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Light and shadow: A review of 'Rebuilding North Koreas Economy'

Daily NK  |  2016-09-20 13:32
Its been written that North Korean studies creates a lot of heat but not a lot of light. One of the most opaque and incomprehensible aspects of North Korea is its economy. Phillip Parks new work delivers a host of insights that illuminate what decision making looks like in Pyongyang, and how the economy has evolved in the fashion that it has.   

Rebuilding North Koreas Economy is a detailed history of the evolution of North Koreas economic institutions. It is a newly published English translation of the original Korean work. The author is a professor of political science and diplomacy at Kyungnam University. The book details how a series of crises stimulated a procession of changes in North Koreas economic strategy. Each new strategy reacted to and attempted to amend the problems created by its predecessor. However, each policy also sowed the seeds for future crisis by creating new inefficiencies.      





















The Argument

Phillip Parks central contribution is to correct a common misconception about marketization and the decentralization of North Koreas economy. Park argues that North Korea did not begin its process of marketization with the July 1st Measures in 2002 - as is commonly believed. Instead, he presents evidence that North Korea actually started spinning the gears of this process much earlier, most significantly with the adoption of the Ryonhapkiopso System (Complex Industrial System) in 1986. In theory, this economic approach allowed limited market mechanisms and practical planning to replace more ideological economic initiatives. The systems implementation was largely a response to stagnated growth and the impending collapse of one of North Koreas key sponsor states, the Soviet Union. Aside from inefficiency, North Koreas principal economic problem has always been striking a balance between sectors while also pursuing self-sufficiency. The Complex Industrial System aimed to address that problem. 

The author uses North Korean economic journals as his primary sources. He admits that separating the useful information from the propaganda was a laborious task. So, while the information does need to be taken with a grain of salt, we can still learn a lot about the state of North Koreas economy by observing how academic discussions and policy recommendations have evolved over time. The book does a good job contrasting policy dialogues with the results of subsequent implementations (or lack thereof). The books sources help dispel the myth that North Koreas political economy is purely monolithic. Indeed, through the book, we witness key players – academics and officials alike – arguing over milestone policies.     

One note of caution: Park dives headfirst into the North Korean understanding of economics. Yes, this means a heavy dose of Marxist concepts and five-syllable jargon. But those with a rudimentary understanding of socialist politics know that seemingly obscure theoretical points are sometimes used to justify sweeping changes. In particular, changes to North Koreas economic institutions are often motivated by theoretical assumptions about how to best transition to a fully communist state. This is actually one of the books major charms. After we digest the dense vocabulary, we are presented with a reasonable framework for understanding the decision making of one of the worlds most opaque and incomprehensible dynasties. That in itself is a laudable achievement. 

Lets address a few downsides. Considering that the original Korean work was published a few years ago, it would have been nice to get an expanded forward with some new observations on Kim Jong Uns performance as an economic manager. Also, abbreviations and technical jargon are used thoroughly in the book. A glossary of terms would have been a handy reference. 

Although Parks main argument may seem technical at first glance, the repercussions of this work are vast. The most immediate and profound impact is that it forces us to reconsider the history, nature, and trajectory of North Koreas economic transformation. Marketization is typically described as a bottom-up process of slowly expanding black market activity. But Park gives us a reason to think that the picture is slightly more nuanced. It gives us a view into the thinking of North Korean economic planners. Readers are prompted to think more deeply about how institutions shape incentives in North Korea, and how these institutions have changed over time. 

Between a Rock and a Hard Place

In the late 1950s, Kim Il Sung was forced to decide between receiving benefits for following the Soviet Union or blazing his own trail. Kim chose independence. He first ignored Brezhnevs advice to focus on consumer products and agriculture, then refused to join the Council for Mutual Economic Assistance (COMECON). The Soviet Union responded by cutting aid. 

To compensate for this dramatic financial loss, Kim used the Chollima Movement. This movement encouraged local industries to become more self-sufficient while still using Party representatives to maintain political control. County-level officials were given greater responsibilities and administrative capacity. The regime was therefore able to invest its limited capital into heavy industry. The net effect was economic decentralization. The degree of local budget independence increased from 31% in 1957 to 92% in 1960, according to the official domestic figures.


