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North Korea Postwar Economic Planning
During what North Korea called the "peaceful construction"
period before the Korean War, the fundamental task of the economy
was to overtake the level of output and efficiency attained
toward the end of the Japanese occupation; to restructure and
develop a viable economy reoriented toward the communist-bloc
countries; and to begin the process of socializing the economy.
Nationalization of key industrial enterprises and land reform,
both of which were carried out in 1946, laid the groundwork for
two successive one-year plans in 1947 and 1948, respectively, and
the Two-Year Plan of 1949-50. It was during this period that the
piece-rate wage system and the independent accounting system
began to be applied and that the commercial network increasingly
came under state and cooperative ownership.
The basic goal of the Three-Year Plan, officially named the
Three-Year Post-war Reconstruction Plan of 1954-56, was to
reconstruct an economy torn by the Korean War. The plan stressed
more than merely regaining the prewar output levels. The Soviet
Union, China, and East European countries provided reconstruction
assistance. The highest priority was developing heavy industry,
but an earnest effort to collectivize farming also was begun. At
the end of 1957, output of most industrial commodities had
returned to 1949 levels, except for a few items such as chemical
fertilizers, carbides, and sulfuric acid, whose recovery took
longer.
Having basically completed the task of reconstruction, the
state planned to lay a solid foundation for industrialization
while completing the socialization process and solving the basic
problems of food and shelter during the Five-Year Plan of 1957-
60. The socialization process was completed by 1958 in all
sectors of the economy, and the
Ch'llima Movement (see Glossary)
was introduced. Although growth rates reportedly were high, there
were serious imbalances among the different economic sectors.
Because rewards were given to individuals and enterprises that
met production quotas, frantic efforts to fulfill plan targets in
competition with other enterprises and industries caused
disproportionate growth among various enterprises, between
industry and agriculture and between light and heavy industries.
Because resources were limited and the transportation system
suffered bottlenecks, resources were diverted to politically
well-connected enterprises or those whose managers complained the
loudest. An enterprise or industry that performed better than
others often did so at the expense of others. Such disruptions
intensified as the target year of the plan approached.
Until the 1960s, North Korea's economy grew much faster than
South Korea's. Although P'yongyang was behind in total national
output, it was ahead of Seoul in per capita national output,
because of its smaller population relative to South Korea. For
example, in 1960 North Korea's population was slightly over 10
million persons, while South Korea's population was almost 25
million persons. Phenomenal annual economic growth rates of 30
percent and 21 percent during the Three-Year Plan of 1954-56 and
the Five-Year Plan of 1957-60, respectively, were reported. After
claiming early fulfillment of the Five-Year Plan in 1959, North
Korea officially designated 1960 a "buffer year"--a year of
adjustment to restore balances among sectors before the next plan
became effective in 1961. Not surprisingly the same phenomenon
recurred in subsequent plans. Because the Five-Year Plan was
fulfilled early, it became a de facto four-year plan. Beginning
in the early 1960s, however, P'yongyang's economic growth slowed
until it was stagnant at the beginning of the 1990s.
Various factors explain the very high rate of economic
development of the country in the 1950s and the general slowdown
since the 1960s. During the reconstruction period after the
Korean War, there were opportunities for extensive economic
growth--attainable through the communist regime's ability to
marshall idle resources and labor and to impose a low rate of
consumption. This general pattern of initially high growth
resulting in a high rate of capital formation was mirrored in
other Soviet-type economies. Toward the end of the 1950s, as
reconstruction work was completed and idle capacity began to
diminish, the economy had to shift from the extensive to the
intensive stage, where the simple communist discipline of
marshalling underutilized resources became less effective. In the
new stage, inefficiency arising from emerging bottlenecks led to
diminishing returns. Further growth would only be attained by
increasing efficiency and technological progress.
Beginning in the early 1960s, a series of serious bottlenecks
began to impede development. Bottlenecks were pervasive and
generally were created by the lack of arable land, skilled labor,
energy, and transportation, and deficiencies in the extractive
industries. Moreover, both land and marine transportation lacked
modern equipment and modes of transportation. The inability of
the energy and extractive industries as well as of the
transportation network to supply power and raw materials as
rapidly as the manufacturing plants could absorb them began to
slow industrial growth.
