North Korea Shifts More Responsibility to Factories, Farmers 

7 March 2015

TOKYO — North Korea is trying to invigorate its hidebound economy by offering more control and possibly more personal rewards to key sectors of its workforce in the country’s biggest domestic policy experiment since leader Kim Jong Un assumed power.

The measures give managers the power to set salaries and hire and fire employees, and give farmers more of a stake in out-producing quotas. Some outside observers say they’re a far cry from the kind of change the North really needs, but they agree with North Korean economists who say it is starting to pay off in higher wages and increased yields.

The changes were introduced soon after Kim took over in late 2011, codified last May and, according to North Korean economists who recently spoke to The Associated Press and AP Television News, are now being expanded to cover the whole country.

The focus is on management, distribution and farming, said economist Ri Ki Song of the Economic Science Section at Pyongyang’s powerful Academy of Social Science, in an interview last month with AP Television News. Ri said the goal is to prod North Korean managers and farmers to “do business creatively, on their own initiative.”

An embrace of capitalism it is not.

The survival of the ruling regime is the primary driver behind all policy decisions, so there is little appetite in Pyongyang for the kind of economic shakeup that helped lift communist ally China out of poverty and onto the world economic stage. Fundamental changes necessary to create real prosperity—such as fiscal reform, increased transparency and accountability and consistent compliance with international norms to bolster trade and investment—don’t appear to be on the table.

Another obstacle that is not going away: North Korea’s ”Military First” policy, which sucks resources into a million-man army and the development of nuclear weapons that has brought heavy international sanctions down on its head.

Pyongyang has not formally disclosed details of the measures, believed to have been approved on May 30 last year. But according to the North Korean economists, these are some of the major points:

—Managers can now decide on salaries without following state-set levels. Once an enterprise has paid the state and reinvested income to expand production, develop technology and pay for the “cultural welfare” of its employees, it can use the remaining funds to determine pay levels. As an example, Ri said that since instituting this system, the Sinuiju Cosmetics Factory has raised its average monthly salary from 3,000 won (less than $1 on the black market) to 80,000 won, with the highest earners collecting 110,000 won. The new salary levels are more in tune with actual living expenses and costs in the real economy.

—Factories or other enterprises can directly negotiate trade deals with foreign entities and hire or fire workers at their discretion. They can also decide what materials to buy and from whom, and negotiate prices.

—On cooperative farms, sub-units of 4 or 5 people have been set up so that each farmer has a greater stake in producing a better yield from their plot. Again, after giving the state its share and covering expenses, the surplus — either in cash or produce — can be distributed on a point-based system at the cooperative itself.

If the farming measures are implemented in a way that gives families long-term responsibility for specific plots, they could go a long way toward transforming millions of North Korean peasants from serfs who merely work the land to sharecroppers who gain at least some direct benefit from their labor. Ri said it was an important reason why crop yields were comparatively good last year, despite severe droughts.

“What is happening in the enterprise area is a development of major economic significance,” said Bradley Babson, a Korea expert with the U.S.-Korea Institute of John Hopkins School of Advanced International Studies who worked at the World Bank for 26 years.

Babson said the measures could spark entrepreneurism and increased economic activity on the fringes of the state’s control—if Kim is willing to let that happen. But he said progress has been hampered by ideological disagreements and conflicting economic interests within the ruling party and the military.

Officials, meanwhile, insist they are holding fast to North Korea’s own brand of leader-centric socialism and are only trying out “new management methods of our own style.”

“Our country admits that our economic situation is difficult,” Ri Jun Chol, director of international economic relations at the academy, said in an earlier interview in Pyongyang with The AP. “What I can say is that looking at every quarter, it has made a lot of increase compared to the last year.”

The impact of the measures is impossible to verify because North Korea doesn’t announce economic indicators, saying such data would be useful to its enemies.

Officials also aren’t ready to give the nod to capitalist-style markets and small enterprises that have sprung up all over the country with the breakdown of the government’s ration system in the famine years of the 1990s. This shadowy private sector is a key engine of the North’s real economy — making up as much as 30 percent of the whole pie. The Kim regime has been more lenient than his father’s, but insists it’s a temporary blip.

“In the future, the marketplaces will no longer exist,” the international economy specialist Ri said in his interview with AP. “The main role of the markets is to sell things that factories and other enterprises can’t supply. We allow the markets because the country right now doesn’t have sufficient capacity to produce daily consumer goods.”

In some ways, North Korea’s economy does appear to be improving slightly.

South Korea’s central bank reported the North’s economy grew at just over 1 percent in 2012 and 2013. It estimated North Korea’s GDP at about $30 billion. In lieu of official numbers from the North, figures compiled by South Korean agencies are often regarded as the next best thing, though they are dismissed by Pyongyang and taken with a grain of salt by foreign economists.

Some experts warn whatever progress is being made is fragile and might not be sustainable.

“In the economics sphere, the regime seems to lack any real strategic vision,” said Marcus Noland, of the Washington-based Peterson Institute for International Economics.

Noland said that while living standards are improving in Pyongyang, provincial cities and the hinterland do not appear to be sharing in it and may be slipping backward. He said inequality and corruption are rising, basic services like health and education appear to be deteriorating outside the capital and while starvation is no longer a major problem, chronic malnutrition is.

“North Korea is attempting to tweak or improve the efficiency of the existing socialist or state-dominated system, but it is not pursuing any fundamental reform,” he said. “Indeed, use of the word ‘reform’ is forbidden. The regime wants the country to be modern, wants it to be prosperous, but wants these things on its own terms.”