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Thread: The Origins of North Korea's Economic Crisis

  1. #1
    Contributor Crocodylus's Avatar
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    05 Nov 09

    The Origins of North Korea's Economic Crisis

    Just today I found this interesting essay on the origins of North Korea's (1990s) food shortage. Seems to be from around 1998 or so. Even so, I found it to be something of a revelation, to say the least

    The original essay has enlarged type for the title. (Below is the link to the original.)

    ************************************************** ********
    The Origins of North Korea's Economic Crisis

    Mitsuhiko Kimura

    1. The North Korean economy

    The North Korean economy stagnated following the collapse of the Soviet Union, and in recent years it has deteriorated into a state of crisis. It has come to the point that the government itself acknowledges the situation. What happened in previous years to bring about the crisis?

    More than a few observers believe that the North's economy performed well in the 1960-70 period. This paper argues that the present crisis stems from the nation's distinctive social rigidity.

    The development of the North Korean economy has been undermined, as much if not more than those of other socialist economies, by inefficiency, rigidity, and lack of labor incentives. This can be easily understood in listening to speeches by Kim Il Sung. In his voluminous collective writings (including speeches), Kim points out many difficulties which trouble economic management while repeatedly lavishing glory upon himself. These speeches are indispensable materials for comprehending the true state of the nation's economy. As the most powerful figure in the country, Kim was the only person able to discuss these problems, about which almost nothing is written in other official documents. Below, a number of Kim's writings are sampled (translations are from the Japanese-language Kim Il Sung chosakushu[Collected works of Kim Il Sung].

    "If I go to a factory or enterprise, what I see is not a single well-ordered warehouse, but large amounts of material being wasted...if materials like coal and cement were stored in warehouses not a bit would be lost, but it is negligently allowed to pile up outside where it gets rained upon and becomes unusable, and gets blown away by the wind" (May 1968).

    "We catch hundreds of thousands of tons of fish every year, yet nowhere near this amount actually reaches our people. The cause is nothing other than that the officials in the fishing department do not make thorough preparations for processing the fish, leaving much of the catch to rot" (June 1968).

    "In recent years, grain production has failed to increase... now the managers in the collective farms have become slothful and lack a diligent spirit. Even when they go into the fields they make no attempt to work, but only issue instructions and wander around. During the busiest planting and cutting seasons, some collective farm managers do not try to participate in the production work, but in the autumn they transport many bundles of rice plants to earn labor points" (November 1970).

    Needless to say, the reason that this problem occurred was that labor points were decided according to work performed, and wages were paid according to labor points. The fact that government authorities have announced almost no data on grain production since 1970 suggests the severity of the management problems on collective farms. Further,

    "Economic statistics at present are inaccurate. There are no statistics which grasp the waste of labor power, and statistics on equipment, also, are unsatisfactory" (July 1974).

    "The reason why the people's lives cannot be improved any faster is definitely not that the country's material foundation is weak. We have the labor power, and we also have the materials. The problem is that the bureaucratic thinkers, and the conservative thinkers, and the self-promoting types always hold power. They neglect labor administration and do not take care of equipment, they do not provide supplies properly, and they do not care about their work... Recently, in order to investigate conditions in our light industrial sector I went to a factory in Pyongyang. At the hosiery factory there was no place for installing machinery, and machines imported from foreign countries went unused for months. Not only that, but on the grounds that there was no warehouse, raw materials were piled up anywhere...thread taken from a textile factory was rolled around until it became unusable" (February 1973).

    "At the Maritime Ministry, detailed planning is not carried out, and in prime fishing seasons, there is a great ruckus raised about don't do that, don't do this. Inevitably, there are not a few cases where wire rope and rolled steel that were supplied to mines end up at the Maritime Industry. Later, then, at the mines, there is an uproar when the ore cannot be mined because there is no wire rope or rolled steel" (November 1976).

    "Because the supply of coal has not been provided smoothly, the production and transmission of electric power has been badly obstructed...Last winter in North Hamgyong Province, because coal was not provided smoothly, the locomotives could not run normally for almost a month. The cement factories were also short of coal and limestone, so production could not be normalized" (September 1977).

    This dismal situation developed even though North Korea possesses sufficient coal deposits to supply itself. Further:

    "Coal and firewood must be supplied to workers in the maritime sector at all times. The fishermen leave their homes to fish upon the open seas all summer long. When they have taken their catch and returned, they must not be forced to go to the mountains, ax in hand, to search for firewood. This has happened because the administrative heads and supervisors in the relevant sectors do not care about the livelihoods of the fishermen" (December 1980).

