A . Increased A wareness of the Market Economy, Strengthened D esire to W ork
As the scope of the government control of the economy diminishes and the market mechanism expands, awareness of the market economy among individuals and businesses is rising and a change in perception has swept through society.
First, the criteria for evaluating enterprises that used to be centered on “the volume of manufactured goods” is shifting to “profits,” signifying that a management mind-set based on profitability is being
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created. Regarding such changes, the North Korean government has stated, “In the past, companies needed to focus only on production. However, now that they are being evaluated by their earnings, it has become necessary for these businesses to focus on sales, which in turn, shifted attention to the quality of the manufactured goods.” (Joseon Sinbo, November 2003).
Second, with the abolition of the rationing system and introduction of a differentiated wage system which determines wages according to individual performance, the awareness of private ownership and people’s belief in the concept of “the more you work, the more you earn” has expanded. Moreover, “in North Korea, where economic reform is well underway, the number of housewives returning to work is rising (Joseon Sinbo, June 2003)” and “The average monthly wage of coal miners working at the Feb.
8 Jikdong Coal Mine (located in Suncheon, South Pyeongan Province) is estimated to be 30,000 North Korean won, while the highest earner makes more than 60,000 won per month (Joseon Sinbo, Oct. 2002).”
Third, it is believed that with the expansion of general markets, managers of enterprises should pay attention to selling their products at markets, and thus, need to acquire management skills related to the market economy such as the understanding of product quality, product brand and sense of competition.
As illustrated above, the change of consciousness brought on by the reforms is believed to have stimulated further potential for change as the people’s conceptions have shifted from “survival” to “profit”
through private economic activities following legalization of some profit-oriented activities such as sideline activities and the sale of goods on an informal basis.
B. Improving Productivity in A griculture and Light Industries, Revitalizing Commerce
Although economic reforms are showing signs of limitations in driving further productivity growth in the overall industrial sector due to a shortage of investment funds, energy and raw materials, there is also the positive outcome of increased productivity in such labor-intensive industries as agriculture and light industries, which led to the revitalization of commercial transactions.
In the agricultural field, the rising enthusiasm for farming and the improved rate of land use have steadily increased crop productivity (3.95 million tons in 2001, 4.13 million tons in 2002, 4.25 million tons in 2003 and 4.31 million tons in 2004). The increased agricultural productivity has resulted in “farmers looking for ways to make effective use of the land since they are paying for its usage even though it is the same land that once sat fallow due to poor conditions.” (vice chairman of Cheongsan Cooperative Farm, January 2001).
In the industrial sector, as the managers of factories and companies were granted expanded self-governing authority in management, they focused on generating profits, which particularly led to a marked increase in the growth rate of light industries (2.3% increase in 2003). Regarding this phenomenon, the Joseon Sinbo in December 2003 reported, “In most footwear factories, including those in Sineuiju and Gangseo, 9 million additional pairs of shoes have been produced through July in comparison with the same period of the previous year.”
Finally, in the commercial sector, the revitalized general markets have witnessed 9.8% growth in both wholesale and retail businesses in 2003, exceeding the total growth rate of 1.8% by a large margin.
According to a foreigner who visited North Korea in March 2004, “When you visit the markets on Tong-il Street, it would be hard to believe you are actually in North Korea.” It seems that the beneficial outcome of economic reforms is proving to be most conspicuous in the commercial distribution sector.
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2. Problems
As North Korea undergoes the process of economic reforms, a number of challenges have surfaced.
First, above all else, the unfavorable conditions that hamper economic reform exist. Although the North Korean leadership is determined to pursue further economic reforms, it is difficult to officially adopt policies advocating economic reform and opening, given the apprehension that these policies may adversely affect the regime. Not only are they largely dependent on foreign aid for such crucial supplies as food and energy, but North Korea’s social overhead capital (SOC) is seriously in need of modernization.
In addition, financial resources needed for investments have dried up. There is also a critical shortage of market economy management expertise. Meanwhile, the pressure on North Korea by the international community over the nuclear impasse has aggravated the North’s ability to obtain economic assistance from overseas, making it difficult to gain the capital and technology required for launching economic reforms.
