Editing Economy of North Korea (section)

===Early efforts at modernization===
[[File:North Korea — Pyongyang (1027715688).jpg|thumb|Exhibition of North Korean industrial goods]]
In 1961, an ambitious seven-year plan was launched to continue industrial expansion and increase living standards, but within three years it became clear this was failing and the plan period was extended to 1970. The failure was due to reduced support from the Soviet Union when North Korea aligned more with China, and military pressure from the U.S. leading to increased defense spending. In 1965, South Korea's rate of economic growth first exceeded North Korea's in most industrial areas, though South Korea's per capita GNP remained lower than North Korea's.<ref name=foia-19670921>{{cite web |page=4 |url=https://www.cia.gov/library/readingroom/docs/DOC_0001218147.pdf |title=North Korean Intentions and Capabilities With Respect to South Korea |id=SNIE 14.2–67 |publisher=[[CIA]] |date=September 21, 1967 |archive-url=https://web.archive.org/web/20170314063349/https://www.cia.gov/library/readingroom/docs/DOC_0001218147.pdf |archive-date=March 14, 2017}}</ref>

In 1979, North Korea renegotiated much of its international debt, but in 1980 it [[Default (finance)|defaulted]] on its loans except those from Japan. By the end of 1986, [[hard currency|hard-currency]] debt had reached more than US$1 billion. It also owed nearly $2 billion to communist creditors, principally the Soviet Union. The Japanese declared North Korea in default. By 2000, taking into account penalties and accrued interest, North Korea's debt was estimated at $10–12 billion.<ref>{{cite web |url=http://www.iacenter.org/Koreafiles/korea_accomp.htm |title=What Korea has accomplished |last=Scahill |first=Tom |date=March 6, 2003 |publisher=[[International Action Center]] |url-status=dead |archive-url=https://web.archive.org/web/20130208182003/http://www.iacenter.org/Koreafiles/korea_accomp.htm |archive-date=February 8, 2013 |access-date=December 29, 2009 }}</ref> By 2012, North Korea's external debt had grown to an estimated US$20 billion despite Russia reportedly writing off about $8 billion of debt in exchange for participation in natural resources development. Besides Russia, major creditors included [[Hungary]], the [[Czech Republic]] and [[Iran]].<ref name="english.chosun.com">{{cite web |url=http://english.chosun.com/site/data/html_dir/2012/01/19/2012011900864.html |title=N.Korea Struggling Under Mountains of Foreign Debt |publisher=[[The Chosun Ilbo]] |date=January 19, 2012 |access-date=March 31, 2012 |url-status=dead |archive-url=https://web.archive.org/web/20120221205528/http://english.chosun.com/site/data/html_dir/2012/01/19/2012011900864.html |archive-date=February 21, 2012 }}</ref>

Largely because of these debt problems and because of a prolonged drought and mismanagement, North Korea's industrial growth slowed, and per capita [[gross national product|GNP]] fell below that of the South. By the end of 1979 per capita GNP in North Korea was about one-third of that in the South.<ref name="traveldocs1">{{cite web |url=http://www.traveldocs.com/kp/economy.htm |title=North Korea Economy |publisher=Traveldocs.com |access-date=December 20, 2011 |url-status=dead |archive-url=https://web.archive.org/web/20111205121922/http://www.traveldocs.com/kp/economy.htm |archive-date=December 5, 2011 }}</ref>

There were 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 ({{lang|ko|독립채산제}}, ''tongnip ch'aesanje'') of enterprises in March 1984, interest in enterprise management and the independent accounting system increased, as evidenced by increasing coverage of the topic in North Korean journals.<ref name="traveldocs1"/> Under the system, factory managers still are assigned output targets but are given more discretion in decisions about labour, equipment, materials, and funds.<ref name="Savada1994"/>

In addition to fixed capital, each enterprise is allocated a minimum of [[working capital]] from the state through the [[Central Bank of the Democratic People's Republic of Korea|Central Bank]] and is required to meet operating expenses with the proceeds from sales of its output. Up to 50% 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.<ref>{{cite web |url=http://www.nkeconwatch.com/ |title=North Korean Economy Watch |publisher=Nkeconwatch.com |date=December 13, 2011 |access-date=December 20, 2011 |url-status=dead |archive-url=https://web.archive.org/web/20111206221010/http://www.nkeconwatch.com/ |archive-date=December 6, 2011 }}</ref> As such, the system provides some built-in incentives and a degree of micro-level autonomy, unlike the budget allocation system, under which any surplus is turned over to the government in its entirety.<ref name="Savada1994"/>

