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

Is North Korea’s food situation really getting worse? The markets don’t think so.

Friday, July 22nd, 2016

By Benjamin Katzeff Silberstein

Since early 2016, the Food and Agriculture Organization of the UN (FAO) has been sounding the alarm bells on North Korea’s food situation. In an interview a few weeks ago with Voice of America’s Korean-language edition, FAO-official Christina Cosiet said that this years’ harvest would be the worst one in four years. One question, dealt with before by this blog, is how bad this really is. After all, the past few years seem to have been abnormally good in a long-run perspective.

But another obvious question is: why do market prices in North Korea tell the opposite story about food supply?

Prices for both rice and foreign currency (US-dollars) have remained remarkably stable for a situation where people should be expecting a worse-than-usual harvest. It is important to bear in mind that prices are largely seasonal and tend to increase in September and October. But unless prices somehow skyrocket in a couple of months, things do not look that bad.

There seem to be two possibilities here: either official production and food supply through the public distribution system simply does not matter that much, because shortages are easily offset by private production and/or imports. Or, the FAO projections simply do not capture North Korean food production as a whole.

For an overview of food prices in the last few years, consider the following graph (click here for larger version):

graph1

Graph 1: Prices for rice and foreign currency, in North Korean won. Prices are expressed in averages of local prices in Pyongyang, Sinuiju and Hyesan. Data source: DailyNK market prices.

As this graph shows, both the exchange rate and rice prices have remained relatively stabile over the past few years. Thus far, this summer has been no exception. The following graph shows exchange rates and rice prices from the spring of 2015 till July 2016 (click here for larger version):

graph2

Graph 2: Prices for rice and foreign currency, April 2015–July 2016, in North Korean won. Prices are expressed in averages of local prices in Pyongyang, Sinuiju and Hyesan. Data source: DailyNK market prices

This does not look like the behavior of a nervous market where supply is declining at a drastic rate. Of course, a number of caveats are in order: again, prices are likely to rise through September and October, as they have in the past. Moreover, markets may react to any harvest declines at a later point in time, as they become more apparent.

Even so, it seems inconceivable that market prices would remain so stable if North Korea was experiencing a steep dive in food production. After all, farmers would be able to see signs fairly early on, and their information would presumably spread through the market as a whole. In short, it is logically unthinkable that markets simply would not react to an unusually poor harvest.

This all begs the question of how much market prices tend to correlate with the FAO:s harvest figures overall. The short answer appears to be: not much. The graph below (click here for larger version) shows the average prices for rice and foreign exchange per year on the North Korean market since 2011, and harvest figures drawn from reports by the FAO and the World Food Program (WFP). (See the end of this post for a more detailed explanation of the underlying calculations.)*

graph3

Graph 3: Yearly average market prices for rice and US-dollar (in North Korean won), and FAO food production figures. Data source: DailyNK market prices

As this graph shows, there is generally fairly little correlation between market prices and harvests as calculated by the FAO. Harvests climbed between 2009 and 2015, while market prices climbed and and flattened out from 2012, around the time of Kim Jong-il’s death. Exchange rates and rice prices unsurprisingly move in tandem, but appear little impacted by production figures as reported by the FAO.

It is possible that prices react in a delayed manner to harvests, and that the price stabilization on the market is a result of increased harvests over time. But the consistent trend over several years, with prices going up as harvest figures do, is an unlikely one. Again, it is also difficult to imagine market prices not reacting relatively quickly to noticeable decreases in food production.

So what does all this mean?

It is difficult to draw any certain conclusions. But at the very least, these numbers suggest that the FAO food production projections are not telling the full story about overall food supply in North Korea. Moreover, market signals are telling us that food supply right now is far from as bad as the FAO’s latest claims of lowered production would have it. Rather, prices seem normal and even slightly more stabile than in some previous years with better harvests. In short, the narrative that this year’s harvest is exceptionally poor seems an unlikely one.

 

*A note on graph 3:

 For market prices per year, I calculated an average price from all observations in a given year. The DailyNK price data is reported for three cities separately: Pyongyang, Sinuiju and Hyesan. I have used an average of these three cities for each data observation as the base for calculating yearly averages. This is a somewhat tricky way of measuring, as the amount of data observations, as well as their timing, sometimes varies from year to year. The steep decline in 2009–2010 is primarily caused by the currency denomination, and should not be taken for a real increase in supply.

The FAO food production figures are not reported by calendar year, but published in the fall and projected for the following year. Since these figures best indicate available supply for the year after they are reported, I have assigned them to the year following the reporting year. That is, the figure for 2014 comes from the WFP-estimate for 2013/2014, and so on and so forth.

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Friday fun with North Korea’s new slogans

Friday, February 19th, 2016

By Benjamin Katzeff Silberstein

What better way to start off the weekend than to go through North Korea’s latest batch of political slogans (“Joint calls/공동구호”)? These were issued collectively by the Central Committee and the Central Military Commission on Wednesday February 17th, and printed on the frontpage of Rodong Sinmunas part of the run-up to the 7th Party Congress to be held later this year.

