North Korea's Underground Markets Are Carving a New Class Divide

The Market That Built a Caste System

North Korea’s underground markets — known as jangmadang — began as a desperate improvisation. When the state rationing system collapsed during the famine of the mid-1990s, farmers and villagers started trading directly with each other. What emerged over the next two decades was not a free market but something far more distorted: a quasi-market economy where opportunity flows through political connections and access to capital, not merit or competition.

Today, an estimated 70% of ordinary North Koreans’ total income comes from these informal markets. That number alone should alarm anyone studying the regime’s stability. A population that dependent on underground trade is, by definition, partially outside state control. Yet the deeper danger is not just independence — it is inequality.

A report released by the Bank of Korea’s Economic Research Institute on November 23 provides the most concrete data yet on how sharply that inequality has hardened. The finding is sobering: the economic shock of 2014–2015 did not merely widen the gap between rich and poor in North Korea. It restructured who gets ahead and who gets left behind — and the new order has endured long after the shock passed.

What Happened in 2014–2015

The trigger was a convergence of bad weather and worse economics. Severe droughts slashed agricultural output and hydropower generation just as China — North Korea’s essential economic lifeline — entered a growth slowdown and global commodity prices fell. North Korea’s GDP growth, which had been positive for four consecutive years, flipped to −1.1% in 2015.

For a country where even modest downturns ripple through a population already surviving on the edge, the impact was severe. But the report’s author, Jo Yong-sin, found that the shock did not affect everyone equally.

Using survey data from the Seoul National University Institute for Peace and Unification Studies — which tracked North Korean defectors between 2011 and 2019 — Jo compared informal income distribution before and after the crisis. The result was unambiguous: income polarization in the market sector deepened significantly in the 2015–2019 period relative to 2011–2014.

Crucially, this was not a story of the wealthy pulling further ahead. The primary driver was a sharp increase in the share of low-income residents. More people fell into poverty; fewer rose out of it. The floor dropped, not the ceiling rose.

Why Connections Beat Capital

The mechanism behind this asymmetry is what makes North Korea’s economy so peculiar — and so dangerous for the regime’s long-term legitimacy. In a normal market economy, a shock can create both winners and losers, but it also creates mobility: survivors reinvest, adapt, climb. North Korea has none of those shock-absorbing institutions. There is no fair competition. No tax system. No redistribution. No property rights. What exists is what Jo terms jun-sijanghwa — quasi-marketization.

In that environment, the people best positioned to survive a downturn are not the most entrepreneurial or skilled. They are the most connected. Those with ties to the party apparatus, military leadership, or state trading entities can convert political capital into economic advantage: rent-seeking, risk-free arbitrage, access to import channels that ordinary traders simply cannot reach.

Meanwhile, the middle and lower classes — those whose market activity is limited to buying and selling basic consumer goods in local jangmadang — have no such buffers. When droughts cut harvests and currency fluctuations raise the price of imported goods, these households absorb the full brunt. They do not pivot. They do not hedge. They endure.

The result is a highly asymmetric outcome: elites consolidate wealth through political access, while ordinary citizens bear the costs of economic contraction.

The Gap That Won’t Close

Perhaps most troubling is the persistence of the divide. Even as North Korea’s economy recovered from the 2015 contraction, the widened income gap did not narrow. The structural factors that produced it — unequal access to information, trade routes, foreign currency, and political protection — remained intact. In fact, they likely strengthened, as those who navigated the crisis successfully used their gains to cement their positions further.

This is not the pattern of a society recovering from disaster. It is the pattern of a society calcifying.

What It Means for Defectors and the Regime

The defector data offers a grim but useful mirror. Most North Korean defectors arriving in South Korea come from the lower and middle strata — the very groups most damaged by the post-2014 polarization. Their stories are consistent: rising prices, shrinking rations, inability to compete with well-connected traders, and in some cases, complete exit from the formal labor market.

Over time, this selectivity matters. A regime that pushes its most economically vulnerable citizens toward the border creates a feedback loop: defector communities abroad become more concentrated among the disadvantaged, shaping international perceptions of North Korea as a place of universal suffering — which, to be fair, it largely is — but also obscuring the more nuanced reality that a connected elite has found ways to prosper within the same system.

For the regime, the long-term risk is subtle. The 2014–2015 shock did not undermine Kim Jong-un’s authority directly. There were no protests, no open dissent. But it did reinforce a social contract that is growing increasingly difficult to honor: the state may not feed you, but at least it treats you fairly. In North Korea’s quasi-market economy, that fairness has always been thin. After 2015, it became thinner still.

The elite classes benefitting from the current arrangement have every incentive to preserve it. The majority of the population has every reason to resent it — even if resentment, in North Korea, remains private.

The Unanswered Question

What remains unclear is how long this equilibrium can hold. The Bank of Korea report covers data up to 2019. North Korea has faced additional shocks since then — the COVID-19 border closures, renewed sanctions enforcement, and ongoing agricultural challenges. Each new crisis tends to amplify the same dynamics: those with connections profit; those without pay the price.

If the pattern continues, the gap between North Korea’s market-connected elite and its ordinary traders will widen further, creating a society that is simultaneously more unequal and more fragile — not because of sudden upheaval, but because the system rewards loyalty and punishes everyone else with silence.