Since gaining power, North Korean leader Kim Jong Un has adopted various policies aimed at reforming the country’s business environment. The regime amended its enterprise law twice in 2013 and 2015 to allow businesses to raise their own funds. This year, a constitutional amendment laid the groundwork for the “Socialist Enterprise Responsibility System.”
These efforts at reform have enabled the donju (North Korea’s nouveau riche) to invest in state-run enterprises even more than before. Despite the growing intensity of international sanctions against North Korea, private enterprises are being established at an even greater rate than before due to investments made by the donju.
STATE-RUN ENTERPRISES DECLINE AS PRIVATE FIRMS INCREASE
The decline of state-run enterprises has contributed greatly to the newfound prosperity of private companies. The meager wages (generally KPW 3,000 a month) paid out by state-run enterprises have made them far from appealing to North Korea’s workforce. North Koreans now aim to work at enterprises that pay USD 100 a month. Laborers also expect private firms they work for to supply them with rice.
The pro-business attitude shown by North Korean officials has played a major part in bringing about this shift away from dominance of state-run companies. North Korean authorities generally let private businesses operate as long as they are properly registered and pay taxes.
Meanwhile, North Korean authorities appear to be taking a harder line against state-run companies.
For example, in March, the Pyongsong Automation Equipment Factory and Pyongsong Woodworks Factory in Pyongsong, South Pyongan Province, along with metal product and silk factories in Mukdok, Sukchon, Kaechon, Tokchon and Pyongwon, all applied in vain for financial aid from the province’s industrial management department.
Daily NK sources reported that the industrial management department in the province actually discussed the possibility of shutting down these state-run enterprises. Sources told Daily NK that local officials suggested that just shutting down the factories if they failed to improve their business operations within the year was better than trying to get them back on track. This suggests that the government is trying to make state-run companies more competitive than before.
DEEPENING BONDS BETWEEN EMPLOYERS AND EMPLOYEES
How have such shifts impacted North Korean society at large? First, the regime has emphasized that firms need to be more “autonomous” in their operations and this has led to closer bonds between enterprise owners and employees. Company owners have to provide incentives to attract talent, and employees flock to owners who provide the most benefits.
The concept of “private assets” has also begun to take root. For example, the owner of a factory might pay for a security team, including night-time security guards and gatekeepers, to control the flow of products and employees in and out of the workplace. Of course, these decisions are contingent upon approval from the factory’s party committee director and bribes are still frequently used by business owners to get their way.
An increasing number of North Koreans are also traveling overseas to countries such as China to acquire the skills to establish their own companies. This suggests that North Koreans are active in the process of both planning for and investing in the creation of businesses.
There are, however, cases where the ownership of firms built by individuals are suddenly taken away by government officials. In these cases, North Korean officials will typically provide a firm with a license to operate, but later make excuses to confiscate the company’s funds. A system to make the licensing process more transparent is clearly needed.
THE GROWTH OF PRIVATE ENTERPRISES IS UNSTOPPABLE
The North Korean regime would have trouble stopping marketization and the growth of private business at this point. From the perspective of North Korean authorities, these two forces have actually been a good thing: more taxes are putting more money into state coffers, and private firms are taking care of the distribution of goods and services instead of the state – something it has long failed to do.
Some Daily NK sources, however, report that these changes have not improved ordinary workers’ quality of life, and that the enterprise owners have been the exclusive beneficiaries. Clearly, however, more time is needed for these changes to have an effect on all levels of North Korean society, and North Korean officials must also think hard about how they can spread wealth more effectively across society.
Kim Jong Un has clearly shown his intention to reform North Korea’s economy. Of the policies he has championed, the June 28 Measures merit particular attention for the positive changes they have brought to the country. The field responsibility system (FRS), for example, has gradually taken root and led to a rise in agricultural production. Meanwhile, private enterprises have increased in number and their products have improved in quality.
While the June 28 Measures alone may appear insufficient to bring about real economic change, they are nonetheless more effective than other measures, such as the establishment of special economic zones. Assuming that North Korea will continue on its current course of reforms and opening, the June 28 Measures can be seen as a crucial milestone on this journey.
Furthermore, if and when North Korean state-run enterprises are privatized, there will need to be investors with the ability to take over—yet another aspect of the country’s economy that deserves close observation. The donju will likely take on some of this investment, but ultimately the investments of foreign companies from South Korea, the United States and China will be crucial. South Korea will also have to identify ways to move ahead with economic exchanges and cooperation with North Korea.
*Translated by Violet Kim
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