Below I have gathered those that relate to the economy, and a few other interesting ones, with brief annotation:

The calls underlined the need to make hurrah for the WPK and socialism resound far more loudly this year when the Seventh Congress of the WPK is to be held by staging an all-out death-defying struggle for building a thriving nation and improving the people’s living standard.

The Byungjin line is alive and well.

Let’s dynamically wage this year’s general advance in the same spirit as shown in succeeding in the H-bomb test!

Let’s build an economic giant as early as possible with the strength and the spirit of Korea and at the Korean speed!

Send more satellites of Juche Korea into space!

As often before, the satellite launch and the hydrogen bomb test are tied into the theme of economic development: both are technological advancements, showing the overall progress of the economy.

Produce more new-generation electric locomotives and passenger cars!

A shout-out to the domestic car industry?

Put the manufacture of Korean-style world-class underground trains on a serial basis!

The domestically manufactured subway cars haven’t been forgotten. One wonders if people living outside Pyongyang feel as strongly about them.

Step up the modernization of the mining industry and keep the production of nonferrous metal and non-metallic minerals going at a high rate!

Provide more resources for building an economic giant by channeling effort into prospecting underground resources!

At least now Jang Song-taek can’t touch them anymore.

Make the foreign trade multilateral and diverse!

This is interesting, and a clear statement about an important rationale for the SEZs: North Korea will remain politically and economically vulnerable as long as China continues to be its single largest trading partner by a large margin.

Let’s greet the 7th Party Congress with proud achievements in the improvement of the people’s living standard!

The people “will never have to tighten their belts again”, as Kim Jong-un said in his first public speech in 2012.

Achieve a great victory on the front of agriculture this year!

Which the regime has already claimed it did last year. The UN doesn’t agree.

Let’s give a decisive solution to the problem of consumer goods!

Let’s produce more world-competitive famous products and goods!

North Korean media has highlighted strides in consumer goods production several times this year.

Make Wonsan area an icon of city layout and build it into a world-level tourist city!

A shout-out to the Wonsan tourist zone, presumably.

Establish Korean-style economic management method guided by the Juche idea in a comprehensive manner!

Sounds like the management reforms, with greater autonomy for enterprises, are still on the table.

Let the entire party and army and all the people turn out in the forest restoration campaign!

And make sure they “properly conduct fertilizer management“. This is the only reference among the slogans to the forestry campaign, where the regime has publically acknowledged some crucial and systemic problems, but is yet to find a credible solution.

Put an end to proclivity to import!

Does this tell us something about North Korea’s trade balance that the numbers aren’t showing?

The Korean People’s Internal Security Forces should sharpen the sword for defending their leader, system and people!

Note that “people” comes after both “leader” and “system”.

Let us thoroughly implement our Party’s policy of putting all the people under arms and turning the whole country into a fortress!

Enhance the fighting capacity of the Worker-Peasant Red Guards by intensifying their drills as the anti-Japanese guerillas did in Mt. Paektu!

Develop and produce a greater number of various means of military strike of our own style that are capable of overwhelming the enemy!

Enhance the fighting capacity of the Worker-Peasant Red Guards by intensifying their drills as the anti-Japanese guerillas did in Mt. Paektu!

These four slogans seem to be saying that the Four Military Guidelines, adopted in 1962 by the Central Committee, are still very much in play: 1) arming the population, 2) fortifying the country, 3) establishing a cadre-based army, and 4) modernizing military equipment. Mao would probably have been happy to know that his People’s War Doctrine lives on in North Korea.

The whole list of slogans is very long, and saying that policy areas need to improve, or that production in a certain area needs to go up, isn’t much of a policy line. Still, it’s interesting to see what areas are highlighted.

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The limits of agriculture reform in North Korea

Friday, December 18th, 2015

By Benjamin Katzeff Silberstein 

Agricultural reforms in North Korea became a hot topic of discussion almost right away when Kim Jong-un took power in 2011. Only a number of months into his tenure, news began to come out of the country about attempts at agricultural reforms. It is unclear when (or even if) the June 28th Measures were finally extended to the whole country.

At the very least, three years in, it seems beyond reasonable doubt that North Korean agriculture has undergone major changes. These have been aimed at boosting production by creating better incentives for farmers to produce and sell more of their output to the state rather than diverting it to the market. The most important aspects of these reforms are the decreased size of work teams and new rules that let farmers keep 30 percent of their production plus any surplus above production targets, while the state takes the remaining 70.

These changes have been met with optimism among some. However, no one really knows exactly what impact these reforms have had. North Korean agriculture may be faring better than it used to – although this is also doubtful – but even so, it is too simplistic to assume that government reforms in agricultural management are doing all the work. As long as North Korea’s agriculture continues to be centrally planned by the state, there will be limits to how much better it can get no matter what reforms the state implements.

To see why, consider some of the news that have been coming out of North Korea in the past few months, as reported by Daily NK. In late November, the online daily reported that in despite by multilateral aid organizations, North Korea had seen relatively good harvests this year. However, the increased harvests, according to people inside the country, were not caused by changes in the agricultural management system of state-operated collective farms.

Rather, the North Koreans interviewed for the story claimed that private plot farmers had been better able to protect their crops from adverse weather impacts by using water pumps and other equipment. Even though trends like these alone probably have a limited impact, this shows that many circumstances other than state management matter.

