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DPRK reported to be cracking down on hard currency

Monday, January 2nd, 2012

According to the Daily NK:

A Hamkyung Province source has informed Daily NK this afternoon of a directive completely forbidding the use of foreign currency in markets, saying he was informed that “As part of the last instructions of Kim Jong Il, those who circulate foreign currency including Yuan and Dollars will be punished more severely than those who deal in drugs.”

“They said it is part of General Kim Jong Il’s last instructions and didn’t say what the reason is, so it is being strictly enforced,” the source added.

In North Korea’s markets, foreign currency is ordinarily preferred to the North Korean Won, and most transactions are conducted accordingly in Chinese Yuan. Therefore, if the new measure is actually enforced it has the potential to cause chaos.

However, it may be just a part of an ongoing competition to display loyalty to Kim Jong Eun, and given that the use of foreign currency is so ubiquitous in North Korea that it would be extremely hard to strictly enforce such a measure, may not last long.

Dong Yong Seung, a researcher with Samsung Economic Research Institute in Seoul commented after hearing the news from Daily NK, “They could be trying to increase the value of the North Korean Won by stopping use of other currencies.”

Read the full story here:
Authorities Move to Block Currency Usage
Daily NK
Choi Cheong Ho and Cho Jong Ik
2012-1-2

Posted in Banking, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market), Kim Jong Un, Political economy | Comments Closed

Noland on DPRK inflation (post currency renomination)

Monday, December 5th, 2011

Marcus Noland has crunched some numbers to some up with an approximate inflation rate for the DPRK won after it was renominated in November 2009. According to his post:

The chart above shows the trajectory of prices for rice, corn, and the US dollar since January 2010 (i.e. after the huge step-jump in real prices in December 2009 following the currency reform). A simple regression of the prices (technically their logarithmic values) against time suggests that since the beginning of 2010, inflation on an annualized basis has averaged 131 percent for rice and 138 percent for corn. The won has depreciated against the dollar at a 136 percent annualized rate. A monthly breakdown of price movements suggests that while remaining high, the rate of inflation has attenuated, declining in 2011 relative to 2010.

The co-movement of the blackmarket exchange rate and grain prices would be consistent with a small, open economy in which prices are roughly constant in hard currency terms, but are skyrocketing in terms of the rapidly depreciating domestic currency. In the extreme this could depict an economy that was effectively becoming dollarized.

He also refers to a recent report that prices have not fallen with the autumn harvest and that that the DPRK had suspended anthracite coal exports to China out of fear of domestic shortages.

In general I think the findings are plausible and I am glad that this number is finally out there for the public to reference. I have just a couple of additional points of inquiry….

If the price and exchange rate data are from public sources, then they are probably geographically concentrated in the provinces that border China. Since there are significant barriers to arbitrage in the DPRK, I expect a large degree of regional price differentiation. Hypothetically, what would be the effect on these findings of an increase in observations from the “southern” provinces (if that were possible)? If the data are not geographically concentrated and represent a national sample, what would we expect to see if these regressions were run for each province, and how would they compare to the aggregated findings?

A working paper in the making?

UPDATE: A comment from an individual who works with Mr. Noland:

Thanks for sharing this piece on post currency reform inflation. You raise some good points on the regionality of our pricing data. It is true that we don’t have a lot of observations from southern provinces, but it is not all northern either. We get our price data from a number of sources including, but not limited to, Daily NK Market Trends, NK Today reports, and various NGO publications. This gives us a good mixture of general country level price data as well as regional data from provinces such as Pyongyang, North & South Hamyung, North & South Pyongan, & Yanggang. Before the currency reform, we also had a good number of observation from southern areas including North Hwanghae & Gangwon.

Marcus Noland and Stephan Haggard analyzed regional price differences in a previous paper, as well as discussing other issues such as the possible tendency to increase data collection during times of distress and the possibility that organizations might cherry-pick the data that they release, all of which could affect the statistical analysis of this data.

See the paper here (PDF).

Their analysis found that regional price differences are less systematic than one might expect.

On a related note, Ask a Korean also recently translated another Korean article by Ju Song-ha which deals with food prices in the DPRK. You must read it.

Posted in Economic reform, Food, General markets (FMR: Farmers Market), Price liberalization | 3 Comments »

Recent stories on food prices and inflation

Thursday, December 1st, 2011

Story 1 (Daily NK): Ministry strikes out currency swap (2011-12-1):

The Ministry of Unification has concluded that the currency redenomination implemented by the North Korean government two years ago was, as is already widely accepted, an utter failure in most regards.

According to the ministry, which revealed its assessment today, North Korea intended to use the currency redenomination to weaken the role of the markets, generate supplies of capital for the construction industry and adjust the amount of domestic currency in circulation, but ended up achieving the opposite.

Instead, the overall economy slowed, while markets have now made a comeback, recovering to their state they were in before the event.

The process was simple. Straight after the currency redenomination, the flow of commodities rapidly froze up due to contracting supply and weakening purchasing power. According to the Ministry of Unification, factories and enterprises that relied heavily on materials and capital from the market were fatally undermined. This immediately added to extant difficulties securing daily necessities, and forced the authorities to tolerate the markets once again. Commodity flows are still in the process of recovering.

But worse, the value of the domestic currency fell and people’s preference for US Dollars and Chinese Yuan deepened further, setting exchange rates and prices in a continuously increasing inflationary spiral.

This can be seen in the case of rice, a good proxy for overall economic conditions. In 2009, rice cost between 20 and 40won, but within a year had increased abruptly to approximately 1,500won, and as of November, 2011 was more than 3,000won. Despite the 100:1 ratio of the redenomination, prices have returned to their level before the currency redenomination.