    "We must hasten the construction of the Mobiron factory. If we push building of the Mobiron factory and finish it quickly, good futons can be given to our people . . . however . . . I came this time to have a look and investigate, and find that at the Ministry of Construction, they blathered a lot of excuses for not mobilizing the people at the ministry office that was supposed to get the factory running. Even the factories and the companies that are in charge of making equipment for the Mobiron factory are not doing their jobs properly" (same as previous passage).

    Information on the Mobiron factory is not totally clear, but in any case it was supposed to use artificial material in place of cotton, which was in short supply.

    To the State Planning Committee: "Because we don't have the basic data necessary for formulating a plan, we don't know how much or what plans to raise, and we also can't make concrete estimates, so the lower officials are only being instructed to raise the planned figures" (December 1982).

    The above is just a tiny portion of the examples of the problems which Kim Il Sung ceaselessly raised, indicating his gross displeasure. The above materials can be categorized in the following manner. a. Officials and workers did not work hard. b. Labor power, raw materials, energy, foreign capital, parts, and equipment were all in short supply, so normal production was impossible. c. Consumption goods were in very short supply, and their quality was poor. d. Resources such as tools, machinery, raw materials, and land were not treated with proper care. e. Statistics were compiled carelessly, and reports frequently overstated production. f. Huge quantities of manufactured goods were lost in the course of processing, storage, and transit. g. The workers' skill level was low, and the technology was outmoded. h. Detailed production planning was utterly impossible.

    It is important to deepen the debates on the background and the theoretical significance of the above points, but in this paper I note just two points.

    First, the North Korean economy is not what we ordinarily regard as a centrally planned economy. The central government (State Planning Committee) did not have the data on input or production capacities of many goods necessary for even minimal planning. In reality, apart from a few basic materials, all factories, enterprises, and agencies procured, produced, distributed, and consumed their own inputs on an almost totally independent basis. The terms "self-reliance," "self-correction," "use of regional sources," which appear frequently in North Korean documents, mean that the "production units" should rely, not on the center, but on their own efforts to solve the various problems arising from the process of production.

    The second point concerns the calculation of national income statistics for North Korea given the large losses of goods between time of production and actual consumption. Taking only the case of fishing, though it was true for much of the agricultural sector as well, there was considerable rotting and inventory shrinkage during storage, processing, and distribution. Add in padding of statistics, and it is clear that the statistics will need to be revised to more accurately reflect real consumption.

    2. The rigidity of social structures: "feudal militarism"

    Contrary to its official status as an egalitarian socialist society, North Korean society is a class society. The former top official recently "exiled" to South Korea described it as "feudal militarism." According to the testimony of many exiles, there are in general three social classes in contemporary North Korea.

    First, there is a "hostile class." This class is mainly made up of people whose fathers or grandfathers were landlords or capitalists in the past. Landlords who owned more than 5 hectares of land during the colonial era had their land confiscated in the 1946 land reform and were banished from their home towns. Any who opposed were imprisoned or otherwise suppressed. Further, former capitalists lost their property during the process of nationalization advanced by the Ministry of Commerce and Industry. Many of these people fled to the south between 1946 and wartime. Those landlords and capitalists who elected to stay in the north were relegated to the lowest social classes, along with their children and grandchildren, and they endured difficult lives. They had no hope of bettering their status and they were placed under special surveillance.

    Second, an "unsettled class" exists. It includes entrepreneurs of small- and mid-size firms, merchants, and intellectuals from the period prior to 1945, as well as their children and grandchildren. Persons repatriated from Japan were also generally associated with this class. They were treated relatively mildly compared to the hostile class but the government, fearing that they might turn on it in a crisis, kept them under careful watch.

    Third is the privileged class, consisting of workers, persons from poor agricultural backgrounds, the surviving family of casualties of the Korean War, and people who unreservedly support the regime.

    It is believed that these broad general classes are further subdivided, but it is not clear to what extent. In any case, such a society is certainly an obstacle to modern economic development, as people lack incentives to develop their individual abilities or to contribute to developing the social economy. Persons with higher status want to protect their special privileges while those with lower status harbor no hopes or aspirations. Further, according to recent reports, low-status people have been using bribes to try to break through the class barriers. Ultimately, stagnation and corruption dominate the society.

