Via Al Jazeera, an interesting article on how North Korea, at long last, may have decided to begin Chinese-style reforms:

There is big news coming from North Korea recently, though it has gone largely unnoticed. Indeed, when North Korea is mentioned in the international media, it is usually because of the unending saga of the nuclear crisis or because of some (unsubstantiated) rumours pertaining to the apex of power in Pyongyang. Such news may sell papers and/or increase page views, but it is usually forgotten quickly with little – if any – consequences.

At the same time, news about North Korean society and its economy seldom make headlines. It is simply not sexy enough to talk about some new decision by the cabinet of ministers. However, such decisions are likely to have more impact on the future of the country than all the bellicose remarks that are North Korean diplomats’ stock and trade.

This time, the big news is indeed a decision, the so-called “May 30th Measures”, jointly issued early this year by the North Korean cabinet of ministers and the Central Committee of the Korean Worker’s Party. This decision was initially classified, but because it was supposed to be read by so many people, its contents have become public knowledge.

Chinese-style reforms

The contents are revolutionary. It seems that, at long last, North Korea has decided to begin Chinese-style reforms. Marshal Kim Jong-un is obviously inclined to do what his late father, Generalissimo Kim Jong Il, was too afraid to, that is, to attempt to transform his country into a developmental dictatorship, largely similar to present-day Vietnam or China.

This decision did not come out of the blue. Indeed, it agrees very well with what Kim Jong Un and his advisers have quietly been doing over the last three years – albeit the slow-motion transformation of the country has attracted little attention from outside world.

The first significant step was the introduction of the so-called “June 28th Measures”. These measures were introduced in 2012, but only became fully into force in 2013. While on paper, they did not look that ground-breaking, they represent a sweeping reform of agricultural management in the North.

The “June 28th Measures” allowed North Korean farmers to create their own production teams of five or six people. It was not explicitly stated, but it was a signal that individual households should register as “production teams”. Such teams were given a plot of land, the assumption being that they would toil the same area for several consecutive years. The land technically remained under the jurisdiction of the state-owned and state-managed “collective farm”, but the produce would henceforth be split 70:30 between the state and the production team (ie the family). Up until then, North Korean production teams had been much larger, and all produce had to be submitted to the state in exchange for a fixed daily grain ration that was allocated to every farmer. 

In essence, this reform marked a seismic shift: It marked the first step towards the reprivatisation of agriculture.

Best harvest

The “June 28th Measures” have worked out even better than North Korea’s leaders might have expected. The year 2013 (the first year that the reforms were fully in force) brought the best harvest that North Korea has seen in decades. The world media, predictably enough, missed the entire story, but in 2013, North Korea, for the first time since the late 1980s, produced almost enough food to feed itself. Even though there was a severe drought this year, the new system has seemingly proved its resilience, and initial reports about the harvest are also quite positive.

Given the precedent in agriculture, the “May 30th Measures” are not quite as surprising as they may first appear, though they are indeed truly radical by the standards of North Korea before 2013.

According to these measures, from 2015, North Korean farming households (for ideological purposes still branded “production teams”) will be allocated not 30 percent but 60 percent of the total harvest.

Additionally, farming households will be given large plots of land – some 3,300sq m – to act as their kitchen gardens. Until now, North Korea, unlike nearly all other communist states, never tolerated private agriculture to any significant degree, and thus, for decades, kitchen gardens were limited to a meagre 100sq m.

The measures did not stop there, though. This time the North Korean leadership has set its sights on reforming the moribund and hollowed out state industrial sector. According to the reforms, directors of state factories will find themselves covered by a new “director responsibility system”. This system makes a director, hitherto state-appointed and carefully supervised representative of the party and state, into the approximate equivalent of a private businessman (factory managers in North Korea are almost always men). Under the new system, factory directors will have the freedom to decide how, when and where they purchase technologies, raw materials and spare parts necessary for their enterprises. They will also be allowed to decide who to sell to. They are also given the right to hire and fire workers, as well as to decide how much to pay for a particular job.

Under the new system, there is a tacit assumption that directors will be able to reward themselves generously for their own work – a feature that makes them virtually indistinguishable from private entrepreneurs in market economies. As a matter of fact, a few foreign delegations that recently visited North Korea were privately briefed about coming changes.

Bad track record

Of course, these are just plans and they have not yet been implemented. Nevertheless, recent changes in agriculture seemingly demonstrate that Kim Jong Un means business. There are serious problems that the North Korean economy will have to overcome in the future, above all, the severe shortage of foreign investment. Due to the remarkably bad track record of North Korean companies in dealing with foreign investors, international sanctions, and the country’s dubious reputation, foreign investors will be wary. Without foreign investment, we should not expect a dramatic take-off. Let us not forget that the North Korean economy has many bottlenecks, some of which can be fixed only with large investments from outside – the sorry state of North Korea’s electricity network, railways and roads are just a few examples.

It would also be naive to expect a reforming North Korea to become either significantly more liberal or to jettison its nuclear programme. The North Korean government is only too aware that their people face a highly attractive alternative that is South Korea, right next door. The government is not enthusiastic about an East German-style revolution. Hence, they are likely to remain highly repressive in their domestic policy, and they are also likely to maintain their nuclear potential in order to ward off possibility of humanitarian intervention.

Nonetheless, there are good reasons to believe that the new system will deliver impressive results. North Korean agriculture, partially freed of statist irrationality, is already doing better than ever. One should expect that industry will start to catch up once capitalist (or if you prefer, “market”) system is introduced formally into the state sector. At the end of the day, this is good news for everybody in and outside North Korea, though one should not expect an overnight transformation.