, simply operating in a market requires a certain amount of information about the supply and demand of goods, potential sources or buyers, and prices. All of this can be hard to obtain in an environment where the state discourages interaction.

In summary, the conditions that market actors face end up fostering a lack of social trust. Market actors are characterised as opportunistic and rent seeking. Such views corroborate the views of sociologists such as Polyani and Weber who view market and social relations as antithetical to the other, thereby creating a negative impact on communities (Choi & Storr, 2020, 4). How, then, do trust and reciprocity emerge among different market participants?

Existing studies suggest that social bonds can develop in markets, even if the quality of those relationships emerging from market activity may vary (Fehr & List, 2004). Some researchers such as Smith (1976, 223) argued that markets can simultaneously both build and disrupt different types of social bonds. For example, coworkers who engage on a close basis may develop strong ties in the marketplace, whereas bonds among family members may weaken.

Some evidence in market studies suggests that significant social relationships marked by trust can emerge between economic actors (Price & Arnould, 1999; Storr, 2008; Zaheer et al., 1998). Although markets are a place where buyers and sellers exchange goods, information, and resources, they also offer a space for individuals to interact and converse that ‘tend[s] to extend beyond strictly economic topics and terrain’ (Choi & Storr, 2020, 2). Moreover, as Choi and Storr (2020) revealed in a survey experiment, greater trust and reciprocity was more closely associated (for participants) with trading partners when the participants had personal exchanges and positive interactions with each other than when they had negative interactions. In contrast, survey participants experienced the same levels of trust and reciprocity with trading partners ‘regardless of the nature of their previous market interactions’ when exchanges were ‘more impersonal in nature’ (Choi & Storr, 2020, 2).

Although Choi and Storr’s survey did not replicate the conditions of authoritarian rule, some evidence suggests that social bonds and norms of reciprocity are able to develop even under conditions of repression. For instance, although not about trust per se, Diana Fu (2017) demonstrates how underground labour movements have managed to mobilise and challenge state authorities despite repressive political conditions in China. By coaching labourers to engage in individual and small-scale collective action, activist leaders can ‘foster collective identity and consciousness’ (Fu, 2017, 3). One might assume that high levels of trust are formed among participants in underground labour organisations. Indeed, one particular survey experiment conducted with North Korean defectors also seemed to point to trust relationships among market participants in North Korea. Economists Byung-yeon Kim and Seong-hee Kim found that defectors participating in markets in North Korea, especially trade in goods that prompted more interaction with strangers, were more likely to develop generalised trust (Kim & Kim, 2019, 240). In the following sections, we explore how market participants manage to build trust in an authoritarian environment, drawing on interviews from Chinese traders with North Korean counterparties.

Everyday Politics, Market Participation, and Social Trust in North Korea

North Koreans have adopted strategies over time that allow them to operate in a difficult market environment under authoritarian conditions. These strategies enable market actors to enforce contracts, resolve conflict, address uncertainty, and increase trust (Hastings et al., 2021). These tasks are mutually reinforcing, and together, can help build trust among market participants that engage in direct transactions with one another. Given the ubiquity of markets and their importance for survival, markets and trust-building mechanisms have now become embedded in everyday politics. We discuss how markets have become embedded in the four different aspects of everyday politics as outlined by the editors of this Special Issue.

Survival

At their core, markets are a means for North Koreans’ survival – indeed, depending on the period, local conditions, and social status, they are arguably the primary means by which most North Koreans obtain the food, supplies, and money necessary for physical survival. Given the informal, ambivalent nature of North Korea’s marketisation, market participation, while not inherently political or in opposition to the state, is necessarily a response to state dysfunction. Market participants are not directly resisting the state; rather, they are responding to the inability of the state to provide for its citizens’ physical survival, whether through the absence of state provision of food or supplies, or through the lack of state institutions that are able to enforce laws and regulations ‘fairly’, particularly in terms of adjudicating disputes and guaranteeing contracts. Markets are thus a prime example of dualisation, where citizens outwardly engage in performative loyalty to the state, but also partake in informal market activities that are looked at by the state with suspicion or even outright hostility.