    Moreover, North Korea seems to fit the following definition of a military state quite closely. In a militarized state, the military officials possess strong influence inside the government, routinely prepare for war, exercise control over individual units, organize many social activities and mobilize the population along military lines, ignore individual rights and security, and seek to inspire people by bringing military vocabulary (for example, charge, bomb spirit, final conflict, decisive battle, etc.) into everyday usage. In these respects, the people's lives are largely sacrificed to military purposes. One result of this militarization is that to a far greater extent than in almost all other socialist countries, the supply and quality of necessities for the population has been dismally inadequate.

    3. The real origins of the food supply problem

    The North Korean government has recently admitted that the state of food supplies has deteriorated. International agencies have warned that widespread famine may result. However, there is little concrete data. According to estimates by Korean research centers, production of rice, corn, wheat, and other grains has not exceeded 400 to 500 tons in recent years, while total production in 1996 dropped below 400 tons. It is not clear how much evidence underpins these figures, but if we use them as a kind of landmark indicator, it is clear that the food shortage is critical.

    Table 1 shows grain production and amount available for consumption from the prewar until recently (prewar figures are calculated on the basis of standard assumptions and according to the present territory of the north). From 1960, the rate of production growth has not varied greatly from the rate of population growth. Per capita production in 1996 was below that of the prewar era. Even if the large grain imports for that year are added in, per capita consumption did not exceed 540 grams per day . When the lack of supplementary foods and losses during storage and transportation are figured in, it becomes clear that food is in critically short supply. Moreover, distribution among the classes is unequal. There are likely numerous ordinary people with low incomes or living in impoverished conditions whose situation must be desperate.

    The flooding and insect damage of 1995-96 have been fingered as causes of the deterioration in the food supply, but these were largely man-made rather than natural occurrences. In an attempt to raise production, excessive tree-cutting resulted in deforestation, while a lack of foreign exchange meant that pesticides could not be imported. For an organizational cause, there is the inefficiency of collective farming.

    China's institutional reforms brought the abolition of public corporations and drastically increased the scale of individual farming, resulting in major gains in agricultural production. In North Korea, however, signs of a similar revolution are hard to discern. The reason why is of major importance. The present regime cannot easily adopt a policy of opening that would invite a flow of information from the outside. Nevertheless, agricultural reform is in principle possible, as it could be conducted as part of domestic economic reform. But it has not been realized for a number of reasons, the most important being fear of a loss of authority of the privileged class. A second, and related, problem is ideology. Kim Il Sung's cult of personality endured much longer than in China so his policies cannot be repudiated. The only person who could have repealed the policies was Kim Il Sung himself, but he died without having done so. The present regime continues to rest upon his authority so it cannot easily relinquish the ideology. Accordingly, the basic policy principle continues to be Kim Il Sung's policy of self-reliance, or juche.


    Until 1990, the North Korean economy was supported largely by Soviet assistance, notably the provision of cheap energy. Verifying the amount of that assistance is an important research task. In any case, the cut-off of that aid dealt a severe blow to the regime, and its future is quite uncertain.

    Researchers should be able to access much more information that would help them to understand what shape any possible reform might take. North Korea's status as one of the modern world's most peculiar states makes it a highly compelling subject for study. The more open provision of information will become the debt which North Korea will owe to many countries for their provision of food assistance. (This paper is abridged from a previous article, "Kita-chosen no keizai" [North Korea's economy], which appeared in Kikan Auro-ra, 21 sekai no Kansai wo kangaeru kai, spring, 1996.) Kim Il Sung's statements are translated from the Japanese version.)


    Kim Il Sung, Kim Il Sung chosakushu [Collected works of Kim Il Sung], 44 volumes, Gaikokubun Shuppansha, Pyongyang, 1979-96.

    Yi U-hong, Donzoko no kyowakoku [A republic in the depths of despair], Aki Shobo, 1989.

    Yi U-hong, Angu no kyowakoku [The feebleminded republic], Aki Shobo, 1990.

    M. Kimura, "A Planned Economy Without Planning: Su-ryong's North Korea," Discussion Paper, F-081, Faculty of Economics, Tezukayama University, 1994.

