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North Korea: Capitalism in a Mao Suit

The global system of capitalism takes various national forms, including the ‘state capitalism’ in North Korea that has been passed off as ‘socialism’.

North Korea presents an image to the world as a society existing in a sort of Stalinist time warp, embodied in the very appearance of its latest ‘supreme leader’, Kim Jong-un, who fills out his Mao suit with the same corpulence as his grandfather, Kim Il-sung, and even tops off the look by paying him a hairstyle homage.

The main development within the country that has gained the attention of the outside world is its nuclear weapons programme. But people’s everyday lives within the country are still shrouded in considerable mystery. A general lack of information about economic and social life in the DPRK (Democratic People’s Republic of Korea) makes it hard to know what is going on. And the government, which has not published a statistical yearbook since the early 1960s, is content with this situation.

Two important sources of information about the DPRK have been the approximately 30,000 North Korean refugees living in South Korea and the companies (mostly Chinese) doing business with North Korean firms. A book published this year, Unveiling the North Korean Economy by Kim Byung-yeon, draws on surveys from those two sources to uncover the state of the North Korean economy and ponder where it may be headed. The subtitle of the book, ‘Collapse and Transition’, refers to the period of extreme crisis the DPRK underwent after the end of the Soviet Union and to its current transition that the author views as a gradual shift from ‘socialism’ to capitalism. 

Capitalism by another name

Before looking at some of the findings of the book, it’s necessary to say a word about the author’s belief that the DPRK is a ‘socialist’ country. For Kim, the state ownership of the key means of production, combined with the existence of central planning, is sufficient for an economic system to merit the label ‘socialism’.

However, as numerous Socialist Standard articles have pointed out, the nationalisation of certain means of production is simply a change in the form of ownership, not the negation of property rights to bring social wealth under the common control of all members of society. Ownership remains under restricted control, in the hands of state bureaucrats and the heads of firms. And since the aim is ‘economic growth’ (capital accumulation), not the direct satisfaction of human needs, as democratically determined by the members of society themselves, any ‘planning’ carried out under this system is geared toward that end.

The history of the twentieth century should make clear that nationalisation of industry and the existence of planning do not threaten capitalism in the least. What capitalism could not exist without, rather, are such economic forms as money, profit, wage labour, and commodities—all of which are present in the DPRK. So we cannot help but conclude that the DPRK is capitalist, not ‘socialist’ as Kim claims, although we refer to it more specifically as ‘state capitalist’ because of the predominance of state ownership.

Kim describes socialism as a ‘grand-scale experiment of an economic alternative to capitalism’ based on ‘human design’, unlike capitalism’s basis in the ‘natural evolution of society’. More specifically, he fingers Karl Marx as the culprit, who apparently ‘designed and initiated implementation of the ideal of socialism’, although Kim doesn’t specify where Marx presented his plan or in what country he began to implement it.

The editors at Cambridge University Press also let Kim get away with stating, without any reference, that Marx (who was anything but a moralist) ‘believed that capitalism was the “root of all evil”’ and ‘wrote’ that ‘central planning as the coordination mechanism can be designed to maximise both economic growth and social fairness’.

If Kim had read enough Marx to at least get his quotes right he might have gained the basic understanding of capitalism needed to recognise its existence in the DPRK. Nevertheless, the facts on North Korea provided by the author confirm that fact.

A ‘plan-less’ planned economy

Even though the existence of ‘central planning’ is one of the reasons cited by Kim for defining the DPRK as ‘socialist,’ his book demonstrates that such planning has been limited and full of contradictions from the outset. 

Kim argues that even after the DPRK, under Soviet tutelage, nationalised large enterprises and collectivised agriculture in the early 1950s, the leaders ‘lacked the necessary requirements’ to establish a ‘fully working, centrally planned economy’ since they did not have reliable data on nationalised forms or the institutions and technocrats needed to direct the system. This situation grew even worse after the Soviet Union reduced its technical help and subsidies later in the 1950s due to worsening bilateral relations after Khrushchev’s criticism of Stalin (denounced by the DPRK and China as ‘revisionism’).

Kim notes that the weaknesses in the DPRK’s planning capacity forced its government to rely on the mass mobilisation of the population to meet certain production goals. One example was the ‘Chullima Movement’ from 1958 to 1961 that sought to speed up production, much like China’s ‘Great Leap Forward’. Such mass mobilisations have been more common in the DPRK than China, and the author views them as evidence that ‘the country is unable or unwilling to devise and implement coherent central planning’.

Adding to the confusion of planning is the existence alongside the central plans of the Juseok Fund and ‘on-the-spot guidance’. In the early 1970s, Kim Il-sung introduced the Juseok Fund to ‘ensure a sufficient supply of inputs for high-priority sectors’. The fund is administered by the top DPRK leadership and is used to ‘circumvent the bureaucracy associated with central planning’ and lessen its power. The fund is also related to the practice of ‘on-the-spot’ guidance, where the ‘supreme leader’ tours a production site and issues specific directives.

