Over the last few years after Kim Jong Un came to power, especially in the initial period, the expectations had been high that North Korean authorities, while keeping and even enhancing a rigid political system, may embark on the course of “economic experiments”.
That would have meant finally admitting the increasingly non-command character of the economic order, which had emerged since the 1990s. 70 percent of household income after all, is said to be derived from market activities.
However, at the 7th Party Congress, decades-old rhetoric dominated the speeches and no new Deng Xiao-Ping-style “brilliant guiding ideas” were presented as many had hoped. At the same time the on-the-ground reality, as my recent trip to North Korea shows, is less black-and-white.
There are rumors in Pyongyang, that not all that was said at the congress and behind closed doors was published, taking into account the sheer time (almost two days), which Kim Jong Un needed to deliver his report. This reminds me of the watershed USSR Communist Party 20th Congress, when Khrushchev delivered a secret report denouncing Stalin, which initially was not leaked to the people but became a start of the “thaw’. So some ideas on a more pragmatic economic policy might have been discussed.
There are rumors in Pyongyang, that not all that was said at the congress behind closed doors was published
My conversations with North Korean economists and officials in Pyongyang make me draw the conclusion that the country’s leaders presume that after acquiring a “nuclear deterrent” they can limit, if not decrease, expenditures on their conventional military force and shift the investment onto economic development. In fact, during recent Track-2 events, North Koreans have bluntly said that one of the reasons for prioritising its nuclear program is to economize expenditures for conventional arms in order to channel the funds towards the nations’ economic development.
North Korean logic is as follows: the country has achieved its goals of becoming a “strong power” in defense and ideology, and the next task is to reach the same level in economics, science and technology and a “civilized way of life”.
There are anecdotes that the military brass is already complaining that the army is being more and more frequently used as a “slave labor” – notably for construction – while regular military training and duties are being neglected. When in Pyongyang, I saw lots of makeshift dwellings housing the soldiers engaged in implementing the grandiose plans of construction in the city.
A North Korean Way?
On the one hand, Kim Jong Un made it clear that the country should do it best not to look like it follows the Chinese model, because “bourgeois liberalization and the line for reform and openness” – the recipes China is offering North Korea – have come under direct criticism at the Congress. On the other hand, this is only half the truth: simultaneously the intention was expressed to expand the use of “our method of economic management.” Such a method, as analysis shows, uses market mechanisms as an addition to the planned economy, not unlike in the early stages of Chinese reforms.
Mobilization is being pressed more and more to give way to a normal way of production and distribution. The mass mobilization campaigns, like the “70-days battle”, preceding the Party congress and the current “200-day battle” are causing increasing disquiet among the people, especially those who make their living through market activities. In fact planning was abandoned in the mid 1990s never to be revived.
The Congress adopted a long-term economic strategy, to an extent reminiscent of the state dirigisme of successful Asian economies. North Korean economic scholars explain that at first, the branch-wide strategy was tried based on an indicative planning. For example, such strategies on a yearly basis were developed and implemented in the energy sector, agriculture, forestry as well as science and technology.
Using this experience, a comprehensive 5-year strategy for the core sectors of economy was developed based, it seems, on indicative planning such as electric power generation, coal production, steel and chemical, land, maritime and railway infrastructure development, construction and forestation.
It remains to be seen how willingly the military and other “strongmen” will be ready to cede their power in economics.
The most striking change is in macroeconomic management and control. In Kim Jong Il’s era, in accordance with “songun” principle, the military establishment ruled a large chunk of North Korean economic activities, especially in lucrative sectors, sometime far from military needs. Other parts of the state economy were in fact divided between rival bureaucratic clans using their administrative resources for extracting profit. Now “concentration of powers in the hands of the government” has been announced with special role of Cabinet.
Of course, it remains to be seen how willingly the military and other “strongmen” will be ready to cede their power in economics. We might see a redistribution of power and a fierce struggle for economic resources, arbitrated by the political leadership under the slogan of “defending our style socialism”.
In fact Kim’s clan, through many formally state-owned structures (like the infamous “Office 39” responsible for the “court economy”), has emerged as the first and unrivalled business conglomerate of the DPRK as long ago as in 1980s. In future the eventual appearance of “chaebol” style semi-governmental entities obedient to the Center, may be possible. The latter would define strategy and impose rules of the game. However that would depend on Kim Jong Un’s ability to rule with an iron hand to prevent unhealthy practices and at the same time giving space for unimpeded business activities of these companies.
One of the most important, if not well noticed, new practices developing since 2013 is called the “ responsibility system of socialist enterprises”. This is an attempt to find a balance between state ownership and private initiative. As I figure out from North Koreans’ explanations and empirical data, industrial enterprises are now only obliged to deliver to the state – in accordance with the plan – 20-50 percent of their output while securing raw materials and selling the balance in what is essentially a free market at the agreed (market-based) prices in Korean won.
This system now is the standard for even centrally-controlled enterprises for which there is said to be 4 classes of them. The top level – like basic energy and heavy industry ones – being more tightly controlled by the government, with the lower classes of entities under control of local authorities and being even freer in their economic activity.
In fact, both types are increasingly under a private management model. Although formally state-owned, they are “leased” informally to individuals or groups – such as military or party cadres, for the high-end companies, and self-made entrepreneurs on the lower end. Probably it also encourages the “new rich” (“tonju”) to invest into the real sector. Local agricultural communities are given more rights to produce and distribute food for ensuring self-sufficiency. Family (brigade) contract system now allow the “brigades” to keep up to 50 percent of the crop.
If this is not a market economy, than what is it?
It looks like this system is bearing some fruit especially in the consumer-oriented sector. For example, there is a visible increase in locally produced processed foods, at least in Pyongyang shops. The construction sector is booming- meaning increased demand for many branches of industry, which seem to rely not only on state investment but also on market tools to satisfy this demand. The service sector is also burgeoning and Pyongyangites have reached probably the highest standard of living in decades. Large varieties of food and consumer goods, shops, three competing taxi companies, restaurants and recreation facilities, etc are commonly observed and described by many travelers to the city.
It is true, of course, that the provincial areas lag behind. Moving even a short way outside of Pyongyang, one can see signs of extreme poverty, like “kkotjeby” (homeless children). Energy problems and transportation difficulties are far from being solved and unpaid labor and mobilization campaigns are still widely used. I have noticed the same “monegi” (rice planting) campaigners toiling in the cold water in the fields all the way from Pyongyang to the north (in late May), just like decades before.
The decisive battles between the command and the free economy are still ahead. The political absolutism resists giving the leverages to the “invisible hand” of the free market and “the center” would keep its grip on the major economic assets and resources. No Deng Xiao Ping is needed to keep it going.
Featured Image: KCNA