Another innovation, the August Third People's Consumer Goods Production Movement, is centred 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 [[Pyongyang]] 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 were 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|lc=no}}, however, no move was reported to expand the size of private garden plots.<ref name="Savada1994"/>

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 signalling a fundamental deviation from the existing system had occurred. The reluctance to initiate reform appears to be largely political. 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.<ref name="Savada1994"/>

Beginning in the mid-1980s and particularly around the end of the decade, North Korea slowly began to modify its rigid self-reliant policy. The changes, popularly identified as the open-door 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.

The main targets of the Third Seven-Year Plan of 1987–1993 were to achieve the "Ten Long-Range Major Goals of the 1980s for the Construction of the Socialist Economy". These goals, conceived in 1980, were to be fulfilled by the end of the decade. The fact that these targets were 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% annually, lower than the previous plan. Although achieving the ten major goals of the 1980s was 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 was reduced by a third: from 15 million tons to 10 million tons. 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.<ref name="Savada1994"/>

The Third Seven-Year Plan gave a great deal of attention to developing foreign trade and joint ventures, the first time a plan has addressed these issues. The diversion of resources to build highways, theatres, hotels, airports, and other facilities to host the [[13th World Festival of Youth and Students|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.<ref name="Savada1994"/>

====State Planning Commission====
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" ({{lang|ko|일원화}}, ''ilwŏnhwa'') and of "detailed planning" ({{lang|ko|새분화}}, ''saebunhwa'').<ref name="Savada1994"/>

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).<ref name="Savada1994"/>

The planning committees, under the auspices of the State Planning Committee, coordinate their work with the planning offices of the economy-related government organizations the corresponding regional and local areas. The system attempts to enable the regional planning staff to better coordinate with economic establishments in their areas, which are directly responsible to them in planning, as well as communicating directly with staff at the CPC. "Detailed planning" seeks to construct plans with precision and scientific methods based on concrete assessment of the resources, labour, funds, plant capacities, and other necessary information.<ref name="Savada1994"/>

[[File:Nkorea-economic-planning-2.svg|thumb|upright=2|Simplified diagram showing the process of economic policy planning.]]

There are four stages in drafting the final national economic plan.<ref name="Savada1994"/>
* The first is collecting and compiling preliminary statistical data. These figures, which are used as the basic planning data on the productive capacities of 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, 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.<ref name="Savada1994"/>
* 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.<ref name="Savada1994"/>
* 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.<ref name="Savada1994"/>
* 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 and regional and local planning committees.<ref name="Savada1994"/>

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.<ref name="Savada1994"/>

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 time into daily, weekly, ten-day, monthly, quarterly, and annual periods. In general, the monthly plan is the basic factory planning period.<ref name="Savada1994"/>

The success of an economic plan depends on the quality and detail of information received, the establishment of realistic targets, coordination among 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 over reporting—an inherent tendency in an 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 use of plants, equipment, and raw materials 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.<ref name="Savada1994"/>

In the mid-1990s, North Korea abandoned firm directive planning, and multi-year plans became more of a long-term economic strategy.<ref name="38north-20160726"/><ref name=38north-20200821>{{cite news |url=https://www.38north.org/2020/08/nkpartymeetings082120/ |title=Highlights of North Korea's Latest Party Meetings: Setting a New Agenda |publisher=The Henry L. Stimson Center |work=[[38 North]] |date=August 21, 2020 |access-date=August 25, 2020 |quote=For the past five years, the North has not been operating under a five-year "plan," per se, but rather according to what was termed an economic "strategy." |archive-date=August 26, 2020 |archive-url=https://web.archive.org/web/20200826054932/https://www.38north.org/2020/08/nkpartymeetings082120/ |url-status=live }}</ref>

====Ch'ŏngsan-ni Method====
The ''[[Ch'ŏngsan-ni Method]]'' ({{lang|ko|청산리방법}}) of management was born out of Kim Il Sung's February 1960 visit to the Ch'ŏngsan-ni Cooperative Farm in [[South Pyongan|South P'yŏngan]] Province. Influenced by [[Mao Zedong]]'s Great Leap Forward Policy, Kim and other members of the KWP Central Committee offered "[[on-the-spot guidance]]" ({{lang|ko|현지지도}}, ''hyŏnji chido'') and spent two months instructing and interacting with the workers. The avowed objective of this new method is to combat "[[Bureaucracy|bureaucratism]]" and "formalism" in the farm management system.<ref name="Savada1994"/>

