Archive for the ‘6.28 Policy on Agriculture (June 28)’ Category

May 30 Measures (5.30 Measures) [UPDATED]

Monday, June 1st, 2015

UPDATE 11 (2015-6-1): Andrei Lankov reports in Radio Free Asia that the DPRK has slowed down recently announced economic adjustment measures:

If we are talking about the economy, the last two or three years have been a time when hitherto unheard of stories began coming out of North Korea with ever greater frequency. Indeed, from late 2012, the North Korean government began to quietly implement reform policies highly reminiscent of what China did back in the late 1970s. Such reformist policies largely centred around two important documents, namely, the so-called ‘June 28th Instructions’ of 2012 and the so-called ‘May 30th Measures’ of 2014.

The most important part of these sets of policies was a far reaching change to North Korea’s incentive mechanism in agriculture. The ‘June 28th Instructions’ envisioned that farmers would be permitted to work in family-based teams and allowed to retain 30% of the harvest. As economists often say, incentives work, and sometimes even work wonders. Working under the new system, North Korean farmers have produced more food than at any time in the last 25 years, bringing the country quite close to the goal of food self-sufficiency.

The ‘May 30th Measures’ were even more ambitious in their scope. The measures allowed factory managers to buy industrial supplies and produce at market, while also being permitted to sell what their factories were to produce to whomsoever they pleased. They were also given the right to hire and fire personnel at will, as well as setting wages at levels they choose. This system was first implemented in early 2013 in some experimental enterprises. Such enterprises were easy to spot because workers there were paid what can be described as exorbitant wages by North Korean standards. Musan Iron Mine, for instance, being one such experimental enterprise, pays its workers 300,000-400,000 won a month (roughly 100 times what workers would get paid under the old system).

Slowdown but no reversal

The ‘May 30th Measures’ envisioned that the new system would be expanded to include all North Korean enterprises, but this is not what has happened. Reports emanating from North Korea in the last two months leave little doubt that the expected transformation has at best been postponed, at worst, cancelled entirely. Right now, only a minority of North Korean industrial enterprises have been allowed to implement the new model.

What happened? Frankly, it is unlikely we will receive a definite answer to this question any time soon. Of course, it is quite possible that Kim Jong Un suddenly changed his mind and decided to stop reformist activities that he found to be politically dangerous and ideologically suspicious. It is also possible that the reforms faced determined opposition from conservative members of the bureaucracy and military. Last, but not least, it is also possible that North Korean leaders have come to understand the problems that such reforms would face without prior and proper changes to the financial system.

Whatever the reasons, it is clear that the North Korean government has decided to slow down the reform process. At the same time, there has as yet been no reversal.

One can only hope that the North Korean government will not spend too much time in such oscillations between reformism and conservativism. Time is running out for Kim Jong Un, and this is largely because of popular political psychology.

Kim Jong Un, contrary to what many might believe, is quite popular in North Korea. According to many inside and outside the country, the ordinary North Koreans have pinned their hopes on Kim Jong Un for improving their lot. If he wants to succeed, he should not waste the potential that such popular support gives him. Many changes are potentially controversial and painful, and popularity can help smooth the process.

However, reservoirs of good will are depleted unless leaders live up to expectations. Painful reforms need to be implemented quickly, if he waits too long such reforms could prove to be dangerous.

Unlike his father and grandfather, Kim Jong Un cannot afford to ignore the popular will. His father and grandfather had a great deal of control over society and they could always count on the North Korean people’s docility and obedience. However, the surveillance network is not what it was twenty years ago. People are increasingly aware about how poor their country is and how prosperous China and South Korea are. They can also make a living outside government structures, making them potentially less easy to control.

Thus, in such circumstances, it is crucial that Kim Jong Un does not waste time. Let us hope that reforms will get back on track because they may otherwise be grave for Kim Jong Un and the North Korean people alike.

Lankov wrote in a follow-up piece in Al Jazeera on June 11:

The new management system was supposed to be implemented across the entire country starting in 2015, with nearly all industrial enterprises switching to the new model. But it did not happen.

The information emerging from North Korea through different and unconnected sources leave little doubt that the expected switch to the new managerial system has not happened.

As usual, official media is silent, but foreign investors and businessmen, as well as Chinese nationals who visited their relatives in North Korea, and some trusted North Korean contacts, all tell the same story: Reforms are not being implemented as expected.

The new rules

As was the case last year, there are a number of industrial enterprises which operate in accordance with the new rules. However, such enterprises are few and far between, and are still officially considered “experimental”. Most plants and factories still ostensibly follow the ossified rules of a Leninist command economy.

Simultaneously, foreign investors began to feel increasing pressure. They began to face arbitrary changes of rules, demand for additional payments, and other similar actions.

An acute observer described the current situation to the author: “For a couple of years, the North Korean economy resembled a car climbing a steep slope at a good speed. But a few months ago, they switched off the engine, and the car has just begun to slide down the slope.”

Given the highly secretive nature of the North Korean government, one can only guess what made Kim and his advisers change their minds. The decision to stop reforms might reflect some internal governmental turmoil, but also may be a result of a sudden change of Kim’s mind-set – indeed, the North Korean dictator is remarkably moody at times, and reforms are wrought with political risk.