The First Seven-Year Plan (initially 1961-67) built on the
groundwork of the earlier plans but changed the focus of
industrialization. Heavy industry, with the machine tool industry
as its linchpin, was given continuing priority. During the plan,
however, the economy experienced widespread slowdowns and
reverses for the first time, in sharp contrast to the rapid and
uninterrupted growth during previous plans. Disappointing
performance forced the planners to extend the plan three more
years, until 1970. During the last part of the de facto ten-year
plan, emphasis shifted to pursuing parallel development of the
economy and of defense capabilities. This shift was prompted by
concern over the military takeover in South Korea by General Park
Chung Hee (1961-79), escalation of the United States involvement
in Vietnam, and the widening Sino-Soviet split. It was thought
that stimulating a technological revolution in the munitions
industry was one means to achieve these parallel goals. In the
end, the necessity to divert resources to defense became the
official explanation for the plan's failure.
The Six-Year Plan of 1971-76 followed immediately in 1971. In
the aftermath of the poor performance of the preceding plan,
growth targets of the Six-Year Plan were scaled down
substantially. Because some of the proposed targets in the First
Seven-Year Plan had not been attained even by 1970, the Six-Year
Plan did not deviate much from its predecessor in basic goals.
The Six-Year Plan placed more emphasis on technological advance,
self-sufficiency in industrial raw materials, improving product
quality, correcting imbalances among different sectors, and
developing the power and extractive industries; the last of these
had been deemed largely responsible for slowdowns during the
First Seven-Year Plan. The plan called for attaining a self-
sufficiency rate of 60 to 70 percent in all industrial sectors by
substituting domestic raw materials wherever possible and by
organizing and renovating technical processes to make the
substitution feasible. Improving transport capacity was seen as
one of the urgent tasks in accelerating economic development--
understandable since it was one of the major bottlenecks of the
Six-Year Plan
(see Transportation and Communications
, this ch.).
North Korea claimed to have fulfilled the Six-Year Plan by
the end of August 1975, a full year and four months ahead of
schedule. Under the circumstances, it was expected that the next
plan would start without delay in 1976, a year early, as was the
case when the First Seven-Year Plan was instituted in 1961. Even
if the Six-Year Plan had been completed on schedule, the next
plan should have started in 1977. However, it was not until
nearly two years and four months later that the long-awaited plan
was unveiled--1977 had become a "buffer year."
The inability of the planners to continuously formulate and
institute economic plans reveals as much about the inefficacy of
planning itself as the extent of the economic difficulties and
administrative disruptions facing the country. For example,
targets for successive plans have to be based on the
accomplishments of preceding plans. If these targets are
underfulfilled, all targets of the next plan--initially based on
satisfaction of the plan--have to be reformulated and adjusted.
Aside from underfulfillment of the targets, widespread
disruptions and imbalances among various sectors of the economy
further complicate plan formulation.
The basic thrust of the Second Seven-Year Plan (1978-84) was
to achieve the three-pronged goals of self-reliance,
modernization, and "scientification." Although the emphasis on
self-reliance was not new, it had not previously been the
explicit focus of an economic plan. This new emphasis might have
been a reaction to mounting foreign debt originating from large-
scale imports of Western machinery and equipment in the mid-
1970s. Through modernization North Korea hoped to increase
mechanization and automation in all sectors of the economy.
"Scientification" is a buzzword for the adoption of up-to-date
production and management techniques. The specific objectives of
the economic plan were to strengthen the fuel, energy, and
resource bases of industry through priority development of the
energy and extractive industries; to modernize industry; to
substitute domestic resources for certain imported raw materials;
to expand freight-carrying capacity in railroad, road, and marine
transportation systems; to centralize and containerize the
transportation system; and to accelerate a technical revolution
in agriculture.
In order to meet the manpower and technology requirements of
an expanding economy, the education sector also was targeted for
improvements. The quality of the comprehensive eleven-year
compulsory education system was to be enhanced to train more
technicians and specialists, and to expand the training of
specialists, particularly in the fields of fuel, mechanical,
electronic, and automation engineering
(see Education
, ch. 2).
Successful fulfillment of the so-called nature-remaking
projects also was part of the Second Seven-Year Plan. These
projects referred to the five-point program for nature
transformation unveiled by Kim Il Sung in 1976: completing the
irrigation of non-paddy fields; reclaiming 100,000 hectares of
new land; building 150,000 hectares to 200,000 hectares of
terraced fields; carrying out afforestation and water
conservation work; and reclaiming tidal land.
