High ranking North Korean officials have relayed that, since last year, North Korea’s Kim Jong Un has on several occasions provided direction on improvements for economic management methods and that some new measures are being implemented on an experimental basis.
In a May 10, 2013 interview with the Choson Sinbo, North Korean Cabinet secretariat Kim Ki Chol and National Planning Committee director Ri Yong Min relayed that “Kim Jung Un spoke on several occasions, both this year and last, about the time to fix economic management practices and delegated related responsibilities to students and laborers.” The officials added, “We are holding rounds of consultation and discussion together with research institutes and representatives of several economic sectors.”
The officials further stated that “Out of these consultations have emerged a number of promising economic proposals which we are putting into practice on an experimental basis. In the case that they show positive results, we plan to introduce them across the country. Most remain in the research stage.” These remarks indicate that North Korea is embarking on some kind of economic reform measures.
These statements seem to confirm that North Korea’s economic measures are being driven by the direct orders of Kim Jung Un, such as the ‘June 28 Measure’ (i.e., policy on agriculture). They also suggest that once measures clear the testing stage, they will be implemented on a national scale.
They also explained that while additional new economic control measures are being adopted, these measures at the same time deal with issues related to production planning, price adjustment, and currency circulation. They added that new laws would have to be created, and explained that measures were being expanded that allow for the expansion of authority in the interest of reinvigorating production at factories and industrial sites.
Mention of price adjustment and currency circulation suggests that North Korea’s new economic reforms may not be limited to farms, factories, and industrial sites; rather, it hints at the possibility that North Korea will embark on much larger scale reform extending to the financial sector.
They explained that some farms which carried out the national plan last year implemented land distribution, and contributed to the right of factories and industrial sites to sell and trade freely. They added that such steps reflected the demands of workers.
The officials were reserved in their comments in regard to the timing of any future announcements related to North Korean economic measures: “If successes are consistent we can advance the reforms on a wide scale; but, for now, we need to keep an eye on progress.”
The officials added that they were being retrained in management at the University of the People’s Economy and taking classes about farm management and management at Kim Bo Hyun College.
North Korea emphasized the construction of an economic powerhouse at the beginning of May, and it is currently heating up in the fields of industry and farming by encouraging an increase in production. In relation to this, the Korean Workers’ Party is mobilizing media sources including the Rodong Sinmun, the Korean Central News Agency, and Korean Central Broadcasting.
Particularly, these media sources are emphasizing that obtaining a nuclear deterrent is the greatest asset on the road to economic construction. They are also claiming that increase in production is one means for the achievement of the new economic line of pursuing simultaneously economic construction and building of a nuclear force.
Now that the annual US-ROK joint unit tactical military field training drills, i.e., ‘Foal Eagle’, have concluded (as of April 30) and tensions on the Korean peninsula have subsided somewhat, North Korea’s new economic line is being assessed as one which is aimed at enhancing the economic livelihoods of North Koreans.
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.
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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.
On April 22, for the first time since Premier Pak Pong Ju took office as the new Premier of the DPRK Cabinet, North Korea held an extended cabinet plenary meeting. Cabinet members discussed a variety of topics including the economy, enhancing nuclear capability for military purposes, advancing the party line, the results of the National Light Industry Convention, the first quarter assessment of the People’s Economic Development Plan, and adjustments to be made to the People’s Economic Development Plan during the second quarter.
The meeting has spurred interest in what economic breakthroughs will be made under Premier Pak’s direction. While this was only the first extended meeting held since Premier Pak became premier, there appeared to be no fundamental changes in the party line. The results from the last Politburo extended meeting regarding the National Light Industry Convention and the advancement of the party line in the areas of economics and the nuclear program were mirrored in the cabinet meeting. At the meeting, cabinet members emphasized groundbreaking measures that would contribute to improving the lives of the North Korean people.
At the Light Industry Convention, Kim Jong Un ordered for the normalization of operations of factories that produce consumer goods. As Pak was the official in charge, it is likely that he demanded for specific plans to stabilize production.
At the extended cabinet meeting, measures in response to the international sanctions against the country were also discussed. The KCNA reported the results of the meeting: “Foreign economic business must be strengthened to destroy the blockade of the US imperialists and their followers and put forth tasks and measures to explore favorable conditions to become an economic powerhouse.”
In order to avoid the sanctions of the international community, North Korea must continue foreign trade with China and other countries, as covertly as possible.
