North Korea’s budding entrepreneurs defy the odds in Kim Jong Un’s totalitarian state

As North Korean athletes participate in the Olympics in Pyeongchang, South Korea, you might be curious about how ordinary North Koreans live under the grip of Kim Jong Un. Is everyone starving and marching in lockstep?

Kim Yo Jong, the younger sister of North Korean leader Kim Jong Un, claps during a Women Preliminary Round Match between Switzerland and Korea.
Grigory Dukor | Reuters
Kim Yo Jong, the younger sister of North Korean leader Kim Jong Un, claps during a Women Preliminary Round Match between Switzerland and Korea.

While poverty does exist and North Koreans don't live freely inside the communist nation, more ordinary citizens are quietly becoming entrepreneurs. As business is incrementally tolerated yet monitored by the regime — everyone from millennials to wealthier professionals are bootstrapping ventures inside the world's most totalitarian state. "It's constrained and camouflaged, but it's capitalism nonetheless," says Sokeel Park, director of research and strategy at Liberty in North Korea, an international NGO that supports North Korean defectors.

A woman stands in a gift shop in central Rason city, part of the special economic zone northeast of Pyongyang.
Carlos Barria | Reuters
A woman stands in a gift shop in central Rason city, part of the special economic zone northeast of Pyongyang.

Strains of capitalism emerged in this communist society back in the 1990s as markets popped up across the country to cope with the famine. Here North Koreans became entrepreneurs out of necessity to trade for food and other necessities. Over the years the practice expanded and the regime, unable to feed its own people, was forced to tolerate the marketization. According to Daily NK, an online newspaper focused on North Korean issues, more than 5 million North Koreans, or 20 percent of the population, are now directly or indirectly involved in the general markets.

This growing tolerance for free enterprise has contributed to expanding physical, outdoor market spaces that permeate cities and the countryside. Comprised of stalls and roughly akin to an outdoor flea market, entrepreneurs conduct cash transactions in Korean won, Chinese yuan and even the U.S. dollar. Ventures range in size and type — offering everything from consumer goods, like food and clothing, to services including haircuts and transportation, according to a report on North Korea's marketization and details from North Korean defectors.

The growth of markets poses a potential threat to North Korea's strict control of its people but it still allows Kim Jong Un's government focus on bolstering its nuclear arsenal while letting his people feed themselves.
AP
The growth of markets poses a potential threat to North Korea's strict control of its people but it still allows Kim Jong Un's government focus on bolstering its nuclear arsenal while letting his people feed themselves.

The net effect is a budding, entrepreneurial ecosystem that is evolving beyond mom-and-pop stalls run by housewives. The outdoor markets in turn are part of a larger, emerging business framework that includes a start-up bootcamp and government-supported tech zones. State officials are in on side hustles, too, helping to create a hybrid, private-state model of marketization.

Not even the economic sanctions imposed by the United States and international community is ebbing this movement.

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Just to clarify, North Korea is not the next Silicon Valley. Challenges for entrepreneurs are formidable. Obstacles include lack of modern infrastructure and transportation, no widespread internet access and absence of robust bank-lending activity. Micro entrepreneurs aren't selling their goods online. And there's nothing equivalent to a venture capital framework. International sanctions also make large-scale business and trade activity across borders difficult. Despite these challenges, scrappy entrepreneurs are self-financing their own small businesses. They're getting access to often Chinese-made goods that arrive through the porous North Korea–China border.

Chinese vendors sell North Korea and China flags on the boardwalk in the border city of Dandong, China.
Kevin Frayer | Getty Images
Chinese vendors sell North Korea and China flags on the boardwalk in the border city of Dandong, China.

Lack of internet access and a modern digital landscape can in fact spark ingenuity. For example, if you acquire Chinese-made apparel through a middleman, you might resort to an analog, guerrilla marketing tactic. Get your most attractive — and tallest — female friends to model outfits and strut up and down an outdoor North Korean market, as one defector details in a new film on North Korea's millennial entrepreneurs called "Jangmadang Generation" (or market generation).

Roughly 20 percent of North Korea's population of 25 million rely on the outdoor markets alone, according to a report published last year by Daily NK.

"There is a hunger in this country for people to start their own business." -Ian Bennett, outreach coordinator for Choson Exchange

Beyond the market spaces, some North Koreans are participating in business training offered inside the country. Equivalent to a start-up bootcamp, the program is run by Choson Exchange, a Singapore-based nonprofit that supports North Korean entrepreneurs. Choson Exchange mentors its North Korean partners to incubate and develop their roughly 30 start-up ventures and early-stage business ideas through workshops and additional initiatives.

A man waits with shopping carts at a parking lot in front of a department store in Pyongyang, North Korea. Three generations into Kim Jong Un's ruling dynasty, markets have blossomed and a consumer culture is taking root.
Wong Maye | AP
A man waits with shopping carts at a parking lot in front of a department store in Pyongyang, North Korea. Three generations into Kim Jong Un's ruling dynasty, markets have blossomed and a consumer culture is taking root.

Ventures range from ginseng-infused face cream to an electricity surge protector. Students are curious about advances like drones and nanotechnology. Training workshops include lectures by visiting foreigners from organizations including Facebook and The Economist. Each workshop includes roughly 80 to 120 students, and the sessions are held in Pyongyang or Pyongsong, located north of the capital.

