Institutional Entrepreneurs in North Korea: Emerging Shadowy Private Enterprises under Dire Economic Conditions

Abstract

IntroductionThe North Korean economy has been deteriorating since the 1990s because of food, energy, and raw material shortages, which were mainly driven by the disinteDepartment gration of the Soviet Union and the end of its economic assistance to North Korea.1 Although food shortages have symbolized North Korea's economic crisis, energy shortages have had a more direct impact on its economy. Energy shortages have damaged the operational capability of the country's industries, particularly its heavy industry,2 and crippled its agricultural sector by limiting the supply of chemical fertilizers (which are critical to the sector's production outcome), resulting in grain shortages.3Making matters worse, a number of natural disasters, including floods, droughts, and hailstorms, devastated the country in the mid-1990s. The economic crisis, combined with natural disasters, led to the collapse of the country's food-rationing system, which had played a key role in providing North Koreans with basic necessities, and this collapse in turn led to mass starvation. It is known that a large number of North Koreans died of starvation during this period and that many escaped to China and other countries. When the food-rationing system worked well, it was the main source of food and basic necessities for North Koreans; markets played only a minor role in the public distribution system. However, once the rationing system became dysfunctional, markets became the main distribution channel. Further, when the economic crisis continued, markets spread to all of North Korean society, and market-related rules and norms followed.The ongoing economic crisis has not only changed the North Korean economy as a whole but also had considerable influence on the development of the country's industrial enterprises. Because of the lack of energy and raw materials, the North Korean government no longer establishes economic plans. Instead, it has prioritized its limited resources for some strategic industries (e.g., the munitions industry) and distributed them mainly to enterprises of strategic importance,4 leaving enterprises in light industry and other less important sectors to survive on their own. Currently, various markets provide North Koreans with most of the items that the state-controlled public distribution system used to provide, and newly emerging private enterprises have been playing a key role in such markets. Private enterprises, despite being illegal, have become an integral part of North Korean society, and thus, the government would have considerable difficulty in prohibiting their commercial activity.Private enterprises are very different from collective enterprises, which used to be the primary actor in the socialist economy, in terms of their goals and management. Private enterprises pursue profits, hire workers, and sell products in markets that are not controlled by the state. Further, they follow market rules and norms. The purpose of this paper is to examine newly emerging private enterprises in North Korea-that is, shadowy private enterprises (SPEs)-by focusing on their activities. To analyze SPEs' roles and status in the North Korean economy, this paper takes the institutionalist perspective. In particular, the paper employs the concept of institutional entrepreneurship that some institutionalists have developed based on new institutionalism.Institutional Entrepreneurs and Shadowy Private Enterprises in North KoreaInstitutionalists examine not only institutional continuity but also the possibility of institutional change. Whereas the former is the very essence of institutionalism, the latter has relatively received little attention. Institutions, however, are not as stable as some institutional theorists claim.5 As a set of heterogeneous elements (not a single and coherent set), the institutional order tends to hold potential tension within itself because heterogeneous institutional elements established in different historical periods carry different interests and identities. …