The leadership claimed that farm workers were unhappy and produced low output because low-ranking functionaries of the [[Workers' Party of Korea]] (who expounded abstract [[Marxism|Marxist]] theories and slogans) were using 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'ŏngsan-ni Method called for high-ranking party officials, party cadres, and administrative officials to emulate [[Kim Il Sung]] by making field inspections. The system provided opportunities for farmers to present their grievances and ideas to leading cadres and managers.<ref name="Savada1994"/>

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'ŏngsan-ni Method appeared to accommodate almost any expedient to spur production. The method, 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, continued in the early 1990s, as exemplified by Kim Il Sung's visits to such places as the Wangjaesan Cooperative Farm in [[Onsong|Onsŏng County]] and the Kyŏngsŏn Branch Experimental Farm of the Academy of Agricultural Sciences between August 20 and 30, 1991.<ref name="Savada1994"/> Kim Jong Il carried on the tradition, despite having refused to do so before, and even expanded it to the Korean People's Army. Today, Kim Jong Un continues the practices of the method.

====Taean work system====
The [[Industrial organization|industrial management system]] developed in three distinct stages. The first 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 "one-man management system" ({{lang|ko|지배인 단독 책임제}}), with management patterned along Soviet lines as large enterprises were nationalized and came under central control. The third stage, the ''Taean'' Work System ({{lang|ko|대안의 사업체계}}, ''Taeanŭi saŏpch'e''), 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'ŏngsan-ni'' Method.<ref name="Savada1994"/>{{rp|123–127}}

The highest managerial authority under the Taean system is the party committee. Each committee has approximately 25 to 35 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-quarter 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 co-operation among workers, technicians, and party functionaries at the factory level.<ref name="Savada1994"/>{{rp|123–127}}

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.<ref name="Savada1994"/>{{rp|123–127}}

Deputies are assigned workers to their units and handle 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.<ref name="Savada1994"/>{{rp|123–127}}

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.<ref name="Savada1994"/>{{rp|123–127}}

The Taean system heralded a more rational approach to industrial management than that practised previously. Although party functionaries and workers became more important to management under the new system, engineers and technical staff 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.<ref name="Savada1994"/>{{rp|123–127}}

A measure of the success of the Taean work system is its longevity and its continued endorsement by the leadership.<ref name="Savada1994"/>{{rp|123–127}} In his 1991 New Year's address marking the 13th anniversary of the creation of the system, Kim Il Sung said that the
<blockquote>
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.<ref name="Savada1994"/>{{rp|123–127}}</blockquote>

====Mass production campaigns====
Parallel to management techniques such as the Ch'ŏngsan-ni Method and the Taean work system, which were designed to increase output in 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 [[Chollima Movement|Ch'ŏllima Movement]]. Introduced in 1958 and fashioned after China's [[Great Leap Forward]] (1958–1960), the Ch'ŏllima Movement organized the labour force into work teams and brigades to compete at increasing production. The campaign was aimed at industrial and agricultural workers and at organizations in education, science, sanitation and health, and culture.<ref name="Savada1994"/>{{rp|123–127}}

In addition to work teams, units eligible for Ch'ŏllima citations included entire factories, factory workshops, and such self-contained units as a ship or a railroad station. The "[[socialist emulation]]" among the industrial sectors, enterprises, farms, and work teams under the Ch'ŏllima Movement frantically sought to complete the [[First Five-Year Plan (North Korea)|First Five-Year Plan]] (1957–1960) but instead created chaotic disruptions in the economy. This made it necessary to set aside 1959 as a "buffer year" to restore balance in the economy.<ref name="Savada1994"/>{{rp|123–127}}

Although the Ch'ŏllima Movement was replaced in the early 1960s by the Ch'ŏngsan-ni Method and the Taean Work System, the regime's reliance on mass campaigns continued into the early 1990s. Campaigns conducted after the Ch'ŏllima to speed battles toward the end of a period (such as a month, a year, or an economic plan) to reach production targets to carry out the economic goals of the decade.<ref name="Savada1994"/>{{rp|123–127}}