North Korean Economy

1. ORIGINS OF THE CRISIS

The following are fundamental reasons behind the collapse of the North Korean economy:

¡Û Favoring political instead of material rewards as motivation for work. The workers are deprived and not compensated for their work, and the prevalent attitude on work is that labor is useless.

¡Û Ignorance of the rules of supply and demand in the regulation of the value of goods, and a planned economy directed by decrees from the central government.

More direct sources of the problem:

¡Û Policy guidelines created in 1967 dictated that the military and industry be developed as a single unit. Thus, concentration of resources towards military production created a serious imbalance, a critical lack of production of consumer goods.

¡Û An unusually large proportion of their revenue consumed in construction of monuments to the elder and junior Kims, essentially nonproductive activity.

¡Û Total cessation of aid from the socialist bloc after the collapse of socialism in the Soviet Union and Eastern Europe, and inability to procure necessary raw materials in the face of increasing demands for trade based on hard currency.

2. THE PRESENT SITUATION

¡Û The only adjective capable of describing the state of the North Korean economy is "paralysis", and the economy has deteriorated to a situation much worse than under Japanese colonialism.

¡Û There is no purpose other than deceit in North Korea's claims of a transition period, formulation of which is virtually impossible given the present state of affairs. Great priority is given to stopping the additional contraction of the economy.

3. EXAGGERATION AND PROPAGANDA

¡Û Absence of truth remains the single greatest problem with socialism. Truth is withheld frequently in consideration of the party's vested interests and propaganda purposes, as maintenance of the esprit de corps of the populace. Public announcements are habitually characterized by deliberate deception.

¡Û Budget planning is based on the total sum of the amounts demanded by each and every government office for every conceivable purpose, which can greatly exaggerate the actual size.

¡Û The budget announced by the Supreme People's Assembly is usually a purposefully inflated (two-fold) version of the one submitted to the Party secretariat by the Ministry of Finance, a propaganda display of the supposed largesse of the budget. Recent budgets have been inflated by increasingly greater proportions.

4. OPIUM - THE NEW NORTH KOREAN CASH CROP

¡Û Organized cultivation of opium, known as "white bellflower" in North Korea, began in the eighties, with sanctioning and approval by the government. Secret manufacture of opiate narcotics is conducted by the powerful military, National Security Bureau, and the police.

¡Û The plants are shipped to Nanam Pharmaceuticals for processing, but the quality of the narcotics tends to be poor, as the plant lacks the technology to make high-grade products. Sales are conducted through state trading firms stationed overseas.

¡Û A directive was issued by the Director of Narcotics at the State Council in June 1994, calling for "introduction of good seeds and proper cultivation methods from Southeast Asia, as well as establishing trade routes."

¡Û The policy flared into an international incident when a North Korean was caught engaging in the sale of opiates from North Korea.

5. THE FOOD SITUATION

¡Û Rations in Pyongyang dwindled to 300 grams a day per person in 1996, and have ceased altogether in the provinces. Residents of the border areas are dependent on grains filtering in from China through Sinuiju and other border areas, while most are forced to subsist on an ersatz gruel of corn and grasses.

¡Û The Party has issued a guideline subdividing the year into four periods of three months each. The government will only provide rations for a three-month period, while imports, procurement by individual workplaces, and purchase by the citizens themselves have been established as the official modes for subsequent periods.

¡Û Kim Jong-il refused help before the floods of 1995, citing the struggle of anti-Japanese guerrillas subsisting on grass. Pride was of greater priority than need at this point.

¡Û The lack of alternatives for food production forced Kim Jong-il to use flood damage as an excuse for asking for aid from the international community. Observation of the distribution has only been permitted in a limited number of areas, and measures taken prior to distribution by North Koreans make proper observation virtually impossible.

¡Û The Chinese have been demanding payment of all outstanding debts incurred in previous trading with North Korea as a precondition to renewal of new trade.

¡Û After expiration of the 20-year contract for supply of oil to North Korea's Pongwha Chemicals in 1995, China has demanded repayment of debts if the contract is to be renewed. Whether China has actually ceased its supply of oil remains, as yet, unclear.

6. ON REFORM AND OPENNESS

¡Û Kim Jong-il has roundly criticized China's policy of reform, claiming that "reform and openness will be the death of socialism."

¡Û Party secretaries including Kim Yongsoon, Kim Kinam, Kim Kuktae, and Han Sungryong all acknowledge the necessity of reform, but refrain from speaking out in order to avoid being labeled as "reactionaries."

¡Û Agricultural reforms on the Chinese model are subjects of official criticism, and do not enter policy discussion in any form. Visitors to China are only allowed to report on the negative effects of its reform policies.

¡Û Farmers' proposals for a "divided harvest":

- The farmers are allowed to keep the harvest after paying a certain proportion as taxes to the state. Not necessarily an idea for reform, but merely application of measures pre-existing on paper.

- The statistical average of the harvests for the preceding decade usually form the basis for the year's harvest quota. Fewer than ten farming communes in the entire country have been able to meet the quota, due to a shortage of fertilizer.

7. PRC-NORTH KOREA COOPERATION

¡Û Kim Jong-il abhors Chinese progress and has dismissed all suggestions of following China's example as "vassalage." He also displays deliberate lack of interest in economic cooperation with the Chinese.