While survival is the basic purpose of markets, markets, and more specifically participation in markets, are also intertwined with other forms of everyday politics – socialisation, surveillance, and support. For market participants to survive, both in the markets and in general, they must interact and develop networks with government officials across different levels of the state to find ways to adjudicate disputes, guarantee contracts, access information, and reduce uncertainty.

Market participants have devised several strategies to address uncertainty, fill in information gaps, and overcome issues of credibility that have led to the growth of informal trust networks among market sellers and buyers. As a part of everyday transactions, sellers and buyers may be driven by profit and selfish motives. Repeated interactions, however, help address uncertainty allowing cooperation to emerge (Axelrod, 1984). Transactions with sellers and buyers in a given locality eventually generate common knowledge, such as the reputation of market participants, the price of goods, safe transportation routes, and other nuggets of information needed for markets to function. Participants who have formed a modicum of trust through their market exchanges and interactions share information with one another.

Strategies that allow participants to acquire information may also help foster networks of trust in everyday politics. Cell phone communication near the Sino–North Korea border may facilitate vertical and horizontal trust networks with entrepreneurs in China or border guards and state officials. Thus, market actors may be better suited to promote social interactions. This is true even if their engagement with other market participants is rent-seeking and driven by selfish rather than collective interests. Trust networks built within markets can nevertheless generate social capital (Greif, 1993), as ‘networks, norms, and trust’ enable participants to ‘act together more effectively to pursue shared interests’ (Jackman & Miller, 1998, 49).

Blurring the distinction between the everyday politics of survival and of socialisation, market participation strategies can help facilitate shared norms that emerge in everyday politics within a given network. For example, market actors may retaliate against cheaters, either as a group or individually, by refusing to sell to or buy from an individual or by tarnishing their reputation within the network. Retaliation will demonstrate to other participants which behaviours are permissible or unacceptable in the markets. The market strategies adopted by actors may over time develop into market rules. These rules can protect the interests of entrepreneurs and state officials operating within the broader market network. For example, an unspoken price ceiling (or a defined market rate) may define the amount of bribe a border guard typically receives to facilitate transactions and to not put other participants at a disadvantage.

We examine market participation strategies as they operate in different aspects of everyday politics – socialisation, and separately, surveillance and support – and find that market participation strategies may encourage the building of social trust, in interactions both with the state and outside of the state.

Surveillance and support

Given that some market-based enterprises formally exist as state-owned enterprises, and that state officials are themselves market participants (either by collecting rents or running their own businesses), market participants may by necessity engage in activities that support the state.² Market participants support the regime by providing government officials with income, and more generally, the state with much-needed revenue. Market participants also serve as buyers and sellers of goods produced in state-owned facilities or imported by state-owned enterprises. They also relieve the North Korean state, which ostensibly has a command economy, of the need to provide for its citizens.

While the extensive intertwining of the state and the market in North Korea provides ample opportunities for surveillance, the North Korean state’s recent moves vis-à-vis markets have not been direct attacks on the markets as such. Instead, they are attempts to exercise greater political control and extract further revenue from market activities, suggesting limits to the ability of the state to surveil market participants’ activities. Markets thrive on subtle, uncoordinated behaviour, which can be hard for the state to surveil without directly controlling market actors.

In terms of enforcing contracts and resolving business disputes, market participants rely on their connection with state authorities to punish cheaters, address disputes, and receive political protection. These strategies, however, require cultivating networks with other market actors, including government officials at varying levels of government (Hastings & Wang, 2017; 2018). For instance, a Chinese business entrepreneur formed relationships with several North Korean government officials, who then introduced him to other entrepreneurs and officials. This network not only served as a useful source of information about market conditions and other potential business opportunities, but also provided advance warning regarding upcoming policy shifts. In exchange for protection or information, an entrepreneur might offer gifts, money, or other services to state officials. For instance, an entrepreneur owning a car repair shop in Pyongyang offered free car repair services to state officials (Chinese businessman #11).

