The speech does not really refer to any “paradigm-changes” in agricultural policy. As usual the emphasis is on raising output by increasing technology inputs and fortifying ideological strength. That being said, the letter does refer to a new policy intended to improve land management:
The subworkteam management system created by the President is an excellent form of production organization and a superior method of management, in that it encourages farmers to take part in production and management as befitting masters with the feeling of attachment to the collective economy. Its advantages have clearly been proved through practice.
By operating the system efficiently as required by the developing reality, the agricultural sector should bring the sense of responsibility and creative zeal of farmers into full play. It should give farmers clear-cut tasks related with soil management, farming operations and production plan and review their results in time and in a substantial way, thus encouraging them all to work in a responsible manner with consciousness and high enthusiasm as befitting masters. Recently a measure has been taken to introduce a field-responsibility-system within the framework of the subworkteam management system so as to inspire farmers with enthusiasm for production. By applying the system correctly in conformity with their actual conditions, cooperative farms should make it prove effective in agricultural production.
I am not the most qualified person to divine meaning from official pronouncements (particularly from the English translation) but this does seem to indicate that efforts have been made to introduce a new “field-responsibility-system”. This appears to be a change in the measurements by which members if a work team are evaluated. Rather than being rewarded for simple output quotas, there are now measurements for soil management and farming operations–coupled with timely and accurate measurement by work team leaders. There is no specific mention of reducing the number of individuals in a work team or other supposed policies associated with the nebulous 6.28 measures.
Interestingly in the very next paragraph, Kim Jong-un highlights one of the most persistent problems in socialist economics: poor labor incentives. He correctly notes that equal distributions to the workers irrespective of effort and quality will create unmotivated workers and production will fall. He notes that hard/effective work should be rewarded:
What is important in operating the subworkteam management system is to strictly abide by the socialist principle of distribution. Equalitarianism in distribution has nothing to do with the socialist principle of distribution and has a harmful effect of diminishing farmers’ enthusiasm for production. Subworkteams should assess the daily work-points of their members accurately and in good time according to the quantity and quality of the work they have done. And they should, as required by the socialist principle of distribution, share out their grain yields to their members mainly in kind according to their work-points after counting out the amounts set by the state. The state should define reasonable amounts of grains for compulsory delivery on the basis of accurate calculation of the country’s demand for grains, interests of farmers and their demands for living, thereby ensuring that they make redoubled efforts with confidence.
This, however, is basically a restatement of official policy. The state gets first claim on the output, the farmers fight for the leftovers….
Addendum: Here is KCNA (2014-2-11) on the origins of subworkteam units:
Subworkteam Management System in DPRK
Pyongyang, February 11 (KCNA) — The national conference of subworkteam leaders in the agricultural sector was held successfully in the DPRK.
The conference underscored the need for the subworkteam leaders to bring into full play the advantages of the subworkteam management system, in order to carry out the theses on the socialist rural question in the country.
The subworkteam management system created by President Kim Il Sung is an excellent form of production organization and a good method of management which encourages farmers to take part in production and management in a responsible manner, attaching themselves to the collective economy.
One day in May Juche 54 (1965), Kim Il Sung went to Phochon-ri, Hoeyang County, Kangwon Province.
There he acquainted himself with farming, living conditions and management situation of workteams and subworkteams of the farm.
As workteam leaders had many people to deal with and many things to do, they were unable to properly manage manpower and production of their workteams.
Evaluation on labor was mostly done in an equal way, failing to enhance farmers’ production zeal.
That was the reason for low grain yield in the farm.
The same was true for other farms.
On the basis of deep analysis of the farm’s situation, he found out that the subworkteam management system was suitable for group’s working, instead of the workteam management system.
He saw to it that the subworkteam management system was introduced first in some co-op farms in Kangwon and other provinces.
Then, at the 12th Plenary Meeting of the 4th Central Committee of the Workers’ Party of Korea held in November Juche 54 (1965), he took measures to apply it to all other co-op farms throughout the country.
With the introduction of the system, the guidance and management system over the socialist rural communities was orderly established from grassroots units to state-level organs, which served as an impetus to bringing about upsurge in agricultural production.
Korea Focus Park Hyeong-jung
Senior Research Fellow
Korea Institute for National Unification
Here is the summary/assessment:
The objective of the New Economic Management System in North Korea is the building of an “unplanned socialist economy,” or something similar to the “socialist commodity economy” China implemented between 1984 and 1992. Agricultural, industrial and financial measures that North Korea is trying to introduce along with the installation and expansion of special development zones under the New Economic Management System are mutually connected and therefore need to be simultaneously implemented.
North Korea has the conceptual blueprints for each economic measure and its leadership includes individuals who are interested in promoting the areas where they are specialized. However, the country apparently lacks the capabilities to create the proper economic and political conditions for these measures. Against this backdrop, production increase and overall economic growth cannot be expected and confusion would intensify.
North Korea had not made sufficient preparations economically and politically before the introduction of the New Economic Management System. Introduction of new measures inevitably affects the interests of those who had been active under the old system. Transitional imbalance may arise in the process of putting the new system into practice. Reserve resources are necessary to address such problems.
The sub-unit management system in the agricultural sector showed how the reform effort can be stymied. This new system spurs independent efforts of farmers and stimulates their motivation for production increase but it invited the resistance of agricultural bureaucrats. When the state and farmers begin to share products by a ratio of 7:3 instead of the previous ratio of 9:1, imbalance will emerge somewhere in the distribution of farm products. Reserve resources are necessary for such a sudden change. The same is expected of the industrial management system. Factory enterprises were given autonomous operation rights but the new system did not result in production increase. Reserve resources are needed here, too.
The new policy under the Kim Jong-un rule lacked consistency and often exposed zigzagging directions. Officials responsible for the implementation of the new policy were unable to win over dissenters and failed to secure reserve resources needed to overcome the material imbalance in the transition period.
Eventually, the management reform at factory enterprises and experiments with sub-units in farming areas were virtually abandoned. The sub-unit management failed because of resistance from agricultural bureaucrats, the authorities` unease about relaxation of peasant control and uncertainty about the food security for the privileged class. The sub-unit management system most seriously threatened the stockpiling of food grain for the military and the power elite. It is certain that the military was the biggest opponent to the new agricultural management system.
The New Economic Management System accompanied policies that reduced the privileged role of the military in the economy. Similar problems were certainly exposed in the reform of industrial and financial management, such as non-cooperation from the privileged group, concerns about loosening control of workers and managers, and lack of guarantees for special interests.
Yet, the sub-unit management in farms and increased autonomy of factory enterprises were not entirely meaningless. Interestingly, some in North Korea`s leadership believed that the sub-unit system with incentives to individual farmers was necessary despite many problems attached to the farmers` self-interests. Although it was not successfully implemented, it did help farmers gain more independence from state control.
The unavoidable trend of changes in the North calls for systemic reforms like the sub-unit management just as youths grow up to become adults and then to the middle age. The problem is how to operate the changed system to achieve production increase. To be successful, those in the North Korean leadership who advocate the New Economic Management System should be able to politically suppress those opposing it or win them over economically by assuring them of the distribution of surplus. What has happened to date shows that the new system has failed to make much progress in that direction.
Concerning the projects of building special economic development zones, similar problems have been detected. The Workers` Party Central Committee decided in a plenary meeting in March 2013 to take measures to diversify foreign trade, develop new tourist zones, and build special economic zones suitable for the specific conditions of each province. The Economic Zones Development Act was enacted in May and, as of October 2013, each province is boosting efforts to attract foreign investment and create new economic development zones.
The concept of special economic development zone can be defined as conforming to the “unplanned socialist economy” or the “socialist commodity economy.” But the success of special economic zones needs the three steps that were required to tackle the problems faced by the sub-unit farm management and the autonomous operations of factory enterprises as observed above.
This paper is the most comprehensive assessment of the origination and implementation of the DPRK’s “June 28″ policies.
The author classifies the June 28 policies as an attempt to transform the DPRK from a system composed of KWP rule + decentralized reform + state ownership of production means to KWP rule + coexistence of market and planned economies + state ownership of production means. This state is called “socialist commodity economy” or “unplanned socialist economy”. The transition involves moving management to enterprises and farms where production is carried out on the basis of contract and state planning.
The plan was carried out by a group under the cabinet led by Ro Tu-chol.
* No more production quotas/Enterprises make own plans and profit distribution
* Raw materials are traded firm to firm via “direct supply centers” (intended to provide nominal state oversight of firm-to-firm transactions)
* Enterprise officials appointed/fired by KWP
*30% profit tax
*70/30 split of output (previously state took fixed share regardless of output)
*Smaller collective farm sub ubits
*Smaller private plots and kitchen gardens.
*PDS do be abolished but increased control of markets
*Government employees (teachers/doctors) to buy food at “food supply centers” (where all food producers sell supplies).
*military personnel are to buy food at subsidized/fixed price
*”Independent accounting enterprises” (August 3rd?) employees are to be paid in cash and buy food. Enterprises still controlled by state to get rations.
Stephan Haggard wrote about the paper here and here.
North Korea concluded that despite international economic sanctions, its economic revitalization policy of 2013 was delivered as planned.
A report on the comprehensive evaluation of North Korean economy was featured in the Choson Sinbo, pro-North Korean newspaper based in Japan, on December 24. It pointed out that although DPRK-US relations worsened and resulted in tougher measures, “it provided the opportunity to mobilize the potential of the national economy.”
It reported that to be ready for a potential war, the farming process at cooperative farms was carried out early from the beginning of the year. In light industry and food industry, “stabilization of people’s lives” was championed as the main slogan in the drive to normalize raw material acquisition and production.
The news also reported, “factories, enterprises and cooperative farms are provided with conditions to conduct independent business activities,” and “economic management method was improved based on the principles that firmly adhere to the socialist economic system and the working mass as the owners of production activities to ensure the roles and responsibilities.”
In other words, the reinforcement of self-supporting system and introduction of a new method of operating a separate garden as a component of cooperative farms resulted in improved production and a 5 to 10 percent increase in the grain harvest per unit against the previous year.
In particular, the news emphasized that “this year is considered as the year of construction,” and boasted the construction of high-rise apartments and various cultural and sports facilities including horse riding tracks and water parks. Especially, Masikryong Ski Resort in Gangwon Province was announced to have gathered national and international attention.
Furthermore, the news recaptured the new policy of parallel “economic construction and nuclear arms development” announced in March 2013 and reported that “despite the hostile forces that concluded that the policy of parallel development was ‘infeasible’, the people are witnessing and feeling the changes taking place in the capital city through the new policy of parallel development that strengthened national defense with reduced cost to fully exert all efforts to rehabilitate the economy.”
In addition, the news also reported on the 13 economic development zones (EDZs) and analyzed that the EDZ policy “laid the foundation for foreign economic development that incorporated the changes in the international situation.”
Meanwhile, the Korean Central News Agency (KCNA) reported on December 28 that an enlarged meeting for the plenary of the Cabinet was recently opened to discuss the issues of resolving the food crisis through improved agricultural production and new agricultural sector tasks for 2014. This is rare for a Cabinet plenary meeting to be held exclusively to discuss the agricultural issue, as all economic issues are normally handles at this meeting.
ROME/PYONGYANG – A nationwide assessment by two United Nations agencies shows an increase in staple food production in the Democratic People’s Republic of Korea (DPRK) for the third year running.
