Drastic reform

A lack of information, however, makes it difficult to connect the dots. Moreover, it is risky to read too much into reports on North Korea’s decision to abandon some of the pillars supporting communist-style economic management, including central planning and rationing.

That said, signs were coming that the Swiss-educated Kim was launching economic reform. Kim, who reportedly issued a new economic management measure on June 28, told a visiting Chinese delegation on August 2 that he was giving top priority to “developing the economy and improving people’s livelihoods”.

At the time, Kim gave no details, sending Pyongyang watchers in Seoul and elsewhere scratching their heads. In the absence of concrete information, they might have wondered if he was really sending a message about economic reform and, if so, what it would be like.

Measures being taken now appear to be nothing short of drastic if the latest reports are true.

Quoting unidentified North Korean sources, Washington-based Radio Free Asia (RFA) said in a recent report that Pyongyang has been dispatching officials to provinces to explain the new economic measures, under which it said businesses and factories were given autonomy in selecting items for production, determining how to sell them and setting their prices. It also said farmers would be allowed to keep 30 per cent of their harvest, instead of sending their entire yield to the state, as they previously have done.

RFA concluded that North Korea under Kim’s leadership has practically renounced the policy of maintaining a centrally planned economy. The report on the change in economic policy has gained greater credence, with South Korean government officials confirming it, although it is too early to conclude that a market economy has started to replace the communist model of economic management.

Yet, it should not come as a surprise if the reform should be halted suddenly. There is no guarantee the reform will go ahead without any interruption. On the contrary, Pyongyang has in the past attempted wide-ranging economic reforms only to scrap them several years later.

One such short-lived reform came in July 2002, when Kim’s late father, Kim Jong-il, started to replace the command economy with a market economy. The North Korean cabinet decided to let the market determine prices in March 2003.

But the decision was reversed in 2005 when the Communist Party gained the upper hand in its conflict with the cabinet. The meagre, remnant role of the market was further reduced in 2009 when North Korea conducted currency reform to control inflation, crack down on black-market money traders and recoup resources for economic advancement through its command economy. Following the currency reform, food and other daily necessities became scarcer, causing a surge in prices and making people worse off.

Reform in favour of a market economy should be welcomed as a means of creative destruction. Such reform, if fully adopted, would greatly benefit North Korea – more specifically North Korean people in general. As recent history shows, however, reform in North Korea is easier said than done.

One of the reasons why it is so difficult for North Korea to break out of the mould in which it is trapped and adopt a new and more efficient mode of production is that it will do the ruling elite more harm than good. Absolutist regimes, such as that of North Korea, have a built-in aversion to inclusive reform because it undermines the control of the people by the ruler and reduces the influence of the elite, who are the base of support for the ruler.

Still, Kim Jong-un may have no other option than to push for reform, given that, as Pyongyang watchers say, the North Korean economy is on the verge of collapse. He also needs to address the deepening discontent of the people. Now the question is how he will surmount anticipated resistance from Party members, military officers and other elitists to economic reform.