With respect to the contents of the meeting, Minju Choson, the state-run North Korean government newspaper, reported that “specific plans were discussed to expand the fuel production and restart Yongbyon GMR (graphite moderated reactor), and educational programs for nuclear experts.” In addition, plans for the development of practical and communications satellite were established and reaffirmed in order to continue the launch of long-range ballistic missiles.
North Korea’s long-range missiles, restart of the Yongbyon nuclear facility, and uranium exploration are under the control of the Second Economic Commission, military defense (military economy affairs), not the Cabinet. The Second Economic Committeeis the central coordinating body of the DPRK’s military-defense industry. Yet, the cabinet declared its decision to continue nuclear and missile launches at the cabinet meeting. This would suggest that the cabinet is supportive of Kim Jong Un’s “byungjin line,” or policy of pushing forwarding economic construction and the building of a nuclear force.
Expectations that cabinet reform would be mentioned did not come to fruition. There is a probability that Premier Pak is preparing to implement in earnest the ‘6-28 Economic Management Improvement Policy’ which has been in the works internally since last year.
North Korean leader Kim Jong Un, since delivering the New Year’s Address last January, has promoted Premier Pak as the leader most qualified to execute plans to make North Korea an economic power. However, it is unclear whether Premier Pak will be able to meet such a challenge given the limited reforms in progress and the deterioration of the external situation. On the other hand, Premier Pak chose a cooperative farm for his first site visit which suggests that the North Korean cabinet may concentrate on agricultural sector this year.
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.
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
Today the Daily NK offers a scenario as to why the DPRK has not implemented more generous agricultural production incentives:
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.”
Anyone who has taken a game theory class will note the presence of credible commitment problems and backwards induction.
If a game consist of two players (the state, farmers) operating in an environment where credible commitment is not attainable, one could argue that an outcome where the state promises to increase agricultural incomes yet farmers work less is the predictable result. Here is why: If at the beginning of the game the state says “we will raise your incomes if you produce more” and farmers respond by producing more, in the absence of credible commitment, at the end of the game the state can simply take all the increased production and pay no more. There is nothing to force the state to actually keep its word once the increased output has already been produced (assuming policy makers with short time horizons). Of course by utilizing backwards induction farmers realize this and do not increase production despite the promise of higher incomes. In the limit case, the DPRK announces economic policy adjustments, nobody believes them, and nobody moves to increase labor supply in the official sector of the peoples’ economy.
If the DPRK wants to offer effective policy adjustments that lead to real increases in output it must not only promise greater material incentives to workers and managers but it must do so in a believable way. Unfortunately there are no simple mechanisms to credibly bind the hands of the North Korean policy makers within the DPRK. In the absence of suitable constraints on state power (broadly defined), this means that reputation capital is even more important for achieving desired policy goals. This is why the decision to back-peddle on the 6.28 agricultural policies, if this is indeed what happened, is perhaps the most damaging move of all in terms of improving economic performance. Taking the North Korean government at its word (reputation capital), the farmers who increased effort in the fields (expecting a 30% ownership of their output in return) have instead given the state a free lunch. They will not be so inclined to increase output the next time the government comes knocking on their door offering dreams of a chicken in every pot.
If the DPRK government hopes to induce workers to increase labor supply through official channels, relying on nothing more than reputation, it is going to have to pay for failing to live up to its economic commitments in the past. In other words, it is going to have to slowly build up its reputation capital again by increasing the incomes of workers through a policy that is not likely to pay off for several years. It is only after workers again feel confident that the state will not back-peddle on the promise to let them retain 30% of their output that they will increase labor supply and output.
Read the full story here:
6.28 Agriculture Policy on the Back Foot Daily NK
Lee Sang Yong
2012-10-12
Pictured above (Google Earth): The DPRK’s State Planning Commission (국가계획위원회) in Pyongyang
UPDATE 21 (2012-11-15): Writing in 38 North, Randall Ireson offers a succinct, comprehensive assessment of the DPRK agriculture system and offers policy advice moving forward. See the full article here.
UPDATE 20 (2012-11-12):Chris Green at the Daily NK points out anecdotal evidence that economic policy changes are still underway in the DPRK:
As noted by Yonhap in an article yesterday, recent days have seen multiple uses of phrases including “new management method” in the North Korean media, lending weight to the suggestion that a number of new economic measures have already been put into practice.
