North Korea - ECONOMY

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North Korea - THE ECONOMY

THE DEMOCRATIC PEOPLE'S REPUBLIC OF KOREA (DPRK, or North Korea) possesses extensive economic resources with which to build a modern economy. These include sizable deposits of coal, other minerals, and nonferrous metals. The river systems of the Yalu, Tumen, and Taedong, and lesser rivers supplement North Korea's coal reserves and form an abundant source of power. Although the mountainous terrain prohibits paddy rice cultivation except in the coastal lowlands, corn, wheat, and soybeans grow well on dry field plateaus. The country's hilly areas also provide for timber forests, livestock grazing, and orchards.

North Korea inherited the basic infrastructure of a modern economy at the end of the Japanese colonial era (1910-45) and achieved considerable success because of the ability of the communist regime to marshall unutilized resources and idle labor and to impose a low rate of consumption. Around the beginning of the 1960s, however, the economy had reached a stage where delays and bottlenecks began to emerge. Once growth could be achieved only by raising productivity through increased efficiency, an expanded resource base, and technological advances, slowdowns and setbacks occurred. Slow economic growth continued into the 1970s and 1980s. Based on chuch'e, the self-reliant economic policy emphasizes heavy industry. This policy, coupled with economic difficulties, has resulted in a poor record of exports, chronic trade deficits, and a sizable foreign debt, as well as foreign trade primarily oriented toward other communist countries. At the outset of the 1990s, North Korea's economy was in a deep slump and in great disarray, and was hopelessly behind its rival, the Republic of Korea (ROK, or South Korea), which has become a world-class economic powerhouse.

North Korea's economy remains one of the world's last centrally planned systems. The role of market allocation is sharply limited--mainly in the rural sector where peasants sell produce from small private plots. There are almost no small businesses. Although there have been scattered and limited attempts at decentralization, as of mid-1993, P'yongyang's basic adherence to a rigid command economy continues, as does its reliance on fundamentally non-pecuniary incentives. A North Korean decision to create Chinese-style special economic zones represents a major breakthrough in decentralizing the economy.

As the country faces the 1990s, great challenges lie ahead. The collapse of communist regimes, particularly North Korea's principal benefactor, the Soviet Union, have forced the already depressed North Korean economy to fundamentally realign its foreign economic relations. Economic exchanges with South Korea have even begun in earnest.

North Korea

North Korea - ECONOMIC SETTING

Korea under the Japanese Occupation

North Korea inherited the basic infrastructure of a modern economy because of Japan's substantial investment in development during the Japanese occupation. The Japanese had developed considerable heavy industry, particularly in the metal and chemical industries, hydroelectric power, and mining in the northern half of Korea, where they introduced modern mining methods. The southern half of the country produced most of the rice and a majority of textiles. The hydroelectric power and chemical plants were said to be second to none in Asia at that time in terms of both their scale and technology. The same applied to the railroad and communication networks.

There were, however, serious defects in the industrial structures and their location. The Korean economy, geared primarily to benefit the Japanese homeland, was made dependent on Japan for final processing of products; heavy industry was limited to the production of mainly raw materials, semifinished goods, and war supplies, which were then shipped to Japan proper for final processing and consumption. Japan did not allow Korea to develop a machine tool industry. Most industrial centers were strategically located on the eastern or western coasts near ports so as to connect them efficiently with Japan. Railroad networks ran mainly along the north-south axis, facilitating Japan's access to the Asian mainland. Because the Japanese occupied almost all the key government positions and owned and controlled the industrial and financial enterprises, few Koreans benefited from acquiring basic skills essential for modernization. Moreover, the Japanese left behind an agrarian structure--land tenure system, size of landholdings and farm operation, pattern of land use and farm income--that needed much reform. Farms were fragmented and small, and landownership was extremely unequal. Toward the end of the Japanese occupation, about 50 percent of all farm households in Korea were headed by tenant farmers.

The sudden withdrawal of the Japanese and the subsequent partition of the country created economic chaos. Severance of the complementary "agricultural" south from the "industrial" north and from Japan meant that North Korea's traditional markets for raw materials and semifinished goods--as well as its sources of food and manufactured goods--were cut off. Furthermore, the withdrawal of the entrepreneurial and engineering skills supplied mainly by Japanese personnel affected the economic base. Thus the task facing the communist regime in North Korea was to develop a viable economy, which it reoriented mainly toward other communist countries, while at the same time to rectify the "malformation" in the colonial industrial structure. Subsequently, the problem was compounded further by the devastation of industrial plants during the Korean War (1950-53). North Korea's economic development therefore did not tread a new path until after the Korean War.

Developmental Strategy

As of mid-1993, North Korea's economy remained one of the world's most highly centralized and planned, even by pre-1990 communist standards. Complete "socialization" of the economy was accomplished by 1958, when private ownership of the means of production, land, and commercial enterprises was replaced by state or cooperative (collective) ownership and control. As a result, industrial firms were either state-owned or cooperatives, the former contributing more than 90 percent of total industrial output in the 1960s.

Unlike in industry, collectives are the predominant form of ownership and production in agriculture; the remaining rural enterprises are organized as state farms. The sole negligible exception to state and collective ownership in agriculture is the ownership of small garden plots and fruit trees, as well as the raising of poultry, pigs, bees, and the like, which are permitted both for personal consumption and sale at the peasant market. Private plots can be no more than roughly 160 square meters in area. State and cooperative ownership and control extends to foreign trade, as well as to all other sectors of the economy, including banking, transportation, and communications.

In commerce nearly all goods are distributed through either state-operated or cooperative stores. Less than 1 percent of retail transactions are carried out at peasant markets, where surplus farm products are sold at free-market prices.

As in other Soviet-type or "command" economies, all economic decisions concerning the selection of output, output targets, allocation of inputs, prices, distribution of national income, investment, and economic development are implemented through the economic plan devised at the center and are "blueprinted" by the State Planning Committee. In the face of the worldwide political and economic collapse of communist regimes in the early 1990s, North Korea defiantly continues to sing the praises of a command economy. Attempts to increase production through rigid central control and exhortations and other non-pecuniary incentives have not ceased, as exemplified by the campaign entitled "Speed of the 1990s." On-site industrial visits by President Kim Il Sung and his son and heir-apparent, Kim Jong Il, continue.

However, there have been some minor efforts toward relaxing central control of the economy in the 1980s that involve industrial enterprises. Encouraged by Kim Jong Il's call to strengthen the implementation of the independent accounting system (tongnip ch'aesangje) of enterprises in March 1984, interest in enterprise management and the independent accounting system has increased, as evidenced by increasing coverage of the topic in various North Korean journals. Under the system, factory managers still are assigned output targets but are given more discretion in making decisions about labor, equipment, materials, and funds.

In addition to fixed capital, each enterprise is allocated a minimum of working capital from the state through the Central Bank and is required to meet various operating expenses with the proceeds from sales of its output. Up to 50 percent of the "profit" is taxed, the remaining half being kept by the enterprise for purchase of equipment, introduction of new technology, welfare benefits, and bonuses. As such, the system provides some built-in incentives and some degree of micro-level autonomy, unlike the budget allocation system, under which any surplus is turned over to the government in its entirety.

Another innovation, the August Third People's Consumer Goods Production Movement, is centered on consumer goods production. This measure was so named after Kim Jong Il made an inspection tour of an exhibition of light industrial products held in P'yongyang on August 3, 1984. The movement charges workers to use locally available resources and production facilities to produce needed consumer goods. On the surface, the movement does not appear to differ much from the local industry programs in existence since the 1960s, although some degree of local autonomy is allowed. However, a major departure places output, pricing, and purchases outside central planning. In addition, direct sales stores have been established to distribute goods produced under the movement directly to consumers. The movement is characterized as a third sector in the production of consumer goods, alongside centrally controlled light industry and locally controlled traditional light industry. Moreover, there were some reports in the mid-1980s of increasing encouragement of small-scale private handicrafts and farm markets. As of 1992, however, no move was reported to expand the size of private garden plots.

All these measures appear to be minor stop-gap measures to alleviate severe shortages of consumer goods by infusing some degree of incentives. In mid-1993 no significant moves signaling a fundamental deviation from the existing system had occurred. The reluctance to initiate reform appears to be largely political. It is, perhaps, the linkage between economic reform and political liberalization that worries the leadership. This concern is based on the belief that economic reform will produce new interests that will demand political expression, and that demands for the institutionalization of such pluralism eventually will lead to political liberalization. There clearly exists a catch-22 situation for Kim Il Sung and, particularly, for Kim Jong Il. In order to legitimize his power base, the younger Kim needs an economic base. However, his economic reforms challenge his position as the advancer of chuch'e and may eventually undo the regime.

In the mid-1980s, the speculation that North Korea would emulate China in establishing Chinese-style special economic zones was flatly denied by then deputy chairman of the Economic Policy Commission Yun Ki-pok (Yun became chairman as of June 1989). China's special economic zones typically are coastal areas established to promote economic development and the introduction of advanced technology through foreign investment. Investors are offered preferential tax terms and facilities. The zones, which allow greater reliance on market forces, have more decisionmaking power in economic activities than do provincial-level units. Over the years, China has tried to convince the North Korean leadership of the advantages of these zones by giving tours of the various zones and explaining their values to visiting high-level officials.