The North Korean authorities even attempted to ban the use of foreign currency in January, 2010, causing various problems which resulted in the withdrawal of the plan in the following month. In December, 2009, a US Dollar was worth 35 North Korean won, but by a year later had soared to 2,000 won, and is currently worth 3,800 won.

The North Korean authorities said the currency redenomination would improve the lives of the people, but in truth because of hyperinflation people’s lives have actually gotten more difficult.

At the time of the currency redenomination, they emphasized care for the common worker, giving them wage increases and cash payments; a one-off bonus (500won per person) to laborers and an additional payment to farmers (150,000won per person). However, nominal wages subsequently increased 100 times, and with a lack of food, necessities and soaring inflation, made the people’s lives worse.

The average worker’s salary is now 3,000won, but the living expenses of a family of four are approximately 100,000 won per month.

In conclusion, an official from the Ministry of Unification declared, “As long as there is deepening popular distrust of the North Korean authorities, it looks like the power to implement future policy will weaken. The decisions made by the authorities that decreased the quality of people’s lives deepened the distrust.”

“The seizure of property, which in the short term alleviated polarization, ended up causing more poverty among the general population and had a relatively minor effect on the people who hold a lot of foreign currency.”

“North Korea tried to restore their socialist economy via the currency redenomination, but in reviewing the comments and perspectives of various North Korea experts and defectors we can see that the currency redenomination was an overall failure.”

That being said, he noted, “There is a limit to the ability of collective discontent to turn into collective political organizing.”

Story 2 (Yonhap): Botched currency reform destabilizes N.K. rice prices, exchange rates (2011-12-1):

North Korea’s currency reform has failed to stabilize rice prices and its currency while the nation still endures lack of food and supplies, Seoul’s Unification Ministry said Thursday.

The North carried out a massive currency reform two years ago to try to rein in galloping inflation, squash free market activities and tighten state control over the economy. The measures failed to halt massive inflation and worsened food shortages and public backlash.

The North Korean won was traded at 35 won to one U.S. dollar in markets right after the currency reform in late 2009. But one dollar was traded at around 3,800 won in November, up from around 2,000 won in 2010, according to the ministry.

The ministry, which handles inter-Korean affairs, also said rice prices have risen to pre-currency reform levels in a sign of food shortages in North Korea.

A kilogram of rice cost up to 40 won in 2009 before skyrocketing to about 3,000 won in November, the ministry said in an assessment of the North’s currency reform.

The dire assessment comes as the North is struggling to achieve its goal of building a prosperous nation by next year, the centennial of the birth of the country’s late founder, Kim Il-sung, the father of current leader Kim Jong-il.

The rice prices started to soar in Pyongyang on rumors that Kim failed to secure much aid during his trip to Russia in August, Good Friends, a Seoul-based private relief agency, said in September.

Rice is a key staple food for both South and North Koreans.

The botched currency reform is “expected to further deepen public distrust of the authorities and undermine their control on the people,” the ministry said in an assessment report.

Still, North Koreans are unlikely to display any collective action, because there is no organized political force, the ministry said.

Kim has been ruling the country with an iron fist, and tolerates no dissent.

There have been reports of growing discontent in the communist country over chronic food shortages and political oppression, though no organized opposition has emerged to challenge the leader.

Story 3 (Daily NK): Rice and Yuan zooming up in Ryanggang (2011-11-28):

The price of North Korean rice and the Yuan exchange rate have both reached post-2009 record levels in Yangkang Province, with domestic rice surpassing 4,000 won/kg and 1 Chinese Yuan selling for 720 North Korean won on November 28th.

Although a geographically remote location when seen from within North Korea, Yangkang Province act as a barometer for the situation in other areas because it stands alongside the capital Pyongyang and the Shinuiju-Dandong area as one of the most marketized, active trading locations of all.

Speaking with Daily NK today, a source from the province commented, “In the daytime on the 27th, the Yuan price, which had risen to 780 won, fell back to 720 won; however, the discomfort of the people is continual,” before adding, “Because of the rising exchange rate, the rice price also went up to 4,000 won.”

According to the source, as the price of North Korean rice hit 4,000 won/kg, that of Chinese rice also reached 3,200 won and sticky rice 5,000 won.

This means that the price of rice in Hyesan, the provincial capital, has now risen 500 won in two weeks, while the value of the North Korean won has depreciated by 120 won over a similar period.

The cause of the problem stems from a number of sources, but at the top of the list is a lack of faith in the North Korean won and the continual desire on the part of people who hold currency not to do so in domestic money.

As a result, the source said that traders are not selling their products, preferring instead to watch for changes, and with customers less likely to buy at such inflated prices, the overall effect is that trading volumes in the market have fallen drastically.

He explained, “There is even one rumor out there suggesting that by year’s end the price of the Yuan will have reached 1,000 won and that before long rice will have gone over 5,000 won. Rice traders are not selling their stock, saying that ‘if it gets more expensive, I’ll sell’, and so those citizens who are unable to get food together are looking pretty uneasy.’

Meanwhile, the new price records present a sense of cruel irony for a country about to commemorate the 2nd anniversary of the November 30th, 2009 currency redenomination.

“This is all the fault of the government, which organized the currency redenomination and destroyed the value of Chosun money,” the source agreed, complaining, “The price of everything is soaring, so the time has come where we can’t even buy blocks of tofu to eat.”

Posted in Banking, Construction, Finance, Fiscal & monetary policy, Food, General markets (FMR: Farmers Market), RoK Ministry of Unification | Comments Closed

Some interesting recent publications and articles

Thursday, October 20th, 2011

1. “Relying on One’s Strength: The Growth of the Private Agriculture in Borderland Areas of North Korea”
Andrei Lankov，Seok Hyang Kim ，Inok Kwa
PDF of the article here

The two decades which followed the collapse of the communist bloc were a period of dramatic social and economic transformation in North Korea. The 1990-2010 period was a time when market economy re-emerged in North Korea where once could be seen as the most perfect example of the Stalinist economic model. The present article deals with one of the major areas of socioeconomic change which, so far, has not been the focus of previous studies. The topic is about the growth of private agricultural activities in North Korea after 1990. This growth constitutes a significant phenomenon which has important social consequences and also is important from a purely economic point of view: it seems that the spontaneous growth of private plots played a major role in the recent improvement of the food situation inside North Korea.

