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(The Global Mail) -- When Stewart Lone makes one of his regular visits to Pyongyang, he usually stops by the Pyolmuri Café, a Western-style coffee house in the centre of town. It's a pleasantly quiet spot in a city that's getting surprisingly frenetic in parts.
When Lone first visited the North Korean capital in 2006, "you could cross the road without looking." Now, the streets are packed with locally made and imported cars -- Japanese, European and American models, says Lone, an associate professor of history at the University of New South Wales's campus at the Australian Defence Force Academy.
At the café, the brew is excellent, and it comes in at little more than a dollar a cup. The freshly baked bread is similarly outstanding. Young local students often fill the tables, fiddling with their mobile phones. The manager, a North Korean woman, is so chatty that it's often hard to get rid of her.
"It has the biggest -- the biggest -- tiramisu I've ever seen in my life," Lone enthuses. "It looks like a New York cheesecake."
Lone, who goes to North Korea twice a year as a volunteer middle-school English teacher, is an observer of a phenomenon that has struck frequent visitors: Pyongyang, the capital of a country frequently caricatured as a monochrome and impoverished Stalinist hellhole, appears to be booming.
The changes are visible on the streets. Shops that were bare several years ago are stocked with goods, cars jam the roads and restaurants are full -- and multiplying in number. Dull uniformity has given way, in small part, to fashionably dressed women and teens in Chinese threads tentatively aping East Asian pop culture. The hammering of construction sites is constant. More than one million North Koreans are now mobile phone subscribers.
Just why this is happening, no one can fully explain. This is North Korea, after all, where economic data are treated as state secrets. But there are fairly well educated guesses being tossed around.
One thing remains certain -- North Korea as a whole is still desperately poor. The country's economy shrank by 0.5% in 2010, the last year for which figures are available, according to the (southern) Bank of Korea. Agriculture, fishing, forestry and manufacturing all declined. The country has been receiving aid from the World Food Program since April last year; the program is currently aiming at keeping about 3.5 million people from starvation.
Then how can Pyongyang be booming? It's what some economists call the Pyongyang Illusion. In short, it's because North Korean Communism as we like to know it is dead. And the capital -- ostensibly a monument to the glories of socialism -- may just be feasting on its corpse.
North Korea is no longer the land where state distribution reigns supreme. That system fell apart in a general economic collapse that followed the demise of the Soviet Union and a series of natural disasters, says Stephan Haggard. He is an expert on North Korea's economy at the University of California, San Diego, and one of the academics who coined the phrase Pyongyang Illusion. The ensuing famine in the mid-1990s killed somewhere between half-a-million and two million people; it also gave birth to a nascent free market.
"It's nominally a state socialist system, but below that placid surface is really an economy that is starting to marketize," Haggard says.
Amid the famine, North Koreans were forced to grow and sometimes illegally sell their own food. Others followed into trades and services to be able to buy the food. While the government at times has clamped down on the black market -- and continues to steadily expand the number of business activities it deems illegal -- it also intermittently has fostered and turned a blind eye to private enterprise. There have been no Chinese-style market reforms, but the market appears to have crept into many sectors from below.
Huge numbers of people seem to be in the market in some way -- it's very hard to survive otherwise -- and a growing commercial class appears to be comfortably taking root. And this new, relatively wealthy middle class appears not to be all that small.
The notion that only the elite of the Workers' Party can afford luxuries is outdated. These days that perception "is just for people who like to present the fiction that it's pharaohs and slaves," says Simon Cockerell, who works for Koryo Tours, a company that brings foreign tourists into North Korea. Cockerell has travelled to North Korea 109 times over the past decade, and was last in Pyongyang in November.
"I know a guy a who owns two Swiss watch shops in North Korea, and he's had them for quite some time, and the true elite in that country are not buying $200 watches," he says. "That's Mickey Mouse for people at the top, surely."
Taking tour groups through the capital, Cockerell has noticed changes in places like the Pyongyang Diplomatic Club. Previously the dingy haunt of a few foreigners, the club, which boasts a swimming pool, bar, karaoke and restaurant, has been recently renovated and is at times packed with hundreds of dining North Koreans. Often, as Koreans tend to do, they get boisterously drunk -- but it's still not the "carnage" you see at night in South Korea, Cockerell says.
But if the market has bubbled away in North Korea for decades, why are things so much more visible now?