In December 1991, North Korea established a "zone of free economy and trade" to include the northeastern port cities of Unggi, Ch'ngjin, and Najin. The establishment of this zone also had ramifications on the questions of how far North Korea would go in opening its economy to the West and to South Korea, the future of the development scheme for the Tumen River area, and, more important, how much North Korea would reform its economic system.

North Korea

North Korea - ECONOMIC DEVELOPMENT

North Korea's reliance on a command economy has led to an inward-looking development strategy, demonstrated in policies on domestic industrial development, foreign trade, foreign capital, imported technology, and other forms of international economic cooperation. Priority is assigned to establishing a selfsufficient industrial base. Consumer goods are produced primarily to satisfy domestic demand, and private consumption is held to low levels. This approach is in sharp contrast to South Korea's outward-oriented strategy begun in the mid-1960s, which started with light industry in order to meet the demands of growing domestic and foreign markets and export expansion.

As a consequence of the government's policy of establishing economic self-sufficiency, the North Korean economy has become increasingly isolated from that of the rest of the world, and its industrial development and structure do not reflect its international competitiveness. Domestic firms are shielded from international as well as domestic competition; the result is chronic inefficiency, poor quality, limited product diversity, and underutilization of plants. This protectionism also limits the size of the market for North Korean producers, which, in turn, prevents them from taking advantage of economies of scale.

Beginning in the mid-1980s, and particularly around the end of the decade, North Korea began slowly to modify its rigid selfreliant policy. The changes, popularly identified as the opendoor policy, included an increasing emphasis on foreign trade, a readiness to accept direct foreign investment by enacting a joint venture law, the decision to open the country to international tourism, and economic cooperation with South Korea.

Record of Economic Performance

A lack of reliable data inhibits an accurate quantitative assessment of North Korea's economic performance. In mid-1993 North Korea remains one of the most secretive nations in the world, limiting the release of its economic data to the outside world and, for that matter, to its own population. Until about 1960, North Korea released economic data relatively more freely. Beginning in the 1960s, the publication of economic data began to dwindle dramatically; the withholding of information coincided with the beginning of the economy's slowdown.

The small amount of data that is published suffers from ambiguities and gaps and--more often than not--is in the form of percentages that do not provide base figures or explain the precise meaning of aggregated data. Moreover, North Korean macroeconomic aggregates such as national income, which is based on Marxist definitions, has to be modified in order to be comparable to customary Western standards. In the 1980s and early 1990s, only limited quantitative or qualitative information about the North Korean economy was available. Quantitative information on foreign trade is a welcome exception because the statistical returns from North Korea's trade partners are gathered by such international organizations as the United Nations (UN) and the International Monetary Fund (IMF), and South Korean organizations such as the National Unification Board.

Estimating gross national product (GNP) is a difficult task because of the dearth of economic data, the national income accounting procedures based on the Marxist definition of production, and the problem of choosing an appropriate rate of exchange for the wn-- the nonconvertible North Korean currency. The South Korean government's estimate placed North Korea's GNP in 1991 at US$22.9 billion, or US$1,038 per capita. This estimate of economic accomplishment pales next to South Korea's GNP of US$237.9 billion with a per capita income of US$5,569 that same year. North Korea's GNP in 1991 showed a 5.2 percent decline over 1989, and preliminary indications were that the decline would continue. In contrast, South Korea's GNP grew by 9.3 percent and 8.4 percent, respectively, in 1990 and 1991.

Postwar Economic Planning

During what North Korea called the "peaceful construction" period before the Korean War, the fundamental task of the economy was to overtake the level of output and efficiency attained toward the end of the Japanese occupation; to restructure and develop a viable economy reoriented toward the communist-bloc countries; and to begin the process of socializing the economy. Nationalization of key industrial enterprises and land reform, both of which were carried out in 1946, laid the groundwork for two successive one-year plans in 1947 and 1948, respectively, and the Two-Year Plan of 1949-50. It was during this period that the piece-rate wage system and the independent accounting system began to be applied and that the commercial network increasingly came under state and cooperative ownership.

The basic goal of the Three-Year Plan, officially named the Three-Year Post-war Reconstruction Plan of 1954-56, was to reconstruct an economy torn by the Korean War. The plan stressed more than merely regaining the prewar output levels. The Soviet Union, China, and East European countries provided reconstruction assistance. The highest priority was developing heavy industry, but an earnest effort to collectivize farming also was begun. At the end of 1957, output of most industrial commodities had returned to 1949 levels, except for a few items such as chemical fertilizers, carbides, and sulfuric acid, whose recovery took longer.

Having basically completed the task of reconstruction, the state planned to lay a solid foundation for industrialization while completing the socialization process and solving the basic problems of food and shelter during the Five-Year Plan of 1957- 60. The socialization process was completed by 1958 in all sectors of the economy, and the Ch'llima Movement (see Glossary) was introduced. Although growth rates reportedly were high, there were serious imbalances among the different economic sectors. Because rewards were given to individuals and enterprises that met production quotas, frantic efforts to fulfill plan targets in competition with other enterprises and industries caused disproportionate growth among various enterprises, between industry and agriculture and between light and heavy industries. Because resources were limited and the transportation system suffered bottlenecks, resources were diverted to politically well-connected enterprises or those whose managers complained the loudest. An enterprise or industry that performed better than others often did so at the expense of others. Such disruptions intensified as the target year of the plan approached.

Until the 1960s, North Korea's economy grew much faster than South Korea's. Although P'yongyang was behind in total national output, it was ahead of Seoul in per capita national output, because of its smaller population relative to South Korea. For example, in 1960 North Korea's population was slightly over 10 million persons, while South Korea's population was almost 25 million persons. Phenomenal annual economic growth rates of 30 percent and 21 percent during the Three-Year Plan of 1954-56 and the Five-Year Plan of 1957-60, respectively, were reported. After claiming early fulfillment of the Five-Year Plan in 1959, North Korea officially designated 1960 a "buffer year"--a year of adjustment to restore balances among sectors before the next plan became effective in 1961. Not surprisingly the same phenomenon recurred in subsequent plans. Because the Five-Year Plan was fulfilled early, it became a de facto four-year plan. Beginning in the early 1960s, however, P'yongyang's economic growth slowed until it was stagnant at the beginning of the 1990s.

Various factors explain the very high rate of economic development of the country in the 1950s and the general slowdown since the 1960s. During the reconstruction period after the Korean War, there were opportunities for extensive economic growth--attainable through the communist regime's ability to marshall idle resources and labor and to impose a low rate of consumption. This general pattern of initially high growth resulting in a high rate of capital formation was mirrored in other Soviet-type economies. Toward the end of the 1950s, as reconstruction work was completed and idle capacity began to diminish, the economy had to shift from the extensive to the intensive stage, where the simple communist discipline of marshalling underutilized resources became less effective. In the new stage, inefficiency arising from emerging bottlenecks led to diminishing returns. Further growth would only be attained by increasing efficiency and technological progress.

Beginning in the early 1960s, a series of serious bottlenecks began to impede development. Bottlenecks were pervasive and generally were created by the lack of arable land, skilled labor, energy, and transportation, and deficiencies in the extractive industries. Moreover, both land and marine transportation lacked modern equipment and modes of transportation. The inability of the energy and extractive industries as well as of the transportation network to supply power and raw materials as rapidly as the manufacturing plants could absorb them began to slow industrial growth.

The First Seven-Year Plan (initially 1961-67) built on the groundwork of the earlier plans but changed the focus of industrialization. Heavy industry, with the machine tool industry as its linchpin, was given continuing priority. During the plan, however, the economy experienced widespread slowdowns and reverses for the first time, in sharp contrast to the rapid and uninterrupted growth during previous plans. Disappointing performance forced the planners to extend the plan three more years, until 1970. During the last part of the de facto ten-year plan, emphasis shifted to pursuing parallel development of the economy and of defense capabilities. This shift was prompted by concern over the military takeover in South Korea by General Park Chung Hee (1961-79), escalation of the United States involvement in Vietnam, and the widening Sino-Soviet split. It was thought that stimulating a technological revolution in the munitions industry was one means to achieve these parallel goals. In the end, the necessity to divert resources to defense became the official explanation for the plan's failure.

The Six-Year Plan of 1971-76 followed immediately in 1971. In the aftermath of the poor performance of the preceding plan, growth targets of the Six-Year Plan were scaled down substantially. Because some of the proposed targets in the First Seven-Year Plan had not been attained even by 1970, the Six-Year Plan did not deviate much from its predecessor in basic goals. The Six-Year Plan placed more emphasis on technological advance, self-sufficiency in industrial raw materials, improving product quality, correcting imbalances among different sectors, and developing the power and extractive industries; the last of these had been deemed largely responsible for slowdowns during the First Seven-Year Plan. The plan called for attaining a self- sufficiency rate of 60 to 70 percent in all industrial sectors by substituting domestic raw materials wherever possible and by organizing and renovating technical processes to make the substitution feasible. Improving transport capacity was seen as one of the urgent tasks in accelerating economic development-- understandable since it was one of the major bottlenecks of the Six-Year Plan.

North Korea claimed to have fulfilled the Six-Year Plan by the end of August 1975, a full year and four months ahead of schedule. Under the circumstances, it was expected that the next plan would start without delay in 1976, a year early, as was the case when the First Seven-Year Plan was instituted in 1961. Even if the Six-Year Plan had been completed on schedule, the next plan should have started in 1977. However, it was not until nearly two years and four months later that the long-awaited plan was unveiled--1977 had become a "buffer year."