______________________

3. Korea Sharing Movement anti-malarial program (Via Cancor)
Read a PDF of on the project here

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4. What is it like to teach at the Pyongyang University of Science and Technology (PUST)?
Find out from one instructor here. More on PUST here.

Posted in 1990s Famine, Agriculture, Arduous March, Black markets, Disease prevention, Economic reform, Education, Food, General markets (FMR: Farmers Market), Health care, International Aid, Korean Sharing Movement, Ministry of Forestry, Political economy, Pyongyang University of Science and Technology, South Korea | Comments Closed

Hamhung traders taxed to fund Pyongyang construction projects

Tuesday, October 18th, 2011

According to the Daily NK:

The North Korean authorities in Hamheung are demanding 150,000 won from each trader in local markets to support construction projects in Pyongyang, according to a source from the city.

“Since the start of October, Hamheung Municipal People’s Committee has been taking money from market traders on the premise that ‘You have to give material support to Pyongyang construction workers,’” the source told the Daily NK today. “In the case of traders in the markets in Hoisang and Sapo, they are being asked for as much as 150,000 won each.”

Hamheung is the most famous industrial city in North Korea, and as such has larger markets than many other places. Thus, given that each of the two markets mentioned by the source has more than 500 traders, if the authorities were to reach their goal figure then they would be able to take 75,000,000 won from each one.

However, the Market Management Office for each market already receives 300-500 won per day from traders in the form of a ‘stall tax’, with sellers of home appliances and other high priced goods paying 500 won and those who sell food only paying 300 won. Thus, 150,000 won represents a huge cost, and many traders are apparently reacting to the demand with incredulity.

The source also noted that this does not appear to represent a central Party directive, with only traders in South Hamkyung and Yangkang Province having been hit by it to date.

“In Hyesan Market in Yangkang Province, it is 100,000 won per trader,” the source revealed, adding, “It seems like a case of the provincial Party preparing funds to support Pyongyang construction by taking money from traders.”

Elsewhere, although traders are now angry at the demand for funding, everything else is good, with official market controls being very lightly implemented at the moment, according to the source.

“The market is open from morning to night, and with the exception of the usual crackdowns on grasshopper traders there are no notable inspections,” he revealed.

But then, he added sarcastically, “They are taking money from the market as if it were some kind of state industry, so maybe that’s why they are leaving it alone.”

Read the full story here:
To Hamheung Traders: 150,000 Won for Pyongyang!
Daily NK
Lee Seok Young
2011-10-18

Posted in 2012 Strong and Prosperous Nation (Kangsong Taeguk), Construction, Economic reform, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market) | Comments Closed

On the DPRK’s growing use of markets

Wednesday, September 28th, 2011

Pictured above (Google Earth): A street market in Rakrang District (락랑구역), Pyongyang.

According to the Korea Herald:

A market economy and new business class have emerged in North Korea since the 1990s even though their government will not acknowledge it publicly, a panel of experts said Wednesday.

Speaking at a luncheon hosted by the Center for Free Enterprise in Yeouido, Seoul, professor Andrei Lankov of Kookmin University said that the populace was forced into adapting to a new market economy after the fall of the Soviet Union in 1991.

Following the collapse of its main benefactor, there are sources that suggest that the North’s industrial output was halved by 2000 compared to what it had been in 1990, and that half a million to 1 million North Koreans perished, he said.

Unlike in former communist countries where the government chose to adopt capitalism or the people demanded it, “in North Korea it was just a way to stay alive,” he said.

“Only top officials survive on salary,” he added.

Walter Klitz of the Friedrich Naumann Foundation for Liberty said that in his periodic visits to North Korea he has seen the effects of the new market economy on the populace, as those in some rural areas of the nation are relatively well off.

“They don’t have a food problem, they have a distribution problem,” he said. Furthermore, he has witnessed traffic jams in urban areas apparently spurred by increased economic activity, something unheard of just a few years ago.

This also indicates that sanctions imposed on the North have been bypassed, particularly through increased investments from China.

The increase in this market activity, however, does not mean that the nation is no longer a planned economy, as the main institutions are still in place, they said. For example, laws against activities such as traveling outside of one’s home county or exchanging foreign currency are no longer enforced.

The North Korean government attempts to contain such market activity, but no longer attempts to clamp down on it since the botched currency reform of late 2009, Lankov said.

Furthermore, the presence of this new business class ― primarily made up of women because men are required to keep up appearances at their state-approved jobs ― does not mean the nation is more prepared for reunification than before. Lankov said that North Koreans who have succeeded in business would likely be swamped by competition for the South, and much of the nation would form a “permanent underclass” should unification take place.

“You would see much of North Koreans disadvantaged and never recover,” he said.

After each member of the panel made their remarks, they took questions from guests, with many questions relating to the succession process from current leader Kim Jong-il to his son and heir apparent Kim Jong-un.

Lankov said that he does not like to talk about succession often.

“I don’t know anything about Kim Jong-un, period,” he said. Whether or not he is more reform-minded than his father or grandfather, though, may not matter.

“His logic … will be much more defined by the political situation than by his own inclinations,” he said.

Another panel member was Donald Kirk, Korea correspondent for the Christian Science Monitor. In response to a question comparing the unification of the two Koreas to East and West Germany in 1990, Kirk called a comparison between North Korea and East Germany “fallacious.”

“East Germany was the most powerful economy in Eastern Europe,” he said. “It was not a starving country. It was certainly not a failed state.”