It is even possible that the reforms were slowed down in order to better prepare the wider economic landscape for their full-scale implementation: This full switch to the new system could potentially trigger severe inflation, so some kind of preparatory “groundwork” is advisable and possibly even necessary.

Experimental enterprises

Whatever the reason, the reforms appear to have been stopped, albeit not rolled back. The farmers still receive their share of produce, and some factories work according to the new system, often paying exorbitant salaries to the employees. A miner at the Musan iron mine, where the “experimental enterprise” system is functional, can now easily earn $70 a month, almost 100 times the average nationwide salary of less than a dollar a month.

This gives us reason to hope that sooner or later the reforms will be resumed, and that the current halt is merely provisional. After all, the introduction of household-based agriculture a few years ago followed a similar pattern: The new policies were first announced in June 2012, then shelved, but began to be fully implemented during the spring of 2013.

Nevertheless, the news remains disturbing. If North Korea rejects reforms, it will slide back into a state of stagnation. This will mean life will become even more difficult for North Koreans and will create a great deal of trouble for North Korea’s neighbours. A reforming North Korea has the possibility of survival, while a stagnant and stunted North Korea is inevitably bound to collapse.

UPDATE 10 (2015-5-27): According to Cao Shigong a member of the Korean Peninsula Research Society, Chinese Association of Asia-Pacific Studies, in the PRC’s Global Times:

A series of proactive measures to adjust economic policies and expand exchanges with foreign countries recently adopted by North Korea have drawn widespread attention. The moves aim to help the country escape the long-lasting economic woes, improve the nation’s political and social stability, and promote economic cooperation within the region. Therefore, they deserve welcome and encouragement. However, it is inappropriate to regard these measures as a signal of overall reforms or a starting point of further opening-up.

North Korea is always reluctant to label its measures for economic development as “reform and opening-up.”

To begin with, China’s implement of reform and opening-up is based on absolute disapproval of the mistaken route that deemed class struggle as the guiding principle. Yet North Korea, as a hereditary regime, does not allow any doubt or modification of its former leaders’ ideologies and political lines such as juche (“self-reliance”) and songun (“military-first”).

Besides, China’s reform has broken the traditional planned economy and set up a market-oriented socialist economy with the coexistence of other diverse forms of ownership, especially allowing the development of private business. But North Korea still cleaves to its old beliefs that planned economy and the public ownership of the means of production are the key characteristics of socialism, and that if they are changed, socialism will be lost.

In addition, as a big country, China enjoys strong tolerance and endurance. Even it is wide open to the world, under the pressure over intruding foreign cultures and values, it can still safeguard its political and social stability. North Korea, however, will find it hard to do the same if it opens up like China, against the backdrop of US hostility, the north-south divide, and fierce competition over systems.

Consequently, North Korea took the measures of “our-style (North Korea-style) socialism” and corresponding “reforms,” including the 7.1 Economic Management Improvement Measures, 6.28 Economic Reform Measures and 5.30 Measures. Though similar to the reform and opening-up of China, they have their own distinguished features.

For instance, the country initiated “land contracts,” yet did not end cooperative farms; it encourages its business to be flexible, yet without changing the way their property is held; it established special economic zones and economic development zones, but with focusing on advantageous areas and corridors.

The basic features of North Korean “reform” measures are improving the policy flexibility, introducing new management styles, and bringing the function of the market into full play, without changing its fundamental system. The country also introduces and utilizes foreign capital under the control of the government. Apparently, these practices stem from the nation’s domestic conditions.

It is generally acknowledged that North Korea’s reform measures have achieved initial success. North Korean economy has recorded positive growth for three consecutive years, with its domestic markets and consumption becoming more active and the strain on food and living supplies eased.

On the other hand, confrontation between North and South Korea is rumbling on, and the arrangements around the only industrial complex between the two sides, the Kaesong Industrial Region, is constantly encountering conflict, which has made business people skeptical about economic collaboration with North Korea. Especially as North Korea keeps conducting nuclear tests, it remains hard for it to break the sanctions and isolation from the international community.

All these factors prove the uncertainty of North Korea’s economic reforms. Hence, media and scholars should be reminded to deliver accurate and comprehensive information over North Korea to the world, in order to prevent giving misleading impression or weakening the risk awareness of investors, causing irreparable losses as a result.

Read the full story here:
North Korean economic reforms tightly tied to domestic conditions
Global Times
Cao Shigong
2015-5-27

UPDATE 9 (2015-3-4): The Associated Press reveals additional details through an interview with Ri Ki Song, professor of the economic science section at Pyongyang’s Academy of Social Science:

The measures give managers the power to set salaries and hire and fire employees, and give farmers more of a stake in out-producing quotas. Some outside observers say they are a far cry from the kind of change the North really needs, but they agree with North Korean economists who say it is starting to pay off in higher wages and increased yields.

The changes were introduced soon after Kim took over in late 2011, codified last May and, according to North Korean economists who recently spoke to The Associated Press and AP Television News, are now being expanded to cover the whole country.

The focus is on management, distribution and farming, said economist Ri Ki Song of the Economic Science Section at Pyongyang’s powerful Academy of Social Science, in an interview in February with AP Television News. Ri said the goal is to prod North Korean managers and farmers to “do business creatively, on their own initiative.”

An embrace of capitalism it is not.