Market participants engaging in semi-legal or illegal market activity seek guarantees that their merchandise or goods will not be confiscated, and that they will not be arrested because of their involvement in quasi-legal or illegal markets. Moreover, they seek to ensure that government policies regarding markets will not unexpectedly change. To reduce uncertainty about the enforcement of laws and regulations, market participants lean on their relationships with important actors who have greater access to information and can protect them from negative repercussions that arise from their involvement in markets. Such strategies might therefore entail building transactional relationships with border guards or state security officials through bribes and gifts, or developing patronage ties with state actors (Hastings, 2016). For example, a female entrepreneur might marry a Party official or ‘buy’ an official Position for her husband. Other entrepreneurs might ‘donate’ funds for a Party official’s white elephant project or shower gifts on local officials. One Chinese entrepreneur stated that he fronted money for his North Korean contact to buy a position within the Korean People’s Army (KPA). He then supported his contact’s career. In return, his contact was willing to provide him with political protection, information, and business opportunities (Chinese businessman #13).

Market actors can also seek public–private partnerships that grant partial legal status to their business. In exchange for a ‘fee’, bribe, and/or a cut of the profits, regime officials may register the business as a state entity, offer the entrepreneur a formal position or official rank, or employ the entrepreneur as a manager (Lankov et al., 2017a). For instance, an entrepreneur at a transportation company might be hired as the ‘manager’ and then register his (or her) vehicle under the name of a state company (Im, 2010; Seol, 2014). Regarding fees and bribes, one Chinese gold trader allocated 5–10 per cent of his profits to bribes. Another Chinese entrepreneur doing business in North Korea, a luxury car trader, established a set percentage of the expected cost of the car to pay off officials. Although such behaviour might be deemed opportunistic, it also suggests a certain level of trust among actors, as well as a consistent set of expectations that can persist for a sustained period (Informal traders #2, #12). Such strategies and tactics have been in practice for years as entrepreneurs have formed ties to the state, helped insulate market participants from political trouble, and improved their access to information (Informal traders #7, #10; Lankov et al., 2017a).

Even if market participants do not have direct access to state officials, they find ways to acquire information about markets and reduce uncertainty. This is observed in Chinese informal traders shipping goods across the Sino–North Korea border. To minimise market risk, traders may ask their counterparty in North Korea to secure a safe place and time to ship goods across the Tumen or Yalu River. Chinese informal traders rely on the information network of other traders (and officials) in North Korea who have knowledge about the movement of border guards, as well as information on prospective sellers and buyers further down the supply chain within North Korea (Informal traders #6, #7, #8, #10).

In sum, the strategies pursued by market participants to survive often involve support for state officials, or the state more directly, and are nominally how the state can in turn surveil market activities. These strategies found in everyday politics necessarily require building long-term relationships between market participants and state officials. Even if the relationships are initially transactional in nature, the strategies still often involve developing and enforcing norms, sharing sensitive information, and creating mutual vulnerabilities. Because of the intertwined nature of market activities and the state in North Korea, market activities in the everyday politics of surveillance and support are not necessarily a form of direct resistance to the regime. Thus, even in state-linked market participation strategies, social trust can develop among market actors including private businesses, semi-private enterprises, and state officials.

Socialisation

The difficulty of surveillance speaks to the ability of markets to create a sphere of interaction that is at least partially outside the control of the state. Participation in market activities is itself a form of socialisation: it can shape worldviews, and at the very least can lead participants to expect certain behaviours and to uphold certain norms in those markets. As the editors of this Special Issue argue, everyday politics is ‘shaped by the socialisation experiences of North Koreans’. Market norms and behaviours are enforced by market participants themselves, and not necessarily by the state. Here we note how North Koreans’ experience in markets helps socialise them into norms and behaviours that facilitate trust-building.