Read the full story here:
Signs of market economy in N.K. emerging: expert
Korea Herald
Rob York
2011-9-28

Posted in Black markets, Economic reform, General markets (FMR: Farmers Market), Labor conditions/wages | Comments Closed

DPRK rice price up

Friday, September 23rd, 2011

According to Yonhap:

The price of rice in North Korea has risen constantly over the past six months, reaching as much as 2,400 North Korean won (US$17.18) per kilogram early this month, South Korea’s Unification Ministry said Friday.

After falling to as low as 1,400 won per kilogram, rice prices started to increase in April and reached between 2,200 and 2,400 won by early this month, according to the ministry, which handles inter-Korean affairs.

Here is a compendium of stories about thie DPRK’s alleged food shortage and food aid this year.

Read the full story here:
Price of rice in N. Korea rises over past 6 months: ministry
Yonhap
2011-9-23

Posted in Fiscal & monetary policy, Food, General markets (FMR: Farmers Market), Price liberalization | 2 Comments »

New facts about the DPRK’s informal economy

Wednesday, September 21st, 2011

Pictured above (Google Earth): An unofficial street market in Sinchon (신천) is bustling while the nearby official marketplace is closed. See in Google Maps here.

The Choson Ilbo posted a few factoids about the official and unofficial economies of the DPRK:

The rationing system, the backbone of the socialist planned economy, has nearly collapsed. Some 4 million people still live on rations — 2.6 million in Pyongyang and 1.2 million soldiers.

But a senior South Korean government official said 20 million North Koreans rely absolutely on the underground economy.

“A North Korean family needs 90,000-100,000 North Korean won for living costs per month, but workers at state-run factories or enterprises earn a mere 2,000-8,000 won,” the source said. “So North Koreans have no choice but to become market traders, cottage industrialists or transport entrepreneurs to make up for shortages.”

Many stores, restaurants, and beauty parlors are privately owned. Private tutors teach music or foreign languages. Carpenters have evolved as quasi-manufacturers who receive orders and make furniture on a massive scale. They earn 80,000-90,000 won per month on average.

It is common to find people in front of railway stations or in markets who wait to earn a few extra won by carrying luggage or purchases in their handcarts. Like taxis, their fees are calculated on a basic fee and the distance covered.

In the countryside, people earn money by selling corn or beans grown in their own vegetable gardens in the back yard or in the hills. They can harvest 700 kg of corn a year from a 1,600 sq.m. lot. And by selling 50 kg of corn a month they make 30,000-40,000 won on top of their daily living costs.

“Ordinary North Koreans have become so dependent on the private economy that they get 80-90 percent of daily necessities and 60-70 percent of food from the markets,” the security official said.

Noland and Haggard’s recent book, Witness to Transformation, contains thorough and revealing data on market utilization in the PDRK. More here.

Posted in Black markets, Economic reform, Food, General markets (FMR: Farmers Market), Labor conditions/wages, Price liberalization, Private property, Public Distribiution System (PDS) | Comments Closed

Rajin market on display to foreigners

Tuesday, September 13th, 2011

Pictured above: (L) satellite image of the Rajin Market, (R) a ground-level photo taken in 1999

Among the the flurry of activities that comprised the DPRK’s recent public relations campaign in Rason (Rajin-Sonbong), the Rajin Market appeared on the itineraries of a few visiting delegates. Alexa Olsen writes about the market for the Associated Press:

Chinese travel agents, potential investors and foreign journalists recently traveled into the North to get a look at the special economic zone Pyongyang is promoting in Rason. It lies in the far northeastern tip of North Korea, 600 miles (1,000 kilometers) from Pyongyang, but will be about an hour’s drive from China once the road is completed.

Rumbling Chinese cargo trucks already ply the route, churning up plumes of choking dust and ferrying containers of Chinese-made shoes, plastic toys, computer speakers, T-shirts and DVDs to the Rason Free Trade Market.

The market, a 13-year-old experiment in small-scale capitalism, has been so successful that the Chinese managing company, the Tianyu Group, is planning to expand the jam-packed 54,000-square-foot (5,000-square-meter) market to 320,000 square feet (30,000 square meters), Tianyu vice director Zheng Zhexi said.

“As I see it, this is the way of economic development, and it’s something that the people want,” Zheng said. “I think it’s reached a point where it cannot be reversed.”

North Korea declared the area a special economic zone 20 years ago. But after a brief flurry of activity and funding from the U.N. Development Program, the project languished without backing from Pyongyang’s leadership.

…

Rason has benefited from the shift in Pyongyang’s priorities. When Zheng arrived in 1997 to set up the market, people were hesitant to get involved. Now Tianyu doesn’t have the space to approve even a fraction of the applications from prospective vendors, he said.

“Ordinary people’s sense and the awareness of the market, and their views on the economy — all these have changed a lot,” Zheng said.

Foreign journalists, who typically are barred from local markets, were taken on a strictly controlled, 15-minute tour. No photos, no notes, the guide instructed: “Just use your eyes.”

Vendors, mostly women, stood behind stands loaded with freshly skinned rabbit and live chickens, as well as goods mostly imported from China: blouses, speakers, refrigerators, sofas, shampoo, playing cards, binoculars.

High heels went for 25 yuan (US$4), a Kim Jong Il-style beige suit for 85 yuan ($13) and a container of sea salt for 3 yuan ($0.47).

North Korean tour guide Mun Ho Yong, 25, said his family shops at the market several times a week to supplement state rations of rice, oil and fish.

Everything Mun wore — striped dress shirt, belt, polyester trousers and black dress shoes — was bought at the market except his pin of late President Kim Il Sung attached to his shirt, over his heart.

One major challenge will be to successfully leap from the market’s small-scale commerce to full-fledged manufacturing and trade.

