North Korea takes risky path of
reform By Sangsoo Lee and Stefano
Facchinetti
Speaking
Freely is an Asia Times Online feature that allows
guest writers to have their say. Please
click hereif you are interested in
contributing.
In June, North
Korean authorities announced agricultural reforms
called the "6.28 policy", which promises to
recalculate the ratio of distributed planned
products (70% to the country, 30% to farm workers)
and downsize basic farm units from 10-25 people to
four to six people.
The regime's declared
purpose is to ease the current economic crisis and
improve the people's standard of living. Details
about reforms, however, remain unclear as well as
the underlying motivations and, of course, their
possible outcomes.
North Korea has, in the
last months, begun to show some signs
of economic reform. When
headed by Kim Jong-il, the dominant military
establishment always preferred to adopt a
"military first" approach, a position that brought
international isolation.
However, the
country's strategy of provocation has only
produced limited shipments of humanitarian aid and
has discouraged foreign investment in the country.
The decision to pursue a military-oriented
path, rather than that oriented toward the
economy, was largely determined by Kim Jong-il's
leaderญship base and the internal power structure
of the regime.
The "military first"
approach that has been followed so far, however,
appears not to be sustainable anymore, which is
why Pyongyang might now be considering a serious
change in the country's economic system. The
downfall of Vice-Marshal Ri Yong-ho in July and
the recent promotion of Jang Sung-taek (Kim
Jong-eun's uncle-in-law) were seen by many as a
hint of a concrete change to come.
The
'6.28 Policy' With the death of Kim Jong-il
in December 2011 and the ascendency of the
Western-educated Kim Jong-eun, all eyes are on
signs of reform. The "6.28 policy" promises just
such a new wave of reforms. The policy, announced
by North Korean authorities in June, promises to
recalculate the ratio of distributed planned
products. Currently, farmers are allowed to keep
only a set amount of crops for themselves whereas
the lion's share of the production is turned over
to the state and then redistributed according to a
rations system.
According to the announced
"6.28 policy", in the near future farmers may
instead keep 30% of their crops and sell it
directly on the market. This measure is intended
to incentive local production, stimulate
entrepreneurial spirit, keep down inflation in the
food market and reduce malnutrition.
Additionally, cooperative farm units are
expected to be reduced from 10-25 people to four
to six people. So far, North Korea has been unable
to grow enough food to feed its people and has
repeatedly suffered from famines and food
shortages. Whether these small-scale agricultural
measures, with subtle capitalistic tones, could
possibly improve the North's situation remains to
be seen.
The effectiveness of the
announced measures seems doubtful as they apply,
in their present form, only to three provinces
near the border with China, in mountainous areas
with little agricultural production.
Further speculations address possible
industrial reforms, allowing individuals to engage
in private investments, a full-scale cash-payment
system for transactions among light-industry state
firms, increased economic relationships with China
and Russia and, potentially, a new currency
reform.
In order to develop a fully
self-sufficient system at a time when
international sanctions are blocking supplies of
goods and farming products, Pyongyang may now
eliminate part of its rationing system and improve
its free market functions.
Lessons
learned Talk of economic reform in North
Korea is nothing new. In July 2002, in conjunction
with the Kim Dae-jung government's "Sunshine
Policy", Pyongyang proposed a series of economic
reforms intended to improve the economic
conditions of the country after the long-standing
economic crisis in the 1990s.
The goals
behind these measures were to increase the
country's official food supply, to regain state
control over the economic sector, particularly in
preventing further black market encroachment, to
reduce the state's subsidization burden and to
obtain a large amount of capital in order to
kick-start the North Korean industrial sector.
None of these measures succeeded. Despite
including market-oriented measures, these reforms
did not aim at restoring the economy through
either liberalizing prices or decreasing
Pyongyang's control over economic planning.
The most radical measure was probably the
monetization of the economy, but the
hyperinflation derived from the artificial
adjustment of prices and wages to the devaluation
of the won complicated the economic situation,
leading to a complete breakdown in the food
distribution system.
