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IFANS Focus Reimposing Central Control on the Economy: North Korea’s Economic Plan Seen from the Perspective of Organizational Politics HWANG Ildo Upload Date 2021-11-02 Hits 268
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 I. Introduction
Ⅱ. Latest Developments Seen from the Perspective of Organizational Politics
Ⅲ. Policy Implications



I. Introduction

The North Korean regime officially declared its economic plan at the 5th Plenary Session of the 7th WPK Central Committee held in December 2019 by stressing “self-reliance” to achieve a “frontal breakthrough.” The regime’s new economic vision has been interpreted as a defensive measure against prolonged sanctions as well as a scheme to cope with economic hardships wrought by the COVID-19 pandemic. However, a closer look at North Korea’s economic policy reveals that Pyongyang has leveraged it to change the fundamentals of the  country’s economy or to relieve tensions associated with organizational politics among major economic agents in North Korea. 
    
In January, the North Korean regime at the 8th Party Congress offered a sharp rebuke of the selfish acts committed by the so-called ‘privileged organizations’ including the People’s Army, which illustrates what the regime is seeking to achieve through its economic policies. Moreover, since late summer, North Korean state media has frequently reported the issue of drawing a clear line between the role of the ‘party organization’ and that of the ‘administrative organization’ in operating North Korean factories and enterprises. 
    
‘Selfish acts of privileged organizations’ refer to the tendency of factories and enterprises supervised by key state organizations to prioritize their self-interests over the orders of the central government. In a South Korean context, such acts could be described as “organizational silos.” From the regime’s perspective, if these self-serving practices continue, they will undermine the linkage between North Korea’s key industries and add difficulties to the central government’s effort to effectively implement economic policies. 
    
North Korea’s factories and enterprises have a dual structure involving two organizations that have competed to take a leading role. One is a political organization consisting of party committees and party cells, and the other is an administrative organization represented by ‘enterprise directors.’ As the central government has made official its willingness to tighten its grip on production activities, this could add new complexities to the ongoing competition between the two organizations.  
 

Ⅱ. Latest Developments Seen from the Perspective of Organizational Politics

North Korea faced a severe economic crisis in the late 1990s, and since then, the country has seen its private economy grow at a rapid pace. During this period, state-run enterprises and factories have been working secretly with the private sector to maintain productivity. For this reason, North Korea’s economic system is known as a hybrid between its official, state-run economy and the informal private economy. 
    
Prolonged sanctions have resulted in the virtual collapse of the system to provide or distribute raw materials needed for state-run enterprises and factories. As North Korean enterprises and factories have scrambled to fend for themselves, they have become increasingly dependent on the informal economy to deliver necessary materials, raise funds, and sell manufactured goods under the pretext of meeting state quotas. 
    
Trade of mineral resources such as iron ore and coal - North Korea’s major export items - has been led by trading companies controlled by organizations like the Korean people’s Army. As the price of these raw materials remained high in the mid 201os, revenues generated from these items significantly reduced North Korea’s trade deficit. This is why the People’s Army has successfully cemented its position as the country’s major economic agent wielding considerable influence over trade activities since the 1990s. 
    
The Kim Jong Un regime has tacitly allowed state factories to enjoy greater autonomy as long as they maintain production levels and stably supply daily necessities. But it rapidly changed course in December 2019 by declaring a new economic policy focused on tightening its grip on the economy. The new policy aims to reduce state factories’ dependence on the private sector and foreign trade and make them produce goods as commanded by the state and submit a report on the accurate amount of production. Ironically, the regime was able to implement its new economic policy without much trouble owing to the COVID-19 pandemic and the subsequent lockdown of borders with China. The pandemic situation has somehow helped the regime justify its new policy stance. 
    
This year’s 8th Party Congress and several high-level party meetings that followed, including the plenary meeting of the party’s Central Committee and politburo meeting, offered harsh criticism of the ‘selfish acts of privileged organizations,’ insisting that such behavior must be rooted out. The regime has tacitly condoned state-run factories’ dependence on the private economy as well as foreign trade, but the results of the latest party meetings suggest that the regime is now trying to put an end to these practices and gradually take away the privilege long enjoyed by key state organizations including the Army. At the second plenary meeting of the 8th Central Committee of the Workers’ Party of Korea, Chairman Kim Jong Un directly mentioned the ‘selfish acts of privileged organizations.’ Since then, comments criticizing those acts have appeared 36 times on the North Korean state newspaper “Rodong Sinmun” for six months. 
    
