1. Introduction
Since the 1990s, North Korea was confronted with an overall crisis as the socialist countries, including the Soviet Union, collapsed, natural disasters hit the nation, Kim Il-sung died, etc. As a result, it began to recognize the necessity of change in order to resolve the crisis.
In particular, the Kim Jeong-il regime, which was officially launched in September 1998, has focused on sustaining the current regime through military-oriented crisis management rule. At the same time, it has been attempting to evolve and change itself to survive the serious economic crisis.
Since the mid-1990s, North Korea has carried out partial and gradual economic management improvement measures and emphasized, at first, obtaining actual profits.
In July, 2002 North Korea launched reform measures throughout the entire economy.
North Korea i) made significant adjustments to consumer prices, wages, and foreign exchange rates; ii) expanded the self-control authority of businesses, introduced incentives and carried out other measures to enhance productivity; and iii) abolished the rationing system in stages, increased public utility costs and initiated other measures to reduce social security, etc.
Follow-up measures have been taken in the economic management sector after the July 1 Economic Measures.
In March 2003, market was officially recognized and general markets began to be established. In May 2003, the People's Living Bonds were sold and other measures were taken so as to collect the surplus capital of residents and control rising prices.
North Korea had previously maintained a negative stance against market functions and issuance of public bonds, calling them capitalistic factors.
While emphasizing the principle of socialism, North Korea began to officially use the term "reform" from June 2003, which it had previously avoided. (June 2003, Chosun Shinbo )
Note: "The major characteristic of Chosun's (North Korea) `economic reform' is its pursuit of bold and flexible policies as is well-demonstrated in the creation of a general market." (June 16, 2003, Chosun Shinbo)
Although the series of measures mentioned above are still in a transitional period, reform is deemed unavoidable.
Based on the justification of "development appropriate to the call of the time," North Korea is pursuing "practical socialism," which emphasizes the "guarantee of actual profits" in economic projects.
According to Economic Research edition no. 1, 2003, practical socialism refers to "implementing economic management measures that could obtain the most actual profits, while firmly sustaining the principle of socialism". Considering the pragmatic reform and openness policies pursued by China, North Korea's "practical socialism" resembles the "market socialism" that China implemented in the late 70s and early 80s at its beginning stage of reforms and openness, which is best characterized by Deng Xiaoping's statement, "It doesn't matter if a cat is black or white, as long as it catches mice."
The present changes in North Korea are at the "reform" stage that pursues improvement while sustaining the existing system.
Actual profits are being sought after, especially focusing on economy, society, diplomacy, and inter-Korean relations within the scope of existing political ideology and system.
In order to properly understand the changes in North Korea, which are taking place through diverse methods and at diverse paces, it is necessary to understand them as "something in progress and not a result of something."
To distinguish North Korea's official ideology and its actual changes taking place in order to adapt to the present situation, a stage-by-stage evaluation is more appropriate than dichotomous evaluation.
2. Changes by Sector
A. Economic Sector
Recognition of Market Functions
Under instructions given by Kim Jong-il in March 2003, markets were officially recognized and have been promoted as an axis of commercial distribution.
Since March 2003, North Korea has been trying to create some 300 large-scale "general markets" nationwide, including 40 markets in Pyongyang.
The number of shops and stores (some individuals rent ordinary stores by borrowing the name of organizations or companies) has increased, and activities in individual services, wholesale, retail sales and other areas of commercial distribution have escalated.
State-set prices and market prices coexist. When the state set its prices, if considers supply and demand, international market price, manufacturing costs and other factors.
Although price limits have been fixed for rice, oil and other major products sold in general markets, in actuality, market prices are being determined according to supply and demand.
To stabilize prices in response to inflation, "food stores" and "wholesale departments" have been installed and operated at general markets since April 2004.
More attention is being directed at product marketing as the importance of advertisements, display windows, signboards, and trademarks are emphasized.
Eight large-size advertisement boards of Pyeonghwa (Peace) Automobiles "Whistle" have been installed in downtown Pyongyang, the airport, train stations, highways, etc. Furthermore, display windows and commercial signboards have appeared in Pyongyang and other regions.
More autonomy for Enterprises and Focus on Actual Profits
North Korea is aiming to increase agricultural production by changing its rural area management methods. North Korean authorities levied rental fees on land and agricultural equipment; expanded autonomous rights to sell up to 40%(preciously 20%) of products produced by cooperative farms; altered production and distribution units from working units to small groups (100 persons 10 persons); and expanded performance-based cash distribution.
The individual farming lands were expanded from 30-50 pyeong (100-170 to 400 pyeong (1,300 ; and pilot projects for the Family Farming System were launched.
Greater self-governing powers have been granted to factories and companies. North Korean authorities reduced directive-planned targets, and gave more autonomy to regions, factories, companies, farms and other subunits.