A few weeks later, Daily NK published another interview carrying a similar message. According to sources inside the country, harvests from collective farms have declined, while private plot production has gone up (author’s emphasis added):

The amount of food harvested this year from the collective farms has “once again fallen short of expectations,” he said, adding that the farmers who work on them have criticized the orders coming down from the authorities, saying that “if we do things the way they want us to, it’s not going to work.”

Although the regime has forced people to mobilize, the source asserted that farm yields are not increasing. So, then, “the best thing to do would be to further divide the land up among individuals,” he posited.

Our source wondered if individual farms were not more successful because each person tending them personally grew and watered their plants. Currently, farmers must follow directives regarding the amount of water they can use on collective farms. He warned that if the system is not completely overhauled, crop yields will fail to improve.

In other words: as is so often the case, management orders from above often do not align with the reality on the ground.

One should be careful not to draw too many general conclusions based on individual interviews, but this is a well known general problem in all planned economies. Even with the best intentions, the state can never be fully informed about conditions and resources on the ground in an entire society.

This is one of the many reasons why economic central planning falters. We have seen this, too, with Kim Jong-un’s forestry policies. The state gives orders that have unintended consequences on the ground, because information is lacking. No central planning team can be fully informed about the reality prevailing throughout the system. The information problem becomes particularly dire in authoritarian dictatorships like North Korea, where people at the lower end of hierarchies often have strong incentives not to speak up about implementation problems when orders come from the top.

Ultimately, no matter what management reforms the North Korean regime implements, the country’s economic system remains the basic stumbling block. As long as central planning continues to be the ambition of economic and agricultural policies, there will be a limit to the success that agricultural policies can reach. We may expect to see agricultural reforms continuing, but as long as the system remains, they can hardly be revolutionary.

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On the DPRK’s 6.28 Policy (UPDATED)

Monday, December 14th, 2015

UPDATE 35 (2015-12-14): Hopes fading on June 28 Measures. According to the Daily NK:

In contrast to the increasing amount of crops being grown on small plots of land by individuals, the harvests from collective farms in North Korea are said to be declining.

A source from South Pyongan Province who recently spoke with our Daily NK reporter expressed the viewpoint that attempts by the regime to pass farming policy that would increase the amount of food harvested and distributed to individuals from collective farms have had “no substantive effect.”

Sources in North Pyongan Province and North Hamgyong Province corroborated this news.

The amount of food harvested this year from the collective farms has “once again fallen short of expectations,” he said, adding that the farmers who work on them have criticized the orders coming down from the authorities, saying that “if we do things the way they want us to, it’s not going to work.”

Although the regime has forced people to mobilize, the source asserted that farm yields are not increasing. So, then, “the best thing to do would be to further divide the land up among individuals,” he posited.

Our source wondered if individual farms were not more successful because each person tending them personally grew and watered their plants. Currently, farmers must follow directives regarding the amount of water they can use on collective farms. He warned that if the system is not completely overhauled, crop yields will fail to improve.

In 2012, the North Korean government passed the ‘June 28th Measures,’ part of a “new economic management system in our own style.” This 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.’ On paper, the state receives 70% of the target production, with farmers receiving 30% and any surplus if targets are exceeded.

In practice, however, things appear to be different. After its implementation in a number of regions, “the production rate on collective farms remained low and the policy was unable to achieve meaningful results,” the source said, adding that many worry these reforms will take the same path as the ‘July 1st Economic Management Reform Measures of 2002,’ which fizzled out after approximately three years.

“Although the the North’s official propaganda contends that the measures taken regarding the collective farms are scientifically based, in actuality, it’s just working the mobilized even harder,” the source alleged.

“Each time a policy stumbles a bit, the people immediately think back to the last time a similar policy was implemented and anticipate yet another failure. We cannot believe in these policies that just sound good on paper anymore, and people are speaking out in favor of actual scientific and technical farming strategies.”

Two years have passed since Kim Jong Un’s announcement that the people would no longer have to tighten their belts, yet “the people have yet to see a policy directive issued that is related in any way to this promise,” he said.

“In fact, it is common for people to say among themselves that Kim Jong Un ‘should know what he’s doing by now.'”

UPDATE 34 (2015-7-16): A new IFES report indicates that the DPRK has made progress in reducing the size of sub-workteam units, but they are experiencing secondary problems related to the transition:

North Korea Seeks Supplementary Measures for the Field Responsibility System

North Korea has been promoting the “field management system” as a part of its agricultural reform. Nevertheless, drawbacks exist, and it is trying to overcome shortcomings in the process by blending the new system with the advantages of collectivism.

In the past, farmers were able to follow the technical guidance of skilled workers. But since the implementation of the “field management system,” many are struggling to keep up with the advanced modern technology and agricultural methods.

As a result, North Korea is engaging in training and education programs for farmers to raise their skill level to that of skilled workers by encouraging the collective farming method of communal sharing of labor.

North Korea’s Rodong Sinmun reported on July 10 that, “in the current reality with the implementation of the ‘field management system’, it is impossible to farm with limited technical capabilities.”