(UPDATE) In an article published later in the New York Times (2011-10-12):

A Chinese company critical to Rason’s development, the Yanbian Tianyu International Trade Company, got involved here 13 years ago. It began by erecting the bazaar, then built the casino, a hospital, a bread factory and a telecommunications building. It is now working on a cement factory, and operates two iron mines.

“The policy environment has been improving continuously,” said Zheng Zhexi, 58, the company’s vice president. “It’s moving towards a market economy.”

He pointed to the official tolerance for the bazaar, where merchants rent stalls from the government to sell goods that they buy from Chinese traders. Prices fluctuate and shoppers haggle. The bazaar has proved so successful that it is expanding to six times the current size.

These kinds of markets have sprung up all over the country to supplement the government’s weak food distribution system. Still, the government is sensitive to their capitalist nature, and some top officials have tried to set limits on them. Foreign journalists were permitted a 15-minute tour of the Rason market on the condition that they not photograph it or take notes.

The market, open just a few hours each day, was bustling, with goods like skinned rabbits, sofas, Sony headphones and Dell computer mice. A soldier with a Kalashnikov slung over his back walked among the aisles, looking to buy, and women running stalls wore red vests, the uniform of officially registered merchants.

In one corner was an office with the English words “Foreign Exchange” above the door. In Rason, currency is exchanged at the market rate — one Chinese renminbi to 350 North Korea won — rather than at the official rate, which values one renminbi at 15 won.

Additional Information:

1. Previous posts on Rason can be found here.

2. Additional information can be found here.

3. Source:
Tending a Small Patch of Capitalism
New York Times
Edward Wong
2011-10-12

Posted in Black markets, China, Economic reform, Fiscal & monetary policy, Foreign direct investment, General markets (FMR: Farmers Market), Joint Ventures, Price liberalization, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013) | Comments Closed

Kim Jong-il and his sister on markets and the market economy

Monday, August 22nd, 2011

Stephan Haggard and Dan Pinkston have found and posted comments attributed to Kim Jong-il revealing some of his thinking on “markets” and the “market economy”:

Kim Jong-il, “On the promotion of a superior socialist economy…adhering to the principles of socialism” June 18, 2008, dialogue with party and state officials.

“…As I said on many occasions during the recent period, one must have a correct understanding of the market. As we allowed a certain use of markets with respect to economic management, some people understood this as a departure from the socialist principle and as a move towards a market economy through “reform” and “opening up” of the country’s economy.

But this is a very wrong way of reasoning. Having a misguided understanding of the market and the market economy on the part of economic planners shows their lack of ideology and knowledge… [If] one fails to exactly and deeply recognize the party’s ideology and policy with regards to economic planning, that person will have his or her faith in the superior socialist economy shaken and can be dazzled by “reform” or “opening up” that the imperialists brag about and also be captured by the fantasy that the capitalist market economy promises.

Workers need to be awakened from these pitfalls…. Markets are both home to and a hotbed for un-socialist phenomenon and capitalist factors in the economic sectors. Without devising a national plan about markets and neglecting them as they are, or further encouraging their activities and expanding their reach, the country’s economy will inevitably turn into a market economy. However, following the practical conditions by using the market to a certain extent while keeping it under national control does not necessarily mean a movement towards market economy. Markets and a market economy are not the same concepts. The question resides in how to perceive and treat the market, and how to use it following [appropriate] principles and direction…”

-Original text in Korean

“…….내가 최근시기 여러 기회에 말하였지만 시장에 대한 인식을 바로 가져야 합니다. 우리가 경제관리에서 시장을 일정하게 리용하도록 하였더니 한때 일부 사람들은 사회주의 원칙에서 벗어나 나라의 경제를 《개혁》《개방》하여 시장경제로 넘어가는 것처럼 리해한 것 같은데 이것은 아주 잘못된 생각입니다. 경제지도일꾼들이 시장과 시장경제에 대한 그릇된 인식을 가지게 되는 것은 사상의 빈곤 지식의 빈곤에 빠져있다는 것을 말해줍니다. 누구나 할 것 없이 경제사업과 관련한 당의 사상과 방침을 정확히, 깊이있게 인식하지 못하면 사회주의 경제의 우월성에 대한 신념이 흔들리게 되어 제국주의자들이 떠벌이는 《개혁》《개방》에 현혹될 수 있고 자본주의 시장경제에 대한 환상에 사로잡힐 수 있는 것입니다. 이에 대하여 일군들이 각성을 높여야 합니다….시장은 경제분야에서 나타나는 비사회주의적 현상, 자본주의적 요소의 본거지이며 온상입니다. 시장에 대하여 아무런 국가적 대책도 세우지 않고 그대로 내버려 두거나 시장을 더욱 조장하고 그 령역을 확대하는 방향으로 나간다면 불피코 나라의 경제가 시장경제로 넘어가게 됩니다. 그러나 현실적 조건에 따라 국가적 통제 밑에 시장을 일정하게 리용하는 것이 곧 시장경제로 가는 것은 아닙니다. 시장과 시장경제는 같은 개념이 아닙니다. 문제는 시장을 어떻게 보고 대하며 그것을 어떤 원칙과 방향에서 어떻게 리용하는가 하는데 있습니다….”

Marcus Noland followed up with a [longer] publication by Kim Jong-il’s sister, Kim Kyong-hui:

Strengthening Centralized, Unified State Guidance Over Economy, Kyo’ngje Yo’ngu

Our army and people are vigorously carrying out a general onward march to elevate the economy to a stage of leaping development through a new great revolutionary upswing under the great party’s military-first leadership.

