The rumoured reformation of North Korea

While Kim Jong-un is often presented in the Western media as a comical, menacing, and an erratic person, this description is misleading. The young North Korean ruler might have a penchant for bizarre clothes and haircuts, and he may also be prone to outbursts of anger, but his economic policies have been remarkably consistent – until recently.

Soon after his ascent to power, he began to slowly steer his country towards something akin to a market-oriented reformist policy, not unlike the policies of Deng Xiaoping in the early days of the Chinese reformation. Recently, however, the line has changed, and the tempo of reforms has dropped significantly.

The reforms began in 2012 when the country’s agriculture was partially switched to a household-based model. Since 2013, North Korean farmers, who for many decades have worked for fixed rations, received 30 percent of the total harvest. In 2015, that figure is expected to double to 60 percent.

The new system has made farmers work harder and take greater responsibility, and the results have been quickly visible: both 2013 and 2014 were marked by bumper harvests. Even a grave drought in the spring of 2014 failed to negatively impact the recovery of North Korean agriculture.

‘Capitalist ghetto’

Simultaneously, the North Korean government took measures to attract foreign investments. Some 20-odd special economic zones were created, to serve as controllable “capitalist ghettos” where foreign investors would be allowed to develop a market economy under the watchful eye of North Korean officials.

The next step was expected to happen this year. On May 30, the North Korean government issued a new decision, commonly known as the “May 30 measures”. Although technically classified, the document was widely known and discussed. As part of the May 30 measures, the government promised to provide the North Korean industrial managers hitherto unthinkable freedom.

The managers were promised the right to buy raw material and to sell the finished products freely and at market value. They were also given the right to hire and fire their workforce according to their own discretion, and were given the right to pay wages they consider to be fit.

In practice, this meant that state-appointed managers would acquire a level of freedom very similar to that of private entrepreneurs in regular market economies. It was also implied, but not explicitly stated, that the managers would use the new system to enrich themselves.

The new management system was supposed to be implemented across the entire country starting in 2015, with nearly all industrial enterprises switching to the new model. But it did not happen.

The information emerging from North Korea through different and unconnected sources leave little doubt that the expected switch to the new managerial system has not happened.

As usual, official media is silent, but foreign investors and businessmen, as well as Chinese nationals who visited their relatives in North Korea, and some trusted North Korean contacts, all tell the same story: Reforms are not being implemented as expected.

The new rules

As was the case last year, there are a number of industrial enterprises which operate in accordance with the new rules. However, such enterprises are few and far between, and are still officially considered “experimental”. Most plants and factories still ostensibly follow the ossified rules of a Leninist command economy.

Simultaneously, foreign investors began to feel increasing pressure. They began to face arbitrary changes of rules, demand for additional payments, and other similar actions.

An acute observer described the current situation to the author: “For a couple of years, the North Korean economy resembled a car climbing a steep slope at a good speed. But a few months ago, they switched off the engine, and the car has just begun to slide down the slope.”

Given the highly secretive nature of the North Korean government, one can only guess what made Kim and his advisers change their minds. The decision to stop reforms might reflect some internal governmental turmoil, but also may be a result of a sudden change of Kim’s mind-set – indeed, the North Korean dictator is remarkably moody at times, and reforms are wrought with political risk.

It is even possible that the reforms were slowed down in order to better prepare the wider economic landscape for their full-scale implementation: This full switch to the new system could potentially trigger severe inflation, so some kind of preparatory “groundwork” is advisable and possibly even necessary.

Experimental enterprises

Whatever the reason, the reforms appear to have been stopped, albeit not rolled back. The farmers still receive their share of produce, and some factories work according to the new system, often paying exorbitant salaries to the employees. A miner at the Musan iron mine, where the “experimental enterprise” system is functional, can now easily earn $70 a month, almost 100 times the average nationwide salary of less than a dollar a month.

This gives us reason to hope that sooner or later the reforms will be resumed, and that the current halt is merely provisional. After all, the introduction of household-based agriculture a few years ago followed a similar pattern: The new policies were first announced in June 2012, then shelved, but began to be fully implemented during the spring of 2013.

Nevertheless, the news remains disturbing. If North Korea rejects reforms, it will slide back into a state of stagnation. This will mean life will become even more difficult for North Koreans and will create a great deal of trouble for North Korea’s neighbours. A reforming North Korea has the possibility of survival, while a stagnant and stunted North Korea is inevitably bound to collapse.

Andrei Lankov is professor of Korean Studies at Kookmin University, Seoul. He is the author of “The Real North Korea: Life and Politics in the Failed Stalinist Utopia”.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.