Second, the side effects of economic reform, such as inflation, the growing disparity between the rich and the poor as well as rampant corruption, are posing serious problems. The high inflation and a soaring exchange rate resulting from the limited supply of goods make life difficult, and signs of economic chaos can be seen as the rumor of a currency reform spreads. According to details of price increases disclosed so far, the market price of crops in September of 2004 rose as much as 5 to 8 fold compared to two years earlier in July 2002. The price of beef rose 4 to 7 fold, prices for apparel and household appliances rose 2 to 7 fold and the exchange rate soared from 250 North Korean won for US$1 in August 2002 to 2,000 North Korean won. However, the rate has slightly dropped since January 2005.
Third, the increase in private economic activities, such as the sale of goods, and sideline activities have widened the financial disparity between the haves and the have-nots as well as among different classes and regions, and is considered the underlying cause of rising social discord. With the growing aspirations of accruing wealth, corruption prevails and burglaries, the byproduct of capitalism, are more frequently committed than before. In addition, as part of the illegal activities to earn foreign exchange, the number of restaurants newly opened in China has rapidly increased (from 26 restaurants in 2001 to over 90 restaurants in 2004), which is leading to lowered profitability, female employees deserting their jobs, and loosened ideology of the people. Consequently, it has been reported that some of those restaurants are in the process of shutting down.
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D iscussion
North K orean Economic Reform: G et Lesson from V ietnam
In order to examine North Korea’s economic reform and the possible lessons from Vietnam, we will (1) evaluate the North Korean economic reform, (2) examine the characteristics of economic reform in Vietnam, and (3) focus on lessons for North Korea from the reforms of Vietnam.
In evaluating North Korea’s economic reform, there have been some positive aspects of economic reform. For one, the North Koreans are “marketizing” in their own style. They are currently at the starting stage in system reform, and are still far from market economy. In addition, North Korea has officially emphasized their economic reform as they have used the word “reform” since June 2003. Other positive aspects of North Korean economic reform include specific reforms under the “Economic Management Improvement Measure” (July 1, 2002). Some important measures include inducement of self-imposed control system on factory management, differentiation of wages that could prepare for competition among companies, and changes from moral incentives to material incentive systems.
On the contrary, there are also problems of North Korean economic reform. For one, there is an uncertainty of reform and an unclear opening goal because the orientation for socialistic market economy is unclear. Furthermore, the people’s sympathy towards reform is non-existent, the state’s fixed price system is still maintained, and collective farming still exists despite family farming. In addition, there is no active opening policy besides an increasing of the exchange rate. Efforts inducing foreign investment, participating in international economic organizations, liberalizing trade, and decentralizing decision-making are not yet active. Finally, there is still no change in ownership.
In examining the characteristics of economic reform in Vietnam, one can learn that the Vietnamese reforms were created with three important aspects in mind: (1) reform attempt on the basis of
“pragmatism,” (2) highest priority on the reform of agriculture and development of light industries, and (3) an effective foreign economic policy. First, it is important to note that the Vietnamese reforms were based on “pragmatism.” The reform focused on pursuing national self-decision and avoided political conflicts between conservative and innovative classes. Second, the highest priority of reform was focused on agriculture and the development of light industries. The establishment of production contracts on the basis of open tender in agriculture increased productivity, and the enactment of the “New Land Law”
(December 1987) declared that while the state still has ownership, the right to use the land belonged to individuals for 15 years. Furthermore, the adjustment of the national economy and industrial structure to focus more on production of consumer goods led to the development of exporting goods and thus, rise in quality. Finally, the establishment of various enterprise forming such as state run, cooperative, capitalistic joint venture, private management, etc. led to effective exploitation of natural resources and development of labor intensive industry. Third, an important characteristic of Vietnamese reform is the implementation of an effective foreign economic policy. The establishment of foreign investment law promoted joint venture for inducement of foreign capital and technology, allowed learning of advanced management skills and training of bureaucrats and labor forces, increased participation in international division of labor, led to export diversification and capital accumulation, and finally helped the acquisition of hard currency from sight-seeing and airway services. In addition, Vietnam was able to improve its