Since state institutions will not adjudicate disputes, market actors take measures to ensure that their business transactions do not fail, or if they do, that they can seek recourse outside official state channels. Market participants may retaliate against dishonest business partners or brokers by ending contact or encouraging other business associates in their network to avoid interacting with cheaters. One interviewee mentioned letting a delivery of seafood spoil rather than receive the shipment as a form of retaliation for unacceptable dealings, thus resulting in a loss for the counterparty (Informal trader #5). North Korean market participants with ties to the security apparatus can also take more coercive and direct actions to enforce market norms. For instance, if a deal turns sour, they might record and distribute information about their counterparties (e.g., licence plate numbers), to deny them passage across boundaries in future transactions (Informal trader #4). Market participants can also alert other actors or enterprises in their networks about unreliable counterparties to encourage collective retaliation (Chinese trading company representative). Although threats of retaliation appear antithetical to social trust, as market actors engage in mutually profitable relationships over time, trust may develop, even if the threat of retaliation still persists. The networks and information-sharing used to engage in retaliation also imply that a basic level of trust is shared among market actors.

Long-term trust relationships with other market actors are not necessarily established with the intent to resolve business disputes, but by raising the reputational costs of cheating and (un)reliability, trust can reduce the likelihood of disputes emerging in the first place. Several interviewees expressed a willingness to conduct business with fewer precautions in place, such as sending deposits before delivery, as they developed trust with their business counterparties over time. After cooperating for years, Chinese traders were also willing to forward money to their counterparties without hesitation, even before accepting a shipment of goods (Chinese businessman #14); this is in line with Chinese traders extending credit to their North Korean partners as they build a relationship in the absence of institutions (Haggard et al., 2012). Traders were willing to bear costs in order to maintain these networks. For example, traders would accept lower profits in order to sustain existing relationships and fraud-free business connections (Chinese businessman #8).

The benefits of trust networks can be extensive and go beyond lowering transaction costs. Traders varied their prices based on whether their partners were relatives or pre-existing acquaintances, indicating that trust reduced the risk premium (Informal trader #15). Traders reported that the monetary amount required for bribes, and the fraud experienced, decreased as time went on and trust was established (Chinese businessmen #11, #13). Others relied on social networks to obtain high quality goods relative to the prices paid (Chinese businessman #8). Long-term business partners were more punctual. If a deal went wrong, the trader would simply not deal with them again. A good reputation was viewed as a valuable asset, as a bad reputation in business – precisely because of knowledge-sharing among North Korean officials and businesses – could increase costs or torpedo a deal entirely (Informal trader #4).

Trust-building can also be a goal in and of itself. Trust networks are the first consideration for many Chinese businesspeople. One trader stated that he had established networks of Chinese businesspeople who knew North Korean entrepreneurs. He then decided what type of business would be possible with the network, rather than deciding to do business in a certain sector and then attempting to build up a network of contacts (Informal trader #6). Trust is slowly built over time with each successful transaction. Business partners gradually move into new business opportunities together as trust accrues. Through this process, they can find out new information about other parties (Informal traders #9, #11).

To gain confidence that the counterparties they transact with will not cheat them or turn them in to the police (if activities are illegal), and that goods will be delivered and sold, market participants may take steps to help increase trust within their market network. Initially, a trusted third-party vendor known and trusted by both parties may introduce market actors to each other. The third party will share information about other market participants or new business opportunities and vouch for the parties’ trustworthiness. In multiple cases, Chinese traders involved in North Korea were introduced to opportunities and networks by friends, family members, or government officials, and then built up trust with their North Korean counterparties over time (Chinese businessmen #6, #7, #8, #15).