Pyongyang has not formally disclosed details of the measures, believed to have been approved on May 30, 2014. But according to the North Korean economists, these are some of the major points:

–Managers can now decide on salaries without following state-set levels. Once an enterprise has paid the state and reinvested income to expand production, develop technology and pay for the “cultural welfare” of its employees, it can use the remaining funds to determine pay levels. As an example, Ri said that since instituting this system, the Sinuiju Cosmetics Factory has raised its average monthly salary from 3,000 won (less than $1 or 119.5 yen on the black market) to 80,000 won, with the highest earners collecting 110,000 won. The new salary levels are more in tune with actual living expenses and costs in the real economy.

–Factories or other enterprises can directly negotiate trade deals with foreign entities and hire or fire workers at their discretion. They can also decide what materials to buy and from whom, and negotiate prices.

–On cooperative farms, subunits of 4 or 5 people have been set up so that each farmer has a greater stake in producing a better yield from their plot. Again, after giving the state its share and covering expenses, the surplus–either in cash or produce–can be distributed on a point-based system at the cooperative itself.

If the farming measures are implemented in a way that gives families long-term responsibility for specific plots, they could go a long way toward transforming millions of North Korean peasants from serfs who merely work the land to sharecroppers who gain at least some direct benefit from their labor. Ri said it was an important reason why crop yields were comparatively good last year, despite severe droughts.

Officials, meanwhile, insist they are holding fast to North Korea’s own brand of leader-centric socialism and are only trying out “new management methods of our own style.”

“Our country admits that our economic situation is difficult,” Ri Jun Chol, director of international economic relations at the academy, said in an earlier interview in Pyongyang with the AP. “What I can say is that looking at every quarter, it has made a lot of increase compared to the last year.”

The impact of the measures is impossible to verify because North Korea doesn’t announce economic indicators, saying such data would be useful to its enemies.

Officials also are not ready to give the nod to capitalist-style markets and small enterprises that have sprung up all over the country with the breakdown of the government’s ration system in the famine years of the 1990s. This shadowy private sector is a key engine of the North’s real economy–making up as much as 30 percent of the whole pie. The Kim regime has been more lenient than his father’s, but insists it is a temporary blip.

“In the future, the marketplaces will no longer exist,” the international economy specialist Ri said in his interview with AP. “The main role of the markets is to sell things that factories and other enterprises can’t supply. We allow the markets because the country right now doesn’t have sufficient capacity to produce daily consumer goods.”

UPDATE 8 (2015-2-28): The Economist has published a good article summarizing recent economic changes int eh DPRK–including mention of the 6.28 agriculture policies and the May 30 measures.

UPDATE 7 (2015-2-24): The Institute for Far Eastern Studies (IFES) has published a report on the “Socialist Enterprise Management System”:

“Socialist Enterprise Management System” under Full Implementation

According to the Choson Sinbo, a pro-North Korean newspaper in Japan, North Korea began to strengthen its economic reform measures by enhancing autonomy in industries from August 15, 2013.

The article entitled, “A Look to the Bright Prospects of Building a Powerful Economic Nation” was introduced. It covered a research forum held on February 11 in Japan in commemoration of the Day of the Shining Star.

The article quoted Professor Jae-Hoon Park of Choson University in Japan: “The new economic management method that was adopted into the industrial and agricultural industries from August 15, 2013 was recently formalized into the ‘Socialist Corporate Responsible Management System’ and specific measures were named to fully implement the measures.” He elaborated further on the achievements of the economic reform measures.

This is the first time to hear that a new economic reform measure went into effect in North Korea from August 15, 2013. Previously, North Korea had announced its plans to undergo new economic measures in June 28, 2012 and May 30, 2014.

The Choson Sinbo explained the ‘Socialist Corporate Responsible Management System’ is a new economic reform system in which, “business enterprises are granted certain rights to engage in business activities autonomously and elevate the will to labor through appropriately implementing the socialist distribution system.”

This measure emphasizes the autonomy of business enterprises and is seem to be an expansion of the previously mentioned June 28 and May 30 measures.

In addition, another participant at the forum, Professor Ho-il Moon, explained that “[Work Team] (pojon) responsibility system was introduced from 2013 nationwide. This system was developed to overcome the limitations of equalization of product distribution that goes against socialist distribution principles.”

This year North Korean state media is emphasizing the production in the agricultural industry, and touting the fruition of the pojon system. As a result, the Kim Jong Un regime’s agriculture reform with the pojon system at the core of the changed policy is expected to gain in strength.

According to the Rodong Sinmun, an article on February 6 introduced a successful case of pojon system in an article entitled, “Pojon Responsibility System that Produced Silver.” The article introduced the successes of a cooperative farm in Yongchon District in North Pyongan Province where it is reported to have reaped in more than one ton per chong (or 9,917 square meter) of crops from the previous year in 2013.

The pojon responsibility system reveals a reduction in size of work units working on cooperative farms (previously 10 to 15 people) to a smaller number (3 to 5 people per farm), with each group responsible for cultivating a portion of land. Speculation is that this measure by North Korea may be a precursor step before transitioning to a private farming system.

UPDATE 6 (2015-2-17): The Tongil-Ilbo claims to have a four-page document produced by the North Koreans to explain the 5.30 Measures to foreigners. They did not publish the four page document (why?), but they wrote about it on their web page. Here are some English translation notes from the article:

Could 1st Sec. Kim Jong-un become the North Korean Deng Xiaoping?