On rare occasions a handful of North Koreans have traveled to Singapore for internships and skills training, but most sessions are held in the North. The workshops focus on entrepreneurial skills and economic policy. "There is a hunger in this country for people to start their own business," said Ian Bennett, outreach coordinator for Choson Exchange. "North Koreans are fairly open in saying they want to open businesses," said Bennett. "Profit is not a dirty word."

The rise of capitalism

North Koreans have dabbled in free enterprise for years in a kind of gray market with prescribed rules. After the North's state food system collapsed in the 1990s, people turned to markets to feed themselves. Based on interviews with North Korean defectors and experts over the last few years, it's apparent the markets are irreversible and entrenched fixtures in the economy. "Economic liberalization and opening appears to be the only viable survival strategy," according to Park of Liberty in North Korea.

People shop in Tongil Market in Pyongyang, North Korea. Hundreds of markets have emerged in North Korea since its public rationing systems fell apart in the mid-1990s.
AP
People shop in Tongil Market in Pyongyang, North Korea. Hundreds of markets have emerged in North Korea since its public rationing systems fell apart in the mid-1990s.

Most of the goods sold in the North Korean markets originate from China — food, clothing, school supplies, kitchen items. Relationships with wholesalers and middlemen with ties in China can yield shipments of goods. While the border is protected, a bribe or two can unlock deliveries, according to defectors. North Korean and Chinese leadership are aware of the burgeoning commercial trade, which sanctions so far have failed to curb. But leader Kim Jong Un has proved he can adapt to evolving marketization while maintaining control.

The Daily NK report verified the existence of 387 officially sanctioned markets inside the country, with people selling from roughly 600,000 stalls within the markets. The report itself and its methodology are unique. The data was based on information gathered by 32 informants. And a third of these specially trained informants reported from inside North Korea, which is extremely rare.

"The image of an isolated, failing North Korea needs revision," according to Stephan Haggard, a widely followed North Korea watcher who authored the report's opening remarks.

Beyond consumer goods

North Korea's markets have evolved beyond consumer goods and offer services like transportation. For example, amid the North's decaying rail system, military units are using their vehicles for commercial purposes. An intercity bus line carries people and goods.

It's difficult to calculate and verify how much money is being made through marketization activities. But according to North Korean defectors and experts, some entrepreneurs with larger ventures are likely accumulating significant amounts of capital.

While bribery and corruption do exist, the market ventures broadly operate as monitored for-profit enterprises. The businesses aren't designed to funnel income directly to the regime, according to North Korea experts.

And don't worry. There are still housewives participating in the markets amid businessmen with higher rank and income. But armed with China-made cellphones, savvy housewives turned micro entrepreneurs are brokering deals with middlemen to secure Chinese goods for sale.

People shop in Tongil Market in Pyongyang, North Korea.
AP
People shop in Tongil Market in Pyongyang, North Korea.

Said Liberty's Park, "We're seeing initiative from individuals in the pursuit of profit." Park also co-directed a documentary on North Korean millennials and their experiences inside the country as creative entrepreneurs. The film "Jangmadang Generation" was produced by Liberty in North Korea. "Trading is human nature," Park said. "People will find a way."

Can free enterprise spark reform?

Looking ahead, a key question is whether free enterprise might unlock personal freedoms and broader reforms. But the hopeful expectation that the trend could undermine authoritarian rule might be wrong, according to Haggard. Seen another way, if you're an ordinary North Korean and can earn cash, buy beer and a nice outfit, you're less likely to dissent against the regime.

And that's not to say dabbling in free enterprise doesn't come without risks. "The increase in marketization is almost certainly contributing to much more pronounced inequality and corruption," according to Haggard.

For now, though, Kim Jong Un has proved strategic, and the regime quite resilient. The markets are evolving, but again with limitations. While the government tolerates consumer goods and other services in the markets, acquiring and selling outside foreign media — including thumb drives downloaded with foreign films and unfiltered news — remain punishable offenses.

North Korean leader Kim Jong Un attends a grand military parade celebrating the 70th founding anniversary of the Korean People's Army at the Kim Il Sung Square in Pyongyang.
KCNA | Reuters
North Korean leader Kim Jong Un attends a grand military parade celebrating the 70th founding anniversary of the Korean People's Army at the Kim Il Sung Square in Pyongyang.

Despite the risks, most entrepreneurs are moving forward incrementally with prescribed businesses that avoid illegal foreign media.

And while you're watching the Olympics, keep in mind North Korea's cheerleading squad is from the same country, with regime leadership that's growing its nuclear arsenal and, according to the United Nations, has committed crimes against humanity that has no "parallel in the contemporary world."

Human rights abuses and nuclear weapons are important issues, but there's no doubt the socio-economic reality underpinning them has radically altered, according to Haggard. And it's in this surreal mashup of North Korea that expanding marketization and entrepreneurship offer a pathway forward.

Said Geoffrey See, founder of Choson Exchange, "Having a channel of communication, even if it's only with entrepreneurs who are not politically influential, gives us a way to communicate what the international community is thinking. It is a way to shape the future of an isolated country."

— By Heesun Wee, special to CNBC.com