For example authorities only presented numerical targets for factories and companies; allowed entities to sell products made in surplus of the target; approved companies' trading of materials based on agreed prices; and granted entities the right to restructure (Dec. 11, 2004, Chosun Shinbo).
The manager of an enterprise was given the independent authority to govern up to 20% of the total manpower at his/her own discretion as well as the authority to purchase raw materials.
Companies' business management and distribution methods have been changed so as to place greater emphasis on profits. North Korean authorities allowed the enterprises to reserve an increasing portion of profits, enabling them to improve facilities, worker welfare, and pay performance-based bonuses, Enterprises were also allowed to manufacture and sell at markets the products that are not listed in the planning.
Measures were implemented to create an environment for manufacturing sector reforms. North Korean authorities enacted the Accounting Law (March 2003), carried out full-scale financial surveys of companies; changed the managers of companies to those in their 30s and 40s and recognized intellectual property rights for industrial modernization, etc.
Public bonds were sold and initial-stage taxes were levied so as to supplement the finances of the government, which had experienced difficulties due to the economic crisis. North Korean authorities sold public bonds to collect the surplus cash of residents and control inflation (May-November 2003).
The stated levied taxes (25% of selling profits, sort of an "income tax") and market rental fees (50-300 won a day according to products type) from vendors at the general markets.
Preparations were made for financial sector reforms so that companies could receive bank loans for their operations rather than from state budget. North Korean authorities sent officials of the Korea Central Bank to the four major government-owned banks in China, enabling them to learn and receive training in finances (August 2002); dispatched officials of the Social Academy to China for financial training (August 2003); carried out overseas financial training in Vietnam (May 2004), etc.
Eforts to Open its Economy and Earn Foreign Currency
In order to induce foreign investment, "special economic zones" were designated and other measures were taken so as to open its economy to other nations.
The Mt. Geumgang Tourism District (October 2002), the Gaeseong Industrial Complex (November 2002) were designated as special economic zones and there have been activities to open coastal cities such as Nampo to the outside world.
The institutional foundation for economic cooperation has been established as regulations related to special economic zones were enacted and promulgated. The four major Economic Cooperation Agreements signed by the two Koreas have taken effect.
The construction of the Pyongyang International Business Complex and the leasing of the Pyongyang First Department Store as well as other economic cooperation activities have been promoted between North Korea and China.
To develop the pre-designated Special Economic Zones of Najin and Seonbong, an Economic Cooperation Agreement has been signed with Russia (January 2004), and discussions took place (October 2004) to offer duty-free/tax-free zones in Najin and Seonbong.
Active preparations for the opening of the North Korean economy are being made through overseas training on market economies, improving investment conditions, etc.
Economic delegations were sent to China, Vietnam, Australia, Southeast Asia, Europe and other regions, and overseas training in market economies is continuously being carried out.
North Korea i) allows foreigners to establish independent companies in North Korea; ) lowered the minimum wage to 30 Euros; and iii) slashed the charges of electricity, tap water and other utilities and taxes so as to improve the investment environment for foreign investors.
In order to acquire much-needed hard currency, "foreign exchanges centers" have been installed and attempts are being made to increase trade.
Foreign currency exchanges are conducted at market exchange rates at the centers in order to attract hard currency from local residents.
Permission has been given for individual factories, companies, cities and counties to engage in trade, and foreign currency-earning companies can now use up to 40% of their total foreign currency earnings on their own, including reinvestment(previously 20%).
Factories and companies were granted the right to increase their import volume to reach up to three times their export volume.
Permission has been given for companies operating in the Gaeseong Industrial Complex and the Mt. Geumgang Tourism District as well as foreign companies to sign individual labor contracts with North Korean laborers and pay them wages (in foreign currency) directly.
B. Social and Cultural Sector
Spread of Market-oriented
As the society as a whole focuses more on actual profits, the North Korean people began to form market-friendly mindset.
Recognizing the "value of money," residents have begun to bargain when engaged in commercial exchanges by using such expressions as "discount," "price cut," "last-minute sale," etc.
Commercial advertisement boards are installed, capitalistic innovation slogans are exhibited in factory walls, lighters with restaurant names are given as gifts, and restaurant employees advertise and push to attract customers.
With the introduction of incentives such as differentiated salary levels based on performance as well as the abolition of wage limits, money-oriented values have intensified, and employees are working more enthusiastically.
In the service sector (restaurants, cafes, karaoke, billiards, etc.), business hours are extended even to dawn so long as there are customers. For example, the bulgogi (Korean roast beef) restaurant in front of the Pyongyang Gymnasium is open 24 hours.
Individual commercial activities, private loan businesses, house transactions and other commercial transactions have become prevalent.