– On March 30th, 2013, North Korea adopted Byungjin (병진). Based on this strategy, for now, Kim Jong-un focuses more on economic construction. In 2015 New Year’s address, he emphasized enhancing the living standard of the people.

– Some say that Kim Il-sung tried to construct a political ideology for the nation through the Juche Idea. Kim Jong-il emphasized a “military power nation” based on nuclear power through its military first policy. Kim Jong-un is trying to be Deng Xiaoping in North Korea through economic development.

– Last year, Kim Jong-un proposed the direction of new economy policies through 5.30 Measures, and there is a strong likelihood that North Korea announces specific economic measure from the conception of policies this year marking the 70th anniversary of founding Workers’ Party.

Our Style Economic Management Methods
– 5.30 Measures (5.30담화), announced on May 30th last year with officials who are in charge of the party, state, and military organizations, are about establishing “Our Style Economic Management Methods” (우리식경제관리방법) according to the needs of the day for development.

– In these measures, Kim Jong-un said the methods should be established based on Byungjin (병진) in order to successfully realize the construction of a strong and prosperous socialist nation.

– Especially, Socialist Corporate Responsible Management System (사회주의기업책임관리제) allowed factories (공장), enterprises (기업소), and cooperative organizations (협동단제) to have practical management rights over the means of production based on socialistic ownership (사회주의적 소유), which makes laborers fulfill their responsibility for production and management and realize the principle of collectivism.

– Kim Jong-un urged in the New Year’s address this year that all the factories (공장) and enterprises (기업소) should reduce import dependence or get rid of imports (수입병: “import disease”, too much dependence on imports) and to try to localize materials and facilities [AKA import substitution].

Emphasis on Both ‘Principle’ (원칙) or ‘Actual Benefit’ (실리)? Where should we be more focused?
– As Kim Jong-un pointed out not just the socialistic principle, but also the achievement of actual economic benefits through objective economic principles and scientific logic, he practically focused on “actual benefits”.

– The 5.30 Measures also highlights scientific technology including the importance of scientification (과학화) in economic guidance (경제지도) and all the procedures and elements of production (생산) and enterprise management (기업관리).

– It urges enterprises (기업소) to actively develop new technologies (기술) and new products (신제품), and improve their quality by exercising the authority over product development (제품개발권), quality management (품질관리권) and human resource management (인재관리권), which elevate their competitiveness.

– More specifically, it recommends that factories (공장), enterprises (기업소), and cooperative farms (협동농장) implement Responsibility System (담당책임제) to use and manage national/cooperative property (국가적 협동적 소유) including machine facilities (기계설비), land (토지), and facilities (시설물).

– It is also provides that enterprises (기업소) should assess labor, and distribute in compliance with socialism so that workers receive (받다) fair/commensurate (공정한/일한것만큼) compensation.

– Kim Jong-un urged officials to learn advanced management knowledge and eventually to raise the level of management.

– In the 2015 New Year’s address he emphasized the importance of improving people’s standard of living and constructing an economically powerful and self-supporting economy (자립경제). He also proposed to diversify foreign economic relations (대외경제관계) and to actively carry on its economic special district development business (경제개발구개발사업).

Working-level Taskforce(실무 상무조) is a new generation, assembled for planning and implementation
– It seems that a taskforce (실무 상무조) that normally consists of executives (간부) of each ministry (성) and committee (위원회) was constructed around cabinet executive office (내각 사무국) and national planning committee (국가계획위원회), and it is making specific implementation plans, said Jung Chang-hyun, an adjunct professor of Kukmin University.

– It seems that the taskforce is composed of a younger generation staff, and unlike the 2002 7.1 Measures which were comprehensively implemented, the 5.30 Measures are likely to be implemented incrementally.

– This year, the 70th anniversary of independence, at the same time, for North Korea, the 70th anniversary of the establishment of Workers’ Party, there would be a great celebration on October 10th for the anniversary of founding the party in North Korea, and success or failure of the celebration would depend on economic development, especially, the improvement of living standard of the people that Kim Jong-un proposed at the New Year’s address.

UPDATE 5 (2015-2-9): A Chinese journal has published information on the May 30  Measures.

UPDATE 4 (2015-2-5): Andray Abrahamian at Choson Exchange writes about the May 30 Measures in the Wall Street Journal

UPDATE 3 (2015-2-5): A new report by the Institute for Far Eastern Studies (IFES) refers to a Choson Sinbo article and implies that financial reforms will also be part of the May 30 Measures:

New Economic Management Improvement Measures to Support Financial System Reform

North Korea has a new economic development goal with a target to draw the accumulated capital of North Korean people to promote economic development. Changes to the financial system are being introduced including development of various savings products and promotion of people’s credit card use.

The president of the Central Bank of the DPRK, Kim Chon Gyun, interviewed with Choson Sinbo (a pro-North Korean newspaper in Japan) on February 3 and explained the role of the bank — responsibility for the state’s overall monetary distribution, financial leadership and management — and the recent changes taking place in the bank.

According to President Kim, “The country is trying to better circulate domestically hoarded money to meet the demand for cash in the country’s developing economy.” In this effort, the regime is developing various financial products as well as encouraging its people to use credit cards.

This is an indication that the regime is working on various measures via the development of a variety of banking products to attract more people to deposit money in the bank and use credit cards for purchases.