For example, last week on the 7th, state domestic and international radio broadcaster Chosun Central Broadcast ran a recording of a meeting of forestry workers at the People’s Palace of Culture in Pyongyang.
During the event, which was attended by high regime officials including Cabinet Prime Minister Choi Young Rim, the manager of a wooden goods manufacturer in Hamheung declared, “I will keep updating our industrial strategy and tactics in accordance with the demands of the new economic management method and give our management substance in order that we may secure the greatest possible profit and raise the productivity of investment.”
The words raise the question of whether factories such as that of the manager in question are actually acting autonomously in terms of management decisions, rather than simply taking orders from agencies higher up the food chain. If so, it would imply the implementation of new economic rules.
On a similar note, a November 9th article carried as part of a series by the Chongryon publication Choson Shinbo under the title ‘The Road to Our-style Economic Revival’ noted the introduction of a “new management method” in a piece on how Pyongyang’s No.1 Department Store has been changing in order to improve customer service.
Choson Shinbo has a history of reporting North Korean economic changes first, including the July 1st Economic Management Improvement Measures of 2001, making it one outlet for North Korea news worth keeping an eye on.
Reviewing the anecdotal evidence for the introduction of new measures, Cho Bong Hyun of Industrial Bank of Korea’s research arm told Yonhap, “The phrase ‘new economic management method’ shows that the new economic management measures that they never officially revealed have already been implemented. If their confidence in the new economic system grows, they will doubtless begin to present them as the achievements of Kim Jong Eun.”
UPDATE 19 (2012-10-19): Contrary to other claims (below), CCTV (China) reports that the agriculture policy changes have been implemented:
North Korea’s new economic policy, otherwise known as the ‘June 28 Measure,’ was to go into effect from October 1, 2012 but it is reported that enforcement of various educational and action plans related to the new economic management measure was halted.
According to the Internet news agency, Daily NK, its sources inside North Korea informed that, “From this month, the authorities in charge of implementing various plans preparing for the new economic measures, suddenly stopped educational and other related programs without any notice.”
Starting this July, North Korea began to make announcement through the Third Broadcast, to educate and inform specific plans related to the new economic measure to the North Korean residents. The Third Broadcast is an internal cable broadcasting system usually used to deliver important message to its residents.
The main objectives for the new economic management improvement measures are to improve autonomy in the factories and cooperative farms and the food distribution system. However, speculations began to surface that the new economic policy will be postponed after the Supreme People’s Assembly was convened on September 25, with no mentioning of economic measures or laws, contrary to expectations.
Since the plans for the new economic policy was announced to the public, exchange rates and market prices began to soar, creating hyperinflation phenomenon.
If North Korea continues to postpone the economic improvement plan, is likely to lead to adverse consequences as it can amplify the anxiety amongst the residents and the market, as many were already skeptical of the new economic measures.
On the other hand, production units reveal of its preparatory actions toward the new economic policy. Each factories and companies are submitting production indexes to the senior departments under the Cabinet and receiving evaluations according to its reports. Some factories are switching operations after obtaining outside capital, while other insolvent companies were closed down.
One example is Chongjin chemical factory. After forming a joint venture company with China, it was renamed to Chongjin Paper Production Factory. With over 3,000 employees, it will become one of the top three companies in the Chongjin area — after Chongjin Steel Works and Kim Chaek Iron Works.
UPDATE 17 (2012-10-15): The Daily NK offers a scenario for why an adjustment in agricultural production incentives have not been implemented: a bad harvest has forced policy makers to reconsider allowing the cooperative farms to keep so much of their produce. According to the article:
A Hyesan-based source explained today, “Cooperative farm cadres are saying that none of the experimental farms will be given 30% of their production this year because it has become difficult to meet the target. They are saying that the harvest is not good and they need to feed the military as a matter of priority, so first they’ll guarantee the military rice then give the rest to the farmers.”
A Shinuiju source corroborated the story, saying that the authorities “haven’t said they are going to take all the production from the farms, but nobody actually thinks they are going to get very much. People who trusted the official words are feeling quite stupid, and nobody is working very hard.”
Back in July, each province designated a number of ‘model farms’ that were to be used to test the policy. These farms were supposed to receive their initial inputs of fertilizer and machinery from the state, and then be given 30% of their production in return.
“They are saying that the state does not have enough rice right now and that there is no choice but to give it to the military, so please try to understand,” the source said. “Farm workers, many of whom had been buoyed by talk of food distribution, are really disappointed, especially since prices are sky high in the market these days.”