Billiards, bowling, computer games, hamburgers and other forms of foreign culture have become popular.
Hamburgers are sold at the Kim Il-seong University and other universities in downtown Pyongyang (Dec. 6, 2003, Nodong Newspaper). Set menus are sold at a 24-hour hamburger restaurant in front of the Pyongyang Gymnasium (October 19, 2003, Chosun Shinbo).
As the central rationing system has been suspended or reduced, residents are gradually adjusting to the changing reality in which they need to purchase the daily necessities in the markets.
Emergence of New Social Classes and Increase in Social Mobility
As the businesses of the self-employed have increased, they have emerged as a new social class.
More individuals are now renting government-owned buildings by using the names of organizations or companies in order to operate restaurants and stores. At the same time, economic factors are given the first priority when choosing jobs, spouses and universities (including majors).
The population's movement has increased since the food crisis in the mid-1990s, and further accelerated in recent years as markets become more popular.
Because of the increased openness to the outside as well as the rise in the transit of goods and people, North Korean people's contacts with outside world and information have increasd.
Gap Between Rich and Poor, Corruption and Other Social Problems
While merchants and other members of the new upper class enjoy luxurious lifestyles, employees working for unprofitable factories experience deteriorating living standards due to delayed payments, creating a gap between the haves and the have-nots.
As materialism becomes prevalent, bribery, theft and other acts of corruption and crimes have increased.
Strengthened Ideology Education and Preventive Measures to address Residents' Complaints
Resident control and ideology education have been strengthened to prevent individualism from spreading at great speed.
"Socialist Class Educational centers" were installed at Gaeseong, Haejoo, Wonsan, Sariwon, and Sinuiju in 2003, and at Cheongjin, Ganggye and other major cities within the nation's border in 2004 so as to carry out collective ideology education for residents (twice a year or more).
Stronger ideology education, with a focus on collectivism, has been carried out. Here, individualism is condemned as evil, and collectivism is praised with war heroes presented as idealistic figures.
A significant number of new provisions have been newly added and amendments have been made to the Criminal Law in an effort to sustain socialistic economic order and a collectivistic culture (April 2004).
The number of penalty provisions against violations of economic management and order was increased from the existing 18 provisions to 74. As a result, stronger penalties are imposed for trespassing on private property, the order of product sales and prices, tax evasion-related laws, and foreign currency management and order, and for being engaged in illegal real estate transactions.
Stronger penalties are imposed for introducing or performing foreign decadent culture, distributing false facts, prostitution and other negative phenomena of capitalism as well as non-socialistic elements so as to prevent them from spreading (number of penalty provisions was increased from 16 to 46).
In order to satisfy the basic needs of residents, alternative foods are provided and the operation of 24-hour convenience stores, draft beer pubs, and public restaurants have been increased.
In Pyeongyang, 150 draft beer pubs and 350 public restaurants are successfully being operated, and a 24-hour convenience store and restaurants opened last April on Munsu Street in the Daedong-gang (River) area (April-May 2004, May edition of Joguk & Russian Radio Broadcasting Service).
As the residents are encouraged to enjoy recreational activities, public culture that suits the taste of the people has spread.
A general convenience facility called Cheongiwon ("thousands of square meters of building area") has opened (April 2004) in Heungnam City, Hamgyeongnam-do (Province), in which a public bath, restaurants, game rooms and other facilities are being operated. Additionally, a PC room (with 100 personal computers) developed by North Korea opened in April 2004 near Gwangbok Subway Station in Pyongyang.
C. Political, Military and Diplomatic Sector
Emphasis on Practical Socialism
While sustaining the principle of socialism, North Korea is trying to theorize "practical socialism."
Practical socialism refers to "implementing economic management measures that could obtain the greatest actual profits, while firmly sustaining the principle of socialism." (Economic Research, January, 2003)
Because of Kim Jong-il's order to stress actual profits, a social belief has been created that the best in one's field can receive appropriate reward.
Through the construction of a future-oriented "economically advanced nation" and the fostering of the information industry as well as state-of-the-art science and technology, actual profits do not remain as ideological slogans accentuated in each field.
Generational Shift and Promotion of Practical Working-level Technocrats
Although there are no big changes to be seen among the core figures of the Workers Party's political affairs department, secretariat and others, a new figure (i.e. Baek Se-bong) has replaced a member of the first generation of the revolution at the National Defense Commission.
At the first session of the 11th Supreme People's Assembly (September 2003), members of the first generation of the revolution retired due to illness or advanced age.
These figures include Lee Eul-seol (age: 83), Baek Hak-rim (age: 86), Kim Cheol-man (age: 86), Choi Young-rim (age: 75, retired due to illness), and etc.
At the first session of the 11th Supreme People's Assembly, many skilled technocrats were promoted as the cabinet's authority to manage the economy was strengthened.