One reason appears to be found in the North Korean model of old. The government declared 2012 the year the country becomes a "great and prosperous nation" and embarked on an ambitious construction binge in Pyongyang, marshaling those resources it does command, including troops of university students who work on construction sites to fulfill a pledge to build 100,000 new apartments in the capital.
The country recently celebrated a 70th "birthday" for the recently deceased leader Kim Jong-il and is set to celebrate the 100th anniversary of the birth of Kim Il-Sung, who still officially rules the country as its "eternal president," despite dying in 1994. All these propaganda efforts, which are of key importance amid the ascension of the dynasty's third ruler, Kim Jong-un, are very expensive.
"There's been an effort to beautify the city, which actually expends enormous resources in a country which is resource-starved," Haggard says. The city is quite likely growing at the expense of the rest of the country, he says, but within the confines of Pyongyang, the effect of stimulus is dramatic. Even the iconic Ryugyong Hotel, a 105-storey monolith, an incomplete concrete shell on the skyline two decades ago, long abandoned, is set to be finally completed, reportedly with the help of Orascom, the Egyptian firm that is the joint-venture partner in North Korea's mobile phone network.
Foreign investment also is on the rise. After years of stagnation, North Korea is investing in infrastructure and putting resources into a number of special economic zones along the China border -- and reaping the rewards, says Andray Abrahamian, an executive director at Choson Exchange, a foreign non-profit that helps train North Koreans in economics, business and law. Workers at Rason, one of zones, earn about USD80 a month - far in excess of the local average, Abrahamian says. China accounted for 57% of North Korea's USD6.1 billion in foreign trade in 2010. In spite of rancorous relations with South Korea, the Kaesong joint industrial zone with the South has continued to grow, and now employs more than 50,000 North Koreans, largely in manufacturing.
And then there are the old, shady dealings. North Korea has long earned foreign currency through a string of dodgy operations including arms sales, currency counterfeiting, insurance scams, smuggling -- and the operation of an Asia-wide chain of restaurants featuring pretty, karaoke-singing North Korean waitresses. These overseas business activities are coordinated by a government agency known as Bureau 39, which in turn has used the foreign earnings to import luxuries to reward regime loyalists.
Though remittances are technically illegal, North Korea's economy also has received a modest infusion of upwards of USD5 million from workers abroad, says Rebecca Jackson-Young, an editor and economist at the Economist Intelligence Unit in London.
Puzzling out who is making a killing these days is an exercise in guesswork and deduction. Cockerell, of Koryo tours, says one of the clues comes from the license plates of the luxury cars in Pyongyang. The three or four Humvees he's spotted on the streets of Pyongyang all have borne the type of license plates assigned to state companies.
It seems that, at the higher end, much of North Korea's new "commercial" class is leveraging connections with the state into business as a sort of "protected mafia," Haggard says. With no private civilian transport links, for example, businesses are using the military to transport goods. The result is "increasing corruption of the entire political economy," says Haggard.
A small number of people are doing well. The old order, where party rank determined privileged is fraying, Haggard says. These days, money also buys a measure of influence -- and that appears to be frightening the regime.
Not that they can do too much about it. The government attempted to revalue its currency, the won, in 2009, restricting the amount of money people could exchange. This move was widely interpreted as aimed at wiping out the cash savings of North Koreans. The reforms triggered rare, violent protests and an even rarer backtrack by the regime, which ended up executing the official said to be behind the botched revaluation.
The result now is an unhappy mix.
"So it's like the worst of both worlds in a way, right?" Haggard says. "It's the hierarchy and rigidity of the socialist system, but it's also the inequality of a capitalist system - of a crony capitalist system."
Does this mean Pyongyang's boom signals a system in decline and bound for collapse?
People have been predicting the implosion of the North Korean regime ever since the end of the Cold War, but it never seems to pass. "It seems that by any reasonable economic model the country doesn't even exist, but yet it still does," Cockerell says. Contrary to what Haggard argues, Cockerell, who travels around large parts of the countryside and towns, thinks there might be a chance of some prosperity spreading out from Pyongyang. But with little hard data to go on, it's all hard to tell.
The only certainty is that, for a privileged few, the old grey world of North Korean socialism has grown much brighter.
"A lot of the people I work with and that I've worked with for a long time, you know, I remember when they didn't understand, when it was almost the comedic North Korean stereotypical thing of not knowing that the Beatles weren't together anymore or not understanding how a mobile phone worked," says Cockerell.
"And then that's moved up to them getting in arguments over whose MP4 player is best."