However, the Hyesan source also said that a lot of people are prepared to wait and see until at least mid December, when harvest processing concludes and distribution can be finalized. “People assume that Kim Jong Eun won’t want to disappoint the people in his first year in power,” he explained.
UPDATE 16 (2012-101-9): The Daily NK reports that North Koreans are confused about what has happened to the new economic policies that were under discussion:
The North Korean authorities originally began to announce news of the new economic system domestically in July, outlining increasing managerial autonomy, changes to payment systems and new farm procurement regulations. There were even some less detailed announcements on North Korea’s fixed line ‘3rd Broadcast’ system, which is used to disseminate propaganda handed down from the very top of the Party.
However, late last month signs of abnormality began to appear. Although few local people thought the measures would be publicly adopted at the extraordinary session of the Supreme People’s Assembly on September 25th, the source said they didn’t expect all references to the policy to disappear.
According to the source, cadres suspect that the authorities are not yet prepared to roll out the policy in practice. Many are not surprised; they say it was impractical to expect the policy to be executed in just three months, given that the July 1st Economic Management Improvement Measures of 2002 took nine months to come to fruition after a policy statement was first issued by Kim Jong Il on October 4th, 2001.
The surrounding economic conditions are far from ideal, also. Since the announcement of the new economic measures, North Korea’s markets have been facing hyperinflation conditions rooted in a sky-high Chinese Yuan exchange rate.
However, it is still considered unlikely that the policy has been cancelled altogether, since that would carry heavy consequences for regime legitimacy. Also, the authorities have advertised the policy to the international community in a number of stories (though not in the state media), and it would not serve the regime’s purposes to lie openly about this particular issue.
In addition, it is actually extremely rare for the authorities to cancel a policy after it has been announced under any circumstances; in any case, sources continue to report that those agencies charged with preparing the implementation of the new economic measures are still operational. The current status of factories is being assessed by units dispatched by the Party and the Cabinet is issuing new production targets. Some factories are pursuing outside capital, and work to consolidate under-performing enterprises is ongoing.
One example is Chongjin Chemical Works. Recently, the factory entered a partnership with a Chinese firm and changed its name to Chongjin Paper Factory. The factory is one of Chongjin’s three major Level 1 enterprises, and has a workforce of 3,000. However, it had actually been offline since the 1980s.
If history is any guide, a session of the SPA is not a place where new economic policies are declared. Even though there have been some exceptions to this rule, like for instance the promulgation of the 1984 Joint Venture Law. Admittedly, at that time, the SPA was more important because had the job of approving the economic plans of the state. Such plans are a thing of the past now, and economic pronouncements have become significantly less common at SPA sessions.
Over the last three decades, nearly all important economic measures were not introduced at SPA sessions, and as a matter of fact were usually not mentioned at all.
Good examples are provided by what were arguably the two most important economic measures introduced by the North Korean government since the death of Kim Il Sung in 1994 – the economic reforms of 2002, and the currency reform of 2009.
The ‘First of July Economic Management Improvement Measures’ of 2002 were much overrated in the foreign media at the time, but nonetheless constituted the most radical attempt ever undertaken to reform the North Korean economy by Kim Jong Il and his advisors. The reforms legalized many market activities, provided industrial managers with significant autonomy in decision making, and also increased state procurement and consumer prices to levels comparable to the black market at the time (for example, one kilo of rice before the reform was officially priced at 0.08 won, after the reforms the price had been raised to 44 won – a near 500-fold increase).
The 2002 reforms were soon rolled back, but what is important here is the fact that the world was to learn about the reforms not when they were first introduced in July, but some two months later, when some mentions of the reforms began appearing in official publications. This might sound strange to a Western reader, but measures that significantly changed the economic life of the country remained unreported by the official media for a significant amount of time (and indeed were never fully explained).
The currency reform of 2009 presents us with an even more striking example of a well-arranged complete media blackout. The reform itself produced the greatest economic and social upheaval in North Korea since the famine of the 1990s. The North Korean populace was suddenly told that the currency they held was now null and void, and could be exchanged for new notes in limited amounts (usually only to the equivalent of few months of official salaries). At the same time, the use of foreign currencies was banned, and markets and state-run shops were closed. For a few months in early 2010, even members of the Pyongyang elite experienced difficulties in getting their daily rice. According to foreign observers in Pyongyang, popular discontent was palpable and for a brief while, a violent collapse of law and order appeared possible.