With increasing international sanctions against the country, North Korea is suffering from foreign capital shortages and is attempting to attract people’s private funds to the bank to fund economic development plans.

“With the establishment of our-style economic management methods, there are plans of improving the methods of financial and economic institutions and installing financial measures in accordance with the emergence of entrepreneurial activities,” said Kim.

This shows that the spread of the market economy is expanding the autonomy of enterprises and increasing the role of the bank in lending activities to provide funds for companies.

Accordingly, speculations are that financial reform is taking place to raise capital in relation to the recent announcement by Kim Jong Un of the May 30th measures, through expansion of individual’s disposition rights, autonomy of enterprises, and decentralization of power.

Meanwhile, the Rodong Sinmun reported on February 3 that “Choson [North Korea] has steadfastly entered the road to happiness.” The newspaper vaunted the achievements of the Kim Jong Un regime, listing as successes the construction of Pyongyang Nursery, Wisong (Satellite) Scientist Street, and Munsu Water Park.

The news reiterated that major changes are underway to resolve food shortages, expressing confidence in economic measures with significantly increased autonomy of economic units. This hints at how the autonomy and decentralization granted to economic agents is acting as an important engine for economic development.

I am still trying to track down a link to the original Choson Sinbo article, but I believe this is it. Here is additional coverage in the JoongAng Ilbo and KBS.

UPDATE 2 (2015-1-26): The Choson Sinbo published an article called “Construction of economy based on the parallel pursuit of economic development and nuclear armament /병진로선에 기초한 경제건설/사회과학원 연구사가 말하는 《현장의 변화》”. A respected colleague has translated the parts related to the “May 30 Measures” and the earlier “June 28 Agriculture Measures” below:

Professor Ri Ki-song [economic research laboratory of the Academy of Social Science] also mentioned that the “Our style economic management /우리 식 경제관리방법의 확립”, which is receiving attention from other countries, also promptly meets the needs of today in terms of North Korea’s earnest strive for economic revival in a peaceful environment.

“At the end of 2011, our supreme leader Kim Jong Un gave guidance on the direction of North Korea. Scholars and workers of the economic field have examined the improvement proposals and broadened its implementations after demonstrative introductions in some units. Last May, our supreme leader also clarified the principle problems concerning ‘Our style economic management methods’.”

According to the professor there are three “clarified principles”. First is accomplishing government’s unified guidance and strategic administration in the economy sector. Second, properly accomplishing responsibility management system of socialist companies in factories, corporations and collective organizations and lastly guaranteeing the party’s leadership in economic business while also firmly promoting political business.

In the meantime, the parliamentary cabinet system along with the parliamentary center system of North Korea has been strengthened and a series of rights (programming rights, organization of production rights, development of products rights, labor management rights, financial rights, joint cooperation rights, etc.) that enable all enterprises to actively and emergently lead business activities, have been readjusted.

During the past 2 years, production has increased in many business entities that accordingly brought on a rise in employees’ standard of living. There were many cases that guaranteed much higher living expanses than previous also in the suburban factories that Professor Ri had visited. There was significant increase especially in units that produced exports such as the Rakwon Machine Complex Enterprise.

In collective farms, a system within the work team management, which makes the farmers take responsibility for their assigned fields, interconnected with the farmers’ enthusiasm for produce and increase in grain production was seen as a result.

Professor Ri pointed out that “there are objective conditions that enable ‘the method that makes farmers take responsibility for the farming of their assigned field’ to be effective”.

“One is establishing a financial basis for agriculture. That is, the nationwide land readjustment program and organization of the natural flowing waterway that were realized in the 20th century by the order of our supreme leader Kim Jong Un. Other is the increase of national investments in the agriculture sector following the parallel pursuit of economic development and nuclear armament of the Kim Jong Un era.

Farmers in collective farms also received increased shares of agriculture produces according to the work done.

So this article sets up the narrative that Kim Jong-un launched the process for establishing new management measures in 2011.

UPDATE 1 (2015-1-15): According to the Institute for Far Eastern Studies (IFES):

In a January 8, 2015 article publish by the Choson Sinbo (a pro-North Korean newspaper in Japan), the North Korean economy was described as a “flexible collectivist system,” adding that “Choson’s (North Korea’s) socialist economy promotes the establishment of a collectivist system that can flexibly respond to the current development.”

The news article explicated that this system is “under the plan and unified guidance of the state which guarantees the socialist enterprises to achieve economic development through ensuring active and evolutionary actions.” This hints at North Korean leader Kim Jong Un’s plans to continually promote a somewhat relaxed socialist planned economy in the future.

Since Kim Jong Un came to power, his regime has taken action to change the management structure and expand the autonomy (and incentives) of enterprises and farms, inter alia. Such changes can be interpreted as North Korea’s moves to highlight the flexibility of the system and the independent actions of economic agents.

The Choson Sinbo article continued: “By adhering to socialist ownership and strictly following objective economic laws in economic guidance and management, rational and just economic space will be created.” It added that “the ultimate conclusion in the establishment of our-style of economic management system is the improvement of people’s living standards.”

