When we launched this research project last year, there were fundamental questions about the North Korean economy we felt needed to be examined: How does Pyongyang view its key economic and financial interests? How do those interests translate into policy decisions? How, once decisions are made, are new policies rolled out? And is there any pushback to those policies from within? It seemed that too often, discussions of North Korean economic policy are constrained by common wisdom about “regime survival.” We sought to break out of this straitjacket and examine internal regime consideration of broader questions concerning resource allocation and the balance between central control and autonomy for lower-level units.
Though we understand why the North Korean economy is usually discussed in the context of details such as trade, market price and foreign exchange rate data, our view was that these issues would be better raised after a careful look at the larger frame in which the smaller data points make sense.
Since Kim Jong Un’s assumption of power at the end of 2011, these larger, more fundamental policy concerns appear to have been a focus of intra-regime discussions. The central question—explicit and implicit—was how to boost the economy by increasing incentives for workers and farmers and by easing, though certainly not abolishing, higher-level state and party control. These tensions became evident when examining discourse in the Democratic People’s Republic of Korea (DPRK)’s economic journals Kyo’ngje Yo’ngu and Hakpo—the Kim Il Sung University journal of economics. Articles in the journals provided guideposts for understanding Kim Jong Un’s commitment to implementing what in North Korean terms amounts to a form of economic reform. Tracking this evolution over time provided a window into the process of the North’s continuing experiments—moving ahead, tacking, falling back—with new economic ideas and practices.
North Korean thinking about economic policy tells us more than just what reforms the regime is contemplating. While often overlooked, it should always be a central component in considering a range of issues that seem much higher on the list of concerns to the outside world—namely denuclearization, inter-Korean ties, and US-DPRK relations. To the extent positive movement on any of these is possible, they will inevitably have an economic component, and the effectiveness of that component will depend on how well it resonates with Pyongyang’s economic policy thinking. Simply projecting onto North Korea what we believe they should want will not work. Instead, greater consideration is needed of what already exists in terms of concepts, perspectives and goals in the regime.
Methodology and Scope
We began this project by reviewing 15 years of North Korea’s top two economic journals, Kyo’ngje Yo’ngu and Hakpo, in order to understand the types of ideas that the regime allowed for discussion and the range of policy choices it appears to have seriously examined over those years. Of particular interest to us were the timing and sequencing of initiatives introduced and rolled out under Kim Jong Un; the types of discussions about those initiatives that took place; and any signs of opposition the proposals encountered.
In terms of sources, we knew it would be important to go beyond rounding up the usual suspects, in short, what was available in the normal central media sources such as Rodong Sinmum, Minju Joson, Pyongyang radio and TV, and Korean Central News Agency (KCNA). Experts who follow Pyongyang’s economic policies agree that Kyo’ngje Yo’ngu was the single most important North Korean source of information on the economy. This is because the journal offered insights into the regime’s current policies and the direction in which it is headed with a level of detail not available in central media. In effect, Kyo’ngje Yo’ngu functioned as an economic “policy handbook” that discussed and, to some extent, reflected differing views on aspects of still unofficial party policies or guidelines not published in central media but issued by Kim Jong Un either directly in private talks with experts or circulated in the form of detailed internal party instructions. Unfortunately, Kyo’ngje Yo’ngu ceased publication in 2021. This means Kim Il Sung University’s Hakpo and the Academy of Social Sciences journal (Sahoegwahagwo’n Hakpo) have become more important for researchers of North Korean economic policy.
Though Kim Jong Un assumed power in December 2011, the study reached back to 2007 in order to avoid the pitfall of assuming that all discussions appearing after his ascendance to power were new to his leadership. Rather than posit a sharp break between the Kim Jong Il and Kim Jong Un eras, it was important to test the hypothesis that the North’s economic policies in the last few years of Kim Jong Il’s reign—years when Kim Jong Un likely already was being groomed for succession—may have shaped the son’s economic policies.
There are three key lessons learned from our research.
First, a close reading of the journals shows a pattern for rolling out new economic policies. Nothing is instantaneous or ad hoc. It starts with the journals introducing certain issues or topics, indicating Kim has issued some broad policy guidance that prompted interest in and research on them. After research had been conducted, new ideas were tested in some units, viable plans were identified and policies were issued, the journals would go beyond simply introducing concepts and start advocating the new policies, emphasizing the rationale and detailing how the new ideas could best be operationalized.