The report, however, notes that although rates of child malnutrition have steadily declined over the past 10 years, rates of stunting caused by malnutrition during the first 1,000 days of a child’s life remain high and micronutrient deficiencies are of particular concern.
The joint Crop and Food Security Assessment Mission to the DPRK by the Food and Agriculture Organization (FAO) and World Food Programme (WFP) visited all nine agricultural provinces in late September and early October around the main annual cereal harvest.
Total food production is estimated at about 5.03 million metric tons (including milled rice) in 2013, which is about a 5 percent increase over the previous year. Despite the improved harvest, the food security situation is still unsatisfactory with 84 percent of households having borderline or poor food consumption.
The mission observed immense logistical challenges for the public food distribution system and expressed concerns about the timeliness and consistency of distributions. Markets and informal mechanisms of bartering and other forms of exchange are believed to be of increasing importance for access to food by families, particularly in urban areas.
“Despite continued improvement in agricultural production, the food system in the DPRK remains highly vulnerable to shocks and serious shortages exist particularly in the production of protein-rich foods,” said Kisan Gunjal, FAO economist and co-leader of the mission. “In the interest of increased protein consumption and to reverse the downward trend of soybean production, the price paid to farmers for soybean should be increased.”
Since 1998, WFP in partnership with the government has produced blended fortified foods and nutritious biscuits for children and pregnant or nursing women. WFP has recommended a shift to a new product – Rice Soya Milk Blend – for children in nurseries to reduce stunting and wasting.
“Improving the diversity and quality of food provided through the child institution system is essential to improving children’s nutrition,” said WFP DPRK Country Director Dierk Stegen. “We want to produce Rice Soya Milk Blend but can only do so if we receive sufficient donor support.”
Despite a small reduction in the area planted, overall crop production in 2013/14 is estimated to increase due to generally favourable weather conditions that resulted in a higher rice crop.
The aggregate production from cooperative farms, plots on sloping land and household gardens estimated by the mission includes the 2013 main season harvest and the forecast for 2014 early season crops. Unusually early and heavy rains in July and early August compromised maize and soybean yields but had little effect on paddy.
The report estimated cereal import requirements at 340,000 metric tons for the 2013/14 marketing year (November/October). Assuming the official import target of 300,000 metric tons of cereals is met, there remains an uncovered food deficit of 40,000 metric tons for the current marketing year.
While this food gap is the narrowest in many years, it needs to be bridged either through additional purchases by the government and/or international support to avoid increased undernourishment during the current marketing year.
To improve food security and nutrition, the report recommends national and international support for sustainable farming practices, better price and market incentives for farmers and improvements in farm mechanization.
In nutrition, the report recommends that efforts should go toward improving dietary diversity and feeding practices for young children and women through strategies such as behavioural change, market reform and encouraging livestock and fish production; strengthening treatment of severe and moderate acute malnutrition; and better hygiene and sanitation practices.
UPDATE 3 (2013-11-14): North Korea accelerating economic reforms? Wages and prices to be self-regulated (IFES):
North Korea appears to be pushing for internal economic improvement measures. Chosun Sinbo, the pro-North Korean newspaper in Japan, released an article on November 6 that discussed various performance-enhancing management and operational changes that took place at the Pyongyang Essential Foodstuff Factory this year.
Chosun Sinbo referred to Kim Jong Un’s speech made last March at the plenary meeting of the Central Committee of the Workers’ Party about improving economic management and named the recent changes at the food factory as a pilot project for this purpose. The news article added that “There are studies to bring fundamental changes in economic management and specific measures are being made to turn this into a reality.”
The main systemic changes made at the Pyongyang Essential Foodstuff Factory were the increase in autonomy of the company and the enforcement of wage differential based on performance. Based on the principle of cost compensation, prices of products produced with raw materials at the factory may be freely adjusted after consulting with the state.
The news article further explained that “The principle of socialist distribution is a simple system of distributing as much as you earn and the cost of living is determined by labor productivity.” It also reported that some of the employees’ wages increased. Such news is likely intended to advertise to the outside world about North Korea’s changing domestic economic policies.
The North Korean economic journal Kyongje Yongu has also been increasingly reporting on the principle of distribution based on economic performance. In the recent issue published on October 30, 2013 (issue No. 4), an article titled “The Principle Problem of Properly Implementing the Socialist Labor Wage System” criticized the equalization of product distribution as it decreases the enthusiasm of workers toward production: “The strength and life used during the process of labor must be compensated through the principle of earning the amount of your labor.” The article stressed that wages must increase with production and rationalized the need for such wage increase.
Chosun Sinbo and Kyongje Yongu articles reveal the long-term efforts by the North Korean government in enhancing research about economic improvement measures and expanding projects in various factories, companies, and cooperative farms to implement these measures.
Recently, North Korea launched the State Economic Development Commission and organized a number of international forums on special economic zones. These can be construed as possible signals toward economic reform, as North Korea continues to make various changes in its internal economic policies.
UPDATE 2 (2013-11-7): Another story of note in the Daily NK ties factory wage increases to the ability of enterprises to negotiate prices with the state:
Choson Sinbo, the regular publication of the pro-North Korea General Association of Korean Residents in Japan (Chongryon), has published news of a Pyongyang-based food factory being used as a testing ground for independent economic management. The enterprise fixes prices semi-independently in discussion with the state and pays increased wages, the piece, published yesterday, explained.
The publication conveyed, “Pyongyang Essential Foodstuff Factory became a test unit and conducted research in order to enact changes to overall economic management. They are currently implementing these.”
It continued, “Of particular note is the organization of production and economic management based on cost compensation principles and the socialist rules of division. Pyongyang Essential Foodstuff Factory has enacted the measures for themselves and prepared the collateral to allow for expansion and reproduction.”
“This factory has shed the state planning model and sources its own materials, and in discussion with the state it has been able to set its own prices as it sees fit. There is also a measure currently being adopted that provides monthly allowances in consideration of the labor of the employees,” it further emphasized.
However, a high-ranking defector was skeptical when asked about the piece, telling Daily NK, “These factories produce things like soybean paste, soy sauce, salt and side dishes. They have always played the role of distributor to the people, so there is no way that they would be able to just set prices how they wish on these products. It’s likely that the measures focus on work teams making apple and pear beverages, liquor and beer; things that do not relate to improving the lives of the people.”
UPDATE 1 (2013-11-7): The Daily NK follows up on the DPRK’s strategy to bring official wages in line with the price level:
North Korea’s decision to drastically increase the wages of workers in parts of the heavy industrial sector is designed to boost morale and improve productivity, the better to expand the country’s capacity to generate foreign currency income from investments in the exploitation of its mineral resources.
As exclusively reported yesterday by Daily NK, major industrial concerns in North Hamkyung Province such as Kim Chaek Iron and Steel Complex have raised wages by a factor of approximately one hundred, from a derisory 3,000 won per month, around half the market price of a kilo of rice, to 300,000 won. Thus far, 100,000 won of the total has been paid in cash and the remainder in kind in an attempt to head off the very real danger of dramatic price inflation that would result from 100% cash payments.
That such a substantial wage rise was only deemed feasible in enterprises with the potential to export primary or secondary resources for foreign exchange should not come as a surprise. Smaller domestic enterprises don’t have the liquid resources to take such a step. As with the Kaesong Industrial Complex, wages in cash and kind have always been more generous for workers in joint venture enterprises than elsewhere. The latest move reflects an extension of that reality.
At this early stage, experts believe that the measure is designed to create a business model for North Korea not unlike that on show at Kaesong, under which each province can improve its economic performance and attract greater quantities of foreign capital. By actively nurturing those rare businesses that are competitive in the regional environment, the country hopes to raise productivity overall.
A researcher with Industrial Bank of Korea, Cho Bong Hyun told Daily NK, “Raising salaries for enterprises in the minerals sector looks like an inevitable choice, since productivity couldn’t have been expected from light industrial enterprises when the operational level of most of those factories is so low.
Cho continued, “The Kim Jong Eun regime, which is currently concentrating on producing results in the economic sphere, made this decision based on the fact that for some time it has been earning foreign currency quite easily by exporting its mineral resources. They also hope that by raising salaries they can induce greater productive effort, since workers have not wanted to work properly since the public distribution system collapsed [in the 1990s].”
Yoon Deok Ryong, a senior research fellow with the Korea Institute for International Economic Policy added, “Kim Jong Eun has granted this autonomy to firms and raised wages in order to earn foreign currency and firm up his system. He wants to right the economy by discriminating in favor of businesses that are somewhat competitive.”
However, despite cautious enthusiasm for the latest step, the two experts cautioned that unless North Korea moves further in the direction of a market economic system, the measure might not prove effective.
Cho explained, “No matter how tightly the North Korean authorities seek to control economic activity, they will find it almost impossible to stop these wage rises inciting inflation and causing the value of the North Korean Won to nosedive even more. There is also the danger of conflict with between military and Party-Cabinet elements over the management of mineral resource enterprises that can be used to produce military goods.”
Yoon added that workers in enterprises excluded from the latest wage rises will not see the bigger economic picture, and will simply be aggrieved at there being no improvement in their own conditions. “Conflict is unavoidable,” he concluded.
ORIGINAL POST (2013-11-6): According to the Daily NK:
Wage levels for workers in some larger industrial enterprises have risen by a factor of approximately one hundred times, Daily NK has learned. The move, which was put forward as part of the “June 28th Policy” in mid-2012 and is designed to bring wages more into line with market price levels, appears designed to improve the productivity and competitiveness of major industrial concerns.
According to a source from North Hamkyung Province, the monthly wage of people working at Musan Iron Mine, Kim Chaek Iron and Steel Complex and Sungjin Steel Mill rose from an average of just 3000-4000 won up to 300,000 won in September and October. In an attempt to forestall the inflation that such a step would otherwise guarantee, 200,000 won of the payment is issued in goods, with just 100,000 won provided in cash.
The source explained to Daily NK on the 5th, “In September the order was handed down in the name of the State Economic Development Commission to Musan, Kim Chaek and Sungjin; it was about guaranteeing independence in terms of production and the authority to set salary levels. At the time most workers did not believe that they were going to be given a wage of 300,000 won, and are really surprised now that they are actually getting it.”
The source went on to assert that the same instructions have been handed down to all provinces, not only North Hamkyung. “Relatively more competitive” industrial enterprises in each province have been selected, he said, and are resetting wages at a higher level.
Explaining the system of payments in kind, the source said, “Because they are concerned about the danger of inflation being created by the wage rises, they give 200,000 won of it in rice, vegetables, side dishes, other necessities, and electronics. Only the remaining 100,000 won is given in cash.” Workers have been told “not to make purchases in public markets since the state is now providing for your daily needs,” although the instruction is not likely to be adhered to.
Predictably, the source revealed that the move has attracted attention from surrounding enterprises. “Workers who had been ‘off sick’ are coming back,” he said, “and workers from other enterprises have been descending on us after hearing that we are getting a lot of wages and other stuff.”
The move appears designed to increase the competitiveness of major industrial enterprises in North Korea, and to improve the attractiveness of joint ventures to companies in China.
At the time of writing, the dramatic wage increase has not generated rice price inflation in public markets in the North Hamkyung Province region. For example, the price of rice in Musan is currently stable at around 5,800 won/kg.
On this, the source concluded, “Because some of the wages have been given in kind, demand in markets will not rise for the time being.” However, he cautioned that later, when workers attempt to buy and sell the products they have received, instability and inflation could result.