The Workers Party and the cabinet promoted to major positions those in their 40s and 50s who are equipped with expertise, flexibility in their ways of thinking, and abundant experience in daily operations.
Delegation members were replaced by the third generation of North Korean representatives at inter-Korean talks (Head of the Ministerial Talks Gwon Ho-eung, Jeon Jong-su, Kim Man-gil, etc.).
Recently, the corps commanders of the People's Army have been mostly replaced with those in their 40s and 50s, and division/brigade commanders with those in their 30s and 40s.
Increased Military Support for Inter-Korean Exchanges and Economic Development
Regarding inter-Korean exchanges and cooperation, North Korea's military changed its position in a positive direction.
The agreements made at the second inter-Korean general-level military talks (June 3-4, 2004), including the prevention of accidental clashes in the West Sea, the suspension of propaganda activities in the demilitarized zone, and the elimination of propaganda tools, have been evaluated as "a new breakthrough that militarily guarantees the implementation of the June 15 Joint Declaration." (June 13, 2004, Korea Central Broadcasting Station)
The "Military Guarantee Agreement" has been adopted and practical cooperation increased between military officers so as to provide support for inter-Korean cooperation and exchanges such as the connection of cross-border railways and roads.
"Our military emphasized that the June 15 Joint Declaration needs to be faithfully implemented. And as the military authorities of each party adopted the supplementary agreement, a new horizon has opened for inter-Korean economic cooperation and exchanges to be further promoted." (September 18, 2003, Korea Central Broadcasting Station)
Because the role of the military is being emphasized even in economic development, men and women in the military are being mobilized to work on major economic construction projects.
Diversified Diplomacy for Actual Profits
Kim Jong-il participated in successive summit talks with the heads of state of China, Russia and Japan, reducing its previous image of being closed off from the outside.
After being a hermit since the death of Kim Il-sung (July 1994), North Korea held 13 occasions of summit meetings with China and Russia following the inter-Korean Summit of 2000.
North Korea is participating in summit talks with not only China and Russia, but also Japan and other nations in the EU and Asia.
North Korea normalized its diplomatic ties with only two Western nations in 1998 and 1999, but this has increased to 21 since 2000 as more EU nations and other advanced nations have normalized relations.
Among the 25 member states of the EU, North Korea has normalized relations with 23 nations (excluding France and Estonia). As a result, the North Korean Embassy to the UK opened its doors in April 2003, and its Embassy to the Czech Republic reopened in May 2004.
North Korea is exerting efforts to abolish its negative image by participating in the international community.
Representatives participated in the Annual Conference of the Bank for International Settlement (Kim Wan-soo, Commissioner of the Korea Central Bank, June 26-28), the Asian Regional Security Forum (Baek Nam-soon, Minister of Foreign Affairs, July 1-2), and the 59th UN General Assembly (Choi Soo-heon, Vice Minister of Foreign Affairs, September 27-October 5).
3. Assessment and Prospects
Many changes have been taking place in North Korea recently, particularly in the economic, social and cultural sectors. It is assessed that North Korean society is in the process of transforming itself into one where actual profits, ability, and performance are emphasized.
At the present stage, the market function is being strengthened and incentives and other elements of the market economy are being introduced and expanded so as to increase the supply and distribution of goods that are in short supply.
Socially and culturally, pragmatic values and market-economy mindset are spreading amongst residents.
Politically and ideologically, a generational shift is taking place in the upper positions of the Workers Party and other governmental agencies, and technocrats in the economic field are being promoted. Additionally, microscopic changes are occurring within the existing regime such as the introduction of the concept "practical socialism".
However, authorities are placing more emphasis on sustaining the regime, promoting North Korean socialism and the military-first policy. As a result, there are still little signs of political democratization, diversification, introduction of new ideologies and other fundamental changes.
The present changes in North Korea may differ slightly in degree by sector. If the three-stage framework of change is applied for comprehensive assessment, North Korea has surpassed the stage of "symbolic change" and entered that of "significant change."
Although North Korea may possibly adjust the level of reform and openness (speed and scope) temporarily due to inflation, an increased financial deficit, the slackening of ideologies and other problems, it would be difficult for them to reverse the trend of change.
In the case of China and Vietnam, reforms did abate temporarily because of price hikes rampant corruption and crimes. Nonetheless, full-scale reforms took place in China through Deng Xiaoping's "Lecture Tour in Southern China " in 1992 and through the "Doimoi (Reform) Policy" (1986) in Vietnam.
As a result, the present changes taking place in each sector in North Korea are expected to augment and intensify gradually in quality and quantity, and undergo a process of institutionalization. Moreover, in the longer-term perspective such changes are forecasted to eventually lead to "fundamental changes" in every sector because of the irreversible characteristics of changes.