Even when trust remains low, frequent engagement and reciprocity between market actors can gradually lead to trust. In this way, Chinese traders have built extensive relationships over several years by ‘taking care’ of their North Korean counterparties. Beyond business transactions, Chinese traders have supplied household appliances, gasoline, generators, and food to their North Korean counterparties, enabling them to gain trust and sustain their business ventures in North Korea (Informal traders #4, #5, #7, #9; see also Hastings & Wang, 2017). While bribery was extensive among Chinese businesses in North Korea, as would be expected for long-term partners, one trader gave gifts to his partners but specifically claimed they were not bribes so much as items to express intimacy in his relationship with his partners (Chinese businessman #12). Chinese traders also provided non-monetary gifts, such as tours for North Korean officials and their families when visiting China, to North Korean officials over an extended period (Chinese businessmen #9, #11).

Furthermore, cultivating long-term relationships also generates trust. A stable relationship was, in the eyes of one trader, based on cooperation and win–win reciprocity: the North Korean partner would offer the lowest price that was still profitable, and the trader would in turn offer repeated commissions to the partner (Chinese businessman #14). Given the legal ambiguity of North Korean markets, market actors manage to create mutual political and legal vulnerability by colluding in illicit enterprises. Doing so effectively incentivises both parties not to cheat as punishment potentially falls on both parties if the defrauded victim reports his/her counterparty to state authorities. While money can lubricate relationships, it is the relationships built over time, not the bribes, that lead to resilient networks. No level of bribery was, in the experience of Chinese traders, sufficient to consistently move their legal goods through North Korean state checkpoints, without pre-existing relationships with North Korean state officials (Chinese businessmen #1, #6, #8, #9).

Finally, the use of network brokers and information by market participants is both an outcome, and potentially a driver, of trust within business relationships. Traders find information about business opportunities by taking advantage of networks of people they trust, both in China and in North Korea, who can introduce them to others (Informal traders #4, #10). These are often, but not always, kinship networks among ethnic Koreans with families on both sides of the border (Informal trader #15). One trader in the seafood export business, for instance, spoke of finding opportunities through trust networks in the Chinese border town of Hunchun, where Han Chinese, ethnic Korean Chinese, and North Koreans all interacted over a lengthy period of time. Market actors built up trust as they knew each other, and reputation costs remained high in a small city. This led to smooth business dealings, in contrast to transactions where the trader was forced to go through the local government (Informal trader #3).

Brokers may also help entrepreneurs seek access to better information. Brokers in North Korea may have the most up-to-date information on housing prices and availability, and also how and where to transfer money and messages. For example, North Korean ‘real estate’ agents use their connections and access to information about real estate availability to facilitate the process of ‘buying’ property (Park, 2015). North Koreans can also rely on brokers and informal networks to locate a trusted doctor or pharmacist, or reliable labourers for a private business. At the same time, these networks can expose untrustworthy individuals with poor reputations (Lankov et al., 2017b; Soh, 2016). Financial brokers who transfer money from China to North Korea and between China and South Korea also operate by acting as trusted parties for market participants engaging in transactions (Harlan, 2012).

To survive in North Korea’s difficult environment, market actors must create not only vertical networks with state officials, but also horizontal networks with each other. These informal trust networks operating in everyday politics play an important role in socialising market actors into norms and behaviours that allow market activities to persist. Social trust thus arises from several angles in the process of socialisation in markets: first, repeated positive interactions lead to greater trust among participants; second, helpful information is shared among participants; and third, the relationship networks in which market actors are embedded rely on trust as a means of facilitating the transfer of information, and enforcing deals.

Conclusion

Markets have become part of everyday life and politics in North Korea. Although authoritarian political conditions, including the state’s powerful surveillance system, may have conditioned North Koreans to distrust individuals outside of close friends and family, markets in contrast have helped facilitate a system of trust. As suggested by interviews with Chinese entrepreneurs operating in North Korea, market participants have adopted particular strategies that lead to reciprocal behaviour, social capital, and shared norms.