Read the full story here:
Wages Rise 100x in Heavy Industry Daily NK
Lee Sang Yong
The party has created a centralized department with branches throughout the nation to formulate and oversee policies ranging from appointment of top economic officials to approval of companies and implementation of foreign exchange controls, a source from Jagang province, near the border with China, told RFA’s Korean Service.
The Party’s Department of Economy was set up last month.
“From last June, each [Party] committee in the provinces and cities established a [a branch of the] Department of Economy,” the source said on condition of anonymity.
“It will further strengthen the control and management of the Party,” he said.
The move by the Workers’ Party Central Committee was part of a shakeup within the Party and led to several branches of existing departments being transferred to the Department of Economy, he said.
A source in Yanggang province, also along the Chinese border, told RFA that the newly-formed department would wield as much power as the Department of Organization Management, which oversees the entire Workers’ Party.
“From now on, all officials in charge of economic matters have to be approved by the Department of Economy, while all companies also require approval from the department when they are established, shut down, or merged,” the Yanggang source said.
The Department of Economy also has the power to punish and appoint officials in charge of economic matters, he said, adding that he expects it to become “the strongest department in the Party.”
Even if the North Korean military, judicial agencies, and the Cabinet—or executive branch of the government—seek to establish new units for earning foreign currency or production, they are required to obtain permission in advance from the department, he said.
“Establishing the Department of Economy is related to the so-called ‘reformed economic management system,” the source in Yanggang province said, referring to a new policy announced in June last year which grants individuals greater authority in the distribution of goods.
“It means the Party never wants to lose its control over the economy, even though the ‘reformed system’ takes place everywhere,” he added.
The source said that the lack of central control had led to situations in which bogus companies and organizations were running businesses and generating foreign currency revenue without reporting them, creating a need for the Party to more efficiently oversee these groups.
For example, he said, several companies and restaurants which were established under the guise of being welfare organizations to feed and clothe the poor are really generating foreign currency for the North Korean Cabinet.
But he noted that even as the Department of Economy sought to rein in these businesses, it would inevitably generate conflict within the Party as it grew in power, leading different factions to jockey for control.
“[Some of] the functions of [the Party’s] Department of the Executives and Department of Organization Management were already taken away by the Department of Economy, and also the Department of Administration has seen interference from the department as well,” the source said.
“In the future, the scope of Department of Economy’s activity will surely conflict with other departments of the Workers’ Party.”
Read the full story here:
North Korea’s Workers’ Party Takes Economic Control Radio Free Asia
Sung Hui Moon
Under the new leadership of Kim Jong Un, North Korea has been making gradual changes with new economic measures. Last year, task force was installed at a state level to configure new economic measures and details are being released one by one.
Details confirmed thus far include the authorities of the administrators of cooperative farms and enterprise are being expanded, which include surpluses can be disposed at the discretion of the administrators of individual organizations. This means voluntary incentives can be now paid to workers to increase production.
The North’s key industries of agricultural and industrial sectors were first to implement such change. The AP reported on April 1, the administrators of cooperative farms and factories were granted the discretionary rights for the promotion of production.
Specifically, the cooperative farms installed smaller work units and each unit of the organization are directly responsible for all the harvest. Whereas all the harvest were required to be sent to the state in the past, surpluses are now can be stored, sold, or exchanged with other goods.
In the case of factories and enterprises, worker’s wages were strictly controlled by the state but after the change, each factory and enterprise can now pay incentives to workers depending on the production results.
Professor Ri Ki Song at the North Korea’s Academy of Social Sciences stated, “individual workers are able to work more to earn more,” and “such policy decision was enforced from April 1 after a period of trial operation.”
New economic measures by the cooperative farms, factories and enterprises that granted each organizations the rights to freely dispose its surpluses is analyzed as an effort to increase production by granting incentives to workers. Increased production is expected to attract active participation of the people in the new economic measures, to achieve a ‘virtuous cycle’ in production.
The increase in goods exchanged between people is changing the existing distribution structure. North Korea is making efforts to ease the planned economy structure in commercial and distribution sectors. In other words, the number and variety of products distributed domestically is increasing and the state is intervening to amend the existing distribution system and strengthen the discretion rights of commercial and industrial institutions.
North Korea’s release of this information regarding the new economic measures to AP and other foreign media after it gained the confidence to properly manage the new economic measure from the successful pilot projects of the new economic measures. However, information released to the foreign media is still limited and changes in other areas including banking and finance sectors remain unknown.
Among some of the experimental farms in North Korea operating under policies implemented from the “June 28th Measures,” announced by the state in 2012, Daily NK has learned that some failing to reach the state-mandated output goal, even if for reasons out of their control, are subject to incur a hefty debt as a result.
“From the beginning of last year, in Kim Jong Suk County [formerly Sinpa County], Yangkang Province, the Sinsang-ri cooperative farm production unit [bunjo] system began operating on a trial basis,” a source in Yangkang Province reported to Daily NK on December 4th. “One family–or three, four close farm workers–operating as a group, receive 3000 pyeong [1 square meter is equal to 0.3025 pyeong] of land to work.”
North Korea, through the establishment of a “new economic management system in our own style”, reduced production units on cooperative farms from groups of 10-25, to smaller factions of 4-6 members as part of the reforms stipulated in the “June 28th Measures.” The state receives 70% of the target production, with farmers receiving 30% and any surplus if targets are exceeded.
Most residents were eager, albeit cautious, about the policy’s implementation, as the amount of production going to farmers would rise. The Chosun People’s Army took direct responsibility for the management of food procurement and distribution during the food insecurity and famine of the 1990s, and this invariably left the farmers themselves with a vastly reduced share.
In the case of Kim Jong Suk County, production units have been divided into subdivisions tasked with handling one area: vegetables, husbandry, grains, etc. Naturally, grains fall under the remit of the largest number of workers, given their place as staples in the Korean diet. One cooperative farm production unit is given 1000 pyeong of paddies for rice and corn, and 2000 pyeong of fields to cultivate, earmarked for specific production output based on three tiers of soil quality.
However, the system is contingent on the vicissitudes of domestic conditions. “Because there was no drought last year and a steady supply of fertilizer, fulfilling the 70% requirement was relatively easy, the state’s food supply stabilized for the year, and those involved in the units were pleased,” the source explained.
This year, however, she noted that the devastatingly protracted drought, combined with a dearth of fertilizer, caused the crop yield per pyeong to plummet. Cooperative farms, instead of calibrating required allotments to reflect the changes, are demanding many of the production units to hand over 70% of the harvest, roughly 1.8t in the source’s region. If these units fall short of the target, they take on a debt to be rectified the following year.
Turning over 70% of the harvest in a year rife with natural disasters and lack of fertilizer has many of the residents involved overtaxed and without a viable solution. Many point out among themselves that this situation makes it implausible to work large plots of land when working even a small, individual plot proves burdensome.
Despite complaints and the poor conditions, most still maintain a fairly sanguine outlook on the system and hope it can progressively evolve. “Opinions on the bunjo system are somewhat mixed, but most just hope it continually shifts to a more autonomous structure,” she asserted.
Meanwhile, factories and enterprises rent land from collective farms and farm it as a sideline, then divide a proportion of the yield between workers. In this case, unlike the cooperative farm system, there is no predetermined output expectancy relative to pyeong; rather, based on production, the crop output is distributed under the 70:30 split.
UPDATE 28 (2013-7-5): The Daily NK reports that the roll-out of the 6.28 Measures is causing some problems for local farmers:
Experimental farm policy changes are set to fail in the Hyesan region of Yangkang Province, Daily NK has learned, after totally unsuitable areas were designated for the experimental farming and some new tenets of agricultural policy stalled on the drawing board.
A source from Hyesan in Yangkang Province told Daily NK on the 5th, “Some areas of Hyesan were designated as places to implement the farm management improvement policy on an experimental basis, and additional manpower was brought in for those areas. However, the areas are on steep slopes or in places where the soil is full of rocks, so farming there is impossible.”
“Soldiers and shock troops are mobilized daily to do the farming work, but tractors and agricultural equipment can’t be used on the experimental fields, so it is just making everyone angry.”
“Despite the fact that things are like this, the [authorities] just keep going on about nothing being impossible if we attain the Marshal [Kim Jong Eun]’s ‘masikryeong speed’ and how we must fulfill the annual plan,” the source went on.
Sources say that the authorities have set in place the basis of a new agricultural management method, one that involves smaller work units (from 10-25 people down to 4-6 people) and a 70-30 split with the state in the distribution of output. Creating experimental areas for the implementation of the plan can be seen as marking the launch of the so-called ‘June 28th Policy.’ However, while farmers were excited by the plan in the beginning and harbored great expectations, the passing of time has undermined their interest.
The source said, “Initially, farm workers welcomed the fact that they would get paid out of production by the cooperative farm. They wanted to work hard. However, now everything has returned to how it used to be. The number of people losing hope for this cooperative farm is growing with the passing of time.”
Meanwhile, the idea of leasing land to non-farmers to cultivate has also fallen by the wayside. According to the source, “They don’t even mention that any more. Some cadres claim, ‘We’re going to do that from next year for sure,’ but nobody believes a word of it.”
UPDATE 27(2013-6-5): The Daily NK reports that the DPRK’s 6.28 Measures have been implemented (at least as they pertain to agriculture):
Inside North Korean sources have confirmed that collective farms are now offering part of their land to non-farmers in exchange for 30% of production derived from it, in effect renting farmland to private individuals.
A source from North Pyongan Province told Daily NK on the 5th, “Farms in Shinuiju have started authorizing private individuals to cultivate land owned by the farms. There’s a whole queue of people wanting to rent land and till it.”
“There is no limit on the amount of land that people can borrow from the farms,” the source went on. “The amount of land leased is decided according to the amount of labor that it is possible to commit to it. They have made it clear that if the harvest is worth a total of ten, then seven goes to the individual and three to the farm itself.”
It is easy to see why people are keen to get involved in this tenant farming method of agriculture; it appears to be more favourable to the farmer than the existing system. Currently, factories and enterprises rent land from collective farms and farm it as a sideline, then divide a proportion of the yield up between workers. However, by farming land individually, people can realize greater benefits from increased effort, providing an incentive to work harder and longer.
A source from North Hamkyung Province corroborated the story, saying, “Cooperative farms here are renting land to individuals and factories at 70-30. There are more individuals doing it than enterprises, and the amounts of land taken range from a few tens of pyeong at the smallest all the way up to half a jeongbo (1500 pyeong; one square meter is equal to 0.3025 pyeong).”
According to the source, people currently view this as one of their best chances to ease food insecurity problems in the absence of state distribution.
It is still unclear how much change has been made at state owned enterprises and within the party and state management bodies.
UPDATE 26 (2013-5-31):Associated Pressquotes DPRK economic official on new economic measures following the KWP/SPA meetings. Nothing, however, has appeared in the DPRK’s official domestic media:
“Last year, we studied reasonable economic management methods in different fields of economic work, and introduced it to some units on a trial basis,” Ri Ki Song, an economist from North Korea’s Academy of Social Sciences, told AP this week.
North Korea formally announced the policy, and its expansion to include factories and other enterprises, a day after holding a plenary session of the Central Committee of the Workers’ Party. Rodong Sinmun, the party newspaper, called it part of a “new strategic line.”
Ri, however, dismissed characterizations of the changes as reform.
What’s new, he said, is allowing managers to dole out goods and cash as incentives. In addition, after paying back investments provided by the state, managers can set their employees’ salaries and offer raises to those who help drive up production, he said.