Birth of an Idea

In 1961, Kim Il Sung gave on the spot guidance at the Taean Electric Machine Plant, starting a North Korean tradition that lasts to this day. Kim attempted to reduce inefficiencies by focusing on managerial techniques and worker relationships. After this, the Taean Industrial Management System would influence North Koreas economic orientation in important ways. It essentially chopped the economy in two: centrally planned heavy industry and non-planned local, light industry and collective agriculture. Under the Taean System, enterprises were provided with profits proportionate to their output and were allowed to distribute to workers as they saw fit. By recognizing market incentives, it signaled a departure from the Soviet style of production. 

North Korean state planners were aware that trying to spur growth by simply adding labor and capital was a dead end strategy. Indeed, growth slowed dramatically by 1963. This was not simply due to diminishing returns. Bureaucratic inefficiency, defense spending, and labor mobilizations also hurt the bottom line. 

The Party attempted to complement the Taean System and compensate for a lack of resources by increasing its control over the planning process. To do so, two new movements were introduced: unified planning (Kyehoeguiironhwa) and detailed planning (Kyehoeguisebunhwa). Both movements, however, relied upon the supposition that each production unit (re: farm or factory) was committed to the collective success of the state over and above its individual success. These movements were therefore short on practicality and long on ideology and control. Furthermore, since the dependence of each unit to the whole was strengthened, shortages and shocks could cause far-reaching damage. In the end, unified planning and detailed planning contradicted the incentives created by the Taean System and doomed the economy to stagnation.    

Answering to Inefficiency 
  
To revive growth in the mid-1960s, state planners once again turned to the kind of mass mobilizations used during the first Chollima Movement. There was some top level interest in adding material incentives for local units along the lines of the Taean precedent, but Kim Il Sungs support for detailed planning ultimately made such progress impossible. Instead, the Chollima Movement endorsed a series of speed battles entailing hastened production targets and mass mobilizations. North Korea relied on the elbow grease of its residents to escape recession and fulfill a long list of short-term plans. However, the Chollima Movement ultimately created waste and inefficiencies that made its continual application impractical. Importantly, cost accounting was conspicuously ignored under this system and supply waste grew out of control. The emphasis on speed over efficiency and long-term output became infused in the culture of factories and enterprises throughout the country.    

The Sixth Workers' Party Congress was held in 1980. Kim Il Sung used the event to launch an ambitious production plan that would increase industrial production by 190% and agricultural production by 140% within the decade. Kim stressed that the Taean System – complete with self-supporting accounting – was the key to ensuring that material supplies were used efficiently. But Party leaders like Pak Pong Ju wrote that the Party committees would need to embrace the principles of the Taean System more forcefully if Kims ambitious economic plan was to be accomplished. A more widespread implementation would depend upon changing the norms on every level. Despite receiving high-level attention, major reforms fell into the background during the 1980s and speed battles and labor mobilizations that called on workers to pitch in labor based on ideological motivations continued to dominate the struggle to compensate for waste and inefficiency. It was clear to State Planners that cost, price, profit, and management needed to answer to rational economic principles.     

Kim Il Sung first advocated for the full-scale introduction of the Ryonhapkiopso System (Industrial Complexes System) in 1984. Implementation began two years later in 1986. So how did the system work? Factories and enterprises were grouped into complexes according to their sector and region. Each complex made its own plan under the State Planning Commission, paid wages to its workers, and acquired most of its own supplies. Party committees acted as liaisons between the complexes and the Party. The self-supporting accounting of the Taean System was continued to ensure that rewards were commensurate with output and waste was reduced. 

How did the Complex System fare? The wide-scale introduction of market incentives was unevenly implemented in fits and starts by Party officials, committee members, factory managers, and workers who were unaccustomed to the system. Most complexes stuck to the barter system, devaluing the introduction of market-determined prices. Many workers continued to be paid according to need, rather than according to output. The self-supporting accounting method was not uniformly pursued by the complexes. However, as the accounting system became more widespread, factories were incentivized to make better use of their resources. Left-over resources were used to make consumer goods sold to through internal distribution systems, or markets. The markets were small in scale and the availability of consumer goods remained small relative to the money supply. 

