North Korean politics has changed in numerous ways under ruler Kim Jong Un. His father, Kim Jong Il oversaw the military first (songun) era. In contrast, Kim Jong Un’s rule has been defined by nationalism. Kim has sought to use business strategies to inject rationality into governance and increase effectiveness.
Changes in macroeconomic management
In the very year that Kim Jong Un took over, on June 28, 2012, North Korea announced a new economic management system. The specific measures of the new system weren’t announced at the time, but in a March 2014 publication, Korea Development Bank’s North Korea Economic Research Team Head Kim Young-hee described some aspects of the new system. According to the report, sectors of the services industry including transport, retail stores, convenience services, and restaurants could be privately funded and managed, and workers could be hired independently.
Following this, Kim Jong Un ordered that research on economic management methods be completed in 2013. In a 2015 report entitled the May 30th Measures, the economic management principles of the Kim Jong Un era were described. According to the information given at the time, there was a request to base socialist state enterprise management and national development strategies on actual, specific conditions. To explain this in simpler terms, some socialist characteristics were maintained, but businesses were given expanded authority to set management practices. This was instituted to improve efficiency.
Continuing along the track laid by the establishment of these economic management practices, the Five Principles for the Strategy of National Economic Development was announced in 2016, and a five year strategic agreement with the UN in September 2016.
The meaning of the business management approach
Economic and business management strategies more closely resemble the economic principles supported by Western economists like Peter Ferdinand Druker and Joseph Alois Schumpeter than the economic theory put forward by Karl Marx. Schumpeter’s book Capitalism, Socialism, and Democracy acknowledges that the limits of capitalist economic systems leads to decline, but his position has some flexibility.
Schumpeter’s prediction is that the consciousness of capitalist economies and the innovation of enterprises translates into economic development, and in that process creative destruction happens. For ideologically-rigid North Korea, this approach would face less repulsion. To put this in other words, businesses are at the center of his point of view, and in the most uncertain environments, businesses need to use their own approach.
North Korea’s first official mention of its economic and business strategy approach began when Kim Jong Il made his last on the spot guidance remarks in December 2011 at the Kwangbok Region Commerce Center.
At the time, rather than ordering people to work in service roles, Kim Jong Il used the language of economic and business strategy to refer to a new emergent strategy. After Kim Jong Un rose to power, the approach took on a more detailed character.
Kim Jong Un has used the words “business strategy” repeatedly, and with expanding connotations. To implement the strategies referred to, he appears to be preparing specific measures. The Grand People’s Study House, located in central Pyongyang, contributed to a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis on the business strategy on October 29, 2015. It appears as if some of this research has been put into practice.
Businesses lie at the center of this strategy, suggesting that soon businesses will take on more autonomous control of their operations. Even if the expanded authorities are connoted as a transition in the same context that other former-socialist countries have undertaken (socialism with Chinese characteristics, etc.), it’s possible that the wider trend will mirror the global movement towards expanded autonomy for corporations.
Theoretical and legislative aspects of the strategy
Kim Jong Un has continually used the phrase “business and economic strategy” in official statements since rising to power, including on-the-spot-guidance, in the New Year’s Address, and during Party conferences. To develop these strategies and realize his vision, he has established some practical policies, enacted legislation, and ordered research to be undertaken.
North Korea’s enterprise law has been modified twice under Kim Jong Un’s watch, once on November 5, 2013 and again on May 21, 2015. The law states that, “The state will accurately establish economic and business strategies and implement a socialist enterprise management system. Business management activities should maximize benefit [profit] while protecting socialist principles.”
Economic and business management strategy is mentioned again in the statement: “Enterprises are required to directly implement business management practices that match realistic development demands. The following factors should be considered in the drafting of business and economic strategy plans: availability of labor and technological equipment, raw materials, the unit’s financial status, and the state of scientific and economic development.”
By looking at North Korea’s most representative economic journal “Economic Research,” we can observe research trends for topics related to economic and business strategy. One example of a macroscopic approach to the issue is an article entitled, “The Essential Characteristics of Strategic Economic Management Methods,” which was published in the Fourth Volume in 2015.
The article states, “In the previous era, state economic management methods were fundamentally focused on solving immediate and pressing economic problems. The state’s current strategic economic management principles consider far reaching and future conditions in order to stimulate development.”
“Because of the need to consider how the international environment and the legal dimension of economic development affects the strategy, a short term plan will be 3 years in advance, a medium term plan will look 5-10 years into the future, and a long term plan will be over 10 years,” the article continues. The following year, in 2016, a five-year state economic development strategy was announced.
The research areas for micro approaches tend to focus on elements such as departmental accounting, economic management, and economic mathematics.
First, an article entitled, “The Strategic Problems that Arise from Attempting to Increase the Economic Competitiveness of Enterprises that are Active Overseas,” takes the position that it is necessary to perform a comparatively detailed analysis of external and internal policies, business practices, and demand structures in order to make an effective strategic plan.
Next, an article entitled, “The Principle Problems of Creating Economic Strategy for Information Services Organizations,” says that a national information services development strategy should form the basis for improving the services activities of organizations and units.
The article states that this can be further segmented into information services strategy, information demand research strategy, information trends strategy, and information evaluation strategy. The production and sale of information products can be divided into processes such as research and development, production strategy, supply and sale strategy, etc.
Lastly, an article entitled, “The Application of Economic Mathematics to the Strategic Management of Manufacturing Companies,” explains a variety of different economic and mathematical approaches and explains their relevance in unlocking the hidden potential of production outcomes.
*Views expressed in Guest Columns do not necessarily reflect those of Daily NK.
