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View more articles by Benjamin Katzeff Silberstein
Benjamin Katzeff Silberstein
Benjamin Katzeff Silberstein is an Associate Scholar at the Foreign Policy Research Institute, and co-editor of North Korean Economy Watch.
This is a book review of Philip H. Park’s Rebuilding North Korea’s Economy: Politics and Policy. 2016. Seoul: Institute for Far Eastern Studies at Kyungnam University.
North Korea’s economic system has changed under Kim Jong Un. Under the young leader’s tenure, North Korean officials have openly touted systemic changes such as the “Our-style economic management method” (우리 식의 경제관리방법), under which enterprises (including agricultural ones) take independent responsibility for production planning, and, accordingly, receive a greater share of enterprise profits. Some have hoped that such changes spell out the beginning of liberalization by another name.
But how radical is all this in a historical context? Looking back at North Korea’s institutional history, the use of material incentives and market mechanisms is not an alien phenomenon. In Rebuilding North Korea’s Economy: Politics and Policy, Philip H. Park convincingly shows that North Korea’s economic policies, and the academic debates about it, have in fact been much more flexible than many might think.
Its title is aptly misleading. It would be easy to assume that a book about rebuilding the North Korean economy, published in 2016, would focus on potential policies and trajectories going forward after the economic collapse in the early 1990s. Instead, “rebuilding” in this context refers to the evolution of the North Korean economic system as policymakers in the regime have reacted to crises, and built economic policies by changing the economic system to counter the challenges at hand.
MARKETIZATION BY WHO?
The trend toward marketization in North Korea is often portrayed as a bottom-up process. In this narrative, innovative merchants first instigated it by defying the state and trading for their survival during the “Arduous March” of the 1990s. The state finally adjusting its system to an already present economic reality in 2002 with the July 1st economic reforms, which formalized the already prevalent market system.
Some have hoped that such changes spell out the beginning of liberalization by another name
Park, however, flips the narrative on its head. The 2002 reforms, he argues, were the culmination of a process of marketization begun in 1986, with the introduction of the Ryonhapkiopso (련합기업소) system. This was the point, Park argues, at which market mechanisms were firmly introduced in the North Korean economic system. Following over a decade of trial and error, the system (which Park translates to “industrial combinated [sic!] complexes,” p. 16) was rolled out fully in 1986.
In this system, a group of factories and state enterprises are grouped together in gigantic “complexes,” and make economic plans of their own for the factories and enterprises within them (p. 71). Each complex was to make its own economic plan, but with guidance from the central government’s State Planning Commission. And while central planning continued under the new system, each complex was to be responsible for acquiring its own raw materials, and to set worker’s wages according to their contributions (p. 89).
In other words, the Ryonhapkiopso was designed as central planning on the macro level, with market mechanisms operating on the micro level. Market mechanisms got a greater role in the economy after the economic crisis of the 1990s, but they were not a wholly new phenomenon in the North Korean economy. Park’s rendition of North Korea’s marketization, therefore, is one where the state is involved not just as a reacting entity, but often takes the lead.
Overall, the book is a crucial and perhaps provocative contribution to the debate about North Korea’s development trajectory. “Bottom-up marketization” may have changed the power dynamics of North Korean society, but Park shows that it would be naïve to equate the presence of profit mechanisms with Perestroika, for such mechanisms are not new per se.
Like The Dynamics of Change in North Korea, Park’s previous edited volume, this new book focuses a great deal on laws, regulations and rhetoric. North Korean journals in academia and politics constitute the main source base, and Park only dedicates a few paragraphs to discussing their validity and relevance.
The Ryonhapkiopso was designed as central planning on the macro leve
One can question how much these debates and high-level policy changes have impacted the reality on the ground. Despite these downsides (and others, discussed further below), the book offers a sobering context for analyzing institutional and social change in North Korea today.
The chief part of the book consists of a history of economic institutions in North Korea. Rebuilding North Korea’s Economy suggests a trajectory where economic policy has been made since 1954 with some flexibility, but with state control as the overhanging, non-negotiable framework.
After the Korean War, North Korean economic planning focused on heavy industry, with self-reliance in both military and economic means, and rapid war-recovery.
In April 1956, at the Third Congress of the Workers’ Party of Korea, Leonid Brezhnev (then a deputy member of the Soviet delegation) suggested that the lack of balance in the proposed Five Year Plan would cause problems, given the lack of emphasis on development in agriculture and consumer goods (p. 44).
As a result of North Korea’s divergence from the Soviet policy line, the Soviet regime cut aid to North Korea. Soviet aid dropped by about half between 1957 and 1960, according to Park’s figures.
Thus began the first crisis. In the late 1950s, Kim Il Sung and the Workers’ Party of Korea attempted to use mass mobilization through the Chollima Movement as a way of compensating for the lack of capital by increasing the input of labor into the economy.
In 1961, the Taean Work System was also introduced into the economic system, providing enterprises with profits in proportion to their output, with the Party committee as the highest managerial unit of each enterprise. The Taean Work System was also meant to make planning more efficient by moving the planning process closer to the “masses” (p. 57).