Second, contrary to the commonly accepted notion that there can be no dissent or inconsistencies in North Korean publications, Kyo’ngje Yo’ngu served as a platform for voicing differing views. We saw this in two key areas examined, both with defense spending and issues associated with economic reform. It is inconceivable that dueling narratives on such sensitive topics could be conducted without the concurrence, and more likely the backing, of various elements within the leadership. Contending views are more likely when policy is under discussion within the leadership, but there are still times when these appear even after a decision has clearly been made.
Third, the central, fundamental question of “economic management”—a code word for reformist economic policies—for Pyongyang seems to boil down to finding the right balance between state and/or party control and the independence of individual units. We continue to see dueling narratives on this issue, which indicates that the Kim regime is still trying to find the right answer in the midst of shifting circumstances. The general assessment among North Korea watchers since the Eighth Party Congress in January 2021 seems to be that Pyongyang is slowing down on or even backtracking on reform because of the emphasis on the state’s unified guidance and the party’s leadership, as well as the regime’s stated intent to continue to develop and test new weapons. North Korea has clearly shifted to stronger state and party control over the economy in the last one or two years, but for now, this seems aimed at continuing with its economic initiatives in a way that the regime can manage, rather than rolling back on reform. North Korea continues to promote the “socialist enterprise responsibility management system” (SERMS) and “plot responsibility system” at high levels—for example, at cabinet and parliamentary meetings and the premier’s field inspections. In fact, North Korea is still in the stages of researching, improving, and perfecting economic management methods, according to an expanded plenary meeting of the cabinet held on January 28, 2022.
Reviewing Key Narratives
Out of a range of topics addressed in the two economic journals, we keyed on two broad themes that appeared to best reflect the leadership’s thinking on reform-type measures and competing priorities: 1) civilian versus defense spending, and 2) North Korea’s initiatives in the farming, enterprise and banking sectors. Internal discussion on these fundamental concerns reveals tensions between the traditional views of socialist principles and the more flexible, nonorthodox (we are comfortable calling them “reformist”) interpretations; the challenges facing the regime as it pushes its reformist agenda; and both the extent to which the regime has been willing to go and its persistence in trying to implement new ideas.
Civilian versus Defense Spending. There has long been a tug-of-war in the North Korean leadership over military versus civilian spending. In some ways, this was the biggest issue Kim Jong Un has had to tackle in fashioning new economic policies. The question of whether North Korea allocates more resources (not just money but also talent and technology) to defense rather than to the civilian economy goes beyond whether the country is planning to build and test more missiles or add to its nuclear arsenal. The basic issue, one that seems well understood in the regime, is that the more resources the regime allocates to national defense, the less room there is for reform-oriented economic policies to take root.
It was noticeable that the number of articles dealing primarily with the defense industry decreased sharply, starting with the first volume of Kyo’ngje Yo’ngu in 2011—during Kim Jong Il’s last year in power, and after Kim Jong Un had made his debut as the successor-designate the previous fall. At the same time, there was an increase in articles on “economic management.” In the articles that argued for defense spending as a priority, the authors were forced to demonstrate how spending on the defense sector was not an unassailable good but was actually of benefit to the economy as a whole. In other words, defense of the nation was not enough to justify the privileged position for military spending, and proponents had to show that priority allocation of resources to defense supported nondefense sectors and stimulated economic growth overall. Those who opposed leaving military spending as a sacred cow argued that disproportionate money spent on defense was not productive. It did not support but undermined economic development by wasting resources. These opposing views showed up in two articles carried in the same issue of Kyo’ngje Yo’ngu in January 2018. Both articles were almost certainly written in anticipation of Kim Jong Un’s announcement a few months later, at an April 2018 party plenum, of a “new strategic line” of “concentrating all efforts” on the economy. In other words, as Kim was about to direct more resources to the civilian sector, opponents of that approach were still making their case that defense spending helped to stimulate the economy and, implicitly, should not be cut back.
Farming and Enterprise Sectors. Even as the debate (yes, we call it a debate) over the priority of defense versus civilian resources was going on internally, Kim Jong Un moved ahead to define the broad principles of his reform-oriented economic initiatives. At a party plenary meeting in March 2013, barely a year after he assumed power, he referred to a policy of “economic management methods of our style,” clarifying those were intended to allow enterprises to carry out their activities “independently and creatively.” Kim added the usual qualifiers—that this be done under the state’s unified guidance and that workers fulfill their roles and responsibilities within the socialist economic system. However, there was no mistaking that he was opening the door for policies that made possible greater initiative by people and enterprises working at lower levels in the economy, freer from central bureaucratic control. In effect, Kim’s remarks at the plenum became the starting gun for a broader process rolling out reform by economic sectors—starting with agriculture, then enterprises and finally banking.