The main goal: to encourage “greater profits” and solve North Korea’s chronic food shortage, Ri said.
He said North Koreans work hard, but the new incentives give them motivation to work even harder. “They are saying that higher salaries and shares will improve their life.”
Political and military expert Ralph Cossa, president of the Pacific Forum CSIS in Hawaii, noted that North Korea has rolled back past attempts at economic reform.
“The North Koreans have played reform games before and then just sort of pulled the rug out from under it,” he said. Cossa cited international aid groups as saying the military is pressuring farmers to donate their portion to the army.
This year, things are being managed differently, said Kim Jong Jin, deputy chairman of the farm’s managing committee.
He said the state provided the farm with the rice seedlings, which farmers are now transplanting to paddies by hand. Farmers are on smaller teams that have direct responsibility over their plots.
After the rice is harvested, farmers must “repay” the state for the seeds. At Tongbong that means giving the state about 193 kilograms of rice as payback for every 140 kilograms of seedlings they received.
But any surplus can be kept by the team to sell, barter or distribute – a change from past policies that required farmers to turn all harvests over to the state.
“This encourages enthusiasm for production and we get more of what’s produced,” Kim said.
Read the full story here:
NKorean farmers planting rice with profits in mind Associated Press
UPDATE 25 (2013-5-13): Choson Sinbo reports official acknowledgement of economic adjustment measures. According to the Daily NK:
North Korean officials have formally acknowledged that some factories, enterprises and cooperative farms in the country have been experimenting with new economic management methods since last year. The comments, published in the Chongryon publication Choson Sinbo on May 10th, appear to partially confirm the existence of the “June 28th Policy,” which Daily NK reported on exclusively in summer last year.
Cabinet official Kim Ki Cheol and State Planning Commission Vice-director Ri Young Min note in the piece that some new economic measures have been adopted, but add that legal and institutional frameworks still require alteration if changes are to be expanded. However, their comments serve as official acknowledgement of experimental economic change.
According to the piece, Kim Jong Eun issued instructions to the Party Central Committee in April 2012 decreeing that the roles and responsibilities of lower economic officials should be expanded. However, Kim also said that changes must conform to socialist principles, raising questions about how far North Korea is willing to go in pursuing economic improvement.
The Choson Sinbo piece also confirms that the state is working to concentrate economic activities under the auspices of the Cabinet, which has been run since April this year by Pak Pong Ju, an official who played a key role in implementing the economic changes of July 2002.
“All problems that arise in the course of economic activities are focused on the Cabinet, and rules and regulations are being comprehensively established under the Cabinet’s unified leadership,” it states.
Read the full story here:
Cabinet Acknowledges June 28th News
Kim So Yeol
UPDATE 24 (2013-4-23):Radio Free Asia reports that implementation of the 6.28 measures is underway in South Hamgyong Province:
The new system has been implemented from the beginning of this year, a source in South Hamgyong province told RFA’s Korean Service.
Under the reforms, as part of agricultural liberalization in North Korea’s rigidly planned economy, farm workers may keep up to 30 percent of their unit’s produce and are allowed to sell them at market prices, sources said.
Authorities have divided up the traditional collective farms and allocated fields to smaller group units.
“The North Korean government has been dividing collective farmland up into small units since [the beginning of] 2013,” the source said, speaking on condition of anonymity.
Some workers are hopeful that the changes could help ease the impoverished country’s food shortages, but others are unsure how much they will benefit, a source from South Pyongan province said, also speaking on condition of anonymity.
“Some people are excited, expecting there will be enough rice in North Korea,” he said, adding that there was “optimism” that the system will help boost food production.
“But some are skeptical, with a strong distrust in the government which has been conducting everything unsuccessfully,” the source added.
Management structure unchanged
The move to liberalize the agriculture sector is believed to be a policy initiative of North Korea’s young leader Kim Jong Un, who took over after his father, Kim Jong Il, died in December 2011 after initiating some economic reforms that failed to take off.
No major public announcement of the new policy has been made so far.
Sources said that a key stumbling block to the farm reforms is the management structures of the collective farms which remain unchanged since the policy was implemented.
The lack of change in the leadership system leaves farm workers “uncertain” how much of that 30 percent will go into their own pockets, they said.
For example, it remains unclear whether farm managers will receive their share of harvests from the 70 percent allocated to the state or the up to 30 percent portion that goes to workers, they said.
One source in China, which is North Korea’s main diplomatic and trading partner, said the system would make little difference to workers without a guarantee on the division of profits.
“It seems like the North Korean government wants to boost the motivation to work, but there is not much difference between the previous system and the new system unless they guarantee the autonomy of workers,” he said, speaking on condition of anonymity.
Read the full story here:
North Koreans ‘Skeptical’ of Collective Farm Reforms Radio Free Asia
Joon Ho Kim
UPDATE 23 (2013-1-30): A recent story from the Daily NK offers a downside to possible agricultural policy adjustments:
The North Korean authorities are apparently proposing to reduce the size of hillside plots farmed privately from thirty pyeong down to ten (1 square meter is equal to 0.3025 pyeong), while all remaining acreage is meant to be handed over to existing cooperative farms.
A source from Hoiryeong in North Hamkyung Province told Daily NK on the 29th, “A cadre from the county Party Committee just told a packed meeting of the Union of Democratic Women that ‘the policy is that from this year all private plots of land are to be limited to ten pyeong, and the other twenty will be taken away and assigned to cooperative farms. That which is in the mountains will be used for planting trees’.”
The source continued, “We must also pay fifty won per pyeong in order to farm the ten pyeong that is allowed, and there will be severe penalties for transgressors,” before reiterating a common refrain in conversation with North Korean civilians: “The rations only last for three to four months anyway, so people have to live off their plots of land. Taking away their land is the same as taking away their food.”
From a state policy perspective, the step appears designed to refocus energies on cooperative farming activities, in the hope that this will increase the productive capacity of the official farming sector in an effort to attain the sort of production levels required for the implementation of the June 28th Policy of farming reforms announced domestically in July 2012. However, it is thought unlikely that this will come about, and, conversely, the source predicted that the measure, if widely implemented, would have a detrimental effect on overall output and decrease the amounts of grain entering markets.
Partly this is because, while people are not technically meant to hold more than 30 pyeong of private land, in reality many are cultivating more even than this; in many cases, more even than their formal work unit is responsible for. This is because only by farming soybeans, cabbage, radish and other agricultural goods are many able to eek out a secure living.
Read the full story here:
Farmers in a Muddle over Private Land Order Daily NK
UPDATE 22 (2012-11-15): Writing in 38 North, Randall Ireson offers a succinct, comprehensive assessment of the DPRK agriculture system and offers policy advice moving forward. See the full article here.
UPDATE 20 (2012-11-12):Chris Green at the Daily NK points out anecdotal evidence that economic policy changes are still underway in the DPRK:
As noted by Yonhap in an article yesterday, recent days have seen multiple uses of phrases including “new management method” in the North Korean media, lending weight to the suggestion that a number of new economic measures have already been put into practice.
For example, last week on the 7th, state domestic and international radio broadcaster Chosun Central Broadcast ran a recording of a meeting of forestry workers at the People’s Palace of Culture in Pyongyang.
During the event, which was attended by high regime officials including Cabinet Prime Minister Choi Young Rim, the manager of a wooden goods manufacturer in Hamheung declared, “I will keep updating our industrial strategy and tactics in accordance with the demands of the new economic management method and give our management substance in order that we may secure the greatest possible profit and raise the productivity of investment.”
The words raise the question of whether factories such as that of the manager in question are actually acting autonomously in terms of management decisions, rather than simply taking orders from agencies higher up the food chain. If so, it would imply the implementation of new economic rules.
On a similar note, a November 9th article carried as part of a series by the Chongryon publication Choson Shinbo under the title ‘The Road to Our-style Economic Revival’ noted the introduction of a “new management method” in a piece on how Pyongyang’s No.1 Department Store has been changing in order to improve customer service.
Choson Shinbo has a history of reporting North Korean economic changes first, including the July 1st Economic Management Improvement Measures of 2001, making it one outlet for North Korea news worth keeping an eye on.
Reviewing the anecdotal evidence for the introduction of new measures, Cho Bong Hyun of Industrial Bank of Korea’s research arm told Yonhap, “The phrase ‘new economic management method’ shows that the new economic management measures that they never officially revealed have already been implemented. If their confidence in the new economic system grows, they will doubtless begin to present them as the achievements of Kim Jong Eun.”
UPDATE 19 (2012-10-19): Contrary to other claims (below), CCTV (China) reports that the agriculture policy changes have been implemented:
North Korea’s new economic policy, otherwise known as the ‘June 28 Measure,’ was to go into effect from October 1, 2012 but it is reported that enforcement of various educational and action plans related to the new economic management measure was halted.
According to the Internet news agency, Daily NK, its sources inside North Korea informed that, “From this month, the authorities in charge of implementing various plans preparing for the new economic measures, suddenly stopped educational and other related programs without any notice.”
Starting this July, North Korea began to make announcement through the Third Broadcast, to educate and inform specific plans related to the new economic measure to the North Korean residents. The Third Broadcast is an internal cable broadcasting system usually used to deliver important message to its residents.
The main objectives for the new economic management improvement measures are to improve autonomy in the factories and cooperative farms and the food distribution system. However, speculations began to surface that the new economic policy will be postponed after the Supreme People’s Assembly was convened on September 25, with no mentioning of economic measures or laws, contrary to expectations.
Since the plans for the new economic policy was announced to the public, exchange rates and market prices began to soar, creating hyperinflation phenomenon.
If North Korea continues to postpone the economic improvement plan, is likely to lead to adverse consequences as it can amplify the anxiety amongst the residents and the market, as many were already skeptical of the new economic measures.
On the other hand, production units reveal of its preparatory actions toward the new economic policy. Each factories and companies are submitting production indexes to the senior departments under the Cabinet and receiving evaluations according to its reports. Some factories are switching operations after obtaining outside capital, while other insolvent companies were closed down.
One example is Chongjin chemical factory. After forming a joint venture company with China, it was renamed to Chongjin Paper Production Factory. With over 3,000 employees, it will become one of the top three companies in the Chongjin area — after Chongjin Steel Works and Kim Chaek Iron Works.
UPDATE 17 (2012-10-15): The Daily NK offers a scenario for why an adjustment in agricultural production incentives have not been implemented: a bad harvest has forced policy makers to reconsider allowing the cooperative farms to keep so much of their produce. According to the article:
A Hyesan-based source explained today, “Cooperative farm cadres are saying that none of the experimental farms will be given 30% of their production this year because it has become difficult to meet the target. They are saying that the harvest is not good and they need to feed the military as a matter of priority, so first they’ll guarantee the military rice then give the rest to the farmers.”
A Shinuiju source corroborated the story, saying that the authorities “haven’t said they are going to take all the production from the farms, but nobody actually thinks they are going to get very much. People who trusted the official words are feeling quite stupid, and nobody is working very hard.”
Back in July, each province designated a number of ‘model farms’ that were to be used to test the policy. These farms were supposed to receive their initial inputs of fertilizer and machinery from the state, and then be given 30% of their production in return.
“They are saying that the state does not have enough rice right now and that there is no choice but to give it to the military, so please try to understand,” the source said. “Farm workers, many of whom had been buoyed by talk of food distribution, are really disappointed, especially since prices are sky high in the market these days.”
