Reality and Evaluation
C. Evaluation and Prospect of North Korean Economy
ㅁⅣ. Economic Reform and Its Side Effects in North Korea: Reality and Evaluation 37
this is a major difference from the economic reform of other socialist countries.
Fourth, there are some advantages for North Korea to pursue reform vigorously such as the industry structure that focuses on manufacturing, a far smaller sized economy than China, and the possibility for powerful developmental dictatorship. Nevertheless, Kim Jong-il’s intention is not complete economic reform. North Korea shows strong volition toward keeping to the fundamentals of socialism, and this is the reason why the reform in North Korea is so lethargic.
style.” Even though North Korea introduced the elements of a market economy, it is a market of “their own form,” shaped by socialist principles and with operation through government planning.
Although “marketization North Korean style” is not marketization in the strict sense, it is true that there are some sprouts of marketization blossoming in the following accounts.
First, North Korea has formalized its reforms. The country had avoided using terms like “economic reform” and “market” but has begun using these officially since June 2004. There are some examples that suggest the possibility for real marketization such as a change of viewpoint toward the market11 from an object for control to a part of the distribution mechanism,12 and with the intention to link markets with economic reform.13 North Korea has adopted policies to utilize the market as a tool of increasing financial income by collecting “the market rental fee.”14 Markets in North Korea are not simple marketing locations in which surplus
10 Hong, Ik-Pyo․Dong, Yong-Seung․Lee, Jeong-Cheol, Recent Change on Price/Distribution System in North Korea and the Tasks on Reform: A Comparative Study to China (Korean), the policy studies in Korea Institute for International Economic Policy 04-15 (2004), p. xiii.
11 “(...) the market is a part of the distribution... (we) should not ignore the function of market in spite of socialism.” The Chosun Shinbo (June 16, 2003).
12 “The government admits the market as a part of distribution, not the object of control. The farmer’s markets in Pyongyang became the (general) market. It is because not only farm products but various kinds of industrial products are trading.” The Chosun Shinbo (April 1, 2003).
13 “The characteristic of the economic reform in Chosun is bold and flexible policies like the establishment of the general market.” The Chosun Shinbo (June 16, 2003); “Because we don't have any experience of the market, we are going to induce various cooperation like training the experts and introducing experiences from other countries.” The Chosun Joongang Tongsin (June 10, 2003).
14 The Joongang Ilbo (June 26, 2003).
ㅁⅣ. Economic Reform and Its Side Effects in North Korea: Reality and Evaluation 39
products are traded, but they are a tool for satisfying the social/collective needs that rapidly increased after the “July 1st Measure.”15
Second, North Korea has been trying to suppress the money supply in the distribution market. The government takes actions like issuing government bonds to suppress the increase of money supply and attribute the remaining money to economic development. In other words, government bonds are a tool to collect the excessive money supply that results from inflation. This is a typical policy from the monetary economic theory in the capitalist economics textbook.
Third, prices are set flexibly to a certain extent. The government had determined the price arbitrarily in the past, but after the “July 1st Measure” buyers and sellers could decide the price by demand and supply in the range of 5~10% of the government determined price.16 This means that there is room for the influence of demand and supply on the basis of the official price.
Fourth, factories and companies are operated in order to generate profit, implying that autonomy in management has been enlarging through the introduction of the self-supporting accounting system.
Fifth, preparations for economic opening are being observed.
North Korea established the “Institution for Capitalistic Market Economy System” under the Ministry of Trade in 2000 to elaborate more than 60 laws concerned with foreign investment. The country also joined several international economic organizations and agreements: International Bar-Code Organization, International Textile and Clothing Bureau, International Chamber of Commerce (ICC), Society for Worldwide Interbank Financial Telecommuni-
15 Internal document of the Ministry of Unification, “This Year’s Trend of the Change on the Operation of the Farmer’s Market,” (Korean), (2005) p. 3.
16 The comment of Kim, Yong-Sul, the vice Minister of the Ministry of Trade in North Korea (September 2002).
cation (SWIFT), along with some agreements on intellectual property.
In this respect, it can be said that economic reform in North Korea is in a rudimentary stage. If the reform in this stage is successful, the country can pursue more drastic reform. The introduction of an “earned income index” enhances the autonomy of factories and companies. When awareness of “one can earn money as much as he or she works” is settled, economic reform in North Korea cannot but move toward “market socialism” like China with a pragmatic focus such as “it is a good cat if it catches the mouse, no matter black or white.” The “earned income index”
will bring changes. Most importantly, it will change “the measure of evaluation on a company’s performance from how much it produced to how much it earned, and companies can dispose of more of the surplus at their own disposal.”17
One of the most interesting things in North Korean reform is the limited autonomy for companies and income differentiation.
These enable companies to prepare for a competitive environment and enables individuals to consume according to their demands.