This dramatic upheaval of course was completely ignored by the North Korean media; TV, radio and newspapers failed to mention the fact that retail trade was at a complete standstill and the fact that a currency reform was underway. All information was provided to the average North Korea through the cable radio network – officially known as ‘radio number 3’, as well as through confidential letters sent to petty officials and bank clerks. North Korean media outlets also sometimes mentioned the currency reform – of course whilst extolling its alleged virtues – but in the domestic media references to the reform were a complete taboo.
UPDATE 14 (2012-9-28): The Daily NK reports that in addition to agriculture and industrial policy adjustments, it appears that the DPRK is planning to reorganize, “rationalize”, and possibly close, many state owned enterprises:
The central authorities are planning to merge uncompetitive factories and enterprises with stronger ones as North Korea prepares to embark on the full implementation of the so-called ‘June 28th Policy’, Daily NK has learned.
This process is being undertaken to give those enterprises that remain the best chance of competing under the new rules that are due to enter force in the coming days.
An overseas Chinese trader explained the situation to Daily NK on the 27th, saying, “A whole bunch of traders who were in China on business trips started rushing back to North Korea. They had heard that the authorities planned to rationalize the number of small and medium size enterprises so they headed back in a hurry to investigate for themselves.”
“The word is that they are going to get rid of those enterprises that don’t turn a profit for the people and aren’t helpful to the development of the country. A lot of these workers are getting calls from their companies and going back,” the source went on. “It’s meant to be about getting rid of weak and loss-making enterprises in advance of bringing in the new economic improvement measures.”
The latest moves form part of a process that began in mid-July, when Central Party teams made up of personnel from the department of the State Planning Commission responsible for production facilities, their provincial equivalents and the Central Prosecutors Office were dispatched to the regions to assess the state of existing production facilities. At that time, Daily NK reported that “Because it’s an inspection of production facilities, managers in charge of those facilities have also been called in [by the inspection teams].”
According to a second source, employees from companies slated for elimination are to be reassigned to the company merging with them. He explained, “Rather than simply get rid of enterprises and factories, they are trying to either merge them with bigger companies or with companies in the same sector.”
Although workers assigned to unproductive enterprises are understandably keen to move to a company with even a modest amount of potential, the state of the broader North Korean economy has nevertheless put most in a state of ‘50% anticipation, 50% fear’ over what will come next. At the time of writing, the price of rice has reached an outlandish 6700 won/kg even in Pyongyang itself, while also arriving at 7000 won in Onsung County and 6500 won in Hyesan, putting those people without foreign currency in a very difficult situation.
Another major problem is that while the official aim of the policy is to retain only those enterprises that are capable of implementing the tenets of the June 28th Policy effectively, only around 30% of North Korean enterprises are fully functioning, which means that there are around 70% in an uncompetitive condition. Therefore, it seems inevitable that some uncompetitive enterprises will have to be kept, and these are likely to be a drain on the economy in the short to medium term.
Not only that. In the words of the source, “For the workers from weak companies the opportunity to work for a bigger company in a better atmosphere is pleasing, but they also know that economic changes have never succeeded in North Korea, and in fact have periodically made things worse.”
UPDATE 13 (2012-9-23): The Associated Press (via Washington Post) offers on-the-record accounts by farmers in the DPRK talking about agriculture reforms:
North Korean farmers who have long been required to turn most of their crops over to the state may now be allowed to keep their surplus food to sell or barter in what could be the most significant economic change enacted by young leader Kim Jong Un since he came to power nine months ago.
The proposed directive appears aimed at boosting productivity at collective farms that have struggled for decades to provide for the country’s 24 million people. By giving farmers such an incentive to grow more food, North Korea could be starting down the same path as China when it first began experimenting with a market-based economy.
Two workers at a farm south of Pyongyang told The Associated Press about the new rules on Sunday, saying they were informed of the proposed changes during meetings last month and that they should take effect with this year’s upcoming fall harvest. The Ministry of Agriculture has not announced the changes, some of which have been widely rumored abroad but never previously made public outside North Korea’s farms.
Farmers currently must turn everything over to the state beyond what they are allowed to keep for their families. Under the new rules, they would be able to keep any surplus after they have fulfilled state-mandated quotas — improving morale and giving farmers more of a chance to manage their plots and use the crops as a commodity.