However, the Hyesan source also said that a lot of people are prepared to wait and see until at least mid December, when harvest processing concludes and distribution can be finalized. “People assume that Kim Jong Eun won’t want to disappoint the people in his first year in power,” he explained.
UPDATE 16 (2012-10-9): The Daily NK reports that North Koreans are confused about what has happened to the new economic policies that were under discussion:
The North Korean authorities originally began to announce news of the new economic system domestically in July, outlining increasing managerial autonomy, changes to payment systems and new farm procurement regulations. There were even some less detailed announcements on North Korea’s fixed line ‘3rd Broadcast’ system, which is used to disseminate propaganda handed down from the very top of the Party.
However, late last month signs of abnormality began to appear. Although few local people thought the measures would be publicly adopted at the extraordinary session of the Supreme People’s Assembly on September 25th, the source said they didn’t expect all references to the policy to disappear.
According to the source, cadres suspect that the authorities are not yet prepared to roll out the policy in practice. Many are not surprised; they say it was impractical to expect the policy to be executed in just three months, given that the July 1st Economic Management Improvement Measures of 2002 took nine months to come to fruition after a policy statement was first issued by Kim Jong Il on October 4th, 2001.
The surrounding economic conditions are far from ideal, also. Since the announcement of the new economic measures, North Korea’s markets have been facing hyperinflation conditions rooted in a sky-high Chinese Yuan exchange rate.
However, it is still considered unlikely that the policy has been cancelled altogether, since that would carry heavy consequences for regime legitimacy. Also, the authorities have advertised the policy to the international community in a number of stories (though not in the state media), and it would not serve the regime’s purposes to lie openly about this particular issue.
In addition, it is actually extremely rare for the authorities to cancel a policy after it has been announced under any circumstances; in any case, sources continue to report that those agencies charged with preparing the implementation of the new economic measures are still operational. The current status of factories is being assessed by units dispatched by the Party and the Cabinet is issuing new production targets. Some factories are pursuing outside capital, and work to consolidate under-performing enterprises is ongoing.
One example is Chongjin Chemical Works. Recently, the factory entered a partnership with a Chinese firm and changed its name to Chongjin Paper Factory. The factory is one of Chongjin’s three major Level 1 enterprises, and has a workforce of 3,000. However, it had actually been offline since the 1980s.
If history is any guide, a session of the SPA is not a place where new economic policies are declared. Even though there have been some exceptions to this rule, like for instance the promulgation of the 1984 Joint Venture Law. Admittedly, at that time, the SPA was more important because had the job of approving the economic plans of the state. Such plans are a thing of the past now, and economic pronouncements have become significantly less common at SPA sessions.
Over the last three decades, nearly all important economic measures were not introduced at SPA sessions, and as a matter of fact were usually not mentioned at all.
Good examples are provided by what were arguably the two most important economic measures introduced by the North Korean government since the death of Kim Il Sung in 1994 – the economic reforms of 2002, and the currency reform of 2009.
The ‘First of July Economic Management Improvement Measures’ of 2002 were much overrated in the foreign media at the time, but nonetheless constituted the most radical attempt ever undertaken to reform the North Korean economy by Kim Jong Il and his advisors. The reforms legalized many market activities, provided industrial managers with significant autonomy in decision making, and also increased state procurement and consumer prices to levels comparable to the black market at the time (for example, one kilo of rice before the reform was officially priced at 0.08 won, after the reforms the price had been raised to 44 won – a near 500-fold increase).
The 2002 reforms were soon rolled back, but what is important here is the fact that the world was to learn about the reforms not when they were first introduced in July, but some two months later, when some mentions of the reforms began appearing in official publications. This might sound strange to a Western reader, but measures that significantly changed the economic life of the country remained unreported by the official media for a significant amount of time (and indeed were never fully explained).
The currency reform of 2009 presents us with an even more striking example of a well-arranged complete media blackout. The reform itself produced the greatest economic and social upheaval in North Korea since the famine of the 1990s. The North Korean populace was suddenly told that the currency they held was now null and void, and could be exchanged for new notes in limited amounts (usually only to the equivalent of few months of official salaries). At the same time, the use of foreign currencies was banned, and markets and state-run shops were closed. For a few months in early 2010, even members of the Pyongyang elite experienced difficulties in getting their daily rice. According to foreign observers in Pyongyang, popular discontent was palpable and for a brief while, a violent collapse of law and order appeared possible.
This dramatic upheaval of course was completely ignored by the North Korean media; TV, radio and newspapers failed to mention the fact that retail trade was at a complete standstill and the fact that a currency reform was underway. All information was provided to the average North Korea through the cable radio network – officially known as ‘radio number 3’, as well as through confidential letters sent to petty officials and bank clerks. North Korean media outlets also sometimes mentioned the currency reform – of course whilst extolling its alleged virtues – but in the domestic media references to the reform were a complete taboo.
UPDATE 14 (2012-9-28): The Daily NK reports that in addition to agriculture and industrial policy adjustments, it appears that the DPRK is planning to reorganize, “rationalize”, and possibly close, many state owned enterprises:
The central authorities are planning to merge uncompetitive factories and enterprises with stronger ones as North Korea prepares to embark on the full implementation of the so-called ‘June 28th Policy’, Daily NK has learned.
This process is being undertaken to give those enterprises that remain the best chance of competing under the new rules that are due to enter force in the coming days.
An overseas Chinese trader explained the situation to Daily NK on the 27th, saying, “A whole bunch of traders who were in China on business trips started rushing back to North Korea. They had heard that the authorities planned to rationalize the number of small and medium size enterprises so they headed back in a hurry to investigate for themselves.”
“The word is that they are going to get rid of those enterprises that don’t turn a profit for the people and aren’t helpful to the development of the country. A lot of these workers are getting calls from their companies and going back,” the source went on. “It’s meant to be about getting rid of weak and loss-making enterprises in advance of bringing in the new economic improvement measures.”
The latest moves form part of a process that began in mid-July, when Central Party teams made up of personnel from the department of the State Planning Commission responsible for production facilities, their provincial equivalents and the Central Prosecutors Office were dispatched to the regions to assess the state of existing production facilities. At that time, Daily NK reported that “Because it’s an inspection of production facilities, managers in charge of those facilities have also been called in [by the inspection teams].”
According to a second source, employees from companies slated for elimination are to be reassigned to the company merging with them. He explained, “Rather than simply get rid of enterprises and factories, they are trying to either merge them with bigger companies or with companies in the same sector.”
Although workers assigned to unproductive enterprises are understandably keen to move to a company with even a modest amount of potential, the state of the broader North Korean economy has nevertheless put most in a state of ‘50% anticipation, 50% fear’ over what will come next. At the time of writing, the price of rice has reached an outlandish 6700 won/kg even in Pyongyang itself, while also arriving at 7000 won in Onsung County and 6500 won in Hyesan, putting those people without foreign currency in a very difficult situation.
Another major problem is that while the official aim of the policy is to retain only those enterprises that are capable of implementing the tenets of the June 28th Policy effectively, only around 30% of North Korean enterprises are fully functioning, which means that there are around 70% in an uncompetitive condition. Therefore, it seems inevitable that some uncompetitive enterprises will have to be kept, and these are likely to be a drain on the economy in the short to medium term.
Not only that. In the words of the source, “For the workers from weak companies the opportunity to work for a bigger company in a better atmosphere is pleasing, but they also know that economic changes have never succeeded in North Korea, and in fact have periodically made things worse.”
UPDATE 13 (2012-9-23): The Associated Press (via Washington Post) offers on-the-record accounts by farmers in the DPRK talking about agriculture reforms:
North Korean farmers who have long been required to turn most of their crops over to the state may now be allowed to keep their surplus food to sell or barter in what could be the most significant economic change enacted by young leader Kim Jong Un since he came to power nine months ago.
The proposed directive appears aimed at boosting productivity at collective farms that have struggled for decades to provide for the country’s 24 million people. By giving farmers such an incentive to grow more food, North Korea could be starting down the same path as China when it first began experimenting with a market-based economy.
Two workers at a farm south of Pyongyang told The Associated Press about the new rules on Sunday, saying they were informed of the proposed changes during meetings last month and that they should take effect with this year’s upcoming fall harvest. The Ministry of Agriculture has not announced the changes, some of which have been widely rumored abroad but never previously made public outside North Korea’s farms.
Farmers currently must turn everything over to the state beyond what they are allowed to keep for their families. Under the new rules, they would be able to keep any surplus after they have fulfilled state-mandated quotas — improving morale and giving farmers more of a chance to manage their plots and use the crops as a commodity.
“We expect a good harvest this year,” said O Yong Ae, who works at Migok Cooperative Farm, one of the largest and most productive farms in South Hwanghae Province in southwestern North Korea. “I’m happy because we can keep the crops we worked so hard to grow.”
At cooperative farms across the country, the government doles out fuel, seeds and fertilizer, and farmers pay the government back for the supplies, said Kang Su Ik, a professor at Wonsan Agricultural University.
The farmers’ crops go into the Public Distribution System, which aims to provide North Koreans with 600 to 700 grams of rice or cornmeal a day. However, a persistent shortfall of more than 400,000 tons a year in staple grains has meant lower rations all around, according to the United Nations, which has appealed for donations to help North Korea make up for the shortage.
Under the previous system, each farmer could keep as much as 360 kilos of corn or rice a year to consume or sell at the market, in addition to what they grow in their own courtyards. The rest was turned over to the state to distribute as rations, Kang said.
The proposed changes would reverse the equation, challenging farmers to meet a state quota and then allowing them to do as they wish with the rest, including saving it for themselves, selling it at the local farmer’s market or bartering it for other goods.
Farmers also would have more control over tending their plots. At Migok, 1,780 farmers work in teams of about 100. In the future, sub-teams of about 20 to 30 farmers are expected to have more say in how to tend their crops, said Kim Yong Ae, who oversees the visitor’s center at Migok, where a patchwork of rice paddies stretches as far as the eye can see.
O, who lives with her rice farmer husband and two young sons in Migok’s Apricot Village, brightened up when she said the family expects a surplus this year. Migok was unaffected by the summer rains that destroyed farmland elsewhere in the country, and their private garden is bursting with fruit trees, vegetables and marigolds.
Still, she said they would probably donate their extra rice to the state anyway — an offering known in North Korea as “patriotic rice.”
UPDATE 12 (2012-9-19): The Korea Herald reports that Pyongyang is planning to loosen its control over some state-owned enterprises.
North Korea is moving to introduce a full-scale cash-payment system for transactions among light-industry state firms in the latest apparent move to revamp its planned economy, a source in the communist state said.
The measure, seen as aimed at boosting industrial efficiency by ensuring greater autonomy for non-backbone businesses, could pose risks by loosening the long-standing state control, analysts say.
The adoption of cash transactions marks a departure from the long-held “scriptural-money” system in which each firm uses an account in the central bank when it transacts with others to secure raw materials, electricity, machines and other means of production.
Cashless transactions were a useful tool for the authoritarian regime to keep track of the currency flow and companies’ business activities. Cash payments risk weakening state oversight, experts noted.
In its economic reform of July 2002, Pyongyang partially introduced cash transactions among companies in a controlled production-material exchange market. But the new measure seeks a full-scale adoption of cash payments, the source said.
“The change means a collapse of the long-held system in which the authorities provide all means of production to each firm. Kim Jong-un has no other option but to push for the urgent task of reviving the economy.”
The North is expected to apply the cash-payment system mostly to provincial firms that produce consumer goods, while keeping the old system for military, heavy-industry and chemical firms to keep its control over the strategically vital ones, the source said.