The field management system under the bunjo management system (or the subworkteam management system) divides the work unit consisting of 10–25 people into smaller units of 3–5 people, responsible for farming a smaller field. This is virtually a preliminary stage which could lead toward private farm ownership.

The field management system expanded countrywide after Kim Jong Un’s rise to power. It is considered to have contributed in part to the increase of agricultural production.

The newspaper cited pesticide as one example of the problem. In the past, spraying pesticides were for skilled workers; but in recent years, ordinary farmers are responsible for spraying pesticides on their own. However, from lack of experience, many farmers struggled with proper handling of pesticides and ended up wasting them or damaging their crops.

The newspaper, however, also introduced the story of jujube cooperative farms in Anak County of Hwanghae Province, praising one farm’s success in planting rice seven days earlier than planned, despite the adverse weather conditions.

Reportedly, the farmers at this cooperative farm underwent training in modern agricultural technology for 30 minutes every morning.

Another problem pointed out is that because the skill level of every farmer differs, some farmers may mistime rice planting during the planting season. In the past, task teams were formed based on skill level and could eliminate the discrepancies between farms; under the new system, problems are inevitable. Accordingly, it is reported that Anak County jujube cooperative farms are collectively helping each other to overcome this shortcoming.

The newspaper stressed that “when all farmers claim ownership of their field and subworkteam, one can create innovation in the farming operations.” Thus, the North Korean authorities are encouraging “collectivism” to overcome the limitations of the “field management system.”

UPDATE 33 (2015-7-10): The Institute for Far Eastern Studies (IFES) reports on the DPRK’s effort’s to reduce sub-workteam units and increase food production:

Despite Drought Last Year, Food Production Increased Due to Field Responsibility System

North Korea experienced its biggest drought in 100 years last year. However, North Korea claims that this did not affect its food production. North Korean authorities are claiming the main factor behind the increased food production is the will of farmers to produce more after the expansion of the “field management system,” or pojon tamdangje.

In an interview with the weekly newspaper, Tongil Sinbo, Chi Myong Su, director of the Agricultural Research Institute of the Academy of Agricultural Sciences of the DPRK commented, “the effectiveness of field management system (pojon) from cooperative farm production unit system (bunjo) is noticeable and succeeded in increasing grain production despite the adverse weather conditions.”

The field management system under the bunjo management system or the subworkteam management system divides the work unit consisting of 10-25 people into smaller units of 3-5 people, responsible for farming a smaller unit of a field. This is a measure to increase the “responsibility and ownership of farmers.”

From the July 1st Economic Management Improvement Measures enforced in 2002, the autonomy of cooperative farms and enterprises expanded. The “field management system” was piloted from early 2004 in Suan, North Hwanghae Province and Hoeryong, North Hamgyong Province, but was suspended soon afterward. However, this system is reported to have been implemented widely after the first National Conference of Subworkteam Leaders in the Agricultural Sector was held in Pyongyang in February 2014.

Economic principles behind the field responsibility system are stated as, “under the sub-work team structure, a smaller subworkteam consisting of 2 to 3 families or 3 to 4 people depending on the scale and means of production, is responsible for a specific field or plot (pojon) from planting to harvest stage to inspire farmers with enthusiasm for production by distributing the shares of production in accordance with the output of production planning.”

The newspaper added, “Despite the adverse weather conditions last year, the high grain yield was possible due to implementation of scientific farming methods and field management system to increase enthusiasm of farmers,” and “based on this experience, many cooperative farms across the country will expand subworkteam management system to field management system.”

Director Chi stated, “Since the field management system was implemented, farmers’ labor capacity increased to 95 percent. The planting time for corn and rice that took 20 to 30 days in the past is shortened to 10 to 15 days. In the autumn season, grain threshing that took 50 days is now only taking 10 days. This is changing the farming landscape.”

In addition, the distribution shares for farmers increased as well as the state’s procurement last year. This is attributed to “socialist distribution principles that distributed grains produced to farmers in-kind based on their efforts after excluding a specified amount of grain procured by the state.”

He added, “There are quite a number of farming households that received several decades worth of distribution after a year of farming. There is an increasing number of families with growing patriotism to increase the amount of grain procurement to the state.”

UPDATE 32 (2015-6-17): Writing in 38 North, Benjamin Katzeff Silberstein writes that the June 28 Measures may not be all that prolific or successful.

From 2012 onward, a number of sources both outside and inside of North Korea have reported a gradual implementation of agricultural reforms not dissimilar to those adopted by China in the late 1970s. Supposedly, farmers now get to keep a larger share of their harvests—perhaps as much as 60 percent—and agricultural work teams have been reduced in size to increase their production incentives. Seasoned North Korea watcher Andrei Lankov buoyed the rumors last November, when he claimed that the country had not only implemented such reforms, but had done so with considerable success. He wrote that North Korea had increased its food production in 2013 to such an extent that could nearly “feed itself” that year without international assistance.

First, international estimates of North Korea’s food production showed that it did not suddenly increase in 2013, the year after the reforms were supposedly introduced.