Social trust is both a product of market participation strategies, and the lubricant that allows market activities to operate on an everyday level in an ambiguous institutional environment. Can business transactions that take place in markets extend to other trust-based relationships that extend outside of the marketplace? Are the market strategies adopted by North Korean entrepreneurs only relevant within the realm of markets, or can they be transposed more broadly across society and into the political realm? If the strategies described in this article are limited strictly to economic transactions, then the prospect of markets developing wider trust networks in North Korea remains thin. Yet, if market-related information such as the price of goods and commodities, or the reliability of other market participants, can lead to other mundane conversations such as the weather, sports, politics, or current events, then marketisation may offer North Koreans more space for social interaction in everyday life. Markets may thus generate space for North Koreans to socialise, at least within horizontal trust networks. Although markets can provide support for the state and offer opportunities for surveillance, they also facilitate (and even require) socialisation into norms and behaviours that can operate outside of, and sometimes at cross-purposes with, the state.

We conclude by addressing two questions regarding market participation strategies and the implications of trust networks for everyday North Korean politics. First is the question of whether greater social trust can produce a sense of civic-mindedness in North Korea.³ What, in other words, is the content of the shared norms, how will social capital be deployed, and with what are North Koreans trusting each other in their networks? Furthermore, do the horizontal trust networks formed by markets tend to overlap and thus create an extended ‘radius of trust’ (Fukuyama, 2001), or are they insular and hostile to outsiders? While we are optimistic that market participation is likely to expand the public sphere, it is unclear if that society will inevitably be civil, particularly in the face of such dysfunctional political institutions as exist in North Korea (Berman, 1997).

Second, the incentives for market actors to develop trust, reciprocity, and shared norms may dissipate as North Korea’s economy enters a period of prolonged austerity. The existence of adaptable market networks may have helped buffer against the shock of wide-ranging economic sanctions imposed against North Korea in 2016/17, and the larger shock that came with the closure of the country’s borders in 2020 due to Covid-19. As market opportunities decline, however, market participants have a greater incentive to engage in beggar-thy-neighbour strategies and pursue short-term gains, rather than engage in reciprocal behaviours premised on the expectation of ongoing transactions (Abrahamian, 2020). Additional research with market participants who have endured the Covid-19 border closures and the ensuing shortages, internal restrictions, and departure of many Chinese businesses is necessary to understand the effect of Covid-19 on social trust. Whether markets, and the trust that arises from market exchanges, will prove resilient enough to overcome the consequences of sanctions and pandemic-induced isolation and austerity measures remains to be seen.

Acknowledgements

Author names are in alphabetical order. This article is part of a larger project that includes a paper that was presented at a forum hosted by the Center for Korean Women and Politics in August 2020, and a report, ‘Market Activities and Civil Society Building Blocks in North Korea’, that was distributed by the National Committee on North Korea in February 2021 and was co-authored with Daniel Wertz. We thank Hyung-min Joo and editors at ASR for helpful comments. Interviews were conducted using protocol 2012/2708 of the University of Sydney Human Research Ethics Committee.

Disclosure Statement

No potential conflicts of interest are reported by the authors.

Additional information

Funding

Research for this article was partially funded by the Australian Research Council (grant DP140102098) and the National Endowment for Democracy.

Notes

^1. For further discussion of the sampling and methodology of the interviews, see Hastings and Wang (2017).

^2. Although this support is often less performative than non-market activities.

^3. Thanks to Hyung-min Joo for this point.

Appendix

Chinese businessman #1, July 2014

Chinese businessman #6, July 2014

Chinese businessman #7, July 2014

Chinese businessman #8, July 2014

Chinese businessman #9, July 2014

Chinese businessman #11, July 2014

Chinese businessman #12, July 2014

Chinese businessman #13, July 2014

Chinese businessman #14, July 2014

Chinese businessman #15, July 2014

Informal trader #2, June 2016

Informal trader #3, June 2016

Informal trader #4, June 2016

Informal trader #5, June 2016

Informal trader #6, June 2016

Informal trader #7, June 2016

Informal trader #8, June 2016

Informal trader #9, June 2016

Informal trader #10, June 2016

Informal trader #11, June 2016

Informal trader #12, June 2016

Informal trader #15, June 2016