As a result,
jamadang (street markets), sprang up
everywhere and developed an autonomous
marketization. The authorities considered such
marketization a threat to the regime and launched
new reforms in 2009 intended to restore the pre-
2002, Stalinist-like economic system and regain
complete control over the market. The value of the
won was subsequently fixed back to the pre-2002
value, causing a new acceleration of inflation,
exceeding 100% per year.
The attempt
eventually resulted in a new failure: the currency
revaluation was undermined by the inability of the
state to provide sufficient goods to restore the
public distribution system as a replacement to the
open market. The reforms themselves caused the
markets to clam up, robbing them of the exchange
and supply needed, leading to a complete breakdown
in the distribution of necessary goods and food
stuffs.
2012: Failure or success?
Keeping an eye on past failures, Pyongyang
may now be taking steps in the right direction.
Details about reforms, however, remain unclear, as
are the motivations driving them. Rather than
signaling pragmatism or caution, the lack of
details on the reforms may reveal them to be
merely cosmetic, intended to raise international
attention and expectations, and induce foreign
investments, but without any concrete will for
change.
Yet what remains clear is that in
order to ensure its survival, Kim's regime has to
counter both an economic crisis and a food crisis
with some concrete measures. Too much reform,
however, could also turn out to be a dangerous
loosening of grip in a country that has been
tightly controlled for decades. The government
needs to carefully weigh the size and impact of
such reforms before actually implementing them.
The nuclear issue is seen as non-negotiable for
the regime, an imperative for the survival of the
current leadership in an international environment
it perceives as hostile to its existence.
Foreign investment would certainly ease
the transition, while unconditional,
no-strings-attached economic aid appears to be
fundamental for Pyongyang to continue any positive
reforming process. Foreign countries with an
interest in North Korea should provide a secure
environment where economic reforms can be
implemented effectively, possibly through some
kind of economic cooperation and support.
Economic and political interactive
processes should be engaged by neighboring states,
primarily China and South Korea, which are likely
to provide much of the substance and influence in
shaping the path North Korea will pursue.
The next South Korean government is
expected to take more of a policy of engagement
toward the North than the one currently held.
Nonetheless, it must be remembered that the past
South Korean "Sunshine Policy" was tarnished by
the lack of conditionality in the dealings,
particularly concerning the provision of economic
aid. This has led many South Koreans to question
the effectiveness of the next government's policy
in bringing about change.
International
economic aid, however, is unquestionably bonded to
Pyongyang's nuclear program. The US should focus
more actively on solving this issue, possibly
combining it with the distribution of humanitarian
aid and financial investment. China seems to be
more interested in the regional stability than in
dismantling North Korea's nuclear weapons.
Trilateral high-ranking talks should be considered
between the Koreas and the US, which also holds a
military presence on the Korean Peninsula, to
discuss the issues of denuclearization,
normalization and reunification.
Finally,
it should also be said that the internal
policyญmaking process in North Korea is very
different from other countries. Changes in
economic fundamentals and policies, particularly
in the infancy of the new leadership, will
continue to be influenced by a complex power
tussle between interest groups.
The
introduction of a "new economic policy" may have
an effect in disclosing various latent conflicts
and contradictions in North Korean politics and
economy. If a "new system" is officially
implemented, conflicts between different groups
with interests in profit making from economic
reforms will increase.
Sangsoo
Lee is a Research Fellow and Stefano
Facchinetti an intern at the Institute for
Security and Development Policy, Stockholm,
Sweden. This piece is a revised version of a
Policy Brief for ISDP. The opinions expressed in
this Policy Brief are those of the author and do
not necessarily reflect the views of the Institute
for Security and Development Policy or its
sponsors. www.isdp.eu
Speaking
Freely is an Asia Times Online feature that allows
guest writers to have their say. Please click
here
if you are interested in contributing. Articles
submitted for this section allow our readers to
express their opinions and do not necessarily meet
the same editorial standards of Asia Times
Online's regular contributors.
(Copyright
2012 Sangsoo Lee and Stefano
Facchinetti)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