Since the 1990s, the economic activities of powerful North Korean state organizations like the People’s Army and the Ministry of State Security have been granted autonomy from the control of the  central, mostly the Cabinet. This has made resource allocation in the country increasingly inefficient, drawing sharp criticism from the central government. Each state organization has its interests woven into North Korean factories and enterprises, and as long as production activity takes place in this environment, the quality of production reports or the statistics submitted to the central government often remains poor. Accordingly, the central government has failed to get an accurate overview of the most basic information regarding the state economy. Therefore, key party meetings and the state news agency have highlighted the importance of providing accurate reports and statistics on production to the central government (the Cabinet) and creating a closer linkage between major economic sectors. This is an attempt to make resource allocation in  the country more efficient by integrating each unit’s economic activities and putting them all under the Cabinet’s direct control. 
    
In the same context, the North Korean central government has urged industries to cut their dependence on foreign sources of raw materials, parts, and equipment and produce basic materials within the country’s borders to meet state quotas. This was originally a plan to overcome temporary economic difficulties caused by border closures, but it is gradually evolving into a long-term scheme to change the fundamentals of the North Korean economy.
    
In particular, after the 8th Party Congress, North Korea has reiterated that such changes are not just temporary measures formulated to tackle short-term problems but fundamental and structural solutions designed to reduce foreign trade dependence and develop capabilities to produce a broad range of products domestically. A possible backlash against tightening central control and constraining local autonomy appeared as resistance from North Korean factories and economic units’ administrative organizations that had enjoyed autonomy. From March and August this year, North Korea’s state-run media repeatedly featured editorials and special articles on what roles the party organizations and administrative organizations should play in operating economic units, suggesting that the units were in internal disarray.
    
Such confusion appears to be a by-product of inevitable organizational and political conflicts stemming from attempts to tighten central control. The tightening of central control means reducing the autonomy of factory managers and heads of local enterprises, so concerns and grievances over the loss of channels to gain personal profits would be the first obstacles to strengthening central control. It appears that such developments have resulted in a kind of compromise that boosts efforts to tighten central control while still partially recognizing local autonomy. 
 

Ⅲ. Policy Implications

Seen from a short-term perspective, it is likely that the Kim Jong-un regime is driven to achieve success in its military build-up program epitomized by the five-year plan for the development of national defence science and weapon systems by tightening central control over major economic affairs and improving resource allocation efficiency.
    
This shift in economic policy became noticeable in 2019 with the resumption of Pyongyang’s new short-range missile tests, accelerating the modernization of missile capabilities available on the Korean Peninsula and the region, and the tightening of central control over mentioned above. In the face of sanctions and the COVID-19 pandemic, securing resources and finances required to develop weapon systems would be a challenging task for the Kim regime. Therefore, Pyongyang seems to be focusing on minimizing local authorities’ autonomy and turning it over to the central government.
    
From a long-term perspective, North Korea’s vision for economic strategies or future economic models has been closely related to Pyongyang’s calculation for nuclear negotiations. Therefore, the Kim regime’s economic policy objective does not seem to focus on formulating temporary measures but on prioritizing the central government’s control over organizational and political variables. Such policy line is not a positive signal for the resumption of nuclear talks.
    
It is also worth noting that the North’s official discourse portrays autarky in the Kim Il-sung era in the 1960s as an ideal model for the socialist economy. Under Kim Il-sung, North Korea aligned its foreign economic relations to minimize economic dependence and received only food and fertilizer from the outside world, seeking to take advantage of the Sino-Soviet conflicts to make up for a shortage of supplies. The current economic policy seems to be a kind of  stress test in order to verify the possibility of a similar pendulum diplomacy structure, namely reducing external ties as much as possible and taking advantage of the U.S.-China competition to make up for a shortage of supplies. Therefore, Pyongyang will likely take a reserved stance on the resumption of nuclear talks for a considerable period of time. Another thing worth noting is that Pyongyang decided to dismantle the profit network that factories and enterprises have built. Pyongyang’s drive to push for structural change despite domestic and organizational political risks implies that its current economic policy does not aim to buy some time or achieve short-term goals. 
    
Since the 1990s, how much influence the cabinet exerts on North Korea’s policy-making process has been interpreted as one of the criteria for the possibility of adopting reform and opening up its market. However, Pyongyang’s attempt to tighten central control urges to modify the existing frame. 
    
In retrospect, it is true that the ups and downs of technocrats in the economic sector represented by Kim Tal-hyon and Pak Pong-ju had some correlation with major changes such as the expansion of foreign economic relations and domestic economic actors’ autonmy. However, as North Korea’s cabinet plays a key role in tightening central control and minimizing the autonomy of local agents, the existing frame seems no longer valid. Moreover, considering that the cabinet and the WPK’s top leadership have been gradually integrated since Premier Pak Pong-ju became a member of the Politburo Presidium of the WPK in 2016, the strengthening of the cabinet members’ power, including the Premier, can no longer be interpreted as a sign of enhancing sectoral autonomy in the North Korean economy.


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#NorthKorea #Sanctions #Organization #Politics #NuclearTalks #PartyArmyRelations
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