Hyperbolic North Korea Reform Claims Debunked

Yesterday, Radio Free Asia ran a story that caused a bit of a furore, claiming as it did that North Korea has officially abandoned its state distribution (or 'rationing', if you prefer) system. Full text below (translation Destination Pyongyang);

North, Announces Discarding of Socialist Planned Economy Seoul- Moon Sung Hwee moons@rfa.org  

It has emerged that North Korea has officially introduced its ‘new economic management system’ and announced the abandonment of the planned economy and public distribution.

However, free education and healthcare will remain untouched as the authorities assert that the ‘new economic management system’ is not the same as ‘reform and opening’.

Moon Sung Hwee in Seoul has the story.

So far only mentioned in information from domestic South Korean government sources, the shape of North Korea’s economic reform is finally emerging. The North Korean authorities have officially promulgated the implementation of a ‘new economic management system’ to labor organizations, people’s units and individual factory enterprises, according to inside sources.

One such source from Yangkang Province said, “Starting on August 6th, there have been lecture meetings in every worker’s organization, people’s unit and factory enterprise about the ‘new economic management system’. In these meetings, they have been describing the concrete facts about the ‘new economic management system’ and its implementation.”

According to the source, lecturers have been dispatched from the Central Party to each worker’s organization to organize the lectures on the ‘new economic management system’, and explanatory documents have been sent to the regional Party arms for dissemination in meetings in individual factory enterprises and people’s units.

The source said that the basic contents of the ‘new economic management system’ are that the state will not set the plan or say what items are to be produced; individual enterprises will produce what they wish and decide for themselves the price and by what means production is to be sold, meaning that North Korea is discarding the planned economy that has been the cornerstone of its socialist system.

Notably, production equipment and materials, fuel and energy issues are to be dealt with not by the state but through deals done between factories and coal mines, power stations etc; however, individuals may not establish their own factory enterprises and enterprise Party cadres are to still be employed and made unemployed by the Chosun Workers’ Party.

A source from North Hamkyung Province claimed, “According to the ‘new economic management system’, production, sale, income and distribution are to be decided by the factory enterprises themselves. The only ones who are to continue receiving state distribution are state administrators, educators, medical sector workers; the distribution system for everyone else is to be scrapped.” 

In the agricultural sector the ‘new economic management system’ is to be introduced this autumn, with production divided 70-30 in favor of the state according to the plan and any over-fulfillment also going to the agricultural workers.

In terms of timeframe, North Korea has simply said “from now”, but the source personally understood this to mean as soon as each factory enterprise is prepared, with each facing a different situation.

This deliberate vagueness may also be related to the fact that declaring a concrete start date would have incited inflation in the jangmadang, causing widespread side effects. Therefore, the authorities have tried to minimize internal conflict and ensure smooth implementation of the plan.

Meanwhile, according to sources, the reason why lecturers emphasized the continuation of free education and health care was to point up the fact that the ‘new economic management system’ does not mean ‘reform and opening’ as suggested by the imperialist powers; rather, it means ‘our style socialist economic policy’.

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The story obviously piqued the interest of a lot of people in South Korea and elsewhere. Perhaps this was because it said exactly what so many of us would really like to hear. Unfortunately, however, the sad truth is that it also contains inconsistencies, especially in terms of this point, which even the South Korean government felt compelled to point out;

A Ministry of Unification official explained, “Were they to officially abolish the distribution system, the bedrock of a socialist planned economy, North Korea would be rejecting its own self. They will not be able to officially abandon it.” 

The official continued, “At the time of the 2002, July 1st economic management improvement measures, North Korea discontinued the distribution system alongside increasing prices, but at no time was it ever written down that they were officially abandoning it.” 

A second anonymous government source added, “North Korea is suffering real difficulties in terms of distribution due to the food crisis, but is continuing to provide distribution to Pyongyang and the like. They have not institutionally abandoned the distribution system.”

Most North Korea watchers probably agree with the above sentiment; namely, that the government of North Korea will not unilaterally declare the abandonment of its de facto wartime rationing system. Possibly not ever, but certainly not now when there is still nothing concrete, and state-led, to replace it. This is because state distribution is not merely symbolic of North Korea's socialist system; it is also a tool of state control. As Daily NK president Park In Ho keeps pointing out, if it were to be abandoned, the resulting loss of state control would be far greater than the economic gains the regime would generate from doing so. Ergo, what would be the point in such a declaration?

These logical doubts were buttressed this morning by a [North Korean] former Daily NK reporter, who told me by phone that none of his contacts inside the North have heard a word about reform, or "개선 (improvement)", in People's Unit meetings to date. The only people who are known to have received information from the state about economic changes are cadres and the local people in those few areas being used as test beds for agricultural "improvements" (see, it is easy to slip into the right register!).

Therefore, we can say this: we need to keep watching the situation on the ground, since Party cadres have already been told what is on the cards and some things are set to change to some extent. However, we also need to stop over-egging the pudding.