Real reform in North Korea? The aftermath of the July 2002 economic measures

Asian Survey

Volumn 45, Issue 6, 2005, Pages 823-842

  Hale, Christopher D ^a  

^a Columbia University School of Law ^*  (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC ANALYSIS; FOREIGN DIRECT INVESTMENT; MEASUREMENT METHOD; REFORM PROCESS;

ASIA; EURASIA; FAR EAST; KOREA; NORTH KOREA;

EID: 32144439742     PISSN: 00044687     EISSN: None     Source Type: Journal    
DOI: 10.1525/as.2005.45.6.823     Document Type: Article

References (55)

1. For convenience, the Democratic People's Republic of Korea will be referred to as "North Korea."
2. Humanitarian and Development Working Group, "Annex IV: Economic Changes in the Democratic People's Republic of Korea," paper no. 4, in Consolidated Inter-Agency Appeal 2003: Democratic People's Republic of Korea (Geneva: U.N. Office for the Coordination of Humanitarian Affairs, November 2002), pp. 127-31.
3. Ihk-pyo Hong, "A Shift Toward Capitalism? Recent Economic Reforms in North Korea," East Asian Review 14:4 (Winter 2002), p. 96.
4. Humanitarian and Development Working Group, "DPR Korean Economic Reforms," in CanKor, August 9, 2002, .
5. According to recent anecdotal reports, however, bonuses are becoming a more important source of income than basic wages for many workers.
6. Researcher Suk Lee, author interview, Seoul, March 2, 2004.
7. Researcher Haksoon Paik, author interview, Sungnam, South Korea, February 22, 2004.
8. Ruediger Frank, "A Socialist Market Economy in North Korea? Systemic Restrictions and a Quantitative Analysis," unpublished ms., Columbia University, 2003, p. 13, .
9. Haksoon Paik, "North Korea's Economic Reforms and Nuclear Programs and President Roh's Policy Toward North Korea," paper presented at the Brookings Institute Conference on "President Roh Moo-hyun's First Year: Diplomacy and Domestic Reform," Washington, D.C., March 23, 2004, p. 9.
10. The 1998 constitutional revision officially recognized, for the first time, private ownership of income derived from individual sideline activities as well as "other legal economic activities." See Article 24 of North Korea's current Constitution, promulgated in 1998, at .
11. Staff Report to the Senate Committee on Foreign Relations, "North Korea: Status Report on Nuclear Program, Humanitarian Issues, and Economic Reforms," February 2004, pp. 8-9, .
12. A more vivid description of the T'ongil market itself was given by U.S. Ambassador Jack Pritchard, the senior U.S. government official in delegation, in a January 2004 address at the Brookings Institution, "The North Korean Deadlock: A Report from the Region," Brookings/Asia Society Briefing, Brookings Institution, Washington, D.C., January 15, 2004.
13. Chol-hwan Kang, "North Korean Marketplaces Revitalized," Chosun Ilbo [Chosun Daily News], December 19, 2002, .
14. Hyun-jin Seo, "DPRK Introduces Pilot 'Private Farming' Reform," Korea Herald, August 23, 2002.
15. Humanitarian and Development Working Group, "Economic Changes," p. 131.
16. Ibid., p. 128.
17. Ruediger Frank, "North Korea: 'Gigantic Change' and a Gigantic Chance," Nautilus Institute Policy Forum Online, May 9, 2003, . In another paper, Dr. Frank arrives at the figure of 13.84% by assuming that all twenty-three million citizens in North Korea were able to purchase a day ration of 500 grams of rice 365 days per year at the official subsidized price of 0.08 won/kilogram and that the state procured the rice from farmers at the published price of 0.8 won/kilogram. Frank, "A Socialist Market Economy in North Korea?" pp. 13-14.
18. See Frank, "North Korea: 'Gigantic Change'."
19. Byung Hun Oh, "North Korean Dilemma," Korea and World Affairs 27:3 (Fall 2003), p. 383.
20. This morale boost, even if intended by the regime, probably was not the main impetus of the July 2002 reforms because it could have been accomplished in easier ways. That is, Pyongyang could have just increased the pre-July 2002 salaries of favored groups. Admittedly, the increases would have had to be huge to give these groups increased genuine purchasing power in the black markets. But at any rate, funneling increased benefits toward these favored groups (as the regime has done through the favoritism it has shown the military in food distribution) would have been a much less risky way of building support among these groups rather than making radical increases in the economy's overall price level.
21. Marcus Noland, Korea after Kim Jong-il (Washington, D.C.: Institute for International Economics, 2004), p. 47. According to one report, however, some coal miners have not received the full amount of their increased wages.
22. See "North Korea's Halfway Reform Goes Awry," Transition 14:1-3, p. 5, .
23. See North Korea's current Constitution, , and North Korea's Law on the People's Economic Plans, promulgated in 1999, .
24. "North Korea," CIA World Fact Book, 2003, .
25. Oh, "North Korean Dilemma," p. 386.
26. I am grateful to Scott Snyder for his observations on industrial and agricultural decentralization in North Korea.
