Several weeks ago, we outlined what we knew--but mostly what we didn't know--about the purported reforms. One theme is that we should not expect a straightforward or linear process; rather, reforms in one area might be coupled simultaneously with control measures or ongoing conflicts over implementation. Here, we provide some more background and details on the conflicts between the state and market that are worth watching.
The Agricultural Sector
The consolidation of the small holdings into cooperatives gained steam from the late-1950s as it became clear that the country was not going to de-Stalinize. The smallest unit within the cooperative is called a component group (분조, or danwei in Chinese). Since the 12th meeting of the 4th party congress (November 1965), these component groups became the basic production units in the agricultural sector (known as 분조관리제, or component group management scheme).
In 1996, in the aftermath of the famine, the government introduced some incentives to stimulate output and procurement, such as lowering production targets and allowing component groups to keep or sell surpluses. In July 2002, in conjunction with the broader reform package, government procurement targets were decreased while the size of free arable land per individual was increased from 1,000 square feet (99 m2) to 14,000 square feet (400 m2). In 2004, there were some attempts to introduce family-based agricultural production through pilot programs in North Hwanghae and North Hamgyung provinces.
Starting in 2005, however, the process of what we have called "reform in reverse" began in earnest, including an effort to revive the PDS, to crack down on private cultivation and to subject it to higher taxation. (We discuss this history in Famine in North Korea and The DailyNK has a useful summary as well. )
The DailyNK now has an interesting story about the control dimension of the current reforms. Based on a source in North Hamgyung, the story reports that a farm management committee sought to “consolidate” farm housing and redraw component group plots with the apparent objective of bringing private activities under closer scrutiny and possibly taxation.
These stories are also just rumors at this stage, but they are related to the purported 7-3 split between state procurement and the component groups (again, the DailyNK). It makes a huge difference whether this sharing is with the cooperative—with its bloated management committees—or with the component groups. If cooperative management has any discretion, you can imagine that they will want their take. This holds as well for the rumor that the state will procure food at “market” prices and—as we noted in our post—how inputs are charged to the cooperative as a whole and to the component groups.
In sum, any experimentation is probably good; it shows someone is thinking about problems in the system. But how these new incentives work in practice is very much a function of their implementation, which could be in the hands of cooperative managers with interests that conflict with cultivators.
The claim that the regime plans to legalize private investments through state-owned organizations (국가기관) and other cooperatives (편의협동기관) comes from a July 11th article from the North Korea Intellectuals Solidarity (their website is here; story here). The crux of these measures—which were to be implemented either from August or November--is to let individuals engage in private investment in a variety of activities, including stores, restaurants, beauty shops, photo studios, tailoring and sewing shops. The government’s fiscal and control motives are evident in two details: that these activities will also be taxed at a 10~20% rate; and that while investors can hire as they wish, both employers and employees need to be registered to an SOE or a collective which—as with the cooperatives—will no doubt demand their take as well.
Again, we are not necessarily negative on these developments; despite the fact that American politicians don’t seem to understand it any state needs a tax base. Moreover, these reforms are interesting to watch because they are probably ratifying marketization on the ground, suggesting that the reform process is being driven from below as well as from above.
Again, the DailyNK is on the case with an extremely interesting story about the construction sector in Chongjin. The story describes how a Pyongyang-style construction boom is taking place as a result of complex partnerships involving rich wholesale grain traders with cash, middlemen entrepreneurs, SOEs who collect bribes to provide materials outside the plan, and “shock troop” labor mobilized by the work units.
As we say, none of this is likely to be linear and will involve a complex interplay of policy and what has already been happening on the ground. But one thing is certain: the government’s control and fiscal motives will provide ample opportunities for corruption to play a central role in the process of “socialism with our characteristics.”