News reports suggest that the North will offer to each firm an “initial investment” to cover their production costs and allow each to determine its production items, price and selling methods.
The seemingly greater autonomy, however, reflects the degree of the North Korean authorities’ inability to sustain the planned economic mechanism with sources of external assistance seriously limited amid deepening isolation.
Experts are skeptical of the measures to give more autonomy to companies whose overall operation rate is said to stand at around 20-30 percent because of the regime’s failure to provide necessary means of production.
“At any rate, companies in the North are suffering with their operation almost at a standstill. The North, through the measure, aims to normalize their production function by offering more autonomy in their management,” said Kwon Young-kyong, professor at the state-run Institute for Unification Education.
“But the state has little cash (for the initial provision of capital to kick-start the firms). We still have to wait and see how the measure will unfold.”
Kim Joong-ho, senior researcher at the Export-Import Bank of Korea, also painted a negative outlook for the cash-payment scheme, underscoring that the North should first establish the necessary financial and monetary infrastructure.
“North Korea’s currency is now seen as a scrap of paper (due to a poorly managed currency value). Using cash is workable when there is trustable, stable financial, currency management apparatus. Thus there remain problems of practicality and efficiency,” he said.
“As evidenced in the 2009 devaluation of its currency, North Korea’s cash has lost its function to store fiduciary value. Meanwhile, people have also experienced the benefit and power of foreign currency, particularly Chinese yuan.”
The devastating currency reform three years ago was aimed at stemming the spread of marketplaces, which became rampant as the food rationing system failed to function following the severe famine, dubbed the “Arduous March,” in the mid-1990s.
Like other socialist states, North Korea has maintained a dual payment system ― cash in the form of monthly wage for regular people and scriptural money for inter-company transactions.
Scriptural money is aimed at preventing the state’s non-cash resources allotted for each firm from turning into cash, flowing into the household sector and complicating its control of the currency and overall economic activities.
The dual system has been crumbling as more firms use cash to secure means of production while the overall economic system is on the verge of collapse with the regime running out of monetary and material resources to maintain the planned mechanism.
What is crucial for its economic reestablishment, experts say, is that the North first establish a banking system, through which people can confidently store their wealth, with companies benefitting from the financial system through stable investment and other methods.
The North is set to hold a rare session of the rubber-stamp Supreme People’s Assembly next Tuesday during which some observers expect Pyongyang to announce new laws for its overall economic reform.
The level of the North’s possible reform is hard to predict, experts say, stressing that Pyongyang has repeated a pattern of employing what appear to be reform measures only to retract them when they were deemed to pose a threat to the dynastic regime.
Pyongyang’s desire for economic reform has been detected in a flurry of recent media reports and academic documents.
The front page of the Tuesday edition of the Rodong Sinmun, the daily of the North’s ruling Workers’ Party, was filled with economy-related articles while pushing the article on Kim Jong-un, first secretary of the party, to the second page ― an exceptionally unusual article arrangement.
Last month, the North introduced a set of research papers by its scholars concerning topics ranging from the state control over the financial sector to the importance of currency circulation. They raised the prospect for possible financial reform.
The paper by Kim Un-chol, professor at Kim Il-sung University, said, “The country should strengthen state control over the financial sector to achieve a more stable economic development.”
One of a number of sources inside North Korea confirmed to Daily NK over the weekend, “We have been told by the authorities that the economic management improvement measures known as the ‘6.28 Policy’ will be implemented from October 1st. They said in lectures delivered in enterprises and people’s units that the policy will be implemented along fixed legal and systemic lines.”
Given that the new measures will be implemented on October 1st, it is likely that the June 28th Policy will come to be known as the ‘October 1st New Economic Management Reform Measures’ in the same way as the July 1st Economic Management Reform Measures of 2002, which were branded the ‘October 3rd Policy’ until their implementation because October 3rd was the date upon which Kim Jong Il delivered his first statement on the issue to the Party.
The ‘June 28th Policy’ is seen by many analysts as an extension of the 2002 measures. Among its key tenets, agricultural producers are to receive 30% of production under the state plan plus any overproduction, while workers in small and medium-sized enterprises are to no longer receive state distribution, instead being paid entirely in cash.
However, the people of North Korea are concerned, the source explained, saying, “The truth is that they shut down the July 1st Measures after just 3 years, so people are feeling pretty anxious now.” Therefore, he added, “They are backing it up with legal measures to show that it will be applied consistently.”
The source explained that he assumes the authorities are using both education targeting all levels of the adult population and the application of legal and systemic modifications to try and ensure that the tentatively titled ‘October 1st New Economic Management Reform Measures’ succeed. However, if they are not followed by significant opening to the outside world and/or massive levels of external support, the source added that the chances of success will significantly diminish.
UPDATE 10 (2012-9-8):Andre Lankov argues that Pyongayng will take a stab at currency reform:
In late August, Kim Eun-chol, professor of economics at Kim Il Sung University, the country’s leading school, published a paper in which he emphasized the government’s duty to keep money supply under control. In July, North Korea’s major economic journal also stated that the amount of cash in circulation should be controlled by the state-run banks – for the sake of “further improvement of people’s living standards”, of course.
Taking into consideration how North Korean society is arranged (and the highly sensitive nature of the topic), one can be certain that neither publication reflects intellectuals’ pursuit of free, inquisitive minds, but rather hints at the ideas of Pyongyang decision-makers.
So, should we be prepared for another currency reform? It is too early to say, since there are valid argument both for and against such a dramatic action.
Like most communist countries, North Korea has an illustrious history of confiscatory currency reforms, the most recent of which occurred just three years ago. Currency reforms with “socialist characteristics” usually follow a similar pattern: One day, the lucky residents of the country where the reform is to take place are informed that their legal tender will, in a couple of days or weeks, become worthless and that only a limited amount of what they hold will be changeable into the new currency. Deposits in state banks are usually treated more leniently, but the exchange period is short and the average citizen finds himself facing numerous problems even when trying to exchange cash within the established tight limits.
In essence, such reforms lead to the nearly complete annihilation of privately held cash deposits and the dramatic decrease of money supply in the economy. Legal and semi-legal businesses within the private sector suffer most – many of them face bankruptcy. But such reforms help to curb inflation and reinforce the state’s leading role in the economy.
The last time the North Korean government implemented such a reform was in late 2009 (previous reforms took place in 1992, 1978 and 1959). However, the 2009 reform seemed to fail spectacularly to achieve its main putative objectives.
There were good reasons for this failure. Driven by rather obscure logic, North Korea’s state bankers decided that employees of state enterprises (that is, the vast majority of workers, at least on paper) would receive exactly the same nominal amount for their work. In other words, if say a steel worker received 3,000 won before the currency reform (a price of 1 kilogram of rice at the time), he would receive 3,000 won in the new currency as well. At the same time, the exchange rate of old to new currency was 100:1, so the plan was that the new wage would suffice to buy 100 kilos of rice. This amounted to an overnight 10,000% increase in wages and in effect a 10,000% increase in the money supply.
This policy unleashed an outbreak of rapid inflation and predictably, within less than a year, prices had returned to pre-reform levels. One can only wonder why reform planners failed to anticipate such a turn of events.
At the same time, the 2009 reform led to dramatic confrontations within North Korean society. Many private businesses were indeed hit hard, but the turmoil of late 2009 and early 2010 produced popular dissatisfaction on a scale unseen in North Korea since the late 1940s.
For a brief while, in January and February 2010, a major outbreak of public discontent seemed to be within the limits of possibility. It took special efforts to pacify the public (according to unconfirmed rumors, some top officials were made scapegoats and executed). It seems in fact that the authorities realized their mistake and for a brief while decided to leave the market and its traders alone.
But recent publications emanating from the North Korean propaganda apparatus seem to suggest that the idea of a currency reform has become a politically attractive policy measure once again. One should not be misled by the ostensibly “academic” credentials of the journals in which the articles on currency reform appeared: There is no such thing as independent academic research in North Korea when political economy is involved. This as an indication that reform is being prepared, or at least seriously discussed, in some quarters of the elite.
It seems that North Korea’s elite is worried about inflation, which has over the past two years been increasing steadily. Last summer, the average exchange rate was 2,500-3,000 won to the US dollar, while a kilo of rice would cost about 2,100-2,400 won. By last month, the exchange rate had topped 7,000 won to the dollar and the price of a kilo of rice was 6,000 won. In other words, within a year, prices nearly doubled while the won lost half of its value.
For North Korea’s decision-makers, this is clearly a worrisome trend. It might be even more dangerous because policymakers seem to considering economic reorganization, maybe even genuine economic reform. But an annualized inflation rate of 100% is not a great place to start a transformation, and something has to be done to curb this dangerous trend.
Since currency reform is a staple of government policy in North Korea, it has become a well-known and well-tested economic control measure. Therefore it is only natural that the top managers of the state economy are keen to launch a currency reform.
That said though, currency reform is a very risky thing. In 2010, in the aftermath of the 2009 reform, even North Korean officials sometimes spoke critically about the reform when talking to Western diplomats. Foreign students studying in Pyongyang were approached by North Korean students who expressed their angst about the currency reform. A military attache of one Western country (not exactly friendly from the North Korean point of view) told me that his opposite number said Pyongyang “doesn’t quite understand what it’s doing”. One can imagine how angry a military intelligence officer in one of the world’s most controlled societies has to be to share his frustration with an imperialist outsider.
The level of annoyance was truly unprecedented. For a brief while, in January and February 2010, a public disturbance, if not a revolution, appeared to be possible. It is not incidental that immediately after the reform, the Chinese – hitherto very careful when it came to North Korean issues – began to speculate almost openly about the possibility, probability and even inevitability of regime collapse in North Korea.
Therefore North Korea’s decision-makers are now facing a difficult choice: If inflation is left unchecked, it may well undermine their efforts to stabilize and transform the economy while also leading to popular discontent. On the other hand, another currency reform might provoke an outbreak of popular discontent on a hitherto unthinkable scale.
Reform clearly constitutes clear political risks, but judging by recent news, some people in the top leadership are desperate enough to consider the option again. It remains to see whether they will follow through on their words, and whether they will survive their experience.
UPDATE 9 (2012-9-4): Andrei Lankov, long a skeptic of the viability and possibility economic “reform” in the DPRK, wrote this article in the Washington Post and sent out these comments via email:
As some of you might know, I have recently published a piece at the ‘Washington Post’ where I outlined what seems to be going on in and around North Korea. However, stylistic requirements and various conventions precluded me from being quite as blunt as I would be in person.
Yesterday, when participating at an online discussion, I wrote a rather lengthy paper where the (essentially) same points were spelled out more bluntly. After some considerations I decided to send this letter to you, highly esteemed friend and colleagues.
• It seems almost certain that Kim Jong Un (and some people around him) really want to change things. There are too many signals, coming from too many directions to deny the fact that North Korea has begun to change, and as a matter of fact, with almost alarming speed. None of these signals in isolation are conclusive, but when taken together they little room for doubt.
• The ideal destination for Kim Jong Un, Chang Song Taek and co. is of course a Chinese-style ‘developmental dictatorship’. They want to build a North Korea which will combine an authoritarian political structure (presided over by them, needless to say) with a market economy (where the commanding heights will belong largely to the scions of the elite).