The inability of the planners to continuously formulate and institute economic plans reveals as much about the inefficacy of planning itself as the extent of the economic difficulties and administrative disruptions facing the country. For example, targets for successive plans have to be based on the accomplishments of preceding plans. If these targets are underfulfilled, all targets of the next plan--initially based on satisfaction of the plan--have to be reformulated and adjusted. Aside from underfulfillment of the targets, widespread disruptions and imbalances among various sectors of the economy further complicate plan formulation.

The basic thrust of the Second Seven-Year Plan (1978-84) was to achieve the three-pronged goals of self-reliance, modernization, and "scientification." Although the emphasis on self-reliance was not new, it had not previously been the explicit focus of an economic plan. This new emphasis might have been a reaction to mounting foreign debt originating from large- scale imports of Western machinery and equipment in the mid- 1970s. Through modernization North Korea hoped to increase mechanization and automation in all sectors of the economy. "Scientification" is a buzzword for the adoption of up-to-date production and management techniques. The specific objectives of the economic plan were to strengthen the fuel, energy, and resource bases of industry through priority development of the energy and extractive industries; to modernize industry; to substitute domestic resources for certain imported raw materials; to expand freight-carrying capacity in railroad, road, and marine transportation systems; to centralize and containerize the transportation system; and to accelerate a technical revolution in agriculture.

In order to meet the manpower and technology requirements of an expanding economy, the education sector also was targeted for improvements. The quality of the comprehensive eleven-year compulsory education system was to be enhanced to train more technicians and specialists, and to expand the training of specialists, particularly in the fields of fuel, mechanical, electronic, and automation engineering.

Successful fulfillment of the so-called nature-remaking projects also was part of the Second Seven-Year Plan. These projects referred to the five-point program for nature transformation unveiled by Kim Il Sung in 1976: completing the irrigation of non-paddy fields; reclaiming 100,000 hectares of new land; building 150,000 hectares to 200,000 hectares of terraced fields; carrying out afforestation and water conservation work; and reclaiming tidal land.

From all indications, the Second Seven-Year Plan was not successful. North Korea generally downplayed the accomplishments of the plan, and no other plan received less official fanfare. It was officially claimed that the economy had grown at an annual rate of 8.8 percent during the plan, somewhat below the planned rate of 9.6 percent. The reliability of this aggregate measure, however, is questionable. During the plan, the target annual output of 10 million tons of grains (cereals and pulses) was attained. However, by official admission, the targets of only five other commodities were fulfilled. Judging from the growth rates announced for some twelve industrial products, it is highly unlikely that the total industrial output increased at an average rate of 12.2 percent as claimed. After the plan concluded, there was no new economic plan for two years, indications of both the plan's failure and the severity of the economic and planning problems confronting the economy in the mid-1980s.

The main targets of the Third Seven-Year Plan of 1987-93 are to achieve the so-called "Ten Long-Range Major Goals of the 1980s for the Construction of the Socialist Economy". These goals, conceived in 1980, are to be fulfilled by the end of the decade. The fact that these targets are rolled over to the end of the Third Seven-Year Plan is another indication of the disappointing economic performance during the Second Seven-Year Plan. The three policy goals of self-reliance, modernization, and "scientification" were repeated. Economic growth was set at 7.9 percent annually, lower than the previous plan. Although achieving the ten major goals of the 1980s is the main thrust of the Third Seven-Year Plan, some substantial changes have been made in specific quantitative targets. For example, the target for the annual output of steel has been drastically reduced from 15 million tons to 10 millon tons. This reduction will have serious negative secondary effects on heavy industry. The output targets of cement and non-ferrous metals-- two major export items--have been increased significantly. The June 1989 introduction of the Three-Year Plan for Light Industry as part of the Third Seven-Year Plan is intended to boost the standard of living by addressing consumer needs.

The Third Seven-Year Plan gives a great deal of attention to developing foreign trade and joint ventures, the first time a plan has addressed these issues. By the end of 1991, however, two years before the termination of the plan, no quantitative plan targets had been made public, an indication that the plan has not fared well. The diversion of resources to build highways, theaters, hotels, airports, and other facilities in order to host the Thirteenth World Festival of Youth and Students in July 1989, must have had a negative impact on industrial and agricultural development, although the expansion and improvement of social infrastructure have resulted in some long-term economic benefits.

The shortage of foreign exchange because of a chronic trade deficit, a large foreign debt, and dwindling foreign aid has constrained economic development. In addition, North Korea has been diverting scarce resources from developmental projects to defense; it spent more than 20 percent of GNP on defense toward the end of the 1980s, a proportion among the highest in the world. These negative factors, compounded by the declining efficiency of the central planning system and the failure to modernize the economy, have slowed the pace of growth since the 1960s. The demise of the communist regimes in the Soviet Union and East European countries--North Korea's traditional trade partners and benefactors--has compounded the economic difficulties in the early 1990s.

Concomitant with the socialization of the economy and the growth in the total magnitude of national output has been a dramatic and revealing change in the relative share of output, indicating that the economy has been transformed from being primarily agricultural to primarily industrial. Whereas in 1946, industrial and agricultural outputs were 16.8 percent and 63.5 percent, respectively, of total national output, the relative position has reversed fundamentally since then so that the respective shares in 1970 were 57.3 percent and 21.5 percent. Judging from the agricultural share of 24 percent in 1981, there were slight reverses in the relative composition in the 1970s.

Growth and changes in the structure and ownership pattern of the economy also have changed the labor force. By 1958 individual private farmers, who once constituted more than 70 percent of the labor force, had been transformed into or replaced by state or collective farmers. Private artisans, merchants, and entrepreneurs had joined state or cooperative enterprises. In the industrial sector in 1963, the last year for which such data are available, there were 2,295 state enterprises and 642 cooperative enterprises. The size and importance of the state enterprises can be surmised by the fact that state enterprises, which constituted 78.1 percent of the total number of industrial enterprises, contributed 91.2 percent of total industrial output.

<>Economic Planning

North Korea

North Korea - Economic Planning

Although general economic policy objectives are decided by the Central People's Committee (CPC), it is the task of the State Planning Committee to translate the broad goals into specific annual and long-term development plans and quantitative targets for the economy as a whole, as well as for each industrial sector and enterprise. Under the basic tenets of the 1964 reforms, the planning process is guided by the principles of "unified planning" (ilwnhwa) and of "detailed planning" (saebunhwa).

Under "unified planning," regional committees are established in each province, city, and county to systematically coordinate planning work. These committees do not belong to any regional organization and are directly supervised by the State Planning Committee. As a result of a reorganization in 1969, they are separated into provincial planning committees, city/county committees, and enterprise committees (for large-scale enterprises).

The various planning committees, under the auspices of the State Planning Committee, coordinate their planning work with the existing planning offices of the various economy-related government organizations in each of the corresponding regional and local areas. The system attempts to enable the regional planning staffs to better coordinate with economic establishments in their areas, which are directly responsible to them with regard to planning, as well as to communicate directly with staff at the CPC. "Detailed planning" seeks to construct plans with precise accuracy and scientific methods based on concrete assessment of the available resources, labor, funds, plant capacities, and all other necessary information.

There are four stages in drafting the final national economic plan. The first stage is collecting and compiling preliminary statistical data. These figures, which are used as the basic planning data on the productive capacities of various economic sectors, originally are prepared by lower level economic units and aggregated on a national level by respective departments and committees. Simultaneously, the regional, local, and enterprise planning committees prepare their own data and forward them to the CPC. Through this two-channel system of simultaneous but separate and independent preparation of statistical data by economic units and planning committees, the government seeks to ensure an accurate, objective, and realistic data base unfettered by local and bureaucratic bias. The second stage is preparing the control figures by the CPC based on the preliminary data in accordance with the basic plan goals presented by the Central People's Committee. In the third stage, a draft plan is prepared.

The draft plan, prepared by the CPC, is the result of coordinating all draft figures submitted by the lower level economic units, which, in turn, base their drafts on the control figures handed down from the committee. In the fourth stage, the CPC submits a unified national draft plan to the Central People's Committee and the State Administration Council for confirmation. After approval by the Supreme People's Assembly, the draft becomes final and is distributed to all economic units as well as to regional and local planning committees. The plan then becomes legal and compulsory. Frequent directives from the central government contain changes in the plan targets or incentives for meeting the plan objectives.

Although the central government is most clearly involved in the formulation and evaluation of the yearly and long-term plans, it also reviews summaries of quarterly or monthly progress. Individual enterprises divide the production period into daily, weekly, ten-day, monthly, quarterly, and annual periods. In general, the monthly plan is the basic factory planning period.

The success of an economic plan depends on the quality and detail of information received, the establishment of realistic targets, coordination among different sectors, and correct implementation. High initial growth during the Three-Year Plan and, to a lesser extent, during the Five-Year Plan contributed to a false sense of confidence among the planners. Statistical overreporting--an inherent tendency in a economy where rewards lie in fulfilling the quantitative targets, particularly when the plan target year approaches--leads to overestimation of economic potential, poor product quality, and eventually to plan errors. Inefficient utilization of plants, equipment, and raw materials also add to planning errors. Lack of coordination in planning and production competition among sectors and regions cause imbalances and disrupt input-output relationships. The planning reforms in 1964 were supposed to solve these problems, but the need for correct and detailed planning and strict implementation of plans was so great that their importance was emphasized in the report unveiling the Second Seven-Year Plan, indicating that planning problems persisted in the 1980s.

