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North Korea Developmental Strategy
As of mid-1993, North Korea's economy remained one of the
world's most highly centralized and planned, even by pre-1990
communist standards. Complete "socialization" of the economy was
accomplished by 1958, when private ownership of the means of
production, land, and commercial enterprises was replaced by
state or cooperative (collective) ownership and control. As a
result, industrial firms were either state-owned or cooperatives,
the former contributing more than 90 percent of total industrial
output in the 1960s.
Unlike in industry, collectives are the predominant form of
ownership and production in agriculture; the remaining rural
enterprises are organized as state farms. The sole negligible
exception to state and collective ownership in agriculture is the
ownership of small garden plots and fruit trees, as well as the
raising of poultry, pigs, bees, and the like, which are permitted
both for personal consumption and sale at the peasant market.
Private plots can be no more than roughly 160 square meters in
area. State and cooperative ownership and control extends to
foreign trade, as well as to all other sectors of the economy,
including banking, transportation, and communications.
In commerce nearly all goods are distributed through either
state-operated or cooperative stores. Less than 1 percent of
retail transactions are carried out at peasant markets, where
surplus farm products are sold at free-market prices.
As in other Soviet-type or "command" economies, all economic
decisions concerning the selection of output, output targets,
allocation of inputs, prices, distribution of national income,
investment, and economic development are implemented through the
economic plan devised at the center and are "blueprinted" by the
State Planning Committee
(see Planning
, this ch.;
Organization of the Government
, ch. 4). In the face of the worldwide political
and economic collapse of communist regimes in the early 1990s,
North Korea defiantly continues to sing the praises of a command
economy. Attempts to increase production through rigid central
control and exhortations and other non-pecuniary incentives have
not ceased, as exemplified by the campaign entitled "Speed of the
1990s." On-site industrial visits by President Kim Il Sung and
his son and heir-apparent, Kim Jong Il, continue.
However, there have been some minor efforts toward relaxing
central control of the economy in the 1980s that involve
industrial enterprises. Encouraged by Kim Jong Il's call to
strengthen the implementation of the independent accounting
system (tongnip ch'aesangje) of enterprises in March 1984,
interest in enterprise management and the independent accounting
system has increased, as evidenced by increasing coverage of the
topic in various North Korean journals
(see The Media
, ch. 4).
Under the system, factory managers still are assigned output
targets but are given more discretion in making decisions about
labor, equipment, materials, and funds.
In addition to fixed capital, each enterprise is allocated a
minimum of working capital from the state through the Central
Bank and is required to meet various operating expenses with the
proceeds from sales of its output. Up to 50 percent of the
"profit" is taxed, the remaining half being kept by the
enterprise for purchase of equipment, introduction of new
technology, welfare benefits, and bonuses. As such, the system
provides some built-in incentives and some degree of micro-level
autonomy, unlike the budget allocation system, under which any
surplus is turned over to the government in its entirety.
Another innovation, the August Third People's Consumer Goods
Production Movement, is centered on consumer goods production.
This measure was so named after Kim Jong Il made an inspection
tour of an exhibition of light industrial products held in
P'yongyang on August 3, 1984. The movement charges workers to use
locally available resources and production facilities to produce
needed consumer goods. On the surface, the movement does not
appear to differ much from the local industry programs in
existence since the 1960s, although some degree of local autonomy
is allowed. However, a major departure places output, pricing,
and purchases outside central planning. In addition, direct sales
stores have been established to distribute goods produced under
the movement directly to consumers. The movement is characterized
as a third sector in the production of consumer goods, alongside
centrally controlled light industry and locally controlled
traditional light industry. Moreover, there were some reports in
the mid-1980s of increasing encouragement of small-scale private
handicrafts and farm markets. As of 1992, however, no move was
reported to expand the size of private garden plots.
All these measures appear to be minor stop-gap measures to
alleviate severe shortages of consumer goods by infusing some
degree of incentives. In mid-1993 no significant moves signaling
a fundamental deviation from the existing system had occurred.
The reluctance to initiate reform appears to be largely
political. It is, perhaps, the linkage between economic reform
and political liberalization that worries the leadership. This
concern is based on the belief that economic reform will produce
new interests that will demand political expression, and that
demands for the institutionalization of such pluralism eventually
will lead to political liberalization. There clearly exists a
catch-22 situation for Kim Il Sung and, particularly, for Kim
Jong Il. In order to legitimize his power base, the younger Kim
needs an economic base. However, his economic reforms challenge
his position as the advancer of chuch'e and may eventually
undo the regime.
In the mid-1980s, the speculation that North Korea would
emulate China in establishing Chinese-style special economic
zones was flatly denied by then deputy chairman of the Economic
Policy Commission Yun Ki-pok (Yun became chairman as of June
1989). China's special economic zones typically are coastal areas
established to promote economic development and the introduction
of advanced technology through foreign investment. Investors are
offered preferential tax terms and facilities. The zones, which
allow greater reliance on market forces, have more decisionmaking power in economic activities than do provincial-level
units. Over the years, China has tried to convince the North
Korean leadership of the advantages of these zones by giving
tours of the various zones and explaining their values to
visiting high-level officials.
In December 1991, North Korea established a "zone of free
economy and trade" to include the northeastern port cities of
Unggi, Ch'ngjin, and Najin. The establishment of this zone also
had ramifications on the questions of how far North Korea would
go in opening its economy to the West and to South Korea, the
future of the development scheme for the Tumen River area, and,
more important, how much North Korea would reform its economic
system.
Data as of June 1993
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