According to the article, “Kim Jong Un announced a historic measure regarding the establishment of ‘our-style economic management method’ in May 2014.” This seems to confirm that the recent economic policy announced in North Korea was headed by Kim Jong Un. (Note that in his 2015 New Year Address, Kim Jong Un also emphasized the need for the Cabinet, state, and Party organizations to “make proactive efforts to establish the economic management method of our style,” suggesting it as an important task of 2015.)

Until now, there was only speculation that North Korea had plans to expand elements of the market economy and widen the scope of the policy target. The speculation was based on last year’s announced ‘May 30th Measures’, the details of which were vaguely known. However, this recent article by Choson Sinbo seems to support the certainty of this policy.

The newspaper further elaborated the importance of North Korea’s ‘parallel policy of nuclear and economic development’, but also emphasized the regime’s focus on improving people’s living standards through the “defense industry’s lead to develop the science and technology sector and introduce its achievements to the economic sector associated with people’s livelihoods.”

In regards to the recent US sanctions against the DPRK following the Sony Pictures hacking incident, the news article explained that North Korea was embarking on a variety of strategies — such as seeking multifarious development of foreign economic relations, realizing various trade transactions, increasing the ratio of domestic goods (versus imported goods) of raw materials and equipment — in order to minimize the impact of the US sanctions against the DPRK economy.

The news article concluded that North Korea is not likely to give up its current ‘parallel policy’, despite the foreign threats. Rather, in response to the threats, the DPRK is developing existing foundations of the self-supporting economy in order to be self-sufficient in raw materials and equipment and improve the ratio of domestic goods to imported goods.

ORIGINAL POST (2015-1-15): I was on holiday break when all of the discussion on the “May 30 Measures (5.30조치)” broke out on the internet, so I am getting a late start to this.

First there were two reports (both in Korean) that apparently discuss new “May 30 Measures”. One report is by the Institute for Far Eastern Studies (IFES) and the second is by the Hyundai Research Institute. I will see if I can get these translated (the key parts anyway).

In the meantime, here is a summary that appeared in Yonhap (2014-11-30):

North Korea’s Kim Jong-un regime may announce a new policy vision for politics and the economy next year as the country intensifies efforts to open up a new era of the new leader, a report by a local institute showed Sunday.

“There is a possibility that North Korea may propose a new set of governing norms and power structures as it opens up the era of Kim Jong-un next year, in which the three-year mourning period for (late leader) Chairman Kim Jong-il will have been ended,” said the report by the Institute for Eastern Studies at the Kyungnam University.

“(The country) could suggest a new power structure that suits the Kim Jong-un epoch as the National Defense Commission system was (introduced) for the Kim Jong-il era and the premier system for the Kim Il-sung era,” according to the report.

On the economic front, the North is expected to push to legalize a set of new economic measures the country has experimented with in recent years, the report said, adding homegrown market forces have been pressing for economic reform.

“North Korea’s efforts to lure in foreign investment to its special economic and economic development zones may continue into the (following years),” it noted.

Andrei Lankov commented on the new economic measures mentioned in the two reports–implying that these measures are built on the success of the June 28 (6.28) Measures–with management changes in store for the agricultural and enterprise sectors of the economy. Writing in Al Jazeera, he noted:

This time, the big news is indeed a decision, the so-called “May 30th Measures”, jointly issued early this year by the North Korean cabinet of ministers and the Central Committee of the Korean Worker’s Party. This decision was initially classified, but because it was supposed to be read by so many people, its contents have become public knowledge.

The contents are revolutionary. It seems that, at long last, North Korea has decided to begin Chinese-style reforms. Marshal Kim Jong-un is obviously inclined to do what his late father, Generalissimo Kim Jong Il, was too afraid to, that is, to attempt to transform his country into a developmental dictatorship, largely similar to present-day Vietnam or China.

This decision did not come out of the blue. Indeed, it agrees very well with what Kim Jong Un and his advisers have quietly been doing over the last three years – albeit the slow-motion transformation of the country has attracted little attention from outside world.

The first significant step was the introduction of the so-called “June 28th Measures”. These measures were introduced in 2012, but only became fully into force in 2013. While on paper, they did not look that ground-breaking, they represent a sweeping reform of agricultural management in the North.

The “June 28th Measures” allowed North Korean farmers to create their own production teams of five or six people. It was not explicitly stated, but it was a signal that individual households should register as “production teams”. Such teams were given a plot of land, the assumption being that they would toil the same area for several consecutive years. The land technically remained under the jurisdiction of the state-owned and state-managed “collective farm”, but the produce would henceforth be split 70:30 between the state and the production team (ie the family). Up until then, North Korean production teams had been much larger, and all produce had to be submitted to the state in exchange for a fixed daily grain ration that was allocated to every farmer.

Given the precedent in agriculture, the “May 30th Measures” are not quite as surprising as they may first appear, though they are indeed truly radical by the standards of North Korea before 2013.

According to these measures, from 2015, North Korean farming households (for ideological purposes still branded “production teams”) will be allocated not 30 percent but 60 percent of the total harvest.

Additionally, farming households will be given large plots of land – some 3,300sq m – to act as their kitchen gardens. Until now, North Korea, unlike nearly all other communist states, never tolerated private agriculture to any significant degree, and thus, for decades, kitchen gardens were limited to a meagre 100sq m.