From all indications, the Second Seven-Year Plan was not
successful. North Korea generally downplayed the accomplishments
of the plan, and no other plan received less official fanfare. It
was officially claimed that the economy had grown at an annual
rate of 8.8 percent during the plan, somewhat below the planned
rate of 9.6 percent. The reliability of this aggregate measure,
however, is questionable. During the plan, the target annual
output of 10 million tons of grains (cereals and pulses) was
attained. However, by official admission, the targets of only
five other commodities were fulfilled. Judging from the growth
rates announced for some twelve industrial products, it is highly
unlikely that the total industrial output increased at an average
rate of 12.2 percent as claimed. After the plan concluded, there
was no new economic plan for two years, indications of both the
plan's failure and the severity of the economic and planning
problems confronting the economy in the mid-1980s.
The main targets of the Third Seven-Year Plan of 1987-93 are
to achieve the so-called "Ten Long-Range Major Goals of the 1980s
for the Construction of the Socialist Economy" (see
table 2,
Appendix). These goals, conceived in 1980, are to be fulfilled by
the end of the decade. The fact that these targets are rolled
over to the end of the Third Seven-Year Plan is another
indication of the disappointing economic performance during the
Second Seven-Year Plan. The three policy goals of self-reliance,
modernization, and "scientification" were repeated. Economic
growth was set at 7.9 percent annually, lower than the previous
plan. Although achieving the ten major goals of the 1980s is the
main thrust of the Third Seven-Year Plan, some substantial
changes have been made in specific quantitative targets. For
example, the target for the annual output of steel has been
drastically reduced from 15 million tons to 10 millon tons. This
reduction will have serious negative secondary effects on heavy
industry. The output targets of cement and non-ferrous metals--
two major export items--have been increased significantly. The
June 1989 introduction of the Three-Year Plan for Light Industry
as part of the Third Seven-Year Plan is intended to boost the
standard of living by addressing consumer needs.
The Third Seven-Year Plan gives a great deal of attention to
developing foreign trade and joint ventures, the first time a
plan has addressed these issues. By the end of 1991, however, two
years before the termination of the plan, no quantitative plan
targets had been made public, an indication that the plan has not
fared well. The diversion of resources to build highways,
theaters, hotels, airports, and other facilities in order to host
the Thirteenth World Festival of Youth and Students in July 1989,
must have had a negative impact on industrial and agricultural
development, although the expansion and improvement of social
infrastructure have resulted in some long-term economic benefits.
The shortage of foreign exchange because of a chronic trade
deficit, a large foreign debt, and dwindling foreign aid has
constrained economic development. In addition, North Korea has
been diverting scarce resources from developmental projects to
defense; it spent more than 20 percent of GNP on defense toward
the end of the 1980s, a proportion among the highest in the world
(see The Armed Forces
, ch. 5). These negative factors, compounded
by the declining efficiency of the central planning system and
the failure to modernize the economy, have slowed the pace of
growth since the 1960s. The demise of the communist regimes in
the Soviet Union and East European countries--North Korea's
traditional trade partners and benefactors--has compounded the
economic difficulties in the early 1990s.
Concomitant with the socialization of the economy and the
growth in the total magnitude of national output has been a
dramatic and revealing change in the relative share of output,
indicating that the economy has been transformed from being
primarily agricultural to primarily industrial. Whereas in 1946,
industrial and agricultural outputs were 16.8 percent and 63.5
percent, respectively, of total national output, the relative
position has reversed fundamentally since then so that the
respective shares in 1970 were 57.3 percent and 21.5 percent.
Judging from the agricultural share of 24 percent in 1981, there
were slight reverses in the relative composition in the 1970s.
Growth and changes in the structure and ownership pattern of
the economy also have changed the labor force. By 1958 individual
private farmers, who once constituted more than 70 percent of the
labor force, had been transformed into or replaced by state or
collective farmers. Private artisans, merchants, and
entrepreneurs had joined state or cooperative enterprises. In the
industrial sector in 1963, the last year for which such data are
available, there were 2,295 state enterprises and 642 cooperative
enterprises. The size and importance of the state enterprises can
be surmised by the fact that state enterprises, which constituted
78.1 percent of the total number of industrial enterprises,
contributed 91.2 percent of total industrial output.
Data as of June 1993
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