Expedited by the Arduous March

The most devastating blow came with the fall of the Soviet Union and the end of its economic sponsorship. The supply of energy imports like crude oil and petroleum decreased dramatically, causing shock waves to pulse through the industrial and agricultural sectors. The inter-connectedness of the Norths industries compounded the supply problems and drove the economy over the brink. The agricultural sector – dependent on tractors and chemical fertilizer- was hit particularly hard. Hundreds of thousands died of starvation and illness. 

This period, known as the Arduous March, induced the government to turn towards light industry, agriculture, consumer products, and trade. One component of this new policy was the expansion of an initiative called the August 3rd Movement; it facilitated the creation of cottage industries to sell consumer goods in the market. Cooperative farms also were allowed to sell excess products in the markets. This meant that when the public distribution system collapsed, people turned increasingly to the markets to satisfy their food requirements. The markets grew quickly despite the states attempts to control them.  

County Agricultural Complexes (CACs) were designed by the state to decentralize the economy and achieve balance while also re-asserting Party control. The CACs were composed of multiple factories and farms within a county, made their own plans, and paid wages according to worker contribution. Because they were required to pay transaction fees and a portion of the profits to the state, the national budget increased in 1997 for the first time since the Arduous March began in 1994. Beginning in 1994, counties were allowed to trade internationally, just as the provinces were given the green light to do so in 1992. In a sense, the CACs were an early indicator that the authorities were going to do everything they could to ensure that they benefited from decentralization and marketization.  

Park thus notes that the rationalization of management introduced through the Complex System, the August 3rd Movement, and the CACs, was not a reaction to the economic crises in the 1990s. Many of these measures were introduced much earlier. However, they only began to take root when the institutional culture began to change. So, while the economy at large was damaged by the Arduous March, the impetus for the Ryonhapkiopso System was redoubled. 

The remainder of the book takes us on a tour of later twists and turns in the North Korean economy, including why Songun (military-first politics) was pursued and which industries it attempted to invigorate, how the Chollima philosophy complicated an attempt in the 2000s to invest and innovate new technologies in the production process, and the intentions and fallout of a dramatic and disastrous currency reform in 2009. Park explains that North Korean policymakers viewed the 2009 redenomination as a way to ward off inflation and bring idle currency earned through the black markets back into the banks so that it could be used in the planned economy. The general view from the outside is that the redenomination was motivated by the regimes desire to wipe out the cash savings of the market class and regain control. Although we might not want to sympathize with the views of North Korean policy makers, this book at least gives us an opportunity to grapple with their policy justifications, whether we agree with them or not.       

A Source of Hope?

Some readers will interpret the Ryonhapkiopso System is a source of hope. It shows that desperate times can sometimes call for rational measures. It shows that when the chips were down, state planners valued economic health over ideological purity. How does Park address this interpretation? He cautions against taking too much heart. The authorities tend to package liberal economic shifts with strong control and ideological components. For example, Kim Il Sung asserted that the dictatorship of the proletariat must be continued until the later stages of Socialist development so that he could maintain absolute authority. Kim Jong Il turned to Songun, or military-first politics.  

This is particularly important because the combination of Songun and Ryonhapkiopso foreshadows trends we see in the Kim Jong Un era. There have been some positive changes since Kim Jong Un rose to power. Swelling markets, increasing market participation, and agricultural reforms are hopeful indicators. But the Kim regime has eroded this optimism with endless labor mobilizations, half-hearted implementation of the agricultural reforms, and nuclear tests. These measures underline the tenets of the Byungjin Line - Kims strategy to simultaneously pursue economic and nuclear development. Byungjin may sound better than Songun because it leaves room for economic development, but Parks book reveals the similarities between past and present, and hints that the apple might not have fallen that far from the tree. 
 
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