Park’s main contribution is to show that the use of market mechanisms and material incentives has not been alien to the North Korean economy through the decades
Throughout the Chollima Movement, budget independence increased for provinces in the country, and economic management thereby became increasingly localized (p. 47). By bringing planning closer to the ground, the state hoped to eliminate inefficiencies and lower transaction costs.
Increased inputs of human labor into the economy could not solve the inefficiencies inert to the planned economy, such as hoarding by enterprises. What Hungarian economist Janos Kornai has called the “soft budget constraint” of the planned economy prevailed in North Korea, where enterprises and other production units had incentives to report the greatest possible material needs and lowest possible production targets, and the planning bureaucracy had all the reasons to do the opposite (p. 56). The heavy burden of military spending, too, contributed to grave imbalances in the planned economy.
Kim Il Sung responded to the inefficiencies prevailing in the mid-1960s by calling for more mass mobilization – i.e., more of the same. North Korean economists in the mid-1960s “cautiously discussed” greater applications of contract systems and other measures to increase the role of profit mechanisms in industry, but none of these ideas came to fruition (pp. 61–62).
Two systems introduced in the 1960s, unified planning (Kyehoeguiironhwa) and detailed planning (Kyehoeguisebunhwa), were intended to increase Workers’ Party control over the planning process (pp. 58–59). But ultimately, no institutional tweaks could put the economy on a stable trajectory. In parallel with the Ryonhapkiopso system introduced in 1986, the state launched attempts such as the August 3rd Movement to invigorate local industry by letting cottage industries and the like produce under freer conditions (pp. 124–125).
Responding to the spontaneous proliferation of markets – which the state did regard as dangerous, Park acknowledges – the state further decentralized food production through the so-called County Agricultural Complexes in the early 1990s, to make enterprises and collective farms better cooperate with more autonomy from the state, hoping to increase food production (p. 130).
And from the early 2000s, the state experimented with letting agricultural sub-teams plan out their own production with a great deal of independence, presumably letting them keep a significant proportion of their profits (p. 153). When the July 1st Measures in 2002 came, they were an extension of a long process of state experimentation with market mechanisms, rather than a radical break with the past.
Park’s main contribution is to show that the use of market mechanisms and material incentives has not been alien to the North Korean economy through the decades. This matters, because some might claim that any discussion on using profit mechanisms to stimulate the economy in a socialist system is the first step to a systemic overhaul.
As Park shows, North Korean economists have never been a fully monolithic academic body, and material incentives have never been absent from debates about economic policy-making. In other words, changes to sub-work team structures in agriculture and the like, touted as possible first steps to Perestroika by some during Kim Jong Un’s first years in power, may largely have been business as usual.
Park also shows that North Korean economists and policy-makers have sometimes taken a more pragmatic approach to marketization than some might think.
Rather than quivering in fear at the sight of spontaneous capitalism, the state has reacted to marketization by managing the markets since the early 2000s rather than fully shutting them down, and North Korean economists appear to debate the effects of marketization rather comfortably in Park’s rendition (see, for example, p. 111).
Park also shows that North Korean economists have analyzed and debated monetary policy within the market sphere for many years. This raises questions about whether the relative price stability on North Korean markets in the past few years may, in fact, be the result of more active government interventions than we are currently aware of.
For those hoping that Kim Jong Un will come out as a systemic reformer, Park’s book is a highly cautioning read. For even though Park implies that economic policy-making in North Korea is more flexible than some might think, he also shows that the state has never really been willing to sacrifice political control over the economy for greater efficiency.
North Korean economists and policy-makers have sometimes taken a more pragmatic approach to marketization than some might think
Market mechanisms are only incorporated to the extent that they can fill the political goals of the state, and the state has always put its own control before a better functioning economy.
Rebuilding North Korea is more of a book of history than political science, and a name that reflected its focus better – the title suggests a work of policy advice rather than a history of economic thinking – would have been well advised (the original Korean name, Reconstitution of North Korea’s Economy based on North Korean Texts, comes much closer).
Moreover, Park’s use of North Korean journals and statistics as the main source materials raises questions about the real significance of his conclusions. He argues that North Korean scholarly writings surely do reflect the reality on the ground to some degree, because its writers are seldom completely out of touch. While that seems indisputable, the question remains to what extent academic writings – often theoretical – really rhyme with the reality on the ground.
For example, it is unclear to what degree the policies he writes about have been implemented across the country, and how they have played out on the ground. Park also does not situate the North Korean economy in any comparative light, which would have brought much more nuance to the North Korean case. After all, discussions of profit making and material incentives are by no means entirely new phenomena to socialist economies.
But these are only relatively minor downsides of an excellent and revealing read on North Korea’s economic history. It cautions us that changes that changes that may seem radical are often history repeating itself in a different shape. The North Korean system may in one way be far more flexible than is often claimed, but also much more resistant to systemic change than many might hope.
Edited by Oliver Hotham