“We expect a good harvest this year,” said O Yong Ae, who works at Migok Cooperative Farm, one of the largest and most productive farms in South Hwanghae Province in southwestern North Korea. “I’m happy because we can keep the crops we worked so hard to grow.”
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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.
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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.”
Pictured above (Google Earth) is Changsong Town in North Pyongan Province.
There has been a lot of talk about economic reform in the DPRK in recent weeks (see here). One of the aspects of these reforms has been greater local/regional control over economic policies and outcomes.
On August 9, the Daily NKreported that Changsong is “again being put forward as a model for the spontaneous economic development of regional cities and counties as the regime works to foster a different mindset prior to impending economic changes”. According to the article:
On the 8th, Rodong Shinmun published an editorial entitled, ‘Let Our Country Be Prosperous in the Spirit of the Changsung Joint Session’ in an edition that also featured seven other related articles. The articles served as a timely reminder of the joint session of central cadres, their provincial counterparts and economic sector officials held on August 7th and 8th in Changsung County.
[...]
Utilizing the history lesson, Rodong Shinmun emphasized, “The fundamental essence of the Changsung Joint Session was increasing the role of the county in developing regional industry and agricultural accounting, and enhanced the people’s lives by the strength of our household itself.”
It went on, “In every city and district, we must resolve to decisively raise the productivity of our land to solve issues of food insecurity, and must thoroughly implement the Party’s agricultural revolution.”
On days prior, Rodong Shinmun, KCNA and other state-run media outlets also reported in various forms the idea that ‘all the counties in the country are going to follow the example of Changsung County.’ For example, on the 7th it introduced a new food processing plant in Changsung County itself.
Analyzing these moves, Kwon Tae Jin, a researcher with the Korea Rural Economic Institute told Daily NK, “When it comes to the agricultural sector, the county is at the center of everything. This is a way of passing the center’s role to the regions at a time when the center (the Ministry of Agriculture) cannot play its role properly.”
“The purpose of emphasizing the responsibility of the Cabinet and the counties at the same time is to readjust the system,” Kwon added, while the head of North Korea Strategy Center, Kim Kwang In added, “Since the center cannot do what it needs to, they want the regions to deal with survival.”
The move is also intended to raise the likelihood of the 6.28 Policy succeeding. In Kim’s words, “The regime is pushing regional self-reliance prior to the announcement of the new policy.”
Interestingly, this narrative paints the 6.28 policy as an effort to decentralize economic production because Pyongyang can no longer afford the old policies, yet for propaganda purposes, it is being portrayed as the continuation of a movement personally launched by Kim Il-sung 50 years ago!
Changsong has indeed seen a lot of recent construction. According to KCNA (2012-8-4):
County, Model in Local Economic Development
Pyongyang, August 4 (KCNA) — Changsong County, North Phyongan Province of the DPRK, has become a model in the development of local economy in the new century. Great changes have taken place in all aspects of production and construction in a matter of little over one year.
Local industrial factories have been placed on a modern and scientific basis to lay a firm foundation for reenergizing production and improving the standard of people’s living. The county seat has taken on a new appearance to suit the specific features of a county.
President Kim Il Sung provided field guidance of devotion to the county, once known as remote mountainous county, more than a hundred times in his lifetime with a noble intention to turn it into a model to be followed by all other counties.
There began a new history of mountains of treasures in the county under his care. As a result, the Changsong joint meeting of local party and economic officials was held in the county in August 1962.
Leader Kim Jong Il made sure that the spirit of the joint meeting was fully displayed generation after generation. He gave an instruction to the county to raise a new torch for effecting a dramatic turn in the local industry in November 2010.
The dear respected Marshal Kim Jong Un has led a drive to face-lift the county as required by the building of a thriving nation so that the year 2012, the 50th anniversary of the joint meeting, may shine as a proud year and a year of new changes in the development of local industry.
All local industrial establishments in the county have undergone dramatic changes as required by the new century in a matter of little over one year.
All production processes at the foodstuff factory ranging from feeding of raw materials to packing and forwarding have been automated and its overall processes sterilized to ensure high quality and hygienic safety of products.
Its textile mill has installed new type machines. Technological updating has made brisk headway at all industrial establishments in the county including paper, furniture and chemical and daily necessities factories.
There has sprung up a new food processing factory. All its processes computerized, the factory mass-produces processed meat and vegetables, varieties of soft drink, and confectionary.
A garment factory with big capacity has been built to meet the county’s need for school uniforms and solve the issue of clothing by itself.