• For the outside world and for the average North Korean, the emergence of such a regime is clearly a welcome development. It will keep its nuclear weapons, but will be less willing to engage in provocative behaviour – like proliferation. North Koreans will still live under a dictatorship. But this dictatorship will necessarily be less repressive, giving people more individual freedom. And last, but not least, such a regime will deliver a dramatic improvement of living standards for almost everyone in the country
• Currently, the reforms are reversible. Kim Jong Un can change his mind or be overwhelmed by the conservatives. Nonetheless, I personally do not believe that backlash is very likely. The boy badly wants to make everybody happy.
• At the same, the above mentioned outcome – the emergence of a relatively stable, and economically successful developmental dictatorship in North Korea – is possible, and desirable, but not particularly likely to happen. As I have written countless times, Kim Jong Il did not council reforms because he always understood: in a divided country with such a huge economic divide between North and South, reforms are likely to become destabilizing. South Korea’s existence is the major reason why a developmental dictatorship in North Korea could not remain stable. These fears are seemingly not shared by Kim Jong Un and his advisors, but this does not mean these fears are unfounded.
• The probability of the success of reforms (‘success’ as defined as a stable and growing developmental dictatorship) appears even more problematic if we look at Kim Jong Un’s personality and his actions over the last few months. To cut to the chase, the fat boy is stupid. He does many things which are completely unnecessary and are potentially destabilizing. He should not endorse the American pop culture, and Micky ‘The Imperialist Rodent’ Mouse; he absolutely should not turn the front page of Rodong Shinmun into his wedding album (section on honey moon).
• Therefore, we should be ready for trouble. A reforming North Korea will likely be very unstable and might collapse. Worse still, collapse is likely to come with little to no prior warning. Media reports about reform are likely to produce the false and dangerous idea that North Korea is solving itself as a problem. This may just be the case, but it is much more likely not to.
• The coming crisis is likely to be violent and is fraught with many potential dangers. Among other things, it may provoke unnecessary confrontation between the US and China, it might also increase the possibility of proliferation. In short then, it is not going to be nice. Probably, the North Korean problem has never had a nice quick solution. The story was going to end badly anyway, however in light of recent changes, the ugly end seems to be closer than we expected…
Those are my politically incorrect and undiplomatic remarks.
UPDATE 8 (2012-9-4): This Daily NK article points out how past reforms led to improving economic conditions…which led the state to move in and expropriate the assets and dissuade individuals from partaking an .anti-socialist activities”. This would imply that any economic reform will not immediately bear fruit because people will not believe the policy is durable and investor horizons will be short.
UPDATE 7 (2012-9-4): The Asahi Shimbun reports that the 70/30 split in output that the state will offer collective farms (see below) will also apply to industrial organizations:
“(State-run enterprises and shops) will be allowed to reserve 70 percent of their profits, and 30 percent will go to the state,” said one North Korean government source.
“The authorities plan to start with (reforming) small enterprises this time to avoid a recurrence of the problems encountered [in 2002],” the researcher said.
UPDATE 6 (2012-8-31): The Daily NK reports that worries about the new 6.28 policies are causing a depreciation of the North Korean won and a rise in inflation:
The Chinese Yuan-North Korean Won exchange rate is exceedingly volatile these days even by North Korean standards.
Having struck a high point of 1,300 North Korean Won on the 27th, a 44% rise over the rate the previous week, by the afternoon of the 30th the exchange rate had lost some of that value, falling back to 1,100 won. Nevertheless, 1,100 won is still extremely high; the price of Yuan only topped 1,000 won on the 27th, though it subsequently fell back.
In line with the rising exchange rate, rice is currently selling at very high prices; approximately 6,500 Won in Hyesan, Yangkang Province yesterday. This is a huge increase; from 3,000 won/kg at the beginning of June to 4,000 won/kg at the beginning of August.
According to a source from the city, people cite the introduction of new economic management measures as the cause.
“People know that when new economic measures get announced, the prices of goods skyrocket,” she explained. “Among the economic measures there is both a dramatic rise in wages and the raising of prices to realistic levels, and as people are now learning about those so rice keeps going up.”
As a result of the rising price of rice, sellers are concerned at losing out even if they do sell, while buyers are leery about buying, preferring to fall back upon corn, which is 50% cheaper on average. As a result, sales of rice are flat.
The reason why news about new economic measures is able to inspire such volatility is that high rates of inflation also occurred on previous occasions when economic measures were implemented, noticeably the July 1st Economic Management Reform Measure of 2002 and the currency redenomination of November 2009. At this point, the source noted, people’s fears about the ‘June 28th Policy’ are greater than their expectations.
UPDATE 5 (2012-8-28): North Korea Intellectual Solidarity reports that monetary and financial institutions and organizations are being shaken up. According to Yonhap:
“North Korea is reinforcing the status of its central bank, while working on weakening the power of banks controlled by the military and the Workers’ Party of Korea,” a source familiar with the North told Yonhap News.
NK Intellectual Solidarity, a Seoul-based defectors’ group, last week reported Pyongyang is preparing a new economic organization with finance and accountant experts driven by the Cabinet, from earlier this month.
UPDATE 4 (2012-8-22): The Korea Herald reports on recent leadership changes:
Reports from state media show that the regime has promoted or reinstated in recent months the four technocrats who played a key role in an unsuccessful economic reform a decade ago ― Park Bong-ju [Pak Pong-ju], Ro Do-chul, Kwak Pom-ki and Chon Sung-hun.
Most significantly, Kim in July dismissed Ri Yong-ho, the military’s powerful general staff chief and one of Kim Jong-il’s closest aides. The National Intelligence Service ascribed the removal to his “uncooperativeness” toward the young Kim’s tighter reins over the military.
“Seizing control of the military, Kim is forecast to pursue a drastic economic reform and openness such as permitting private profit making in trade and commerce, expanding autonomy for businesses and reducing the basic unit of production in cooperative farms,” said Cheong Seong-chang, a senior research fellow at the Sejong Institute.
In July 2002, the so-called Big Four tried to relax the rigid command economy by dissolving the rationing scheme, allowing street markets, raising wages and prices and adopting incentives and graded compensation.
But the regime rolled back the ambitious program in the mid-2000s as it hiked prices and magnified the pains of the populace, instead of buoying markets and improving productivity. The technocrats were consequently demoted or disappeared from sight.
The North’s Supreme People’s Assembly last week reinstated Chon Sung-hun as a deputy premier. He was dismissed from the post in April 2009 but reportedly put back as metal industry minister in January this year.
Park Bong-ju, a symbol of economic reform, returned to the government in August 2010 and was elevated to light industry minister in April 2012. He served as prime minister from September 2003 to April 2007.
Ro Do-chul is one of the 11 vice premiers and has been serving Kim since he was designated as successor in April 2009. He also accompanied Premier Choe Yong-rim on his trip to China in November 2010, which was aimed at expanding bilateral economic cooperation.
Kwak Pom-ki is a former machine-building industry minister and maintained the deputy prime minister position for more than 11 years until June 2010. He became the Workers’ Party’s chief secretary of South Hamgyeong Province in April this year.
With the grand comeback, the four officials are expected to steer economic policymaking in line with Kim’s fresh guidelines unveiled on June 28.
Some observers even say that their reinstatement may help thaw frozen cross-border ties given their experience in inter-Korean projects. Chon visited Seoul in 2007 as head of the North’s delegation for a joint committee on economic cooperation, while Park led an inspection team that toured the South in 2002.
But the fundamental question is: Will it be different this time?
“It seems that a change is in sight from North Korea’s inner part,” said Chin Hee-gwan, a unification professor at Inje University in Gimhae, South Gyeongsang Province.
“I’d call it Kim Jong-un’s cultural revolution ― Kim is heavily focusing on the people’s livelihoods; and he is apparently interested in musical performances and public and cultural facilities among others.
“I was shocked and surprised watching Choe Ryong-hae, director of the General Political Bureau, walk around and inspect a theme park. Though things like Kim’s ‘musical politics’ or the June 28 measures are not entirely new and have been tolerated under the surface, it’s notable to see them institutionalized and nurtured.”
The regime appears to be phasing out its decades-old rationing system in favor of the so-called June 28 measures, which promise greater autonomy to farmers and businesses.
While acknowledging positive signals, experts caution against overanalyzing every move made by the unpredictable country.
“Both this personnel reshuffle as well as some other bureaucratic developments suggest a renewed interest in economic development as a policy goal,” said Marcus Noland, a deputy director and senior fellow at the Peterson Institute for International Economics, via email.
“One can make up reasons why things might be different this time: Kim Jong-un is more willing to pursue reforms than his father was; the people involved in the 2002 reforms learned lessons of at least what not to do; after 10 years of frustration, China will be more willing to help if North Korea shows some willingness toward change. (But) the proof of the pudding is in the eating.”
Brian Myers, an associate professor and chair of the international studies department at Dongseo University in Busan, pointed out that the hints have yet to bring about a fundamental policy shift toward economic reform.
“A lot of what Kim Jong-un is now being credited with was started under Kim Jong-il,” he told The Korea Herald via email.
“For fifteen years now the regime has been trying desperately to reconcile economic change with political changelessness. And the virtual impossibility of that task means we will continue seeing people get purged and reinstated, policies stopping and starting.”
UPDATE 3 (2012-8-16): Kim Kwang-jin writes in the Daily NK that certain state-owned enterprises will be ending certain forms of non-cash compensation for employees and moving towards purely monetary wages. According to the article:
A source from North Hamkyung Province revealed the news on the 15th, saying, “According to a Central Party policy that was conveyed to us on the 8th, the system of food distribution for the workers in some factories and enterprises is going to be abolished, and all distribution to them will then be made in the form of wages. The system of distribution for those work units under the state plan will be retained as-is, while only those units that are self-sustaining will move to a system of wages only.”
“Those units that are losing their food distribution system will receive big wage increases,” the source added. “However, it seems that there will be differences from factory to factory and even from job to job.”
North Korean enterprises are divided into eight levels, ranging from level one to level eight with a class of ‘special level’ enterprises as well. Each enterprise receives this designation based on an assessment of things including its role in the economy, productive capacity and size of workforce. Larger enterprises all fall between ‘special level’ and ‘level 3′, and are affiliated with the central authorities.
Those operating outside production plans ordered by the center have had the authority to deal with production and distribution autonomously since the 1970s. This self-sustaining system was designed to provide an incentive to produce, but also allowed the state to forgo responsibility for providing food and daily necessities by passing it on to provincial level entities.
This includes smaller light industrial enterprises with between 50 and approximately 500 employees between level 4 and level 7, and some workers in larger enterprises who are employed solely in the pursuit of tasks that are designed to earn money for the factory itself.
The fact that only ‘self-sustaining system’ factories or individuals within larger enterprises will move to this ‘all-wage system’ presents a threat to hopes of significant reform in North Korea. Indeed, the plan appears only to strengthen measures that first appeared as part of the July 1st Economic Management Reform Measure in 2002.
One defector who previously worked in one of North Korea’s ‘special level’ enterprises told Daily NK, “Take away military factories and most workers in major state enterprises, then the number of people working under the self-sustaining system is not large. Looked at as a percentage of the total production of all North Korean enterprises it cannot be more than 10% and it can’t be more than 20% of all workers, either.”
The source further reported that news of the measure is not impressing workers on the ground.
“I spoke to someone in Onsung County, and he told me that they are reviewing a 600% pay rise to replace food distribution. So, someone previously getting 2000 won would get 12,000 won, but that is still less than the price of 3kg of rice,” the source pointed out.
