[OUTLOOK]A closer look at North's 'reforms'

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[OUTLOOK]A closer look at North's 'reforms'

We have a tendency to judge North Korea with our own measuring sticks. If North Korea does not act in the exact way that we were certain it would, we roll our eyes and grumble something about North Koreans always being North Koreans. Recently, this tendency has been applied to trying to read the changes in North Korea's policies. It seems very possible that North Korea's abandonment of its food rationing system and the adoption of certain market economy mechanisms means that it is moving toward a Chinese-style opening and reform of its economy. But if reality proves to be otherwise, we will blame the North Koreans for having "disappointed" us.

Has North Korea really given up its rationing system and started experimenting with market economy tools? First, we must realize that the rationing system is merely a policy used by countries with an economy insufficient to meet its needs: it is not proof that the economy is a socialist one. The key point of this change in North Korea's management of its economy is that it has moved its low consumer prices more into line with reality. Until now, North Korea had set the consumer prices of rice and other living necessities very low, while setting the prices of luxury products higher than the central government's purchase price. The purpose was to ensure that the basic needs of the people were met. During Kim Il Sung's time, this policy was the shining star of his ideology, and overturning it is a quite drastic move for Pyeongyang.

For example, in the past, the North Korean government paid 80 chon (100 chon make a won) for 1 kilogram of rice and sold it for 8 chon. Of course, people could only buy the amount specified by the rationing boards at this low price. As a result, the government's financial burden increased and the rationing centers did not get the amount specified to be sold at that price. People struggled to buy rice and black markets sprang up where rice was sold privately. The farmers earned more money selling rice on the black market rather than selling it to the government.

The same thing happened in manufacturing. Eventually the North Korean government could not control the distribution of products, let alone their production.

The government has now decided to purchase rice at 40 won and sell it at 45 won per 1 kilogram. There will be no more government subsidies. Instead, higher wages will be given to allow people to buy the products at the increased prices. In the end, what North Korea has done is not an application of the invisible hand of the market to its prices, but a movement of prices closer to reality and an enhancement of its economic management skills at a national level.

There is a fundamental difference here with China's opening of its economy. China takes the position that it will start with the elements of capitalism to complete its socialism. In other words, market mechanisms would make the economy develop; the economy will then be nationalized and socialism will triumph.

North Korea, on the other hand, started out to develop a socialist economy and is now in the final stages of making it work. The government has taken complete control of the economy. After nationalizing all the supply sectors, it will decide the appropriate consumer prices for the public, the final stage of socialism. North Korea has nationalized all its manufacturing supply lines, but agricultural production is still in the hands of cooperative farms. If the government takes control of agricultural products as well, this would mean a complete nationalization of the economy. Adjusting purchase prices to reality by raising them means that farmers will now agree to sell all their output to the government.

In conclusion, North Korea is not pursuing Chinese-style reform, adapting to a market economy as we want it to. North Korea's intentions are to completely nationalize its supply systems in order for the government to acquire the power to perfectly control prices and complete its socialist economic system. It is only because North Korea is trying to improve its economic management with some new policies that it seems as if it has partially accepted a market economy like China. Most people believe that China will never go back to socialism now that it has accepted a market economy; that is also the basis for our hope that North Korea will follow the Chinese lead.

Undoubtedly, North Korea is changing. By taking such big steps for the first time since its socialist economy crashed, North Korea faces both opportunities and risks. We should be a little more cool-headed when we start making judgments and plans about North Korea's recent changes.


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The writer is a senior research fellow at Samsung Economic Research Institute.

by Dong Yong-sueng

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