The World Food Programme (WFP) and Food and Agriculture Organization (FAO) typically send experts into the country each year to survey conditions for food production and to estimate its food needs.[1] While Pyongyang did not admit a surveying team in 2014, WFP/FAO Food and Crop Assessments from previous years show a clear pattern: North Korea’s food production was increasing well before rumors of economic reforms began to pour out from its borders. According to the assessments of the past few years, food production began to increase in 2010, going up by approximately 3 percent.[2] In 2011 it continued to climb by about 8 percent. The growth trend continued in 2012, when food production was estimated to have increased by another 10 percent.[3] Likewise, in an estimate for 2013, the WFP/FAO noted an increase for the third year in a row, a development that had been unprecedented for many years, and concluded that the gap between North Korea’s food need and its production was the smallest in many years.[4]

However, harvest yields in North Korea now appear to have stalled after getting better for some time.[5] According to a recent analysis by the FAO, food production stagnated in 2014, putting an end to the trend of the three preceding years.[6] If Pyongyang has in fact reformed its approach to agriculture, the reported changes do not seem to be doing that much good. Lankov recently admitted in a new piece that the alleged reforms have now stalled or were perhaps reversed, but he has not backtracked on his claim that they worked when they were being implemented.

UPDATE 31 (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 30 (2015-1-27): 38 North published this report on the DPRK’ 6.28 Measures. Here is coverage in Yonhap.

UPDATE 29 (2014-12-5): According to the Daily NK:

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 29 (2014-11-30): Andrei Lankov, writing in Al Jazeera, informs us that the 6.28 Measures have been rolled out and resulted in significant gains in agricultural production:

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.

In essence, this reform marked a seismic shift: It marked the first step towards the reprivatisation of agriculture.

The “June 28th Measures” have worked out even better than North Korea’s leaders might have expected. The year 2013 (the first year that the reforms were fully in force) brought the best harvest that North Korea has seen in decades. The world media, predictably enough, missed the entire story, but in 2013, North Korea, for the first time since the late 1980s, produced almost enough food to feed itself. Even though there was a severe drought this year, the new system has seemingly proved its resilience, and initial reports about the harvest are also quite positive.

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 Press quotes 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.

Additional Information

1. Read more about the April Workers’ Party and Supreme People’s Assembly meetings here.

Read the full story here:
NKorean farmers planting rice with profits in mind
Associated Press
2013-5-31

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
Daily NK
Kim So Yeol
2013-5-13

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.

Previous stories on the 6.28 economic measures here.

Read the full story here:
North Koreans ‘Skeptical’ of Collective Farm Reforms
Radio Free Asia
Joon Ho Kim
2013-4-23

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
Kim Kwang-jin
2013-1-30

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 21 (2012-12-14): See this post by CanKor on the 6.28 Measures.

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:

UPDATE 18 (2012-10-18): The Institute for Far Eastern Studies (IFES) reports that the DPRK’s new economic management measures are stalled:

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.

You can read my reaction to the messy policy roll out here: “The credible commitment problem of economic reforms”.

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.

You can read my reaction to the messy policy roll out here: “The credible commitment problem of economic reforms”.

UPDATE 15 (2012-10-4): Following the failure of the rare second-session of this year’s supreme Peoples’ Assembly to address economic policies, Andrei Lankov stresses that analysts should not place so much importance on the SPA:

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.”

UPDATE 11 (2012-9-10): Kim Kwang-jin reports in the Daily NK that the 6.28 policies will go into effect this October:

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.

Andrei Lankov writes an interesting article on the history of the DPRK’s rationing system.

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.

This previous post on the DPRK’s agriculture policies is also interesting.

Read the full Daily NK story here:
North to Try Weak Agricultural Reform
Daily NK
Jeong Jae Sung
2012-7-11

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The (Market) Forces of History in North Korea

Friday, October 30th, 2015

By Benjamin Katzeff Silberstein

The market is a common topic for debate in history. How did it impact the rise of the anti-slavery movement in the US and the UK? What impact did economic conditions have in the French Revolution? These questions are, and should be, asked in the current debate about North Korea’s socioeconomic development as well.

But despite the hope of many, the market might not simply be a story of growing individualism and disconnect from the power of the state. While such a trend may well be at work, it could also be the other way around.

This was recently illuminated through an interesting story by Reuters. In a visit to Pyongyang, they took a look at how markets and everyday business transaction function in North Korea at the moment. As they note, it is telling that a reporter from an international news agency can make transactions in the open, with a government minder by his side, at the black market rate. Business that previously had to be done in the shadows now happens in the open:

Shoppers openly slapped down large stacks of U.S. dollars at the cashier’s counter. They received change in dollars, Chinese yuan or North Korean won – at the black market rate. The same was true elsewhere in the capital: taxi drivers offered change for fares at black market rates, as did other shops and street stalls that Reuters visited.

The most obvious conclusion is that the state is adapting itself to the bottom-up development of the market. Indeed, this is the way the story is often told. In this narrative, the government is only reacting to developments and has long lost the economic policy initiative.

But one could also see a government that is confident enough to relax the rules. It just isn’t a certain fact that the state and the market are two opposing entities.