    Kobe University, Graduate School of International Cooperation

    Source: The Origins of North Korea's Economic Crisis

    Anyone here believes that DPRK society is more like Joseon-era Korea than any kind of Communist country, at least in terms of social stratification? The section mentioning that a high level of social privilege is enjoyed by that country's military élite and Korean War veterans just jumped out at me; I never expected any socialist or communist country to have more than two classes (the State and everyone else) )
    Last edited by Crocodylus; 15 Apr 10, at 22:27.

  2. #2
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    Defense Professional Shek's Avatar
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    23 Feb 05
    I think the Onion cuts to the heart of the matter as well:

    N. Korea Detonates 40 Years Of GDP | The Onion - America's Finest News Source

    N. Korea Detonates 40 Years Of GDP
    OCTOBER 18, 2006 | ISSUE 42•42

    PYONGYANG, NORTH KOREA—A press release issued by the state-run Korean Central News Agency Monday confirmed that the Oct. 9 underground nuclear test in North Korea's Yanggang province successfully exploded the communist nation's total gross domestic product for the past four decades.

    "This is a grand day for the Democratic Peoples Republic Of Korea, whose citizens have sacrificed their wages, their food, and their lives so that our great nation could test a nuclear weapon thousands of feet beneath our own soil," read an excerpt from the statement. "Now the rest of the world must stand up and take notice that the DPRK, too, is capable of decimating years of its wealth at any given moment."

    North Korea's announcement would appear to support the CIA's intelligence information on the blast. According to the CIA, over 500 tons of compressed purchasing power, the equivalent of 40 years of goods and services produced by the impoverished country, vaporized in 560 billionths of one second. The device consumed 15 years of peasant wages' worth of uranium, two decades of agricultural- and fishery-export profits' worth for its above-ground emplacement tower, and the lifetime earnings of the entire workforce of the Kilchu fish-canning factory for tungsten/carbide-steel bomb casings.

    "A nuclear device that size explodes with the force of 10 to 15 tons of TNT, or a moderately sized economic boom," said Ronald Shimokawa, a physicist at Los Alamos National Laboratory. "The detonation most likely sent the burning, liquified remains of North Korea's economy deep into the Earth's core."

    Across the country, North Korean citizens cheered wildly after learning their nation had violently transformed the equivalent of 2.3 billion hot meals, 11 million housing units, and 1,700 hospitals into their component atoms. Others celebrated by gleaning recently harvested rice paddies for leftover grains.

    "This fraction-of-a-second blast is what I, and my parents before me, have given up everything to achieve," said tractor driver Chin Lee-Park, whose machine was cannibalized for bomb derrick parts in 1997.

    "It is truly a great day for North Korea," added Lee-Park, who then died due to a combination of malnutrition and tuberculosis.

    The North Korean government has long been suspected of building up a clandestine stockpile of capital, evidenced by their tendency to shut down national programs that provide its citizens with food, clothing, medicine, shelter, transportation, water, sanitation, education, living wages, and means of communication. A North Korean diplomat defended the decision, saying that citizens "need to make certain sacrifices so their country can afford the basic human right of national security."

    International suspicions intensified earlier this month, when satellite surveillance revealed that Kilchu farmers had burned the nation's last remaining wheat field to make room for the test site, that peasant shacks were being dismantled to provide the necessary materials to construct a cradle in which the bomb could be lowered into the ground, and that thousands of starving, near-naked Sangpyong-ri residents were digging an 800-meter vertical underground shaft with wooden rice spoons. In addition, an estimated 75 percent of North Korea's metallurgical wealth and gypsum stockpiles were repurposed for use as stemming materials to backfill the test site's hole prior to detonation.

    With the test, North Korea joins an exclusive group of nations that spends a huge percentage of their GDP on nuclear weapons programs.

    Yet, despite North Korea's claim that it will proceed with further nuclear testing, the international community is skeptical of whether it has the means to do so, in wake of news over the weekend that leader Kim Jong-Il has authorized the use of the remaining three percent of North Korea's GDP for the construction of six monuments bearing his likeness.
    "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

  3. #3
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    This piece at FP is particularly enlightening because of the photos. Its a land of no smiles.


    SHOP GIRL: This is shopping in North Korea. The clerk sits in the dark, unheated special store, waiting to turn on the lights for foreigners, the only permitted customers. "She's wearing a ski jacket or parka; the rest of this time they're sitting there with the lights off, freezing," van Houtryve says. The goods -- toys, televisions, and the like -- were imported from China. The store only accepts euros.

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