The Ch'ongsan-ni Method

The Ch'ongsan-ni Method, or Chngsan-ri Method, of management was born out of Kim Il Sung's February 1960 visit to the Ch'ongsan-ni Cooperative Farm in South P'yngan Province. Kim and other members of the KWP Central Committee offered "on-the-spot guidance" and spent fifteen days instructing and interacting with the workers. The avowed objective of this new method is to combat "bureaucratism" and "formalism" in the farm management system.

The leadership claimed that farm workers were unhappy and produced low output because low-ranking party functionaries, who expounded abstract Marxist theories and slogans, were using incorrect tactics that failed to motivate. To correct this, the leadership recommended that the workers receive specific guidance in solving production problems and be promised readily available material incentives. The Ch'ongsan-ni Method called for highranking party officials, party cadres, and administrative officials to emulate Kim Il Sung by making field inspections. The system also provided opportunities for farmers to present their grievances and ideas to leading cadres and managers.

Perhaps more important than involving administrative personnel in on-site inspections was the increased use of material incentives, such as paid vacations, special bonuses, honorific titles, and monetary rewards. In fact, the Ch'ongsan-ni Method appeared to accommodate almost any expedient to spur production. The method, however, subsequently was undercut by heavy-handed efforts to increase farm production and amalgamate farms into ever-larger units. Actual improvement in the agricultural sector began with the adoption of the subteam contract system as a means of increasing peasant productivity by adjusting individual incentives to those of the immediate, small working group. Thus the increasing scale of collective farms was somewhat offset by the reduction in the size of the working unit. "On-the-spot guidance" by high government functionaries, however, continues in the early 1990s, as exemplified by Kim Il Sung's visits to such places as the Wangjaesan Cooperative Farm in Ssng County and the Kyngsn Branch Experimental Farm of the Academy of Agricultural Sciences between August 20 and 30, 1991.

The Taean Work System

The industrial management system developed in three distinct stages. The first stage was a period of enterprise autonomy that lasted until December 1946. The second stage was a transitional system based on local autonomy, with each enterprise managed by the enterprise management committee under the direction of the local people's committee. This system was replaced by the "oneman management system," with management patterned along Soviet lines as large enterprises were nationalized and came under central control. The third stage, the Taean Work System, was introduced in December 1961 as an application and refinement of agricultural management techniques to industry. The Taean industrial management system grew out of the Ch'ongsan-ni Method.

The highest managerial authority under the Taean system is the party committee. Each committee consists of approximately twenty-five to thirty-five members elected from the ranks of managers, workers, engineers, and the leadership of "working people's organizations" at the factory. A smaller "executive committee," about one-fourth the size of the regular committee, has practical responsibility for day-to-day plant operations and major factory decisions. The most important staff members, including the party committee secretary, factory manager, and chief engineer, make up its membership. The system focuses on cooperation among workers, technicians, and party functionaries at the factory level.

Each factory has two major lines of administration, one headed by the manager, the other by the party committee secretary. A chief engineer and his or her assistants direct a general staff in charge of all aspects of production, planning, and technical guidance. Depending on the size of the factory, varying numbers of deputies oversee factory logistics, marketing, and workers' services. The supply of materials includes securing, storing, and distributing all materials for factory use, as well as storing finished products and shipping them from the factory.

Deputies are in charge of assigning workers to their units and handling factory accounts and payroll. Providing workers' services requires directing any farming done on factory lands, stocking factory retail shops, and taking care of all staff amenities. Deputies in charge of workers' services are encouraged to meet as many of the factory's needs as possible using nearby agricultural cooperatives and local industries.

The secretary of the party committee organizes all political activities in each of the factory party cells and attempts to ensure loyalty to the party's production targets and management goals. According to official claims, all management decisions are arrived at by consensus among the members of the party committee. Given the overwhelming importance of the party in the country's affairs, it seems likely that the party secretary has the last say in any major factory disputes.

The Taean system heralded a more rational approach to industrial management than that practiced previously. Although party functionaries and workers became more important to management under the new system, engineers and technical staff also received more responsibility in areas where their expertise could contribute the most. The system recognizes the importance of material as well as "politico-moral" incentives for managing the factory workers. The "internal accounting system," a spin-off of the "independent accounting system," grants bonuses to work teams and workshops that use raw materials and equipment most efficiently. These financial rewards come out of enterprise profits.

A measure of the success of the Taean Work System is its longevity and its continued endorsement by the leadership. In his 1991 New Year's address marking the thirtieth anniversary of the creation of the system, Kim Il Sung said that the "Taean work system is the best system of economic management. It enables the producer masses to fulfill their responsibility and role as masters and to manage the economy in a scientific and rational manner by implementing the mass line in economic management, and by combining party leadership organically with administrative, economic, and technical guidance."

Mass Production Campaigns

Parallel to management techniques such as the Ch'ongsan-ni Method and the Taean Work System, which were designed to increase output in the course of more normalized and regularized operations of farms and enterprises, the leadership continuously resorts to exhortations and mass campaigns to motivate the workers to meet output targets. The earliest and the most pervasive mass production campaign was the Ch'llima Movement. Introduced in 1958, and fashioned after China's Great Leap Forward (1958-60), the Ch'llima Movement organized the labor force into work teams and brigades to compete at increasing production. The campaign was aimed not only at industrial and agricultural workers but also at organizations in education, science, sanitation and health, and culture. In addition to work teams, units eligible for Ch'llima citations included entire factories, factory workshops, and such self-contained units as a ship or a railroad station. The "socialist competition" among the industrial sectors, enterprises, farms, and work teams under the Ch'llima Movement frantically sought to complete the Five-Year Plan (1957-60), but instead created chaotic disruptions in the economy. The disruptions made it necessary to set aside 1959 as a "buffer year" to restore balance in the economy.

Although the Ch'llima Movement was replaced in the early 1960s by the Ch'ongsan-ni Method and the Taean Work System, the regime's reliance on some form of mass campaign continued into the early 1990s. Campaigns conducted after the Ch'llima Movement have been narrower in scope and have concentrated on specific time frames for a particular industry or economic sector. Often, the mass production movement takes the form of a "speed battle"-- the "100-day speed battle" being most common. The fact that the leadership has to resort to these campaigns points to the weakness or improper functioning of the regular day-to-day management system, as well as to a lack of incentives for workers to achieve the desired economic results. The leadership frequently resorts to speed battles toward the end of a certain period (such as a month, a year, or a particular economic plan) to reach production targets. The "Speed of the 1990s" is designed to carry out the economic goals of the decade.

North Korea

North Korea - INDUSTRY

North Korea's self-reliant development strategy assigned top priority to developing heavy industry, with parallel development in agriculture and light industry. This policy was achieved mainly by giving heavy industry preferential allocation of state investment funds. More than 50 percent of state investment went to the industrial sector during the 1954-76 period (47.6 percent, 51.3 percent, 57.0 percent, and 49.0 percent, respectively, during the Three-Year Plan, Five-Year Plan, First Seven-Year Plan, and Six-Year Plan). As a result, gross industrial output grew rapidly.

As was the case with the growth in national output, the pace of growth has slowed markedly since the 1960s. The rate declined from 41.7 percent and 36.6 percent a year during the Three-Year Plan and Five-Year Plan, respectively, to 12.8 percent, 16.3 percent, and 12.2 percent, respectively, during the First SevenYear Plan, Six-Year Plan, and Second Seven-Year Plan. As a result of faster growth in industry, that sector's share in total national output increased from 16.8 percent in 1946 to 57.3 percent in 1970. Since the 1970s, industry's share in national output has remained relatively stable. From all indications, the pace of industrialization during the Third Seven-Year Plan up to 1991 is far below the planned rate of 9.6 percent. In 1990 it was estimated that the industrial sector's share of national output was 56 percent.

Industry's share of the combined total of gross agricultural and industrial output climbed from 28 percent in 1946 to well over 90 percent in 1980. Heavy industry received more than 80 percent of the total state investment in industry between 1954 and 1976 (81.1 percent, 82.6 percent, 80 percent, and 83 percent, respectively, during the Three-Year Plan, Five-Year Plan, First Seven-Year Plan, and Six-Year Plan), and was overwhelmingly favored over light industry.

North Korea claims to have fulfilled the Second Seven-Year Plan (1978-84) target of raising the industrial output in 1984 to 120 percent of the 1977 target, equivalent to an average annual growth rate of 12.2 percent. Judging from the production of major commodities that form the greater part of industrial output, however, it is unlikely that this happened. For example, the increase during the 1978-84 plan period for electric power, coal, steel, metal-cutting machines, tractors, passenger cars, chemical fertilizers, chemical fibers, cement, and textiles, respectively, was 78 percent, 50 percent, 85 percent, 67 percent, 50 percent, 20 percent, 56 percent, 80 percent, 78 percent, and 45 percent.