First, connections to the state still seem to be good for those wanting to trade on the market. For example, according to the surveys conducted by Stephan Haggard and Marcus Noland that laid the foundation for Witness to Transformation (2011)party membership is still considered one of the best ways to get ahead in North Korea (or at least it was at the time when the surveys were conducted). A somewhat similar trend can be discerned in survey results presented by Byung-Yeon Kim of Seoul National University at a conference at Johns Hopkins SAIS in late September this year. Kim’s results also indicate that there is a strong positive correlation between party membership and participation in both the formal and informal economy.

Second, the government is making money off of the market. DailyNK recently reported that the fees charged by state authorities for market stalls was raised. They also noted that regulations of the markets seemed to have gotten more detailed over the years. As noted in this report published by the U.S.-Korea Institute at SAIS, the space that the government allocates to markets has consistently increased in the past few years. Not only have official markets grown, many of them have also been renovated and given better building structures.

All in all, this paints a picture of a government that controls markets while allowing them more space to function. It is not clear that formerly black market activity happening in the open means that the market is gaining ground at the expense of the state. They may well be moving together. That is good news for those hoping for stability, but bad news for those banking on a market-induced revolution. Despite the hope of many that the market will cause the demise of the regime, the role of the market force in North Korea’s history is far from clear.

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The Political Prestige of North Korea’s Economic Reforms, and why it may be a Problem

Monday, September 28th, 2015

By Benjamin Katzeff Silberstein

This certainly has been the season of contradictory information on North Korea’s food supply. The North Korean government is celebrating and claiming success of their agricultural reforms, while the FAO reports that things have gotten worse. Let us recap what has happened:

First there was the drought. North Korean state media described it as the worst one in 100 years. UN agencies predicted large-scale crop failures and appealed for food aid, warning that large shares of the population would be at great risk if aid did not come. The UN’s emergency response fund (CERF) allocated $6.3 million to counter the impacts of the drought. The rains came, however, and the drought alarms seemed to have been exaggerated.

Next, the North Korean media – assuming you can even talk about it as a single, coordinated entity – went the other direction. In July, the weekly Tongil Sinbo claimed that thanks to agricultural reforms, this year’s harvest had actually increased “despite adverse weather conditions”.

And recently, reports turned the other way again. In early September, the Food and Agriculture Organization of the UN declared that the cereal production forecast for the main season of 2015 had declined drastically from last year due to a “prolonged dry spell”.

The rain that eventually came in July and August, causing flooding in the northern parts of the country and leading to an estimated loss of one percent of all planted areas. The FAO rice production forecast for 2015 is 12 percent below that of last year. State food rations, the importance of which can be debated, declined drastically, according to the agency.

In the midst of all of this, North Korean propaganda is still claiming success for the reforms. Earlier this month, the state news agency KCNA reported that a “dance party” had been held in South Hwanghae, part of the country’s rice bowl, celebrating improving conditions on the countryside:

The performers presented cheerful dances depicting the happy agricultural workers who work and live in the rural areas now turning into a good place to work and live thanks to the successful embodiment of the socialist rural theses under the leadership of the Workers’ Party of Korea.

The picture gets even more complicated if one assigns meaning to the fact that cereal imports from China were reportedly lower in July this year compared to 2014. Figures from just one month might not indicate a trend, but given that July was a particularly dire month, these figures are still significant. If imports are being decreased because the official line is that agricultural conditions have improved, no matter the reality, that might be bad news for those in the North Korean public that rely on the public distribution system for any significant part of their consumption.

Either the FAO is right and the North Korean government wrong, or the other way around. Harvests this season cannot have been improving and getting worse at the same time. The FAO is probably far more likely than the North Korean government to have made a correct assessment here. Even if North Korean authorities aren’t claiming success of the reforms for propaganda reasons – which they may well be doing – it is hard to see why their statistical and monitoring capabilities would be better than those of the FAO.

So, the North Korean government is claiming that agricultural reforms are leading to better harvests and food conditions, even when they probably aren’t. Why would they do that? There are lots of possible reasons and one can only speculate.

One possible reason is that the agricultural reforms have become a prestige project. North Korean propaganda channels and news outlets have publically claimed that reforms are being implemented and leading to good results, even though some adjustment problems have been admitted. The same pattern, by the way, can be seen with regards to forestry policies – state media has publicized them with a bang and claimed that they just aren’t being implemented well enough by people on the ground when they don’t seem to be working as intended.

This could be an indication that agricultural reforms are indeed, like many have assumed, a major policy project of Kim Jong-un and the top strata.

That could be good news. After all, North Korea is in dire need of changes in agricultural structures, production methods, ownership and responsibility.

But it could also be bad news. When policies are strongly sanctioned and pushed by the top, their flexibility is likely to be inhibited. In other words, if the top leadership says that something should get done, it has to get done regardless of whether it works well or not.

Again, look at the forestry policies. According to reports from inside the country, those tasked with putting the new policies into practice on the ground say that doing what the central government asks isn’t smart or possible. Nevertheless, such orders are hard and risky to question.

At this stage it is only speculation, which is always a risky endeavor when it comes to North Korea. It may well later turn out to be wrong.

But if the state is placing enough prestige in the agricultural reforms to claim that conditions are improving even if they aren’t, that may lead to limited flexibility in how they are implemented and changed in the future. In other words, if the leadership thinks they are important enough to claim success even when things are getting worse, they may not be prone to changing their orders to fix what isn’t working.