The measures did not stop there, though. This time the North Korean leadership has set its sights on reforming the moribund and hollowed out state industrial sector. According to the reforms, directors of state factories will find themselves covered by a new “director responsibility system”. This system makes a director, hitherto state-appointed and carefully supervised representative of the party and state, into the approximate equivalent of a private businessman (factory managers in North Korea are almost always men). Under the new system, factory directors will have the freedom to decide how, when and where they purchase technologies, raw materials and spare parts necessary for their enterprises. They will also be allowed to decide who to sell to. They are also given the right to hire and fire workers, as well as to decide how much to pay for a particular job.

Under the new system, there is a tacit assumption that directors will be able to reward themselves generously for their own work – a feature that makes them virtually indistinguishable from private entrepreneurs in market economies. As a matter of fact, a few foreign delegations that recently visited North Korea were privately briefed about coming changes.

Lankov also wrote a similar article for the New York Times:

A new set of market-oriented reforms adopted by the Central Committee of the Workers’ Party and by the cabinet of ministers on May 30, 2014, appears to aim to liberalize the economy as a whole. The content of this classified economic policy document was first partially leaked to the South Korean daily Segye Ilbo in June. Later it was confirmed by many sources and is now widely discussed by Pyongyang watchers.

The “May 30 Measures,” as they’ve come to be known, envision the significant reduction of state control of the economy and a dismantling of central planning. Managers of state enterprises will be allowed to purchase items on a free market, making deals with other enterprises or even private businesses. They will be given the right to fire and hire workers, and pay them as much as they want.

At coal mines near the border with China, where the new “system of managerial responsibility” has been tested since late 2013, the best miners may now receive up to $70 a month, an exorbitant wage for the North.

Mr. Kim has also left untouched the unofficial private economy, which began to grow in the 1990s and now contributes significantly to North Korea’s tiny G.D.P., as much as 50 percent by some estimates. This economy of small businesses like food stalls, bicycle repair shops and truck deliveries, as well as larger ones like small coal mines and fishing companies, has never been explicitly accepted by the government. But since Mr. Kim’s ascension, officials have left this gray market alone.

The agricultural reforms are already bearing fruit. In 2013, the country enjoyed the best harvest in decades when — in a first since the 1980s — it produced nearly enough food to feed its population on a subsistence level.

Choson Exchange also offered some helpful comments from the Hyundai paper.

These items are probably also related:

1. Economic Management Improvement Measures – changes after one year (IFES, 2014-4-11)

2. North Korea’s ‘New Economic Management System’: Main Features and Problems (Korea Focus, Park Hyeong-jung)

3. Recent DPRK wage increases / economic management changes

4. Recent information on implementation of economic adjustment policies

5. “Securing economic profit,” fundamental to economic management (IFES 2014-10-31)

6. North Korea’s evaluation of its 2013 economic policy

7. Worker’s Party sets up Economy Department

8. North Korea making visible progress towards economic reforms

9. DPRK altering Commercial Distribution system

10. Kim Jong-un’s directions on improving economic management

11. Miners Fail to See Promised Salary Bump (Musan Mine)

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North Korean economic reforms tightly tied to domestic conditionsCao Shigong

Wednesday, May 27th, 2015

According to Cao Shigong a member of the Korean Peninsula Research Society, Chinese Association of Asia-Pacific Studies, in the PRC’s Global Times:

A series of proactive measures to adjust economic policies and expand exchanges with foreign countries recently adopted by North Korea have drawn widespread attention. The moves aim to help the country escape the long-lasting economic woes, improve the nation’s political and social stability, and promote economic cooperation within the region. Therefore, they deserve welcome and encouragement. However, it is inappropriate to regard these measures as a signal of overall reforms or a starting point of further opening-up.

North Korea is always reluctant to label its measures for economic development as “reform and opening-up.”

To begin with, China’s implement of reform and opening-up is based on absolute disapproval of the mistaken route that deemed class struggle as the guiding principle. Yet North Korea, as a hereditary regime, does not allow any doubt or modification of its former leaders’ ideologies and political lines such as juche (“self-reliance”) and songun (“military-first”).

Besides, China’s reform has broken the traditional planned economy and set up a market-oriented socialist economy with the coexistence of other diverse forms of ownership, especially allowing the development of private business. But North Korea still cleaves to its old beliefs that planned economy and the public ownership of the means of production are the key characteristics of socialism, and that if they are changed, socialism will be lost.

In addition, as a big country, China enjoys strong tolerance and endurance. Even it is wide open to the world, under the pressure over intruding foreign cultures and values, it can still safeguard its political and social stability. North Korea, however, will find it hard to do the same if it opens up like China, against the backdrop of US hostility, the north-south divide, and fierce competition over systems.

Consequently, North Korea took the measures of “our-style (North Korea-style) socialism” and corresponding “reforms,” including the 7.1 Economic Management Improvement Measures, 6.28 Economic Reform Measures and 5.30 Measures. Though similar to the reform and opening-up of China, they have their own distinguished features.

For instance, the country initiated “land contracts,” yet did not end cooperative farms; it encourages its business to be flexible, yet without changing the way their property is held; it established special economic zones and economic development zones, but with focusing on advantageous areas and corridors.

The basic features of North Korean “reform” measures are improving the policy flexibility, introducing new management styles, and bringing the function of the market into full play, without changing its fundamental system. The country also introduces and utilizes foreign capital under the control of the government. Apparently, these practices stem from the nation’s domestic conditions.

