Increasing autonomy for North Korean enterprises

Pukchang Thermoelectric Power Plant located in South Pyongan Province. Image: Rodong Sinmun

North Korea has been pursuing systemic improvements that are improving the autonomy of its enterprises, say North Korean experts.

Hong Jae Hwan, a research fellow at the Korea Institute for National Unification (KINU), argues that North Korean enterprises have enjoyed increasing autonomy since Kim Jong Un came to power. He announced his findings at a conference organized by KINU at the Korea Press Center in Seoul on September 6, entitled “Eight Major Changes in North Korea’s Economy and Society in the Kim Jong Un Era.”

“North Korea’s economy worsened after the 1980s due to fundamental issues with its planned economic system, and [in response] North Korea has long searched for ways to expand the autonomy of its enterprises. The government has permitted a limited expansion of its markets while strengthening [economic] incentives,” said Hong. “Kim Jong Un has continued to [implement] measures to expand the autonomy of enterprises [in the country].”

The North Korean government has drastically reduced the number of plans sent down from the central government to its enterprises, while permitting them a greater degree of autonomy. The regime has also allowed them to create their own business plans suitable for their own circumstances and in some cases allowed them to determine the prices of their products.

Hong cautioned, however, that the country’s fundamental and physical constraints, including the chronic lack of energy and raw materials, are not conducive to achieving macroeconomic success. In particular, he explained that the factories and enterprises located in North Korea’s provinces, particularly those that are not of critical national importance like those involved in coal, power generation, metal work and military supplies, are suffering operational difficulties due to the lack of support infrastructure.

“The regime’s mobilization of the populace on an unofficial level for state projects is a huge burden on enterprises and it appears these mobilizations have increased in the Kim Jong Un era,” Hong said. “This is one of the major factors preventing the normal operation of factories and enterprises.”

He added that the regime’s adoption of measures to partially legalize investments in enterprises by the donju (North Korea’s nouveau riche) is a characteristic of the Kim Jong Un-era economy. Donju are now expanding production-related activities by providing funds and resources to state-run enterprises and sharing the profits. In some cases, they are borrowing the names of state-run enterprises and their production facilities while investing their own money to expand production.

“One of the central elements that makes up the socialist planned economic system espoused by North Korea is the lack of acknowledgment toward private ownership of the methods of production. But in reality, individuals who call themselves donju are making their own profits by using state-run enterprises or operating private enterprises,” Hong said. “We are seeing more business activities by the donju in the Kim Jong Un-era, and there is a high possibility these activities will continue to expand.”

Another researcher at the press conference stated that system-wide, market-friendly reforms have occurred in the financial sector following Kim’s rise to power. North Korea under Kim Jong Un has been implementing a policy where “idle currency” is absorbed into the official economy. The policy is significant because it shows that the state is partially adopting capitalist practices.

“The North Korean authorities are emphasizing bank credit and releasing articles saying that ‘banks do not ask about the state of [customers’] ownership or the source of their deposit balance,” said Jung Eun Lee, another research fellow at KINU. “There are more and more North Koreans who say they have received both the principal and interest from their money deposited in North Korean banks.”

“What is more interesting is that the North Korea’s Central Bank launched a domestic electronic payment card called the Jongsong Card in 2015, and the number of stores accepting the card is increasing […] The use of electronic payment cards is increasing in Pyongyang and their use is expanding because [consumers] benefit by being able to prevent exposure of their identities, and are not burdened by the need to accept change during their financial transactions,” Jung concluded.

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