There are some elements that are expected to bring about positive effects for systematic change in North Korea. These are: ① a decrease of the government planned sector; ② an increase of uninterrupted sales; ③ an enlargement of rights for each production unit for purchase, produce, sell, and price; ④ an enlargement of options for consumer goods because of the reduction of the rationing system; ⑤ an increase in importance of provincial finance; ⑥ an enlargement of ownership for social cooperative organizations and profit-making side jobs for individuals ⑦ an adjustment of the exchange rate and creation of special economic
17 Park, Hyeong-Jung, “Achievement of the July 1st Measure and the Prospect of the Economic Reform,” (Korean), Institute for Peace Affairs
& Hans Seidel Foundation, 2004 Seminar for Unification (May 24, 2004).
ㅁⅣ. Economic Reform and Its Side Effects in North Korea: Reality and Evaluation 41
zones; and ⑧ an application of the incentive system.
On the other hand, there are some negative elements, specifically:
① an absence of a free pricing system, which is the critical part of marketization; ② imperfect reform on the ownership system of the means of production including land; ③ an absence of economic special zones for independent foreign companies; and
④ limitations in the incentive system. One of the important standards of change in the North Korean economy is the reform of agriculture. Although there are some forward-looking changes, such as reduction of the size of units and allowance for arbitrary disposal rights of surplus production, these are not enough to secure fundamental reform like a farming system in family units or motivation through market mechanisms as appeared in the early stage of reform in China and brought about fast growth.
However, it seems that there is no other way for North Korea except importing more of the principles of the market economy.
Of course, it is too early to decide whether it would have a positive impact on the changes taking place in North Korean society and economy, as occurred in China and Vietnam.
If the North Korean economy continues to develop in the direction of a reduction of the formal sector and enlargement of the non-formal one, it is predictable that there will be some negative phenomena. These are described in the following paragraphs.
First, inflation will continue to aggravate the ordinary people’s poverty. When the shortage economy now being experienced in North Korea is considered, there is a stern possibility of deterioration for the ordinary people’s daily lives despite the positive effects of the “July 1st Measure.”
Second, behaviors that deviate from the socialist criteria will increase. The government had all the responsibility in the past, but now, people are facing the harsh reality that everyone should be responsible for his or her own survival. In other words, there
is the possibility of creating animosity among ordinary people toward the government. This may reduce people’s faith in the Labor Party and the government as well as their belief in juche ideology.
More specifically, there is a real possibility for the following to develop: ① antipathy against the idolization of Kim Jong-il;
② a weakening of collectivism and a strengthening of individualism; ③ a surging of mammonism and corruption; ④ a spreading of sense of the failure of socialism; ⑤ the phenomenon of “the rich get richer, the poor get poorer” and a decline of the socialist welfare system; ⑥ a prevalence of “moneymaking” for survival (for example, focusing on one’s own kitchen garden rather than the collective farm, smuggling out products or machinery from the farm or factory, etc); ⑦ popularity of foreign trade companies, hotels, overseas branches of government, and chances for overseas training; and ⑧ the possibility of the collapse of the existing resource management system of the planned economy.
Third, as contacts with foreigners and the economic interchanges increase, there are possibilities for many problems. The following articles of criminal law attest to the phenomenon of increases in the economic interaction with foreigners, for example, “try to make foreign money illegally” (Article 125), “try to utilize the source of foreign money illegally with domestic money or goods” (Article 126), or “inflict huge losses because of incapable or irresponsible economic activities with other countries” (Article 124). These articles show that the authorities have uneasiness and are cautious toward foreign trading despite admission of the inevitability of it.
Fourth, it is expected that new economic goods in service areas will be developed. Currently, there is an article that prohibits the illegal issue of cashless payment means (Article 103). This suggests that credit cards are available in North Korea already. Further, as article concerned with a “violation of the rights for trademarks”
shows that trademarks are under protection as a good. There are
ㅁⅣ. Economic Reform and Its Side Effects in North Korea: Reality and Evaluation 43
a variety of subjects of economic activities including not only
“individuals” (Article 11) and “managers of organizations, companies, and institution” (Article 111) but also corporate bodies (Article 112). This means there are needs for restriction as mediation and other business activities are starting to appear.
Fifth, there is the possibility of more serious corruption of bureaucrats accompanying further economic reform. It is because of the changes in policy allowing for more chances for bureaucrats to pursue their own economic interests. When there is a time difference between the practical execution of a reform policy and the enforcement of related laws and rules to prevent the malfunction of the policy, the bureaucrats who are well versed in the principles of organizational operation tend to become involved in various kinds of corruption. Without any private companies, the probability of corruption may increase because there are no other subjects but bureaucrats who can make contact with foreigners.
ㅁⅤ. Tasks for Successful System Transformation through the Economic Reform 45