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Peter Ward is a writer and researcher focusing on the North Korean economy, as well as a PhD candidate at the University of Vienna.
From the 1970s, the North Korean government experimented with a new model of socialism. In almost every regard it was just like the existing model, except it tried to deal with one of the major problems of the Stalinist system of economic planning: coordination and cooperation between enterprises. Or rather, coordination and cooperation between enterprises under different ministries.
The solution that Kim Il Sung settled on was very simple: make enterprises so large that they would rarely have to trade with each other. But why did he do this?
Under capitalism, manufacturing enterprises usually coordinate and cooperate using a commodity we all get paid in, cash, either paid on the spot or at an agreed upon date – on consignment for instance.
The point is that the primary motivations to trade are the profit of the enterprise, and by extension, the profit of the enterprise’s manager and of its personnel. Such motives do not really exist under Soviet-style socialism, in countries like Kim Il Sung’s North Korea.
Without a profit motive, coordination between different parts of the economy is difficult, and often leads to endemic supply bottlenecks and shortages. Different economic ministries plan and work to different targets, and they are very bad at coordinating with one another. They also often have good reason not work with each other, but just look out for their own sectional (departmental) interests, even if that hurts the national economy overall.
Indeed, they compete with one another for resources: if a shipyard gets steel, that means the car plant has to wait, and if food processors get fuel for their vehicles then maybe a local supply depot has to wait as well.
Competing for resources under capitalism can work out well, if that competition leads to consumers getting better goods and services. That is, if the right laws and institutions are in place.
Under socialism, however, it often led to hoarding, semi-legal bartering for resources (which often involved bribery), and enterprises forced to produce substandard products or even fudge their numbers through creative accounting to meet their targets.
Soviet-type economies have the same basic problem when seen from the inside: supply bottlenecks
THE GREAT LEADER IS COMING, LOOK BUSY
In the 1970s and 1980s, Kim Il Sung knew that a lot of these problems existed. How do we know? Because he talks about them in many speeches in his collected works.
In fact, the hoarding of resources worried him so much that he demanded that the State Planning Agency stipulate the correct amount that all enterprises were allowed to hold of specific materials in reserve. He also often lectured the state’s top planning officials and heads of specific industries on the need to deal with the problem of waste in industry, the waste of inputs like coal, and of output, like fish.
He understood that the planning system was failing to create incentives that would induce managers and workers to take care of inputs and produce high-quality output. The problem is, he seemed not to understand that state planning is just not very good at producing consumer goods, or even many industrial products, and that state planners are terrible innovators.
Instead, Kim believed that the fundamental issues facing the economy were bureaucratism, departmentalism, and regionalism. He wanted fewer people working in offices, along with more cooperation between ministries (departments) and between regions. To be fair to Kim, these were the very same diseases that Brezhnev diagnosed in the Soviet Union of the 1970s, and that Khrushchev and Mao saw in back in the 1950s and 1960s.
Kim, like his Soviet and Chinese colleagues, tinkered and tampered with economic management in a number of ways to try to fix the system’s ills, alleged and real. His solutions included expanding the role of the Party on the shop floor, i.e. encouraging the Party secretary to inspire workers to innovate. He also tried to minimize the number of managers in the economy.
His love of party agitators and disgust for bean counters often led him to push for mass mobilizations of workers to struggle late into the night for months on end. He also loved sending factory workers to the countryside in harvest season for the same kinds of reasons. Mass mobilizations had been a favorite of Stalin, his successor Khrushchev, and of Mao too. Kim was following in a hallowed, if flawed, tradition.
Another brainwave was to demand that planning bureaucrats devise yet more intricate and thorough targets that would make allowances for such unpredictable things as rainfall, road conditions, the volatility of the world market, and the number of fish in the sea.
He was often very critical of the state’s central planners, who he blamed for messing up the economy after he stood down as premier in 1972. If only they planned thoroughly enough, he thought, they could make the system work.
Kim believed that the fundamental issues facing the economy were bureaucratism, departmentalism, and regionalism
His final plan was simple: make enterprises so large that they rarely had to trade with other enterprises.
REFORM IN NAME ONLY?
Existing enterprises were to become Industrial Combines (련합기업소), which became a major part of the North Korean industrial system post-1985. They were to be sprawling socialist conglomerates made up of a number of industrial units that, on paper, were given broad oversight over wages, profits, and price setting.
This might sound like the start of something new and grand, but it was far less impressive in reality. In fact, it was rather unremarkable by then Soviet standards: they were a set of industrial reforms copied from the Soviet Union of 1965 and 1973.
Indeed, I would argue that the reforms were far less impressive even on paper than Phillip Park, a noted analyst of the Industrial Complex reforms, makes them sound.
They did, however, include a system of independent accounting, yet again copied from the Soviet Union (it was called ‘cost accounting’ in the Soviet Union), which would eventually allow enterprises to start engaging in market transactions with the outside world when the economy actually started to collapse in the late 1980s and early 1990s.
We should not forget, however, that this was fundamentally a state socialist reform that looked far more impressive on paper than in reality. Large conglomerates were more able to coordinate production internally, and faced fewer issues in getting the supplies that they could obtain internally too.
But most enterprises did not have their own power station, or their own oil well, and their supply of raw materials beyond what they could produce themselves was still subject to growing bottlenecks and issues as the North Korean economy slowly, then rapidly, fell off a cliff.
This might sound like the start of something new and grand, but it was far less impressive in reality
Industrial reform had failed to address the fundamental problems of the economy Kim Il Sung had built: lack of cooperation between enterprises, lack of innovation, a decrepit infrastructure, lack of exports that the world market was interested in buying, and, as a result, a lack of foreign currency to finance imports of commodities that could not be made internally.
Intriguingly, the reforms initially appear to have been far more radical than what they ultimately became. In a speech given by Kim Il Sung in 1985 entitled “On Organizing Industrial Complexes, and improving the working organization and methods of the cabinet” (련합기업소를 조직하며 정무원의 사업 체계와 방법을 개선할데 대하여), which I have discussed elsewhere too, he denounces what draft rules which would have allowed enterprises to engage in what he terms “acts that violate [the] sovereignty [of the nation].”
Initially, an official or some officials had had the interesting idea of letting the Industrial Combines engage in trade with one another using foreign currency in any goods that could otherwise have been exported.
This might have had any number of consequences, but it would have certainly meant the end of the system of central control over some transactions between enterprises that produced exportable goods. It would probably have helped to further expand the emerging system of markets in late-1980s North Korea.
This loss of control and the spread of more market forces to state enterprises clearly was not something Kim was keen on. But it is interesting to note that such ideas even made it into a draft of the regulations that were stipulate how the combines were to work. This offers a glimpse of some of the policy debates that were being had in the late years of Kim Il Sung.
We might have to wait for the North Korean archives to open before we find out much more. Yet, it is interesting to ponder what Kim Il Sung and his officials talked about as the North Korean economy slowly veered toward famine and collapse.
Edited by Oliver Hotham