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Drug Dealing, Counterfeiting, Smuggling: How North Korea Makes Money

An idle North Korean factory, seen from the Chinese border.

An idle North Korean factory, seen from the Chinese border. AFP/Getty Images hide caption

itoggle caption AFP/Getty Images

North Korea used to be an industrial powerhouse. Not anymore. Today, the country can't feed its own people. Its cities go dark every night for lack of electricity.

Yet helplessness wasn't the original plan. The original plan for the country's economy had a name. It was called "juche," or self-reliance. The idea was that all North Korean problems should be solved by North Koreans.

Every North Korean knows the concept of juche inside and out. The country takes self-reliance very seriously. And if self-reliance requires drug-dealing and the smuggling of counterfeit goods, then so be it.

But before we get to that, there are a few other ways the North Korean government can make money.

It can sell what few assets it has to its neighbors. So China takes coal and magnesium out of North Korea's mountains and harvests fish from North Korean waters. Those sales put millions of dollars into Kim Jong-Il's hands.

In fact, North Korea doesn't just rent its land. It rents out its own people: the government sends its citizens to Russia to chop down trees and to special South Korean factories near the border that need cheap labor.

This works out great for Kim Jong-Il. Those Russian and South Korean companies pay North Korea in dollars and then the North Korean government pockets that money and gives near-worthless local currency to the workers.

And North Korea has one more legal export: monuments. It turns out that giant, ugly statues are one of the few exports of North Korea.

There's a whole division of the North Korean government that specializes in building those statues for dictators around the world, according to Curtis Melvin, an econ grad student who runs the blog North Korea Economy Watch.

"You can go as far back as the 1970s to find monuments the North Koreans have built in Africa and that's sort of continued to this day," he says.

All these legal exports added up to roughly $2 billion in 2009. In addition to that, North Korea brings in a lot of money through blatantly illegal activity.

To learn more about the country's illegal exports, we spoke with Ma Young Ae, a defector who used to work as a North Korean spy. Ma now lives in Virginia where she runs a North Korean restaurant. But back in Pyongyang she was one of the country's elites.

Ma worked for Kim Jong Il's internal police force. Her job was was to track down drug smugglers. That sounds like pretty normal law enforcement, except for one difference. She was supposed to stop small-time Korean drug dealers in order to protect the biggest drug dealer in the country: the North Korean government.

Ma told us the North Korean government produced opium on a large scale. But it hid its poppy fields from most of the population. Ma only saw the fields because she was an insider.

After harvesting the fields, the government would put its empty factories to use. The government would turn on its production lines at night and process opium, Ma says. Then they would pack the product in plastic cubes the size of dictionaries and smuggle it out of the country through China.

This was in the mid-eighties, when opium was the big drug. These days the drug of choice for export out of North Korea is ice, also know as methamphetamine.

Ma never smuggled the drugs herself. But she did smuggle something else. When she traveled in China, tracking down those non-government-approved drug dealers, the government didn't give Ma a corporate credit card.

Instead, she was given a wad of counterfeit dollars. This is another of North Korea's exports: Counterfeit $100 bills known as super-notes.

Nobody was going to just accept a brand-new $100 dollar bill from a North Korean. Instead, the Chinese would give the North Koreans sixty real U.S. dollars for every fake $100 bill.

It was during these trips that Ma noticed that the Chinese across the river had a much better standard of living than the North Koreans. So, when she had the chance, she defected.

Besides the illegal drugs and the counterfeit currency, North Korea is believed to deal in lots of weapons: rifles, missiles, perhaps even nuclear technology. Just a couple of weeks ago in Lybia, the rebels found a bunch of North Korean rocket launchers in a box labeled "bulldozer parts."

It's impossible to say how much money all this illegal activity brings in. Melvin says the government's primary goal is to maintain control of the country, not to maximize revenue.

What we do know is that Kim Jong-Il makes enough money to give the country's small elite a pretty good life. Despite international sanctions, he's always getting caught sneaking in iPods, Mercedes, Cognac and big screen TVs.

Meanwhile, the rest of North Korea gets barely enough to survive.

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