Development in Major Sectors

Growth in total industrial output was accompanied by changes in the composition of industry, but large gaps and inconsistencies in official statistics made it impossible to assess specific changes accurately. In 1965, the last year for which data were available for several sectors, the machine building and metal processing sector--the "engineering sector"-- accounted for the largest share of total industrial production-- 29 percent. This figure was a dramatic change from 1946, when the share of this sector was only 5.1 percent. Machinery building was regarded as the key to industrialization. The next largest shares in total industrial production in 1965 were 17.2 percent for textiles and 9.1 percent for the food processing and luxury goods industries. The share of the machinery manufacturing industry increased further to 33.7 percent of gross industrial output in 1980. Although the production of consumer goods was given more emphasis in the 1970s and 1980s, most economic resources continue to be devoted to the production of minerals, metals, and heavy machinery. In fact, most industry is located around the major mining and machinery manufacturing centers that form the focal points of the transportation and communications networks. At the start of the 1990s, the country had a variety of relatively well developed industries, and in per capita production of some industrial items was comparable to those of many middle-income countries.

Mining and Metal Processing

The economy depends to a considerable degree on the extraction of its many mineral resources for fuels, industrial raw materials, and metal processing as well as for exports. Anthracite coal, with estimated reserves of 1.8 billion tons, is the most abundant of the country's mineral resources. It is produced in large quantity for both domestic consumption and export. Coal mines, largely concentrated in South P'yngan Province, produced 68 million tons and 22 million tons, respectively, of anthracite and the less abundant lignite coal in 1990. Despite a fairly steady increase in the 1980s, coal production has not been able to catch up with rising demand. This situation has created a persistent energy shortage because the country relies on coal as its main energy source and lacks any reserves of oil or gas.

The lagging coal industry remains a major bottleneck. The aging of existing mining equipment and facilities, the inefficiency that arises from the increasing need to mine deeper seams, and a lack of modern, efficient equipment are the primary reasons for the production lag in extractive industries. The persistence of these problems prompted Kim Il Sung to stress the importance of developing the mining and power industries and rail transport even in his 1992 New Year's address--the same theme he has repeated annually in his New Year's address for at least the previous fifteen years.

Because of the lack of domestic reserves, the country continues to rely on foreign sources for bituminous coal. Toward the end of the 1980s, China was the chief source of coking coal, followed by the Soviet Union.

The Anju District coal mining complex is the leading coal producer. A large-scale open-pit mine was being developed in the Anju District in 1990. High-quality anthracite deposits are located in the Paegam District of Yanggang Province, and have estimated reserves of at least 1 million tons. Coal deposits amounting to 10 million tons also exist in Chunbi, T'- gol, and Kangdong in Kangdong District.

With estimated reserves of 400 million tons, iron ore continues to be important for domestic industry and is a major source of foreign exchange. According to Western estimates, annual iron ore output increased from 8 million tons in 1985 to 10 million tons in 1990. In the 1980s, new mines were added at Tksng and Shae-ri; they supplemented older mines at Musan, nryul, Tkch'n, Chaeryng, and Hasng, all of which received considerable state investment. The expansion projects started in early 1988 to increase the production capacity of the Musan Mining Complex to 10 millions tons per year were completed in 1989. The long-term annual output target, however, is 15 million tons. The Chngp'yng Mine in South Hamgyng Province was commissioned to produce ores in February 1991.

North Korea possesses the largest and some of the best quality magnesite deposits in the world--an estimated 490 million tons. The mining of magnesite is important for the domestic industrial ceramics industry and for exports. Magnesite mines are concentrated in the Tanch'n District in South Hamgyng Province; annual output of magnesite in 1990 was estimated at 1.5 million tons. With the completion of expansion projects of the Tanch'n Magnesia Plant and the construction of the Unsng Crushing and Screening Plant in 1987, the production capacity of magnesia increased to 2 million tons annually. The government also began efforts to expand output capacity of magnesia in the Taehng District toward the end of the 1980s.

Other important minerals are lead, zinc, tungsten, mercury, copper, phosphate, gold, silver, and sulfur; manganese, graphite, apatite, fluorite, barite, limestone, and talc also are found in great supply. Zinc and lead ingots, among the leading exports, are produced at domestic smelting plants in Tanch'n, Namp'o, Haeju, and Munpyng. With a capacity of 15 million tons, the K mdk Mining Complex in South Hamgyng Province is one of the leading producers. An estimated 200,000 tons of high-grade electrolytic zinc and an estimated 80,000 tons of lead were produced in 1990.

A joint venture project to redevelop the Unsan Gold Mine was unveiled in March 1987. The successful reexploitation of the mine, originally opened by a United States firm in 1896, with deposits estimated at more than 1,000 tons, could make it one of the world's major gold mines.

Building materials, such as the cement used in almost every construction project, are manufactured in large as well as smallscale local industrial plants. Annual cement output was estimated at 11.77 million tons and 12.02 millon tons, respectively, in 1989 and 1990.

Manufacturing

The machine building industry grew rapidly beginning in the mid-1950s and had become the most important industrial sector by 1960. It supplies machinery needed for domestic industry and agriculture, such as tractors and other farm machinery, as well as an extensive range of military equipment. Production levels since the early 1960s, however, have been disappointing. The output of metal cutting machines reached 30,000 units in 1975, but was far below the planned target of 50,000 units in 1984. Output in 1990 was estimated at 35,000 units. Similarly, the output of tractors in 1984 was estimated to be less than 40,000 units, below the Second Seven-Year Plan target of 45,000 units per year. Annual automobile production in 1990 was estimated at 33,000 units.

The quality of machinery generally is considered below international standards. Some of the largest machinery plants are the Yongsng Machinery Works and the Rakwn Machinery Works. The Taean Heavy Machinery Works, built during the Second Seven-Year Plan (1978-84) with Soviet assistance, is the country's largest machinery plant.

During the Third Seven-Year Plan (1987-93), the government plans to modernize the machinery industry by introducing hightechnology and high-speed precision machines and equipment. For example, it was reported in 1990 that the H ich'n Machine Tool General Works had completed a flexible manufacturing process by introducing robots into the plant's numerically controlled machine tools and that the Ch'ngjin Machine Tool Plant and others were hastening to do the same. The Third Seven-Year Plan calls for an increase of 150 percent in machinery output, slightly higher than the claimed increase of 130 percent during the previous plan.

Utilizing the country's relatively abundant iron ore, the steel industry is a major industrial sector. The Kimch'aek Integrated Iron and Steel Works has surpassed the Hwanghae Iron Works to become the largest steel and iron center. The planned annual production targets for the Second Seven-Year Plan of 6.4 million tons to 7 million tons of pig-iron and granulated iron, 7.4 million tons to 9 million tons of crude steel, and 5.6 million tons to 6 million tons of rolled and structural steel were not met. Estimated output of crude and rolled steel in 1990 was 5.9 million tons and 4 million tons, respectively. Outdated technology, a lack of coking coal, and the low purity of domestic iron ore created serious problems for the iron and steel industry. These difficulties forced the government to scale down the crude steel target by the end of the Third Seven-Year Plan compared with the earlier target of 15 million tons by the end of the 1980s. Completion of the second-stage expansion of Kimch'aek in 1988 reportedly increased the output capacity of the complex to 5 million tons or more per year. New expansion projects completed in 1989 added a 100-ton converter, an oxygen plant, and other production and auxiliary systems.

Capacity expansion projects have been under way at the Ch'ngjin and Ch'llima steel complexes. In October 1989, the Large Size Stamp-Forging Plant of the Ch'llima Steel Complex, with a capacity of 2 million tons a year and equipped with a 100,000-ton press, began operation. An expansion project completed in 1989 at the S ngri General Motor Works quadrupled the production capacity of the heavy duty trucks and plant manufactures.

The French-built Ch'ngnyn Integrated Chemical Works in the Anju District north of P'yongyang is the first petrochemical complex designed to produce ethylene, polyethylene, acrylonitrite, and urea. The nearby refinery at Unggi supplies the necessary crude petroleum. The Eight February Synthetic Fiber Integrated Plant, a large-scale complex, produces chemical fibers and has an annual capacity of 50,000 tons. A synthetic fiber complex in Sunch'n, the country's largest, began operation in 1989 after completing its first stage of construction. When all stages are completed, production capacity is expected to reach 100,000 tons of synthetic fiber, 1 million tons of calcium carbide, 750,000 tons of methanol, 900,000 tons of nitrogen fertilizers, 250,000 tons of caustic soda, 250,000 tons of vinyl chloride, and 400,000 tons of soda ash per year.

Light manufacturing has not kept pace with heavy industry. Since the 1970s, the leadership has begun to admit openly the backwardness of consumer goods in terms of quality and variety. The government's stress on providing adequate consumer goods continues into the early 1990s, but is not backed by any real efforts to divert state investment funds from heavy industrial projects. In his 1992 New Year's address, Kim Il Sung stressed achieving the people's long cherished desire that "all people might equally eat rice and meat soup regularly, wear silk clothes, and live in a house with a tiled roof." However, this was preceded by his exhortation that the most important and urgent tasks for 1992 were increasing the production of electricity and coal, and developing rail transport.

The textile industry, the most important light industrial sector, utilizes primarily locally produced synthetics and petrochemically based fibers, as well as cotton and silk. P'yongyang, the site of the P'yongyang Integrated Textile Mill, is the country's textile capital, but Siniju and Sariwn have been gaining in importance. During the Second Seven-Year Plan (1978-84), output of textile fabrics increased by 78 percent registered an annual growth rate of 8.6 percent, and, according to official claims, achieved the 1984 target of 800 million meters. However, foreign estimates placed textile output in 1990 at only 670 million meters. During the Second Seven-Year Plan, knitted goods, particularly those using domestically produced acrylic fibers, were emphasized. Efforts to expand the production capacity of knitwear continue in the Third Seven-Year Plan (1987- 93). By modernizing existing equipment and installing new spinning and weaving machines, the government plans to increase the annual output of textiles to 1.5 billion meters by 1993. Judging from the 1990 level of output, it is unlikely that this target will be fulfilled.

