From around early 2013, the North Korean government began to implement a series of rather ambitious reforms. These reforms resembled something the world has seen before, namely, those of Deng Xiaoping in China from the late 1970s.
Reforms began, as they did in China, with agriculture. Farmers were allowed to organize into family-based work teams, given fixed plots of land and given a fixed 30 percent of the harvest. This represented a massive change: from the Stalinist, hyper-centralized, state-dominated collective to family-based de facto private farming. The new system was, as expected, a success, with a bumper harvest in 2013. If anything, the 2014 result was even more impressive: In spite of a drought, the harvest was even better than the year before (a drought may have led to famine under the old system).
The next prong of the reform package was to be in industry. Reform of industrial management and property relations was expected to begin this year. The new system was set out in a special decision issued by the Korean Worker’s Party Central Committee and the Cabinet of Ministers. This set of industrial reforms is known as the “May 30th Measures.” They envision that industrial managers, though still appointed by the party-state, would be allowed to act as de facto entrepreneurs, permitted to buy raw materials and spare parts from anyone they choose. They will also be allowed to sell finished products at market prices to interested buyers. They will also be given the right to hire and fire at will, and choose how much to pay their workers (far more in practice than what has been the state wage).
The system has been trialled at a small number of enterprises and has worked well
The system has been trialled at a small number of enterprises and has worked well. Wages have been much higher: A good example is the Musan Iron Mine where a good miner can now earn up to 400-500,000 won. By the current exchange rate this is less than $100 a month, but by North Korean standards this is a 100-fold real increase in wages compared to under the old system.
What this amounted to was de facto privatization: Managers would be indistinguishable from business people, making management responsible for whether their enterprises succeed or fail, while also allowing them to potentially make far more money than they officially were permitted under the old system.
The May 30th Measures were expected to be implemented nationwide after trials. However, this author’s conversations with a number of trusted contacts in China and elsewhere have confirmed what has been rumoured: The reforms remain under review and have yet to be implemented nationwide. This has been confirmed by a number of independent, unrelated sources including Chinese academics, Chinese and Western businesspeople doing business with North Korea and other regular travelers to the country, as well as some other well-informed sources.
It seems that there remain a number of enterprises that have implemented the reforms and work according to the new system, but the number is currently a minority of all North Korean factories and other industrial organizations. The expected switch has yet to happen, but experiments continue.
NOT SO FAST
This is not good news for anyone who hopes that North Korea will reform itself and get out of its current situation without much turmoil and/or bloodshed. However, this is not a reason to become excessively skeptical about the prospects for North Korean reform. It bears remembering that the successful reforms in agriculture that began back in 2013 followed a similar trajectory: first declared in 2012, widely expected to be immediately implemented but then delayed for about a year. This might also turn out to be the case for industrial reforms.
Frankly, this might make some sense given that institutions remain unprepared for the new system. The North Korean financial system remains weak and anachronistic, meaning that reforms, if poorly implemented, could trigger hyper-inflation.
However, there might be other less sanguine explanations for current developments, or lack thereof. It is quite possible that Kim Jong Un changed his mind, or his advisors persuaded him that the current set of reforms were simply too risky. The current improvement in the general economic situation may have led the young Kim to backtrack and shy away from excessive risk. Indeed, things are relatively good in North Korea at present, as the economy grows and living standards have improved for many. Therefore, the logic goes, why fix what isn’t broken?
Recent North Korean history provides us not only with successful reforms (the aforementioned agricultural reforms of 2012-13) but also a steady stream of halted reform measures. For example, in July 2002, the North Korean government introduced a set of measures quite similar to the May 30th measures. However, these radical policies were rolled back and, by 2004-05, a majority of industrial enterprises were back on the old centralized command system. Unfortunately for the North Korean people, this could very well happen again.
In this regard, it is worrisome that Rodong Sinmun (the Party Central Committee’s official mouthpiece) recently paid an unusually large amount of attention to the glories of the planned economy and self-reliance. This of course might be related to impending change.
… abandoning reforms will mean that the North Korean economy will continue to lag more and more behind its neighbors
If the reforms are indeed shelved, it may have far-reaching consequences. The cautious reforms introduced by Kim Jong Un can indeed bring about economic growth and strengthen internal stability. But abandoning reforms will mean that the North Korean economy will continue to lag more and more behind its neighbors. The latter would indeed be disastrous for the North Korean government and its people. Hence, we can only hope that what we have seen in the last couple of months is the final preliminary step before serious reforms.
To quote one of my contacts, “the North Korean economy has been like a car climbing a steep slope. They revved up the engine and the car climbed well, but for some reason, a few months ago they turned off the engine and the car has begun to slide down, slowly but with increasing speed. The question is, will they turn the engine back on?” All we can hope is that they will turn the engine back on soon.
Main picture: Eric Lafforgue
From around early 2013, the North Korean government began to implement a series of rather ambitious reforms. These reforms resembled something the world has seen before, namely, those of Deng Xiaoping in China from the late 1970s.Reforms began, as they did in China, with agriculture. Farmers were allowed to organize into family-based work teams, given fixed plots of land and given a fixed 30
Andrei Lankov is a Director at NK News and writes exclusively for the site as one of the world's leading authorities on North Korea. A graduate of Leningrad State University, he attended Pyongyang's Kim Il Sung University from 1984-5 - an experience you can read about here. In addition to his writing, he is also a Professor at Kookmin University.