27. Moon-seok Cha, "Kim Jong-Il Regime's New Economic Strategy and Factory Management System," Vantage Point 25:11 (November 2002), pp. 45-46.
28. See Articles 117-30 of North Korea's 1998 Constitution, .
29. See Kim Jong Il's thesis, "On Improving Socialist Management in a Way to Meet the Demands of the Plan to Construct a Powerful and Prosperous Nation," quoted in Cha, "Kim Jong-Il Regime's New Economic Strategy," p. 48.
30. Ibid., p. 47.
31. The Taean Management system was born through Kim Il Sung's 1961 proclamation at the Taean Electric Machinery Plant. Under this system, Party bureaucrats were supposed to gain practical knowledge by being placed at the factories, and they were to meld this knowledge with ideological fervor in order to help and inspire the workers. The other main effect of this system was to place all enterprises under full Party control. However, this management system soon led to various inefficiencies and a bloated bureaucracy that was compounded over the decades, leading to the enactment of the aforementioned organization reforms.
32. Chol-hwan Kang, "Paid Party Workers Drastically Downsized," Chosun Ilbo, August 28, 2002, .
33. Paik, "North Korea's Economic Reforms and Nuclear Programs," p. 9.
34. Seung-yul Oh, "Changes in the North Korean Economy: New Policies and Limitations," Korea's Economy 2003 (Washington, D.C.: Korea Economic Institute, 2003), p. 75.
35. Cha, "Kim Jong-Il Regime's New Economic Strategy," pp. 48-49.
36. Hong, "A Shift Toward Capitalism," pp. 95-97.
37. Ibid.
38. Marcus Noland points to anecdotal evidence that "managers are creating offshoot firms to which to transfer workers, thereby getting them off the payrolls for which the parent firm managers are responsible." Noland, Korea After Kim Jong-il, p. 47.
39. The local people's committees perform the day-to-day duties of the local assemblies when the latter are not in session. The assemblies meet once or twice a year for only a few days at each session and elect the members of the local people's committees. The duties of the assemblies are, inter alia, to approve the local economic development plan and set the local budget.
40. Paik, "North Korea's Economic Reforms and Nuclear Programs," p. 8.
41. "Inminsaenghwalsuuipkumkwa Gu Riyong" [The proceeds and utilization of the People's Life Bond issuance], Rodong Shinmun [Labor News], September 28, 2003.
42. Oh, "Changes in the North Korean Economy," p. 74.
43. See also Hong, "A Shift Toward Capitalism," pp. 105-06.
44. Although the South Korean media has reported rumors that Pyongyang has completely abolished the food rationing system, these rumors have yet to be substantiated and were denied by North Korea officials quoted in other South Korean media reports. Compare "North Korea Scraps Food Rationing," Korea Times, April 9, 2004,
45. with "NK Still Maintaining Food Rationing System," Korea Times, April 9, 2004, .
46. After Pyongyang reformed the agricultural incentive system in 1996 in the midst of the famine, cooperative sub-team members were allowed to dispose of 10% of their harvest if they met their production target. See Marcus Noland, Avoiding the Apocalypse: The Future of the Two Koreas (Washington, D.C.: Institute for International Economics, 2000), p. 63. According to anecdotal reports, farmers have recently been allowed to keep an increasingly larger percentage of their harvest.
47. "North Korea's Halfway Reform Goes Awry," p. 5.
48. Hong, "A Shift Toward Capitalism," p. 95
49. Oh, "Changes in the North Korean Economy," pp. 75-76.
50. Although North Korea officially opened its doors to foreign investment in 1984 with its promulgation of the Foreign Joint Venture Law, the terms of the law were not nearly detailed, sophisticated, or attractive enough to encourage rational business people to establish joint ventures in North Korea in the prevailing environment. It was not until after the drastic reduction of North Korea's trade with the Soviet Union that Pyongyang began to seriously endorse the idea of joint ventures, and in 1991-92 numerous trade laws including those establishing Rajin-Sonbong were passed to this effect.
51. "Dandong's 'Pyongyang' Marketplace Becomes Animated," Korea Trade and Investment Promotion Agency (KOTRA) press bulletin, March 3, 2004, .
52. "Competition Heating Up over Business in Kaesong Industrial Park," KOTRA press bulletin, April 14, 2004, .
53. Bong-uk Chong, "Construction of Kaesong Industrial Park," Vantage Point 26:7 (July 2003), pp. 20-21.
54. These four agreements, struck in Pyongyang during the fourth round of inter-Korean ministerial talks, were the following: "Agreement on Investment Protection between North and South," "Agreement on the Clearing Settlement between the South and the North," "Agreement on Double Taxation of Income between the South and the North," and "Agreement on Procedures for Resolution of Commercial Disputes between the South and the North." The English text of all inter-Korean agreements can be found on the ROK Ministry of Unification website at .
55. See, e.g., "Stitch by Stitch to a Different World: North Korea," Economist, July 27, 2002, p. 26.