The appearance of the county has changed beyond recognition.
The county erected a mosaic depicting the portraits of the smiling peerlessly great persons. The Changsong revolutionary museum and the county hall of culture have been successfully renovated as centers for the education in the revolutionary history and people’s cultural and emotional life.
The Changsong Restaurant and a noodle restaurant built with Korean style roofs in the center of the county seat add to the beautiful landscape of the township.
There sprang up the Undok Health Complex with all welfare and service facilities, a children’s hall, kindergarten and nursery.
The library, county people’s hospital, sanatorium, commercial and catering network, public buildings and dwelling houses have also been renovated as required by the new century.
A great success has been made in the land management.
The eye-opening changes in the county promise a socialist land of bliss where all varieties of consumer goods are mass-produced at the local industrial factories and the people enjoy happiness in their modern houses.
On 2012-8-7, the KCTV evening news broadcast images of some of the new construction:
And on August 8, KCNA reported that Choe Yong-rim visited the town:
Senior DPRK Party and State Officials Visit Changsong County
Pyongyang, August 8 (KCNA) — Senior party and state officials including Choe Yong Rim and officials of party, ministries, national institutions and local party, power and economic bodies visited various places of Changsong County, North Phyongan Province on Wednesday on the occasion of the 50th anniversary of the Changsong joint conference of local party and economic officials.
Changsong County is associated with the leadership feats of President Kim Il Sung and leader Kim Jong Il who opened up a wide road of developing local economy and improving the people’s living standard by increasing the role of county as a regional base.
The participants laid bunches of flowers before the newly erected mosaic depicting portraits of smiling Kim Il Sung and Kim Jong Il and made bows to them.
At the Changsong Revolutionary Museum, they looked round historic relics showing the efforts made by the President and Kim Jong Il who ushered in a new history of mountains of treasures, while giving field guidance to the county.
They also went to local industrial factories in Changsong including Foodstuff Factory, Foodstuff Processing Factory, Furniture Factory, Paper Mill, Jute Bag Factory and Okpho Stockbreeding Farm.
They enjoyed a performance given by the art group of the county at its cultural hall.
ORIGINAL POST (2012-8-8): Three good recent posts on economic changes in the DPRK can be found here, here, and here. They describe aspects of the recently discussed 6.28 policy as well as other economic events.
On August 8, Radio Free Asia published a story (in Korean) that claimed that economic changes will be much more “radical” than the “calibrarions” established under the 6.28 policy.
Fortunately, Chris Green translated the article and sent it to me:
It has emerged that North Korea has officially introduced its ‘new economic management
system’ and announced the abandonment of the planned economy and public distribution.
However, free education and healthcare will remain untouched as the authorities assert that
the ‘new economic management system’ is not the same as ‘reform and opening’.
Moon Sung Hwee in Seoul has the story.
So far only mentioned in information from domestic South Korean government sources, the
shape of North Korea’s economic reform is finally emerging. The North Korean authorities
have officially promulgated the implementation of a ‘new economic management system’
to labor organizations, people’s units and individual factory enterprises, according to inside
sources.
One such source from Yangkang [Ryanggang] Province said, “Starting on August 6th, there have been
lecture meetings in every worker’s organization, people’s unit and factory enterprise about
the ‘new economic management system’. In these meetings, they have been describing the
concrete facts about the ‘new economic management system’ and its implementation.”
According to the source, lecturers have been dispatched from the Central Party to each worker’s organization to organize the lectures on the ‘new economic management system’, and explanatory documents have been sent to the regional Party arms for dissemination in meetings in individual factory enterprises and people’s units.
The source said that the basic contents of the ‘new economic management system’ are that the state will not set the plan or say what items are to be produced; individual enterprises will produce what they wish and decide for themselves the price and by what means production is to be sold, meaning that North Korea is discarding the planned economy that has been the cornerstone of its socialist system.
Notably, production equipment and materials, fuel and energy issues are to be dealt with not by the state but through deals done between factories and coal mines, power stations etc; however, individuals may not establish their own factory enterprises and enterprise Party cadres are to still be employed and made unemployed by the Chosun Workers’ Party.
A source from North Hamkyung Province claimed, “According to the ‘new economic management system’, production, sale, income and distribution are to be decided by the factory enterprises themselves. The only ones who are to continue receiving state distribution are state administrators, educators, medical sector workers; the distribution system for everyone else is to be scrapped.”