It is generally acknowledged that North Korea’s reform measures have achieved initial success. North Korean economy has recorded positive growth for three consecutive years, with its domestic markets and consumption becoming more active and the strain on food and living supplies eased.

On the other hand, confrontation between North and South Korea is rumbling on, and the arrangements around the only industrial complex between the two sides, the Kaesong Industrial Region, is constantly encountering conflict, which has made business people skeptical about economic collaboration with North Korea. Especially as North Korea keeps conducting nuclear tests, it remains hard for it to break the sanctions and isolation from the international community.

All these factors prove the uncertainty of North Korea’s economic reforms. Hence, media and scholars should be reminded to deliver accurate and comprehensive information over North Korea to the world, in order to prevent giving misleading impression or weakening the risk awareness of investors, causing irreparable losses as a result.

Read the full story here:
North Korean economic reforms tightly tied to domestic conditions
Global Times
Cao Shigong
2015-5-27

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UNFAO on DPRK food supply outlook

Thursday, February 5th, 2015

On February 3, 2015, the UNFAO recently published the DPRK “Outlook for Food Supply and Demand 2014/15“.

Here are the highlights:

1. After increasing markedly for three consecutive years, food production remained stagnant in 2014 with the aggregate output put at 5.94 million tonnes (including cereals, soybeans and potatoes in cereal equivalent). This figure comprises the official estimate of the 2014 main harvest and forecast for the 2015 early crops from cooperative farms, as well as FAO projections of production from sloping land and household gardens.

2. Paddy production dropped by about 10 percent due to reduced irrigation water availability, following low precipitation in the winter and dry spells during the 2014 main season. However, this decline was compensated by a significant increase in maize output, as a result of mass mobilization of people to water maize plants.

3. Production of the 2014/15 early season potatoes and minor wheat and barley crops, to be harvested from next June, is forecast to fall considerably.

4. The total utilization needs for the 2014/15 marketing year (November/October) are set by FAO at 5.49 million tonnes of cereal equivalent and the cereal import requirement is estimated at 407 000 tonnes. The Government is expected to import 300 000 tonnes of cereals, leaving an uncovered deficit of 107 000 tonnes for the current marketing year. This gap is larger than in 2013/14 partly as a result of revised post-harvest losses.

5. With a stagnant harvest in 2014, the food security situation in 2014/15 is likely to remain similar to that of the previous marketing year, with most households estimated to have borderline and poor food consumption rates.

The report listed these statistics that I thought were worth highlighting:

The marginal increase (0.3  percent) in the 2014/15 food production follows three consecutive years of strong growth at 4.4 percent in 2011/12, 8.7 percent in 2012/13 and 3.5 percent in 2013/14. However, at the forecast level, production remains above the past five-years average.

Andrei Lankov takes an optimistic view of this report in his article for Radio Free Asia and in the Carnegie Moscow Center. He credits implementation of the 6.28 Measures.

Marcus Noland commented on technical aspects of the report (such as the fact that the assessment was made without direct access to the country).

Scott Snyder commented on some of the political economy around the reports findings in Forbes. He asks why the UNFAO was not allowed into the DPRK, and notes that Russia has become the DPRK’s largest food donor.

The Daily NK has also noted the stability of food prices in late 2014 and early 2015.

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Kim Jong-un’s letter to participants in the National Conference of Agricultural Subworkteam Leaders

Friday, February 7th, 2014

UPDATE (2014-2-26): 38 North has posted an article on Kim’s agriculture speech here.

ORIGINAL POST (2014-2-7): You can download an English-language PDF of the letter here (copied directly from Rodong Sinmun). The bold/underlining was added by me as I read the article. Here is coverage by KCNA.

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….

Here is coverage in the Daily NK.

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.

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North Korea’s ‘New Economic Management System’: Main Features and Problems

Wednesday, January 8th, 2014

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.

MY NOTES:

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.

ENTERPRISE SECTOR:
* 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

AGRICULTURE SECTOR
*70/30 split of output (previously state took fixed share regardless of output)
*Smaller collective farm sub ubits
*Smaller private plots and kitchen gardens.

FOOD MANAGEMENT:
*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.

All posts on the June 28 policy can be found here.

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North Korea’s evaluation of its 2013 economic policy

Friday, January 3rd, 2014

Institute for far Eastern Studies (IFES)
2014-1-3

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.

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DPRK harvest up 5% for third year, but chronic malnutrition persists

Thursday, November 28th, 2013

“Speical Report: FAO/WFP crop and food security assessment mission to the Democratic People’s Republic of Korean”
Read the full report here (PDF)Previous reports here.

According to the UN WFP/FAO Press Release (on Thanksgiving day!):

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.

ADDITIONAL INFORATION:

1. Here is a follow up report in 38 North by Randall Ireson.

2. Here is coverage in the Wall Street Journal and Assocaited Press.

3. High-Resolution photographs from DPRK can be downloaded here.

 

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Recent DPRK wage increases / economic management changes

Wednesday, November 6th, 2013

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
2013-11-6

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Report: Korean Workers’ Party sets up Economy Department

Friday, July 12th, 2013

According to Radio Free Asia:

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
2013-7-12

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North Korea making visible progress towards economic reforms

Friday, June 7th, 2013

Institute for Far Eastern Studies (IFES)
2013-6-7

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.

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