Seeds of Reform: Lessons from Vietnam about Informality and Institutional Change

Abstract

Ordinary North Korean citizens have been coping with economic hardship by eking out livelihoods for themselves. Grassroots markets and local petty economies have become commonplace. A point of conjecture amongst scholars and policymakers is whether these developments may be the start of significant economic system change towards a market economy. This article reviews lessons learned from the transition economies about the informal and social processes required to effectively realize major economic transitions in order to discuss the preliminary evidence we have about North Korea's current informal civilian economic activity. Applying a social cognition theory of institutional change focuses our attention onto the discretionary behavior of local government, the social structure and networks that form firms and exemplars, and the social trust needed to move to new economic paradigms. It also discusses what the operations of hwa-gyo entrepreneurs, ethnic Chinese living in North Korea, pose to the existing state of the literature.

Keywords:

• North Korea
• DPRK
• transition
• Vietnam
• market
• cognition

JEL Classifications:

• O17
• O18
• O43
• O53
• R31
• Z1

Acknowledgements

The author is grateful for the support of this project provided by the MIT International Science and Technology Initiatives Global Seed Fund, the POSCO Visiting Fellowship Program at the East-West Center, and the Ford International Career Development professorship funds.

Notes

¹Comparing such a wide variety of economic systems, the division between public and private entities may not always be so clear and instead a diverse range of institutional arrangements may defy neat labels. By local, ‘private’ entities I am referring to firms and other economic organizations whose managerial decision-making is relatively more autonomous from the state than state-owned firms, but they might not be strictly free of state members in their organizations or have clear ownership rights (Weitzman & Xu, 1993). These would include, for example, China's TVEs (township village enterprises) and Vietnam's equitized firms as well as a variety of types of small and medium enterprises (Kim, 2008).

²Activist organizations and media report anecdotal accounts about the difficult lives of North Koreans through anonymous reports from sources within North Korea. Others counter that these kinds of publications show the bias of western researchers and journalists who feed off of each other's misinformation (Cumings, 2003).

³The more detailed discussion of the data in the original study presented descriptive statistics to show that the quality of the properties on the market did not differ fundamentally between the two cities, as well as other tests that were used to address the perennial endogeneity issue in hedonic price models (Kim, 2007).

⁴Please refer to Note 1.