Today, when our country is displaying its majestic appearance and might as a politically, ideologically, and militarily powerful state, in order to build it into an economically powerful socialist state and a socialist paradise where the people enjoy an affluent life with nothing more to desire in the world by concentrating efforts on the economic construction and on improving the people’s living standard, it is necessary to adhere to the socialist principle in the economic work and bring the superiority of the socialist planned economy into high play, and what is important in this is to strengthen the centralized and unified guidance of the state over the economic construction.

The great leader [ryo’ngdoja] Comrade Kim Jong Il [Kim Cho’ng-il] has pointed out the following:

“Above all else, it is necessary to strengthen the centralized and unified guidance of the state over the economic construction.”

Strengthening the centralized and unified guidance of the state in the socialist economic management arises as a basic demand for improving the economic management in line with the intrinsic nature of socialist society, further consolidating and developing the socialist economic system by bringing the superiority of the socialist planned economy into high play, and accelerating the construction of an economically powerful state.

Strengthening the centralized and unified guidance of the state is a basic demand for improving the socialist economic management because, above all, managing and operating the country’s economy in a planned manner under the state’s centralized and unified guidance is an intrinsic demand of the socialist economy that is based on collectivism and a basic principle of the socialist economic management.

Realizing the centralized and unified guidance of the state in the socialist economic management serves as a lifeline of the socialist economic management, which stems from the natural law-governed nature of the socialist economic development and the essential characteristics of the socialist economy.

The centralized and unified guidance of the state over the economy is, above all, an intrinsic demand of the socialist economy that is based on collectivism. The socialist economy is a large-scale collective economy in which all sectors and units of the people’s economy are organically connected with each other based on social ownership of the means of production, and it is a highly organized and centralized planned economy. This is the essential superiority of the socialist planned economy, which is distinct from the capitalist market economy that operates spontaneously on the basis of private ownership of the means of production. In a capitalist society, the bourgeois state is not able to perform the function of interconnecting the management activities of different enterprises and leading them in one direction. In a capitalist society, the economy moves in a spontaneous manner amid the pursuit of profits and competition based on the law of the jungle due to the conflict of interests between the capitalist class and the working popular masses and among capitalists, and this accompanies the bankruptcy of enterprises.

In contrast, the socialist economy is based on social ownership of the means of production, and it is managed and operated through goal consciousness by the popular masses as the masters. Social ownership of the means of production calls for combining all economic sectors and units into a single production organism, and also for the factories and enterprises comprising its components to move under a unitary command. Realizing planned ties between factories and enterprises and ensuring that the economy operates under a single unitary command are firmly guaranteed by the unified guidance of the socialist state.

The centralized and unified guidance of the state over the economy is also a basic principle of the socialist economic management.

Apart from the centralized and unified guidance of the state and the principle of managing a planned economy, socialism cannot be defended in the economic field, and the socialist economy cannot be developed.

The initiative of lower units has to be brought into high play in the socialist economic management, but this has to be achieved strictly on the basis of firmly guaranteeing the centralized and unified guidance of the state and within the framework of the socialist planned economy. It is only through the centralized and unified guidance of the state that it is possible to correctly map out plans so as to guarantee the greatest actual profits consistent with national interests and the all-people’s economic interests, mobilize all production potentials of the country to the maximum, concentrate forces and resources on the objects that are of key significance in the overall economic development, and thus achieve a planned and balanced development of the economy. If one moves in the direction of giving a free rein to economic management and enterprise management in an attempt to enhance the initiative of lower units and strengthen their “independence” and “self-reliance,” then the lower units will break way from the unified guidance and control of the state and act as they please, and this will not only bring about tremendous national waste and loss but also make it impossible to neither defend socialism in the economic field nor develop the socialist economy.

Strengthening the centralized and unified guidance of the state is a basic demand for improving the socialist economic management also because the centralized and unified guidance of the state over the economy has to be strengthened in order to be able to mobilize all potentials to the maximum based on the principle of self-reliance and thus elevate the country’s economy to a stage of leaping development and accelerate the construction of an economically powerful socialist state.

Today’s great upswing calls for more highly holding up the banner of self-reliance, and an economically powerful socialist state is a powerful state of self-reliance, a powerful state with a mighty self-supporting national economy.

We have laid the strong foundation of a socialist self-supporting national economy by highly displaying the revolutionary spirit of self-reliance under the wise leadership of the great leader [suryo’ngnim] and the respected and beloved general. Mobilizing and utilizing the potential of the already provided foundation of a self-supporting economy to the maximum is the most accurate way to elevate the country’s economy to a stage of leaping development and accelerate the construction of an economically powerful socialist state in our style in the present circumstances.

Though many obstacles are still lying in the way ahead of us, we have to open a road of advance for victory by relying on the boundless creative ability of all the people, our resources and technology, and the superiority of our system.

The centralized and unified guidance of the state over the economy has to be strengthened in order to elevate the country’s economy to a stage of leaping development by mobilizing the potential of the already provided foundation of a self-supporting national economy to the maximum and to accelerate the construction of an economically powerful socialist state.

Above all, the centralized and unified guidance of the state has to be strengthened in order to ensure a balanced and harmonious development of the economy in conformity with the aspiration and demand of the popular masses. An important task we are faced with in the economic construction at the present time is to rely on the superiority of the socialist planned economy to closely combine the normalization of production with modernization and push ahead with it vigorously, and thus decisively surpass the highest production level in all sectors of the people’s economy. It is only under the condition of strengthening the centralized and unified guidance of the state that it is possible to create the military-first era’s speed of waging the general onward march by mobilizing all production potentials of the country to the maximum from the viewpoint of national interests consistent with the party’s policy demands, and also accelerate the construction of an economically powerful socialist state by harmonizing the production ties centered on the objects of key significance in the economic development, guaranteeing the planned and disciplined nature of the economic work, and thus achieving a balanced development of the overall economy.

The centralized and unified guidance of the state has to be strengthened also to be able to bring the initiative of individual sectors and units, and local areas into high play and thus actively mobilize and utilize the potential of the self-supporting economy.