Another problem facing the new policy is the disharmony likely to be caused in enterprises where both types of employee is present, meaning that some will get food distribution while others will not.
UPDATE 2 (2012-7-24): Kim Kwang-jin writes in the Daily NK that the DPRK is carrying out inspections of complex enterprises (련학기업소) in preparation of the 6.28 Policy (described below):
The North Korean authorities have dispatched Central Party inspection teams to assess the state of production facilities at each factory enterprise in North Korea prior to the implementation of the ‘6.28 Policy’, the name for planned economic reform measures set to go into effect in October
A source from North Hamkyung Province revealed the information to Daily NK on the 23rd, explaining that the teams are made up of officials from the department of the State Planning Commission responsible for production facilities, their provincial equivalents and the Central Prosecutors Office. They are now in the process of assessing the production facilities at each factory enterprise.
The source said, “It’s a Central Party investigation of each factory enterprise before they bring in the new economic measures,” adding, “Because it’s an inspection of production facilities, managers in charge of those facilities have also been called in [by the inspection teams].”
Daily NK has obtained confirmation from other sources that the same types of assessment inspections are ongoing in both Hyesan in Yangkang Province and Shinuiju in North Pyongan Province.
The Central Party inspection teams are expected to follow-up their assessments by deciding what needs to be scrapped and what can be salvaged and reactivated, then reporting it all back to the State Planning Commission in order for decisions to be made on state investment.
The 6.28 Policy, or ‘On the establishing of a new economic management system in our own style’, should see the state making initial investments in industrial and agricultural facilities and inputs, then procuring production at market prices according to pre-set targets while allowing a percentage of target production plus any over-fulfillment to remain with the production unit for distribution and/or sale.
UPDATE 1 (2012-7-20): Writing at the Daily NK, Kim Kwang-jin writes about the implementation of a trial of the 6.28 policy:
A source from Yangkang Province told Daily NK today, “They have handed down the new policy to cooperative farms in Daehongdan, Kim Hyung Jik County [formerly Huchang County] and Kim Jong Suk County [formerly Sinpa County). They are providing new seed varieties, fertilizer, weeding implements and what-have-you, and say they will give 30% of the grain to the farmers.
“The state will take 70% of the target production and the farmers will get 30%, but if the farmers exceed the target then they get to keep the surplus,” the source then clarified, before adding a caveat, “Obviously, the key is the standard according to which the authorities set those targets.”
“The farmers in the three counties are excited about it now that they have heard that they will be able to get 30% of the production and even the surplus as well. So much so that they think some people who left for the cities will come back to the area,” he noted, adding that in Kim Jong Suk County they are already bringing in new agricultural machinery, which is being described as coming from Kim Jong Eun.
If the policy is implemented as stated, then the amount of production going to farmers should rise. This will be a welcome change for most; the Chosun People’s Army took direct responsibility for the management of food procurement and distribution during the food insecurity and famine of the 1990s, and this invariably left the farmers themselves with a vastly reduced share.
However, it is not just internationally that concerns over the viability of the measures being implemented are being raised.
Local people are not yet prepared to trust the authorities either, following a history of disappointments such as the 2009 currency redenomination. In consequence, many are reportedly looking upon the latest policy with skepticism; many expect the authorities to break their promises in one way or another, for example by taking more than 30% of production in order to feed the military.
“In 1985 I went to Kim Jong Suk County and tested some changes like this for myself,” Lee Min Bok, who was once an agricultural researcher in North Korea, explained, before emphasizing, “For as long as they don’t move to a fully private farming model it is very hard to imagine that they will improve production or obtain a significant surplus.”
ORIGINAL POST (2012-7-20): In the article below the Daily NK does a great job of explaining the purpose of the rumored new “6.28 Policy” on agriculture as well as the problems the state continues to face in trying to maintain a state-controlled collective agriculture and rationing system in concurrence with a growing “private”-market infrastructure. According to the article:
According to an inside source, the authorities recently notified local organs of the so-called ‘6.28 Policy’, which is entitled, ‘On the establishing of a new economic management system in our own style’.
The agricultural element of the policy, which is to be implemented in October, will reduce the size of the basic farming unit and bring state agricultural procurement prices up to ‘realistic’ levels.
In more detail, the plan will see the following measures implemented: ▲ the so-called “bunjo danwei” (the basic farming unit on a cooperative farm) will come down from its current scale of 10-25 members down to 3-4 members; and ▲ the state will procure its quota of production at market prices and deduct the cost of inputs; then, as is nominally true now, ▲ the unit which produced it will be free to deal with the remainder as it sees fit. Land and other inputs will be provided by the state.
According to Kwon Tae Jin of the Korea Agricultural and Rural Research Institute, the North Korean authorities are hoping that, “[The unit downsizing and realistic procurement pricing structure] will give each agricultural unit the motivation to produce and will cause overall state food production to rise, all while not destroying the fundamental cooperative agricultural method.”
Under the existing agricultural management system, provincial Agricultural Management Committees set output targets then submit them to the Ministry of Agriculture for approval. Once they have been approved, each production unit is handed down a quota. Thereafter, the value of inputs, land usage fees and other non-tax payments such as “military support” are deducted from production, and the producing unit is given the right to distribute the remainder as it wishes.
However, according to defectors with farm management experience, because the state sets prices for the inputs too high and procures unrealistic amounts at nominal fees, the leftover for the farmers themselves is usually highly inadequate.
Although realistic procurement pricing therefore sounds good for farmers, there are many seemingly insurmountable problems, If procurement starts happening at market prices rather than the minimal prices at which it occurs now, then distribution also has to happen at market prices or the state will not be able to cover its costs. But if wages for urban industrial workers are not raised to realistic levels then they won’t be able to afford the food, and the system will not work.
Conversely, if the food were to be sold at a subsidized price by the state, then the system wouldn’t last long because the state would be unable to sustain the budget deficits that this would entail.
The system will ultimately drive inflation, which will undermine the procurement pricing structure, forcing the authorities to either pay more for everything or to pay less than market prices. The latter would then drive producers to hide production from the state in order to get higher prices on the open market.
One defector who was a cadre with a farming management committee in North Korea pointed out to Daily NK that this was what happened before, when “in the mid- to late-2000s when the government was buying food at above state prices, farming regions lived more comfortably than urban areas. However, after a couple of years the state stopped being able to pay, and the measure fizzled out.”
One important aspect of the 6.28 policy that is unexplored in the article is the reduction of farm labor units to 3-4 people. This is tantamount to reducing work team units to single families. If individual families know that financial remuneration for their efforts on the cooperative farms will be captured entirely by the family unit (rather than by being split up among 2-4 families in the same work unit) they may be less inclined to shirk their labor responsibilities on cooperative farms.
One aspect of the DPRK’s agriculture “reforms” that I am interest to know more about is the effect of land rezoning on collective farm output. Access to enough data to do a scientifically rigorous regression is of course not possible, so those of you who have regular access to defectors and family members in the DPRK, please ask about the effects of land rezoning to village production in the DPRK. We should be able to get some good anecdotes on this anyhow.
North Korea is pushing to give greater autonomy to its distribution sector, a senior Pyongyang official said, in what is seen as another sign of the communist country loosening its tight grip on the planned economy.
In an interview with a monthly magazine published by the pro-Pyongyang General Association of Korean Residents in Japan (Chongryon), Oh Young-min, a director of the North’s Ministry of Commerce, said the ministry will overhaul the way wholesalers distribute consumer goods.
“Wholesalers will offer information on all goods — those manufactured under a government plan, surplus products and unplanned goods — and deliver them after receiving orders from unspecified retail networks,” Oh said in the June edition of the magazine obtained by Yonhap News Agency on Sunday.
The ministry is drawing up a detailed plan to revolutionize the commerce and distribution network in order to meet the needs of the new century, the official said, adding that an order system should be implemented thoroughly in order to boost the efficiency of the distribution sector.
In a planned socialist economy, an order system refers to one where goods are produced and distributed based on the amount of orders from users.
The North’s push is widely deemed a follow-up on the country’s new economic management system, which was announced in late June last year.
“In line with the June measure, North Korea appears to be seeking a change of course by granting individuals greater authority in the distribution of goods,” said Cho Bong-hyun, an analyst at the IBK Economic Research Institute.
The move to overhaul the distribution system also comes two months after North Korea reportedly gave greater leeway to managers of cooperative farms and factories in an effort to boost production.
Last year’s reform drive is seen as a step forward from the country’s similar reformist efforts in 2002, when wages and rice prices were sharply lifted to match market levels. Increased money supply following the wage and rice price hikes triggered severe inflation, causing the reform drive to fail, according to experts.
Read the full story here:
N. Korea seeks to ease state grip on distribution Yonhap
High ranking North Korean officials have relayed that, since last year, North Korea’s Kim Jong Un has on several occasions provided direction on improvements for economic management methods and that some new measures are being implemented on an experimental basis.
In a May 10, 2013 interview with the Choson Sinbo, North Korean Cabinet secretariat Kim Ki Chol and National Planning Committee director Ri Yong Min relayed that “Kim Jung Un spoke on several occasions, both this year and last, about the time to fix economic management practices and delegated related responsibilities to students and laborers.” The officials added, “We are holding rounds of consultation and discussion together with research institutes and representatives of several economic sectors.”
The officials further stated that “Out of these consultations have emerged a number of promising economic proposals which we are putting into practice on an experimental basis. In the case that they show positive results, we plan to introduce them across the country. Most remain in the research stage.” These remarks indicate that North Korea is embarking on some kind of economic reform measures.
These statements seem to confirm that North Korea’s economic measures are being driven by the direct orders of Kim Jung Un, such as the ‘June 28 Measure’ (i.e., policy on agriculture). They also suggest that once measures clear the testing stage, they will be implemented on a national scale.
They also explained that while additional new economic control measures are being adopted, these measures at the same time deal with issues related to production planning, price adjustment, and currency circulation. They added that new laws would have to be created, and explained that measures were being expanded that allow for the expansion of authority in the interest of reinvigorating production at factories and industrial sites.
Mention of price adjustment and currency circulation suggests that North Korea’s new economic reforms may not be limited to farms, factories, and industrial sites; rather, it hints at the possibility that North Korea will embark on much larger scale reform extending to the financial sector.
They explained that some farms which carried out the national plan last year implemented land distribution, and contributed to the right of factories and industrial sites to sell and trade freely. They added that such steps reflected the demands of workers.
The officials were reserved in their comments in regard to the timing of any future announcements related to North Korean economic measures: “If successes are consistent we can advance the reforms on a wide scale; but, for now, we need to keep an eye on progress.”
The officials added that they were being retrained in management at the University of the People’s Economy and taking classes about farm management and management at Kim Bo Hyun College.
North Korea emphasized the construction of an economic powerhouse at the beginning of May, and it is currently heating up in the fields of industry and farming by encouraging an increase in production. In relation to this, the Korean Workers’ Party is mobilizing media sources including the Rodong Sinmun, the Korean Central News Agency, and Korean Central Broadcasting.
Particularly, these media sources are emphasizing that obtaining a nuclear deterrent is the greatest asset on the road to economic construction. They are also claiming that increase in production is one means for the achievement of the new economic line of pursuing simultaneously economic construction and building of a nuclear force.
Now that the annual US-ROK joint unit tactical military field training drills, i.e., ‘Foal Eagle’, have concluded (as of April 30) and tensions on the Korean peninsula have subsided somewhat, North Korea’s new economic line is being assessed as one which is aimed at enhancing the economic livelihoods of North Koreans.