The Third Seven-Year Plan emphasizes synthetic fiber production based on indigenous technology using coal and limestone, and on the production of chemical fiber based on petrochemistry. The government has called for accelerating the expansion projects at both the Siniju and Ch'ngjin chemical fiber complexes. The planned annual output target for chemical fibers in the Third Seven-Year Plan is 225,000 tons while the output for synthetic resin and plasticizer is targeted at 500,000 tons. Foreign estimates place the output of chemical fibers in 1990 at 177,000 tons. North Korea also has a chemical weapons capability.

Since the early 1960s, local industry has been the major supplier of consumer goods and foodstuffs. With the introduction of the August Third People's Consumer Goods Production Movement, in effect since 1984, the government's policy of developing small- and medium-scale local industrial plants simultaneously with large-scale, centrally controlled light industrial plants continues into the 1990s.

North Korea

North Korea - AGRICULTURE

The task of increasing agricultural production beyond simple recovery from the Korean War was not easy. The country's sparse agricultural resources limit agricultural growth. Climate, terrain, and soil conditions are not particularly favorable for farming. Only about 18 percent of the total landmass, or approximately 2.2 million hectares, is arable; the major portion of the country is rugged mountain terrain. The weather varies markedly according to elevation, and lack of precipitation, along with infertile soil, makes land at elevations higher than 400 meters unsuitable for purposes other than grazing. Precipitation is geographically and seasonally irregular, and in most parts of the country as much as half the annual rainfall occurs in the three summer months. This pattern favors the cultivation of paddy rice in warmer regions that are outfitted with irrigation and flood control networks. Where these conditions are lacking, however, farmers have to substitute other grains for the traditional favorite.

Farming is concentrated in the flatlands of the four west coast provinces, where a longer growing season, level land, adequate rainfall, and good, irrigated soil permit the most intensive cultivation of crops. A narrow strip of similarly fertile land runs through the eastern seaboard Hamgyng provinces and Kangwn Province, but the interior provinces of Chagang and Yanggang are too mountainous, cold, and dry to allow much farming. The mountains, however, contain the bulk of North Korea's forest reserves while the foothills within and between the major agricultural regions provide lands for livestock grazing and fruit tree cultivation.

Since self-sufficiency remains an important pillar of North Korean ideology, self-sufficiency in food production is deemed a worthy goal. Another aim of government policies--to reduce the "gap" between urban and rural living standards--requires continued investment in the agricultural sector. Finally, as in most countries, changes in the supply or prices of foodstuffs probably are the most conspicuous and sensitive economic concerns for the average citizen. The stability of the country depends on steady, if not rapid, increases in the availability of food items at reasonable prices. In the early 1990s, there also were reports of severe food shortages.

The most far-reaching statement on agricultural policy is embodied in Kim Il Sung's 1964 "Theses on the Socialist Agrarian Question in Our Country," which underscores the government's concern for agricultural development. Kim emphasized technological and educational progress in the countryside as well as collective forms of ownership and management. As industrialization progressed, the share of agriculture, forestry, and fisheries in the total national output declined from 63.5 percent and 31.4 percent, respectively, in 1945 and 1946, to a low of 26.8 percent in 1990. Their share in the labor force also declined from 57.6 percent in 1960 to 34.4 percent in 1989.

Resource Development

Resource development in agriculture is a crucial means for increasing agricultural production, recognizing the unfavorable natural endowments--topography, climate, and soil. This development consists of what North Koreans call "nature-remaking" projects. These projects generally increase the quantity of arable land, and rural investment projects, which, in turn, increase the yield of the available land through increased capital and improved technology. "Nature-remaking" projects include irrigation, flood control, and land reclamation. Rural investment projects consist of mechanization, electrification, and "chemicalization"--that is, the increased use of chemical fertilizers and pesticides.

Despite priority allocation of state funds for heavy industry, North Korea has achieved considerable success in irrigation since the Korean War. Irrigation projects began with paddy fields and then continued to non-paddy fields. Irrigated land increased from 227,000 hectares in 1954 to 1.2 million hectares in 1988. North Korea claimed that paddy field irrigation was completed by 1970. In 1990 there were more than 1,700 reservoirs throughout the country, watering 1.4 million hectares of fields with a ramified irrigation network of 40,000 kilometers, which irrigated about 70 percent of the country's arable land. Water-jetting irrigation of non-paddy fields was introduced in the 1980s. In 1989 construction began on a 400- kilometer canal by diverting the flow of the Taedong River along its west coast.

Rural electrification has progressed rapidly. The proportion of villages supplied with electricity increased from 47 percent in 1953 to 92 percent of all villages by the end of 1961. The process of extending electrical lines to the rural areas reportedly was completed in 1970. The annual supply of electricity to the rural areas reached 2.5 billion kilowatt-hours toward the end of the 1980s.

Mechanization is another agricultural target. By 1984 mechanization had reached the level of seven tractors per 100 hectares in the plains and six tractors per 100 hectares in the intermediate and mountainous areas. The fact that the same tractor ratios are quoted in official pronouncements of the early 1990s probably indicates that there is no further improvement in these ratios, and that the planned target of ten tractors per 100 hectares by the end of the Second Seven-Year Plan in 1984 still has not been met. Given the disappointing output record of tractors in recent years, it is doubtful that the target of ten to twelve tractors per 100 hectares will be fulfilled by the end of the Third Seven-Year Plan in 1993. Nonetheless, North Korea claimed that 95 percent of rice planting was mechanized and that there were 5.5 rice transplanting machines per 100 hectares of paddy fields in 1990.

Chemical fertilizers receive much government attention and investment because of their importance for agriculture. Most fertilizers are produced by the enormous fertilizer plant in H ngnam, which has an annual capacity of 1 million tons. According to official claims, the output of 4.7 million tons in 1984 compared with 3 million tons in 1976, had fulfilled the 1978-84 plan target. Judging from a foreign estimate of 3.5 million tons in 1990, however, production of chemical fertilizers has been deteriorating. The Sariwn Potassium Fertilizer Complex, which has an annual capacity of 3 million tons of potassium feldspar, began construction in 1988 and when completed is expected to raise the country's potassium fertilizer capacity to 500,000 tons, aluminum capacity to 420,000 tons, and cement capacity to 10 million tons per year. In his 1991 New Year's address, Kim Il Sung noted that the complex still was under construction.

By 1977 the "chemicalization" process had increased the average fertilizer application to 1.3 tons per hectare and 1.2 tons per hectare, respectively, for paddy and non-paddy fields, and the 1984 target of two tons per hectare was claimed to have been achieved. The target of the Third Seven-Year Plan is to increase the rate to 2.5 tons. In a 1991 "advisory note" addressing the North Korean economy for the years 1992-96, the United Nations Development Programme (UNDP), the only international agency resident in P'yongyang, warned that the practice of intensive chemicalization has led to land degradation--that is, declining soil fertility, falling organic matter content, erosion and soil acidification, and water pollution, with resulting environmental damage.

The objectives of the "nature-remaking program" launched in 1976 are to complete the irrigation of non-paddy lands, to reclaim 100,000 hectares of new land, to build 150,000 hectares to 200,000 hectares of terraced fields, to reclaim tidal land, and to conduct afforestation and water conservation projects. The reclamation of 6,200 hectares of tideland at Taedong Bay was underway as part of the 1987-93 plan to reclaim a total of 300,000 hectares of tidal land. The largest land reclamation scheme, the West Sea Barrage, involves an eight-kilometer-long sea wall across the Taedong River, and was completed in June 1986. The multipurpose project, five years in construction at a reported cost of US$4 billion, consists of a main dam, three locks, and thirty-six sluices, and reportedly was the longest dam in the world as of 1992.

Production and Distribution of Crops and Livestock

The total cropland of about 2.2 million hectares is overwhelmingly planted with grains, of which rice accounted for 30.1 percent in 1989-90. Official data on cropland distribution and agricultural production are scanty, and there are discrepancies in the methods of calculating the weight of rice (husked or unhusked). North Korea claims to have produced 10 million tons of grains in 1984. The grain output in 1989 was estimated at 12.04 million tons by the Food and Agriculture Organization (FAO) of the United Nations. In 1989 the output of the two most important crops, rice and corn, was estimated at 6.4 million tons and 3 million tons, respectively. The output of potatoes was 2.05 million tons in 1989. Other important crops are wheat, barley, millet, sorghum, oats, and rye. Corn grows in most areas, except for parts of Yanggang and North Hamgyng provinces. Barley and wheat are cultivated mostly in both Hwanghae provinces and in South P'yngan Province. Rice is exported, but other grains, such as wheat, are imported. P'yongyang's goal is to increase the grain output to 15 million tons by 1993.

Major rice production centers are located in the provinces of North and South Hwanghae and in the provinces of North and South P'yngan. North Korea's climate precludes double-cropping of rice in most areas, and different methods had to be devised to increase productivity. One method is to use cold-bed seeding, a process that enables farmers to begin rice growing before the regular season by planting seedlings in protected, dry beds.

