Countries of the World/COUNTRYS.BIN/dp/0266/02663.txt

Text File | 1991-06-25 | 26KB | 415 lines

$Unique_ID{COW02663}
$Pretitle{281}
$Title{North Korea
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Stephan B. Wickman}
$Affiliation{HQ, Department of the Army}
$Subject{economic
government
north
economy
production
plan
korea
planning
party
industrial}
$Date{1981}
$Log{Flying Horse*0266301.scf
}
Country:     North Korea
Book:        North Korea, A Country Study
Author:      Stephan B. Wickman
Affiliation: HQ, Department of the Army
Date:        1981

Chapter 3A.   The Economy

[See Flying Horse: Flying horse, symbol of the intensive economic production
drive; slogans read "self-reliance" and "three revolutions"]

     At the outset of the 1980s North Korea exhibited one of the most highly
planned and centrally directed economies of the world. Economic activity
largely responded to the commands of the state rather than to market forces.
Government agencies managed all major industrial enterprises, while
agricultural cooperatives sold their produce almost exclusively to state
representatives at fixed prices. The pricing system tended to favor heavy
industries over those specializing in consumer items, and the standard of
living was therefore far from luxurious. Although modern consumer goods were
prohibitively expensive, domestic food production and social services
satisfied the basic needs of the population. The country was by no means
isolated from the international environment and suffered as much from the oil
crisis and world recession of the mid-1970s as other nations. Nevertheless,
imports of industrial plants and equipment and selected raw materials
continued, and the total value of foreign trade reached record levels in 1979.
Although the economy experienced periodic downturns-some of them startling in
contrast to the optimistic national plans-economic performance made the
government confident enough to announce that North Korea was indeed a
"socialist, industrial state."

     The structure of the economy differed markedly from that at the end of
the Japanese colonial era (1910-1945). The Japanese had left behind modern
forms of transportation, commerce, and manufacturing, yet in 1946 nearly 75
percent of the North Korean population worked on farms, and traditional
agriculture accounted for 65 percent of national income. By contrast, in the
late 1970s most of the labor force worked in the nonfarming sectors of the
economy, and industry made up about 70 percent of total production. Clearly,
the leadership of the Korean Workers Party and Kim Il Sung had transformed the
economy from a traditional to a modern form.

     Economic development has been second only to political solidarity among
the immediate concerns of the North Korean leadership. It was Kim's avowed
intention to prove that socialist society had "unlimited potentiality for
developing the economy continuously at a high rate inconceivable in capitalist
society." In Kim's own national priorities, two of the "three revolutions"
necessary for modernization-ideological, cultural, and technological-related
to economic policy. Both education to improve the technical skills of the
population and investment in modern technologies have been hallmarks of North
Korean development. At the Sixth Party Congress held in 1980, the slogan
"chuch'e-orientation, modernization, and scientization" reaffirmed the
importance of technological modernization to the construction of an
independent national economy.

     The principle of chuch'e, however, did not mean complete economic
independence or isolation. In order to enhance the domestic economy, North
Korea was willing to accept foreign assistance and foreign trade as long as
the exchange was mutually beneficial. Kim did not want to repeat the
experience of the 1940s and most of the 1950s when the country was overly
dependent on the Soviet Union. The diversification and expansion of trade in
the 1970s with non-communist as well as communist countries was therefore in
keeping with the spirit of Kim's basic ideology. Trade deficits due to the oil
crisis and world recession showed the pitfalls even in this pragmatic approach
but did not deter the country from continuing a policy by which it hoped to
promote its domestic industrialization efforts.

     Since the government put such a high stake in industrialization, the
North Korean press has tended to cover the facts of economic development with
a rosy gloss of propaganda. Peeling away this veneer has been difficult since
the mid-1960s, when economic shortfalls caused the government to release only
scattered production data. There have appeared to be persistent flaws,
however, in North Korea's economic policies and institutions, which posed some
critical issues for the leadership in the 1980s and raised important questions
about the future.

     First was the question of the proper balance between heavy and light
industry. As it became more costly to maintain the same rates of growth in the
output of heavy machinery and equipment, would party leaders increasingly see
the development of light industry as an attractive alternative to stimulate
economic growth as well as to raise the standard of living? A second problem
concerned the level of collective ownership and management. Would the Party
further communize the economic system by bringing all ownership and management
into the hands of state agencies, or decentralize production in order to spur
initiative and cut costs? Third, was the Party going to experiment with more
flexible pricing mechanisms and limited markets? The tentative reforms taking
place in China in the early 1980s under the leadership of Deng Xiaoping might
inspire similar policies in North Korea. Finally, how was the country going to
face foreign trade? After the dissolution of economic barriers between North
Korea, Japan, and Western Europe in the 1970s, the country developed huge
debts to its noncommunist trading partners. Would the leadership be
discouraged from further reliance on foreign technology or would it be
stimulated to develop more efficient and competitive export industries to pay
for increased imports?

     All these issues became particularly important as North Korea moved to
make itself strong in relation to its main rival, South Korea. Economic
strength was as important as military might in North Korean propaganda. As the
heir apparent, Kim Jong Il, moved closer to the chairmanship of the Korean
Workers Party, he faced the prospect that the economy might not perform as
well as that of South Korea. North Korea's development hitherto had been based
upon massive state investment in heavy industrial plants and equipment with
little regard to rational comparisons of rates of return to costs. As the
economy matured, however, the regime might have to develop new incentive
schemes to fine-tune production and to stimulate innovation, expertise, and
efficient management in order to match past achievements. Additionally, since
the Party repeatedly justified its policies by emphasizing improvement of the
people's welfare, long-term political stability may depend on bettering the
living standards of the citizenry.

Economic Setting

     The Democratic People's Republic of Korea (North Korea) possessed
extensive economic resources with which to build a modern economy. Some 8
billion tons of coal and 4 billion tons of iron ore lay beneath the soil in
1980. Nonferrous metals found in economically exploitable quantities included
tungsten, lead, copper, zinc, and even gold and silver. Other minerals found
in great supply were manganese, graphite, apatite,fluorite, barite, limestone,
and talc. The river systems of the Yalu, Tumen, Taedong, and lesser rivers
supplemented the coal reserves to form an abundant source of power. Although
the mountainous terrain prohibited paddy rice cultivation except in the
coastal lowlands, maize, corn, wheat, and soybeans seemed to grow well on dry
field plateaus. North Korea's hilly areas also provided room for timber
forests, livestock grazing, and orchards.

     In addition, North Korea inherite