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Lankov issues warning on North Korea’s economic reforms

Thursday, August 13th, 2015

According to Yonhap:

North Korean leader Kim Jong-un’s reformatory policy is highly likely to spark political instability in the country, a Russian professor said Thursday, stressing the need to prepare for a potential volatile situation there.

“Kim Jong-un’s policy has a high possibility to destabilize North Korea’s local situation, therefore preparations are necessary for a sudden change there,” Andrei Lankov, a professor at Kookmin University, said during a forum co-hosted by Yonhap News Agency and the Presidential Committee for Unification Preparation.

Under the reform-seeking young leader, North Korea is less secure than under the previous Kim Jong-il era when the country had experienced no changes, the professor said.

Under the new leadership, North Korea has shown signs of adopting a developmental dictatorship, the professor noted.

Kim is aware that he cannot hold on to his power for the next several decades without a reform.

Kim’s predecessor and father Kim Jong-il was different. In his 60s, he knew that even without the reform, which has the potential of thwarting the regime, his power grip could be sustained until his death, Lankov added.

Even though the North chooses to follow the footsteps of the Chinese economic reform, the reclusive country may have to be careful about opening up the country to the outside world, because after seeing South Korea’s incomparable affluence, North Koreans may become very discontented with the North Korean system, the professor said.

“It will be something tantamount to an act of political suicide,” he noted.

If North Korea happens to succeed in the reform drive, the result will better help the two Koreas peacefully coexist over the long term, he said, adding that it will cut down the costs of unification.

Touching on North Korea’s nuclear ambition, he said the communist country will never even dream of giving up its nuclear arsenal.

“Any reward, any pressure will be of no avail,” because nuclear weapons are irreplaceable means of deterrence and threats for the Kim regime.

The North Korean government knows that Gaddafi is the only leader who gave up nuclear arms in international political history and he was killed, according to the professor.

Read the full story here:
Preparations needed for potential volatile situation in N. Korea: Lankov
Yonhap
2015-8-13

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The drought that didn’t matter, North Korea says – thanks to agricultural reform?

Monday, August 10th, 2015

By Benjamin Katzeff Silberstein

During the past few months, the World Food Program (WFP) has made reoccurring pleas for increased food assistance to North Korea to alleviate the food shortages expected from a severe summer drought. The North Korean government made similar statements and claimed that the drought was the worst one to occur in 100 years. Aid to the country was subsequently increased from the originally planned level, due to the drought. But now, one North Korean official is saying that food production ended up increasing, after all, thanks to agricultural reforms.

A recent brief by the Institute for Far Eastern Studies at Kyungnam University (IFES) cites a July issue of Tongil Sinbo, a North Korean state-run weekly newspaper. There, Chi Myong Su, director of the Agricultural Research Institute of the Academy of Agricultural Sciences in the country, says that

“the effectiveness of field management system (pojon) from cooperative farm production unit system (bunjo) is noticeable and succeeded in increasing grain production despite the adverse weather conditions.”

The article cited by IFES highlights the smaller work-team structure as key to the success of the reforms. Also, it almost outright states that greater economic incentives were the main factor (although they call it “enthusiasm” and “patriotism”):

“Despite the adverse weather conditions last year, the high grain yield was possible due to implementation of scientific farming methods and field management system to increase enthusiasm of farmers,” and “based on this experience, many cooperative farms across the country will expand subworkteam management system to field management system.”

This is interesting for several reasons.

First, the agricultural reforms seem increasingly pronounced. Though other reforms were reportedly backtracked earlier this year, the government seems eager to claim success for the road travelled in agriculture.

I have written elsewhere that the data doesn’t necessarily support a claim that reforms are working. There is still reason to be skeptical – after all, a North Korean government official claiming that his government’s policies are working is not surprising – but even the claim itself is interesting.

Second, the statement raises questions about monitoring and data gathering capacities, both of the regime and relief organizations in Pyongyang. Again, just a few months ago, alarm bells were ringing about a potential food shortage, and now, a regime official claims that food production has increased. What was the basis of the WFP and regime claims that a food shortage was imminent a few months ago, and what has changed since those claims were made?

Another recent IFES brief also deals with North Korean press reports about the agricultural reforms. It quotes a Rodong Sinmun article from earlier in the summer that brings up some adjustment problems that farmers have had, such as learning how to properly use fertilizers. The most interesting part in my opinion is the following:

The newspaper stressed that “when all farmers claim ownership of their field and subworkteam, one can create innovation in the farming operations.”

Thus, it seems like Pyongyang wants to encourage experimentation and diversity in production methods. This would be a potentially important step towards more efficient agriculture. Perhaps it is part of a pattern. Provinces have reportedly gotten significant leeway in setting up their respective special economic development zones, which could also be a way to encourage experimentation in policies and management methods.

According to the Tongil Sinbo article, reforms are set to expand further in the country given the alleged success. Perhaps it won’t be too long before we can learn more about them through assessments by multilateral organizations like WFP.