Fruits, vegetables, and livestock also are important, particularly around cities and in upland areas unsuited to grain cultivation. Fruit orchards are concentrated in both Hamgyng provinces, South P'yngan Province, and South Hwanghae Province. Soybeans, whose output was around 450,000 tons toward the end of the 1980s, are raised in many parts of the country, but primarily in South P'yngan Province.

The post-Korean War trend of increasing the share of livestock in the total value of agricultural output continued during the 1980s, judging from the steady growth, which outpaced grain production. Cattle are raised in the mountainous parts of the two P'yngan provinces, and sheep and goats are kept in the rugged areas of the two Hamgyng provinces and in Yanggang and Kangwn provinces. Pigs and poultry, probably the most important types of livestock, are raised near P'yongyang and in North P'yngan and South Hwanghae provinces. The government is particularly proud of its large chicken farms.

According to a 1988 agreement with the UNDP, North Korea was to receive livestock aid from the UNDP, along with assistance in modernizing vegetable farms, fruit production and storage, rice cultivation, and construction of a fish farm and soil and plant experimental stations. A rice nursery and a vegetable research institute began operation in March 1991. The Third Seven-Year Plan called for attaining an annual output of 1.7 million tons of meat, 7 billion eggs, and 2 million tons of fruit by 1993.

In the early 1990s, there were persistent reports of severe food shortages as a result of several years of consecutive crop failures, coupled with distribution problems that had serious consequences for food rationing. An indirect admission of food shortages came in Kim Il Sung's 1992 New Year's address, in which he defined 1992 as the "year of put-greater-efforts-into- agriculture" in order to provide the population with sufficient food.

Organization and Management

Efforts to increase agricultural production include a variety of experiments with land tenure, farm organization, and managerial techniques. Following a typical communist pattern, land initially was redistributed to tillers in a sweeping land reform in 1946 soon after the communists took over the country. By 1958 private farming, which ironically was given a boost by land reform, was completely collectivized.

The Land Reform Act of March 1946 had, in the remarkably short period of one month, abolished tenancy and confiscated and redistributed more than 1 million hectares of land. The government reallocated most of the land formerly owned by the Japanese colonists and all properties exceeding five hectares to individual farming households. The number of peasant holdings increased dramatically, but the average size of individual holdings dropped from 2.4 hectares to 1.4 hectares. It was difficult to determine the effect of such massive land distribution on production because the Korean War interrupted farming in the early 1950s. The reform, however, was quickly replaced by a drive for collectivization.

During the 1954-58 transition period, farm holdings went through three progressively collective phases: "permanent mutualaid teams," "semisocialist cooperatives," and "complete socialist cooperatives." In the final stage, all land and farm implements are owned collectively by the members of each cooperative. The pace of collectivization quickened during 1956, and by the end of that year about 80 percent of all farmland was cooperatively owned. By the time this process was completed in August 1958, more than 13,300 cooperatives with an average of eighty households and 130 hectares of land dotted the countryside. Only two months later, however, the government increased the size of the average cooperative to 300 households managing 500 hectares of land through consolidation of all farms in each ri, or ni (village, the lowest administrative unit) into one. As a result, the number of cooperatives decreased but their average size increased. Judging from the timing of the consolidation of farms, this sudden decision to increase the size of the cooperatives appears to have been influenced by the introduction of communes in China. Newly consolidated farms established and operated such nonagricultural institutions as clinics, rest homes, day nurseries, schools, and community dining halls.

Each cooperative farm elects a management committee to oversee all aspects of farm activity, including retail services and marketing, and the local party committee closely supervises its management. The party committee chairman usually is the vice chairman of the management committee. Within the management committee, an auditing unit wields the most power and controls the management of farm accounts, work points, cooperative shops, and credit facilities. Auditors report to the plenary session of the management committee as well as to county authorities.

The basic unit of production and accounting on the cooperative farm is the work team, which is further divided into subteams. Most cooperatives have several agricultural work teams and at least one animal husbandry work team. In some cooperatives, work teams or subteams specialize in vegetable farming, sericulture, fruit cultivation, aquaculture, or other activities. Work is allocated to teams and subteams according to physical ability. Most able-bodied men and women are assigned to rice growing units, which require the most effort. Wages are distributed in both cash and kind.

State farms are considered the more ideologically "advanced" agricultural organizations. Both the means of production and output are state owned, and farmers receive standardized wages on the basis of an eight-hour workday rather than shares of production. Managers of state farms, appointed by the state farm bureau of the national-level Agricultural Committee, run the farms as if they were industrial enterprises. State farms often are coterminous with a county and are model farms that experiment with new cropping methods or specialize in livestock or fruit production. Their larger scale allows for greater mechanization, and their output per worker is undoubtedly higher because their operations are more efficient than those of the rural cooperative farms. State farms attempt to integrate all county agricultural and industrial activities into one complementary and integrated management system. Utilizing about 10 percent of the country's total cropland, they contribute about 20 percent of total agricultural output. Kim Il Sung often stresses the need for transforming agriculture from cooperative ownership to "allpeople 's" or state ownership, but as of 1993 no action had been taken to change cooperative farms to state farms.

Dissatisfied with low levels of agricultural production, the government developed a new administrative structure to perform for the rural cooperatives what the management of state farms is supposed to have accomplished. The county Cooperative Farm Management Committee, established in 1962, took over all the economic functions of the county people's committees. The new committee was to bring agricultural management closer to the ideal "industrial method," by "the strengthening of technical guidance of production and the planification and systematization of all management activities of the enterprise."

The composition of the management committee varies from county to county, but the staff usually consists of agronomists, technicians, directors of county agricultural agencies, and, where appropriate, forestry and fishery agents. The function of the committee is to set production targets for the cooperatives within its jurisdiction, allocate resources and materials necessary to achieve these goals, and monitor the payment of wage shares and the collection of receipts. County managers report to their counterparts at the provincial-level Rural Management Committee, who in turn direct all their reports to the General Bureau for Cooperative Farm Guidance at the national-level Agricultural Committee.

In spite of lagging agricultural output, there have been no significant changes in the agricultural organization and management system in place since the early 1960s. Furthermore, as exemplified by Kim Il Sung's exhortation to strengthen the application of the Ch'ongsan-ni Method of farming, no fundamental changes in the agricultural incentive system have been introduced. The strategy for achieving greater agricultural production continues to emphasize "industrialization" of agriculture through increased irrigation, fertilizer use, and mechanization while maintaining the existing administrative, management, and incentive systems.

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North Korea

North Korea - Forestry

North Korea's forests have a variety of trees and other plant life. Predominant trees include larch, poplar, oak, alder, pine, spruce, and fir. In the early 1990s, approximately 80 percent of the total area of the country, or 9.4 million hectares, was made up of forests and woodlands; over 70 percent of these reserves were in the mountainous Hamgyng provinces, and in Yanggang and Chagang provinces. Much of this area was severely damaged by overcutting during the last years of Japanese colonial rule and by the effects of the Korean War. The government has promoted afforestation projects to make up for these losses, and during the First Seven-Year Plan an estimated 914,000 hectares were planted, with an average of 2,900 trees per hectare. In the early 1970s, however, the rate of afforestation dropped to about 10,000 hectares per year.

Timber production was estimated at 600,000 cubic meters in 1977, basically unchanged since the late 1960s. In 1987, however, timber production was estimated at 3 million cubic meters. The amount of fuelwood available for rural households increased by 11 percent from 1970 to 1977, when approximately 4.6 million cubic meters were used for heating.

The Ministry of Forestry was established in 1980 to oversee the development of the forestry industry. The ministry sent agents to the county level to manage the rotation of harvest and replanting. Since the 1980s, almost no official quantitative information on forestry has been forthcoming. The government failed to mention the performance of the forestry sector in its report on the fulfillment of the Second Seven-Year Plan, and the Third Seven-Year Plan does not even contain any reference to forestry.

North Korea

North Korea - Fisheries

North Korea's coastline of about 2,495 kilometers, mixture of warm and cold ocean currents, and many rivers, lakes, and streams make its potential for fishery development better than for most other countries. Not until the early 1960s, however, did the domestic fishing industry begin to expand rapidly, receiving increased investment in vessels, equipment, and port facilities. Total marine products increased from 465,000 tons in 1960 to 1.14 million tons in 1970, registering an annual growth rate of 9.4 percent compared with the planned rate of 14.5 percent. The SixYear Plan target of 1.6 million tons was met in 1976, as was the target of 3.5 million tons for the Second Seven-Year Plan in 1984. The output target for the Third Seven-Year Plan was 11 million tons by 1993, including a catch of 3 million tons of fish. With an estimated total output of 1.5 million tons in 1990, down from 1.6 million tons in 1989, it is highly unlikely that the 1993 target for marine products will be met.

The major fishing grounds are in the coastal areas of the Sea of Japan, or East Sea, to the east and the Yellow Sea to the west. Deep-sea fishing began in earnest in the 1970s. The principal catch from the Sea of Japan is pollack, a favorite fish of most Koreans; sardine and squid catches also are significant. From the west coast, yellow covina and hairtail are the most common varieties of fish. Deep-sea catches include herring, mackerel, pike, and yellowtail. The main fishery ports are Sinp'o, Kimch'aek and the nearby deep-sea fishery bases of Yanghwa and Hongwn. Most large-scale storage and canning facilities also are located on the east coast. Besides the fishery stations, smaller fishery cooperatives are located along both coasts in traditional fishing centers. Aquaculture and freshwater fishing take place on regular cooperative farms.