There may be things that are in short supply and that are missing in the process of building an economically powerful state. This is why the demand for bringing the initiative of each sector and unit into high play arises in order for all sectors and units of the people’s economy to normalize production and surpass the highest production level based on the existing assets.

Only when the centralized and unified guidance of the state over the economy is realized smoothly, is it possible to enhance the initiative of all sectors and units in line with the intrinsic requirement for the development of socialist economy that is based on collectivism and decisively boost the economic effectiveness in mobilizing and utilizing the reserves.

Strengthening the centralized and unified guidance of the state over the economy in no ways means disregarding the initiative of lower units. The socialist economic construction can be carried out successfully only when the unified guidance of the state is combined correctly with the initiative of lower units. This is because if the state’s centralized and unified guidance enables the economy to develop harmoniously on a pan-social level, then the initiative of lower units spurs factories and enterprises to increase production and perfect the production and technical processes on their own by positively exploring and mobilizing the existing reserves and production potentials pursuant to the economic plans established by the state. If the lower units are restrained based on the opinion that the management activities of each unit should be unconditionally subordinate to the state, then the initiative of factories and enterprises will be suppressed and the production will not proceed smoothly. This is why the centralized and unified guidance of the state over the economy is based on the premise of further enhancing the initiative of lower units.

All the economic guidance functionaries should have a correct perception of the state’s centralized and unified guidance and realize it correctly, and thus bring the genuine superiority of socialist planned economy into high play.

“위대한 당의 선군령도따라 우리 군대와 인민은 새로운 혁명적대고조로 경제를
비약적인 발전단계에 올려세우기 위한 총진군을 힘있게 벌려나가고있다.

정치사상강국, 군사강국의 위용과 위력을 온 세계에 떨치고있는 오늘 경제건설과
인민생활향상에 힘을 집중하여 우리 나라를 사회주의경제강국으로, 인민들이
세상에 부러움없이 잘 사는 사회주의락원으로 건설하기 위하여서는 경제사업에서
사회주의원칙을 고수하고 사회주의계획경제의 우월성을 높이 발양시켜야 하며
여기서 중요한것은 경제건설에 대한 국가의 중앙집권적, 통일적지도를
강화하는것이다.

위대한 령도자 김정일동지께서는 다음과 같이 지적하시였다.

《무엇보다도 경제건설에 대한 국가의 중앙집권적, 통일적지도를 강화하여야
합니다.》

사회주의경제관리에서 국가의 중앙집권적, 통일적지도를 강화하는것은
사회주의사회의 본성에 맞게 경제관리를 개선하고 사회주의계획경제의 우월성을
높이 발양시켜 사회주의경제제도를 더욱 공고발전시키며 경제강국건설을
다그치기 위한 기본요구로 제기된다.

국가의 중앙집권적, 통일적지도를 강화하는것이 사회주의경제관리개선의
기본요구로 되는것은 무엇보다먼저 나라의 경제를 국가의 중앙집권적,
통일적지도밑에 계획적으로 관리운영하는것이 집단주의에 기초한 사회주의경제의
본성적요구이며 사회주의경제관리의 기본원칙이기때문이다.

사회주의경제관리에서 국가의 중앙집권적, 통일적지도를 실현하는것은
사회주의경제발전의 합법칙성과 사회주의경제의 본질적특성으로부터 출발한
사회주의경제관리의 생명선이다.

경제에 대한 국가의 중앙집권적, 통일적지도는 우선 집단주의에 기초한
사회주의경제의 본성적요구이다. 사회주의경제는 생산수단에 대한 사회적소유에
기초하여 인민경제의 모든 부문들과 단위들이 유기적으로 련결된 대규모의
집단경제이며 고도로 조직화되고 중앙집권화된 계획경제이다. 이것은 생산수단에
대한 사적소유에 기초하여 자연발생적으로 움직이는 자본주의시장경제와 다른
사회주의계획경제의 본질적우월성이다. 자본주의사회에서는 부르죠아국가가
각이한 기업체들의 경영활동을 서로 맞물리고 하나의 방향으로 이끌어나갈수
있는 기능을 수행할수 없다. 자본주의사회에서는 자본가계급과
근로인민대중사이, 자본가들사이의 리해관계의 대립으로 하여 경제가 리윤추구와
약육강식의 경쟁속에서 자연발생적으로 진행되며 이것은 기업파산을 동반한다.

이와는 달리 사회주의경제는 생산수단에 대한 사회적소유에 기초하고있으며
인민대중이 주인이 되여 목적의식적으로 관리운영된다. 생산수단에 대한
사회적소유는 모든 경제부문, 단위들을 하나의 생산유기체로 결합시키는 한편 그
구성부분으로 되는 공장, 기업소들이 유일적인 지휘에 따라 움직일것을
요구한다. 공장, 기업소들사이에 계획적인 련계를 실현하며 경제가 하나의
유일적인 지휘밑에 움직이도록 하는것은 사회주의국가의 통일적지도에 의하여
확고히 담보된다.

경제에 대한 국가의 중앙집권적, 통일적지도는 또한 사회주의경제관리의
기본원칙이다.

국가의 중앙집권적, 통일적지도와 계획적경제관리원칙을 떠나서는 경제분야에서
사회주의를 지킬수 없고 사회주의경제를 발전시킬수도 없다.