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May 30 Measures (5.30 Measures) [UPDATED]

Monday, June 1st, 2015

UPDATE 13 (2015-7-16): A new report by the Institute for Far Eastern Studies (IFES) indicated that the DPRK has made progress in reducing sub-workteam units, however it is experiencing secondary problems related to the transition.

North Korea Seeks Supplementary Measures for the Field Responsibility System

North Korea has been promoting the “field management system” as a part of its agricultural reform. Nevertheless, drawbacks exist, and it is trying to overcome shortcomings in the process by blending the new system with the advantages of collectivism.

In the past, farmers were able to follow the technical guidance of skilled workers. But since the implementation of the “field management system,” many are struggling to keep up with the advanced modern technology and agricultural methods.

As a result, North Korea is engaging in training and education programs for farmers to raise their skill level to that of skilled workers by encouraging the collective farming method of communal sharing of labor.

North Korea’s Rodong Sinmun reported on July 10 that, “in the current reality with the implementation of the ‘field management system’, it is impossible to farm with limited technical capabilities.”

The field management system under the bunjo management system (or the subworkteam management system) divides the work unit consisting of 10–25 people into smaller units of 3–5 people, responsible for farming a smaller field. This is virtually a preliminary stage which could lead toward private farm ownership.

The field management system expanded countrywide after Kim Jong Un’s rise to power. It is considered to have contributed in part to the increase of agricultural production.

The newspaper cited pesticide as one example of the problem. In the past, spraying pesticides were for skilled workers; but in recent years, ordinary farmers are responsible for spraying pesticides on their own. However, from lack of experience, many farmers struggled with proper handling of pesticides and ended up wasting them or damaging their crops.

The newspaper, however, also introduced the story of jujube cooperative farms in Anak County of Hwanghae Province, praising one farm’s success in planting rice seven days earlier than planned, despite the adverse weather conditions.

Reportedly, the farmers at this cooperative farm underwent training in modern agricultural technology for 30 minutes every morning.

Another problem pointed out is that because the skill level of every farmer differs, some farmers may mistime rice planting during the planting season. In the past, task teams were formed based on skill level and could eliminate the discrepancies between farms; under the new system, problems are inevitable. Accordingly, it is reported that Anak County jujube cooperative farms are collectively helping each other to overcome this shortcoming.

The newspaper stressed that “when all farmers claim ownership of their field and subworkteam, one can create innovation in the farming operations.” Thus, the North Korean authorities are encouraging “collectivism” to overcome the limitations of the “field management system.”

UPDATE 12 (2015-7-10): The Institute for Far Eastern Studies (IFES) reports on the DPRK’s effort’s to reduce sub-workteam units and increase food production:

Despite Drought Last Year, Food Production Increased Due to Field Responsibility System

North Korea experienced its biggest drought in 100 years last year. However, North Korea claims that this did not affect its food production. North Korean authorities are claiming the main factor behind the increased food production is the will of farmers to produce more after the expansion of the “field management system,” or pojon tamdangje.

In an interview with the weekly newspaper, Tongil Sinbo, Chi Myong Su, director of the Agricultural Research Institute of the Academy of Agricultural Sciences of the DPRK commented, “the effectiveness of field management system (pojon) from cooperative farm production unit system (bunjo) is noticeable and succeeded in increasing grain production despite the adverse weather conditions.”

The field management system under the bunjo management system or the subworkteam management system divides the work unit consisting of 10-25 people into smaller units of 3-5 people, responsible for farming a smaller unit of a field. This is a measure to increase the “responsibility and ownership of farmers.”

From the July 1st Economic Management Improvement Measures enforced in 2002, the autonomy of cooperative farms and enterprises expanded. The “field management system” was piloted from early 2004 in Suan, North Hwanghae Province and Hoeryong, North Hamgyong Province, but was suspended soon afterward. However, this system is reported to have been implemented widely after the first National Conference of Subworkteam Leaders in the Agricultural Sector was held in Pyongyang in February 2014.

Economic principles behind the field responsibility system are stated as, “under the sub-work team structure, a smaller subworkteam consisting of 2 to 3 families or 3 to 4 people depending on the scale and means of production, is responsible for a specific field or plot (pojon) from planting to harvest stage to inspire farmers with enthusiasm for production by distributing the shares of production in accordance with the output of production planning.”

The newspaper added, “Despite the adverse weather conditions last year, the high grain yield was possible due to implementation of scientific farming methods and field management system to increase enthusiasm of farmers,” and “based on this experience, many cooperative farms across the country will expand subworkteam management system to field management system.”

Director Chi stated, “Since the field management system was implemented, farmers’ labor capacity increased to 95 percent. The planting time for corn and rice that took 20 to 30 days in the past is shortened to 10 to 15 days. In the autumn season, grain threshing that took 50 days is now only taking 10 days. This is changing the farming landscape.”

In addition, the distribution shares for farmers increased as well as the state’s procurement last year. This is attributed to “socialist distribution principles that distributed grains produced to farmers in-kind based on their efforts after excluding a specified amount of grain procured by the state.”

He added, “There are quite a number of farming households that received several decades worth of distribution after a year of farming. There is an increasing number of families with growing patriotism to increase the amount of grain procurement to the state.”

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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