In order to expand marine products, the Third Seven-Year Plan calls for modernizing the fishery industry. Specifically, the plan urges increasing the numbers of 14,000-ton class processing ships, 3,750-ton class stern-trawlers, and 1,000-ton and 480-ton class fishing vessels, as well as generally increasing the size of vessels. The government also called for widespread introduction of modern fishing implements and rationalizing the fishery labor system. Improvements also are slated for expanding and modernizing the cold-storage and processing facilities in order to facilitate speedy processing of catches. The slow progress in state investment, combined with the shortages of oil, are the main factors in the disappointing record of marine output in the late 1980s and early 1990s.

North Korea

North Korea - ENERGY

An abundance of coal and water resources has allowed North Korea to build a well-developed electrical power network. North Korea's preeminence as an energy producer began during the Japanese occupation with the Sup'ung Hydroelectric Plant, located in the northwest; at the time the plant was the largest of its kind in Asia. North Korea supplied more than 90 percent of the electricity in the Korean Peninsula before partition.

Since the 1970s, the country has increasingly turned to coal as an energy source. Compared with hydroelectrical plants, coalbased thermal plants can be built at locations near industrial and population centers at lower initial costs, require shorter construction time, and are not subject to instability arising from periods of drought.

Thermal plants tend to be less efficient and have higher operating costs. North Korea's installed generating capacity was estimated at 7.14 million kilowatts in 1990, with 60 percent-- 4.29 million kilowatts--from hydropower and the remainder from thermal sources. With output estimated at 50 billion kilowatthours (Kwh) and 55 billion Kwh, in 1984 and 1988, respectively, the Second Seven-Year Plan target of 56 billion Kwh to 60 billion Kwh had not yet been fulfilled five years after the plan had ended. It is therefore unlikely that the 1993 target of 100 billion Kwh will be realized.

The only oil-fired thermal plant is at Unggi, near the Russian border. The 200-megawatt plant receives its fuel oil from the nearby Unggi refinery, which uses crude petroleum imported from Russia.

In the early 1990s, many power plants were under construction, including the T'aech'n power station, in the northwest, reportedly to be the largest hydroelectric plant in North Korea when completed. Other large-scale projects include the Kmgang-san, Hch'n, Nam-gang, Kmyagang, and Orang-ch'on plants. In addition, thermal power plants such as the East P'yongyang Power Plant and the Hamh ng Power Plant were under construction in the early 1990s. Four large hydroelectric plants- -some built with Chinese aid--are situated along the Yalu River; they supply power jointly to both countries.

In 1986 the Soviet Union announced that it was building a 1,760-megawatt nuclear power plant in North Korea. According to South Korean sources, the construction of the plant began in 1990 in the Sinp'o District. Completion of the plant, originally targeted for 1992, is in doubt because of pressure exerted by the International Atomic Energy Agency (IAEA) and termination of assistance from the former Soviet Union, which is burdened with its own economic difficulties. Wood-burning is still significant for domestic heating and related purposes.

There are no domestic oil reserves. The capacity of North Korea's two oil refineries totals 4.5 million tons a year. Oil is imported from China and the Soviet Union by pipeline, and from Iran by sea. Because both Russia and China have insisted on hard currency payments at international prices for oil since 1991, Iran is becoming the major oil source under a 1989 agreement to supply 40,000 barrels of oil per day.

North Korea

North Korea - FOREIGN ECONOMIC RELATIONS

Foreign economic relations have been shaped largely by chuch'e ideology and the development strategy of building a virtually autarkic economy. These factors have led to an inward-looking and import-substituting trade policy, which has resulted in a small scale of foreign trade and a chronic trade deficit. North Korea's main trade partners have been communist countries, principally the Soviet Union and China, and Japan has been a major trading partner since the 1960s.

Although still adhering to the basic principle of selfreliance , P'yongyang is flexible in its application whenever the economic need arises. After the Korean War, North Korea received a substantial amount of economic aid from communist countries for reconstructing its war-torn economy. In the early 1970s, the country accepted a massive infusion of advanced machinery and equipment from Western Europe and Japan in an effort to modernize its economy and to catch up with South Korea. By the late 1980s, P'yongyang had moved towards making exporting a priority in order to garner foreign exchange so as to be able to import advanced technologies needed for industrial growth and to pay for oil imports.

The most recent and important manifestation of a flexible and practical application of self-reliance--prompted by severe economic difficulties--is the gradual move toward an open-door policy. This policy shift, which involves North Korea's attitudes toward foreign trade, tourism, direct foreign investment, joint ventures, and economic cooperation with South Korea, has the potential to significantly change the country's foreign economic relations.

The importance of trading with Western developed countries was expounded by Kim Il Sung as early as 1975. The origin of the open-door policy, however, was Kim Il Sung's 1979 New Year's address, in which he mentioned the need to expand foreign trade rapidly in order to meet the requirements of an expanding economy. Kim publicly alluded to some serious problems impeding North Korean exports, exhorting the population to adhere to a reliability-first principle: improving product quality, strictly meeting delivery dates, and expanding harbor facilities and the number of cargo vessels. In his 1980 New Year's address, Kim repeated this theme and announced that foreign trade had increased 30 percent in 1979 over 1978. This speech marked the first time in a decade that trade statistics had been made public--even in this limited and relative form. Unexpectedly and uncharacteristically, North Korea joined the UNDP in 1979 and accepted US$8.85 million in technical assistance. This action was further evidence of a small opening to outside economic involvement.

The year 1984 was the benchmark in officially launching the open-door policy. The Supreme People's Assembly's policy statement, entitled "For Strengthening South-South Cooperation and External Economic Work and Further Developing Foreign Trade," stressed the need to expand economic relations with the developing world as well as to promote economic and technical cooperation with advanced industrial countries. The document also repeated the export bottlenecks listed by Kim in his 1979 and 1980 New Year's addresses. North Korea indicated its readiness to accept direct foreign investment by enacting a joint venture law in 1984. And, since 1986, the country has begun to encourage tourism by accepting some tour groups from the West.

The most far-reaching change in foreign economic relations occurred in 1988 when North Korea began to trade with South Korea. Inter-Korean trade has grown rapidly, and by 1993 the two Koreas expanded into joint ventures and other forms of economic cooperation. North Korea's readiness to open its economy to the West and to South Korea is, no doubt, prompted by its need to import sophisticated Western industrial equipment, plants, and up-to-date technologies in order to modernize and jump-start the economy, and to catch up with South Korea. Given its sizable foreign debt, sagging exports, and the dissolution of the Soviet Union, its largest trade partner, North Korea does not have much choice and recognizes the need to revise its trade laws so as to encourage foreign investment.

<> Economic Assistance

North Korea

North Korea - Economic Assistance

Economic assistance from communist countries plays an important role in securing resources for economic development. Estimates vary, but it is likely that the equivalent of US$4.75 billion of aid was accepted between 1946 and 1984. Almost 46 percent of the assistance came from the Soviet Union, followed by China with about 18 percent, and the rest from East European communist countries. Most of the assistance--about two-thirds--was in the form of loans; the rest were outright grants. Understandably, grants dominated in the years immediately after the Korean War, but subsequently loans became the predominant form of aid. Whereas in 1954 aid receipts made up one-third of national revenues, by 1960 foreign assistance had dropped to less than 3 percent of total revenues. Officially, declining foreign aid in the 1960s was blamed for being partly responsible for poor economic performance during the First Seven-Year Plan. In the 1970s, loans (for importing Western machinery and plants) from Japan and Western Europe were larger than those from communist countries. Grants, terminated since the 1960s, were restored when China gave approximately US$300 million between 1978 and 1984. In November 1990, China reportedly promised North Korea economic aid amounting to US$150 million over five years, largely made up of deliveries of grain and oil. North Korea receives no multilateral economic assistance other than from the UNDP.

Between 1949 and 1990, the Soviet Union helped North Korea build or rehabilitate 170 large plants in sectors such as power, mining, ferrous and non-ferrous metals, chemicals, construction materials, oil-refining, machinery, textiles, food, transportation, and communications. During the same period, these plants reportedly produced about 60 percent of all electric power, 40 percent of steel and rolled steel, 50 percent of oil products, 10 percent of coke, 13 percent of fertilizers, 19 percent of fabrics, and 40 percent of iron ore. Soviet assistance also was important in the construction of expanded port facilities at Najin. In addition, a total of 6,000 Soviet engineers and experts were sent to North Korea to train 20,000 Korean workers and 2,000 North Koreans received technical training in the Soviet Union.

Beginning in the late 1970s, Soviet assistance began to take the form of output-sharing ventures. Enterprises under these ventures include an enamel wire plant, a small electric motor plant, a car battery plant, a cold rolled steel shop, and a hot rolled steel shop at the Kimch'aek Integrated Iron and Steel Works. Under a buy-back arrangement, Soviet assistance for constructing industrial projects was paid for with commodities produced at the plants.

There were reports in 1978 that approximately 10,000 Chinese laborers were working on construction projects. Chinese workers had assisted in the construction of the Sup'ung and Unbong hydroelectric power stations, from which China also drew electricity.

In spite of its domestic economic difficulties, North Korea also is an aid donor on a fairly modest scale. Between 1980 and 1989, North Korea provided a total of approximately US$26.4 million in aid to Third World countries, of which almost 74 percent went to African countries in the form of technical agricultural assistance.

North Korea