사회주의경제관리에서 아래단위의 창발성을 높이 발양시켜야 하지만 그것은
어디까지나 국가의 중앙집권적, 통일적지도를 확고히 보장하는 기초우에서,
사회주의계획경제의 테두리안에서 이루어져야 한다. 국가적리익,
전인민경제적리익에 맞게 가장 큰 실리를 보장할수 있도록 계획을 세우며 나라의
모든 생산잠재력을 최대한으로 동원하고 전반적경제발전에서 관건적인 의의를
가지는 대상들에 력량과 자원을 집중하여 경제의 계획적, 균형적발전을
이룩하는것은 국가의 중앙집권적, 통일적지도에 의해서만 옳게 실현될수 있다.
아래단위의 창발성을 높이고 《독자성》과 《자립성》을 강화한다고 하면서
경제관리, 기업관리를 풀어놓는 방향으로 나간다면 아래단위들이 국가의
통일적지도와 통제에서 벗어나 제멋대로 움직이게 되며 국가적으로 막대한
랑비와 손실을 가져오는것은 물론 경제분야에서 사회주의를 지킬수도 없
사회주의경제를 발전시킬수도 없다.

국가의 중앙집권적, 통일적지도를 강화하는것이 사회주의경제관리개선의
기본요구로 되는것은 다음으로 경제에 대한 국가의 중앙집권적, 통일적지도를
강화하여야 자력갱생의 원칙에서 모든 잠재력을 최대한 동원하여 나라의 경제를
비약적인 발전단계에 올려세우고 사회주의경제강국건설을 다그칠수
있기때문이다.

오늘의 대고조는 자력갱생의 기치를 더 높이 들것을 요구하며
사회주의경제강국은 자력갱생의 강국, 위력한 자립적민족경제의 강국이다.

우리는 위대한 수령님과 경애하는 장군님의 현명한 령도밑에 자력갱생의
혁명정신을 높이 발휘하여 사회주의자립적민족경제의 토대를 튼튼히 마련하였다.
이미 마련된 자립적경제토대의 잠재력을 최대한 동원리용하는것은 오늘의
형편에서 우리 식으로 나라의 경제를 비약적인 발전단계에 올려세우
사회주의경제강국건설을 다그치는 가장 정확한 길이다.

우리앞에는 의연히 많은 난관이 가로놓여있지만 전체 인민의 무궁무진한
창조력과 우리의 자원과 기술, 우리 제도의 우월성에 의거하여 승리의 진격로를
열어나가야 한다.

이미 마련된 자립적민족경제토대의 잠재력을 최대한 동원하여 나라의 경제를
비약적인 발전단계에 올려세우고 사회주의경제강국건설을 다그치자면 경제에
대한 국가의 중앙집권적, 통일적지도를 강화하여야 한다.

우선 국가의 중앙집권적, 통일적지도를 강화해야 인민대중의 지향과 요구에 맞게
경제의 균형적이고 조화로운 발전을 보장할수 있다. 현시기 경제건설에서
우리앞에 나서는 중요한 과업은 사회주의계획경제의 우월성에 의거하여
생산정상화와 현대화를 밀접히 결합시켜 힘있게 밀고나감으로써 인민경제 모
부문에서 최고생산수준을 결정적으로 돌파하는것이다. 국가의 중앙집권적,
통일적지도를 강화하는 조건에서만 당의 정책적요구에 맞게 국가적리익의
견지에서 나라의 모든 생산잠재력을 최대한 동원하여 선군시대의 총진군속도를
창조할수 있으며 이와 함께 경제발전에서 관건적인 의의를 가지는 대상들을
중심으로 생산적련계를 조화롭게 하고 경제사업에서 계획성과 규률성을 보장하여
전반적경제의 균형적발전을 이룩함으로써 사회주의경제강국건설을 다그칠수
있다.

또한 국가의 중앙집권적, 통일적지도를 강화하여야 개별적부문과 단위, 지방의
창발성을 높이 발양시켜 자립경제의 잠재력을 적극 동원리용할수 있다.

경제강국을 건설하는 과정에는 부족한것도 있고 없는것도 있을수 있다. 따라서
인민경제 모든 부문, 모든 단위에서 있는 밑천을 가지고 생산을 정상화하
최고생산수준을 돌파하기 위하여서는 매개 부문, 단위의 창발성을 높이
발양시켜야 할 요구가 제기되게 된다.

경제에 대한 국가의 중앙집권적, 통일적지도를 원만히 실현하여야 모든 부문,
모든 단위의 창발성을 집단주의에 기초한 사회주의경제발전의 본성적요구에 맞게
발전시킬수 있으며 예비를 동원하고 리용하는데서 경제적효과성을 결정적으로
높일수 있다.

경제에 대한 국가의 중앙집권적, 통일적지도를 강화한다는것은 결코 아래단위의
창발성을 무시한다는것을 의미하지 않는다. 사회주의경제건설은 국가의
통일적지도와 아래단위의 창발성을 옳게 결합시킬 때 성과적으로 진행될수 있다.
그것은 국가의 중앙집권적, 통일적지도가 전사회적범위에서 경제가 조화롭게
발전될수 있게 한다면 아래단위의 창발성은 공장, 기업소들이 국가가 세운
경제계획에 따라 있는 예비와 생산잠재력을 적극 탐구동원하여 생산을 늘이
자체로 생산기술공정을 완비하도록 추동하기때문이다. 만일 매개 단위의
경영활동이 국가에 무조건 복종되여야 한다고 하면서 아래단위를 얽어매놓으면
공장, 기업소들의 창발성이 억제되여 생산을 원만히 진행할수 없게 된다.
그러므로 경제에 대한 국가의 중앙집권적, 통일적지도는 아래단위의 창발성을
더욱 높이는것을 전제로 한다.

모든 경제지도일군들은 국가의 중앙집권적, 통일적지도에 대한 옳은 인식을
가지고 이를 옳바로 실현함으로써 사회주의계획경제의 참다운 우월성을 높이
발양시켜나가야 할것이다.”

Posted in 2002 Economic reforms, Black markets, Daean (Taean) System, DPRK Policies, Economic reform, Fiscal & monetary policy, General markets (FMR: Farmers Market), Price liberalization, Private property | Comments Closed

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