In February 2014, 11 months after his remarks on “economic management” at the party plenum, Kim gave his first public endorsement of reform in the agricultural sector. In a letter to an unusual national meeting of “Sub-Workteam Leaders in the Agricultural Sector,” Kim endorsed the “plot responsibility system,” that is, smaller-scale, incentivized farming giving more responsibility and potentially more financial rewards to farmers. Not long after, in May, in a talk with senior party, state, and army officials, Kim established the three pillars of “economic management methods of our style.” They were: 1) the state’s unified guidance of the economy, 2) correct implementation of the “socialist enterprise responsibility management system” (SERMS) within the parameters of the socialist economy, and 3) the party’s leadership over economic work. Again, what was new and potentially far-reaching—SERMS—was carefully sandwiched between seemingly orthodox concepts. SERMS gave individual enterprises greater independence in planning, production, and management of resources and profits. It became the main part of what Kim meant when he spoke of “economic management methods.”
Banking. North Korean journals had published articles introducing foreign banking practices in the first few years of Kim Jong Un’s rule, signaling that research was underway about internal financial and banking reform. But it was not until a December 2015 national meeting of financial and banking officials that Pyongyang formalized reform in that sector. In a letter to the meeting, Kim gave instructions on these key issues: the role of banks in support of enterprise independence and “creative” use of their resources; currency circulation and stability; and the “accounting system of financial institutions,” the equivalent of SERMS in the banking sector giving greater latitude to individual banks in their operation. In fact, the major purpose of the banking reforms appears to have been to support SERMS from all angles, making banks profitable so they could provide more loans and keep money in circulation as a means of supporting enterprises’ business.
Whether the North was not ready to promote banking so quickly or whether it had to deal with sensitive policy details, there was a curious gap of nearly a year during which the journals did not pick up on the ideas contained in Kim’s December 2015 letter. When they finally did, they went beyond introducing the outside world’s banking policies and sought to adapt banking, and in particular, commercial banking, to North Korea’s needs. By contrast, North Korean journals started mentioning SERMS in the fall of 2014, just a few months after Kim introduced the concept in his talk with functionaries in May.
Foreign Policy Implications
North Korea’s stance on economic reform is significant, not just for its domestic repercussions, but also for how it might impact the country’s foreign policy. This is an area that needs closer study of particular cases. One good case could be Kim Jong Il’s July 2002 economic policy reforms and their connection to the North’s diplomatic initiatives starting in early 2000. Another would be a study of possible links between Kim Jong Un’s diplomatic initiatives in 2014 and 2015 with the introduction of his measures in agriculture, enterprise management and banking in that time period. The most obvious would be the connection between Kim’s pivot to diplomacy in January 2018 and Pyongyang’s declaration of the “new strategic line” of “everything for the economy” three months later, in April. One working hypothesis to test might be that Pyongyang tries to improve its external security environment—usually meaning improved relations with Washington—in order to provide better conditions for introducing new, reformist economic ideas. If it can’t move the foreign policy quickly enough, it moves ahead on the economic front anyway, anticipating it can get the diplomacy in line. Depending on the conclusions of such studies, they might support or contradict the commonly held idea that Pyongyang goes into diplomacy mainly for rewards or carrots from Washington.
This paper is the final installment of the “Understanding Kim Jong Un’s Economic Policymaking” series made possible through generous support from the Henry Luce Foundation and the Korea Foundation. For an overview of the project and the project’s scope and methodology, see https://www.38north.org/2021/05/understanding-kim-jong-uns-economic-policymaking-project-overview/. On the evolution of North Korea’s defense spending policy, see https://www.38north.org/2021/09/understanding-kim-jong-uns-economic-policymaking-defense-versus-civilian-spending/. For North Korea’s banking policy, see https://www.38north.org/2021/12/understanding-kim-jong-uns-economic-policymaking-pyongyangs-views-on-banking/. For North Korea’s economic management narrative, see https://www.38north.org/2022/02/understanding-kim-jong-uns-economic-policymaking-management-system-discourse/.
Kwak Myo’ng-ch’o’l, “Correctly Clarifying the Status of the National Defense Industry Is an Important Issue That Has Strategic Significance in the Construction of a Socialist Economy,” and Cho Kwang-ch’o’l, “The Development of Heavy Industry Is a Firm Guarantee for the Construction of an Economically Powerful Socialist State,” Kyo’ngje Yo’ngu 1, (January 2018).