In the agricultural sector the ‘new economic management system’ is to be introduced this autumn, with production divided 70-30 in favor of the state according to the plan and any over-fulfillment also going to the agricultural workers.
In terms of timeframe, North Korea has simply said “from now”, but the source personally understood this to mean as soon as each factory enterprise is prepared, with each facing a different situation.
This deliberate vagueness may also be related to the fact that declaring a concrete start date would have incited inflation in the jangmadang, causing widespread side effects. Therefore, the authorities have tried to minimize internal conflict and ensure smooth implementation of the plan.
Meanwhile, according to sources, the reason why lecturers emphasized the continuation of free education and health care was to point up the fact that the ‘new economic management system’ does not mean ‘reform and opening’ as suggested by the imperialist powers; rather, it means ‘our style socialist economic policy’.
The claim that the state is giving up its role as economic planner, however, is certainly more radical than anything that has been announced before. On the surface it seems implausible that the Kim Jong-un regime, which is doing its best to remind the people of the “good old days” under Kim Il-sung, would scrap the economic model associated with the Great Leader. Additionally, the leadership would have to manage the transition costs of leveraged party cadres and cabinet technocrats who are responsible for the creation and enforcement of economic policies. Finally, since when has Pyongyang ever voluntarily given up authority to local and regional actors?
But maybe these costs are no so large? Maybe there are enough key North Koreans today who are happy to leave the Stalinist Kim Il-sung economy in the history books? After all, most up-and-coming cadres today will have been born after the “arduous march” and will have no first-hand memories of the Kim Il-sung era. Additionally, maybe the party cadres and bureaucrats who are responsible for economic policies are the very individuals who benefit from from the black- and grey-market activities that keep the official economy afloat? It is plausible (and I believe likely) that the black/unofficial market in the DPRK is larger (in value terms and numbers of employees) than the official economy. If this is the case, then ending the planning bureaucracy does not necessarily mean their incomes will disappear or even shrink.
Anyway, I am not sure what to make of any of these stories and since I am not in the prediction game, that is fine with me. As always, I look forward to seeing what the North Koreans are going to do with themselves.
There is increasing speculation that the new Kim Jong Un regime is pushing toward economic reform. This may be due to Kim’s young age, as he is considered to be more open to change than his father.
According to an unnamed South Korean official, there is a growing prospect that North Korea will soon release a new economic reform measure. More and more testimonies from North Korean defectors suggest that since Kim Jong Il’s death, reform measures are slowly taking place. But it is unclear when such new economic reform measure will occur.
North Korea’s behavior also implies that certain economic reform may occur. The spokesperson for the DPRK’s foreign ministry made a statement last month to the KCNA, “The dear respected Kim Jong Un has already set forth a goal of Korean-style development and strategies and tactics for enabling the Korean people to live well with nothing to desire more in the world. He is now wisely leading the general advance of the Korean people for economic construction and improving the standard of people’s living.” This indirectly suggests that the Kim Jong Un regime will put forth a new economic measure.
On the other hand, the content and timing of such still remains uncertain. According to the NK Intellectuals Solidarity, the Central Committee of Workers’ Party decided on a policy to introduce a new economic management system on August 1, one that would be centered around the cabinet.
What path North Korea will take with the new economic reform is unknown. However, the reform will comprise various economic sectors including agriculture, commerce, production and distribution. Details of the reform are unavailable.
The NK Intellectuals Solidarity predicted that new measures will be centered around the legalization of permitting private investment and commercial activities in service and trade sectors and private contract system for agriculture.
In contrast, Daily NK expects the core of the new economic measure will involve downsizing of cooperative farms (from 10-to-25 people in size to 4-to-6 people) and permit farming in unused lands; enforce government procurement system based on market price and strengthening self-supporting accounting system for companies.
The Choson Sinbo, a Japan-based pro-North Korean newspaper ran an editorial on July 11 that North Korea’s economic revival strategy is to follow the global trend but doing it “our-way.” The news also added that North Korea has already entered the path toward economic restoration and praised Kim Jong Un’s “our-style development goal and strategy” to improve the lives of the people while following the current trend of knowledge-based economy.
The news explicated that emphasis on “following the global trend” did not mean following and copying other nations but aimed for the nation to develop and rise on its own to reach the most advanced level of society. In addition, it is considered a refute against South Korea’s over interpretation about the possibility for opening and reform in North Korea during the Kim Jong Un era.