Kim points out how the arbitrary intervention by the supreme leader in the planning mechanism ‘actually disrupts the allocation of resources and production in accordance with the plans’ and is thus ‘incompatible with the centrally planned economy’. Firms prioritise the imperatives of the Juseok Fund and on-the-spot guidance over the central plans.

The author uses the odd expression of a ‘plan-less planned economy’ to describe this situation, which suggests that the anarchy of capitalist production also reigns in North Korea.

State-owned, profit-driven

Just as ‘central planning’, upon closer scrutiny, turns out to have been chaotic, so do we find that the DPRK’s state-owned firms are by no means monolithic or exempt from the profit motive.

The author notes the many distinctions among the nationalised firms, which are ‘classified into several categories (i.e. Special, 1st, 2nd, 3rd, etc.) in terms of their size and their importance in the national economy’. There is also a distinction between ‘national’ firms that are ‘directly controlled and supported by the central planning body, and the lower priority ‘regional’ firms that belong to regional governments.

In addition to the various categories of firms, there are other distinctions regarding the state institutions to which firms are connected. As the DPRK gradually decentralised its enterprise sector, firms became connected to one of four state institutions: the army, the Workers’ Party, the cabinet, and the regional governments. The largest share of the resources produced in North Korea’ are controlled by either the Party or the army, which have their own affiliated trading companies. This disintegration of the economy into those four institutional sectors, the author argues, means that ‘central planning has been virtually destroyed in North Korea’—confined only to a few areas.

The decentralisation of state-owned firms was accelerated in the early 1990s as a response to the severe economic crisis that followed the collapse of the Soviet Union. The author lists four key changes that emerged out of the crisis: (1) ‘Implicitly’ allowing trading in markets, (2) Opening the DPRK economy to the outside world and creating Special Economic Zones, (3) Decentralising the planning process to the level of firms and districts, (4) Allowing firms to have more autonomy for decision making.

Another aspect of decentralisation has been the liberalisation of foreign trade. Already in the late 1970s the DPRK began to permit certain large firms to engage in trade with foreign companies. A second wave of foreign trade decentralisation in the early 1990s allowed trading firms to ‘plan and execute foreign trade for themselves on the basis of their output capacity and economic conditions’. And the third wave of decentralisation, starting in 2002, made it possible for trading companies to directly sell imported good to consumers.

According to the author, ‘the decentralisation of foreign trade meant the de facto destruction of the central planning system’ because the autonomy to engage in foreign trade ‘implied that central planning could no longer control all the activities of these bodies’. Apart from the firms in the Special category, which ‘are given inputs in accordance with central planning’, all the other firms ‘must seek their own means of survival’.

Existing alongside that ‘official economy’, wherein nationalised firms are scrambling for profits, is an enormous ‘informal economy’. The author claims that North Koreans earn 62.7 percent of their ‘individual total income in the informal economy’ and obtain 59.7 percent of their food and 67.4 percent of their consumer goods through markets rather than the rationing system and official channels. Another remarkable characteristic of life in the DPRK is widespread bribery and corruption. The author writes that the ‘average spending on bribes in total household expenditures from 1996 to 2007 was 8.95 per cent, which translates into 6–7 per cent of GDP’.

In short, the closer one looks at the reality of state-owned firms, not to mention the huge informal economy, the clearer it becomes that profit is the driving force of production, as in every other capitalist country.

What was state capitalism?

The findings of Unveiling the North Korean Economy make it perfectly clear that the DPRK today is not ‘socialist’, probably even according to the author’s narrow view of that concept as centring on state ownership and central planning. But one still might wonder why industry was nationalised and agriculture collectivised in the first place. Why, in other words, was state capitalism (or what the author calls ‘socialism’) adopted as an economic model in many countries?

It’s no accident that most of those countries were only at the outset of capitalist development, with huge peasant populations and little heavy industry. In other words, they were in a position not unlike that of Japan or Germany in the mid-nineteenth century. And just as the state in those two countries drove industrialisation, so was it a driving force of capital accumulation in China and North Korea in the mid-twentieth century. 

The methods of the state-capitalist system were crude but effective in forging the material conditions and ‘human resources’ required by capitalism. But once state capitalism had swept aside the fetters to capitalist development and achieved rapid industrialisation, the system itself began to impede the ‘efficient’ (profitable) operation of individual capitalist firms.

In the Soviet Union, state capitalism was already reaching that impasse by the 1950s, as reflected in the economic reforms of Khrushchev. But the DPRK and China, still in the midst of their industrialisation, viewed the profitability of individual firms as less important than the pace of overall capital accumulation. Kim Jong-il and Mao Tse-tung denounced the Soviet leaders as ‘revisionists’ or ‘capitalist-roaders’ not merely to save their own skins as dictators but also because the contradictions of state capitalism had not yet become apparent in their countries.

Later, of course, the DPRK and China followed the same path as the Soviet Union, introducing similar economic reforms to give state-owned firms greater autonomy to pursue profit. Marx once wrote, in looking at the development of capitalism in his time, that ‘the country that is more developed industrially only shows, to the less developed, the image of its own future’. And this was the pattern in the twentieth century as well, with every state-capitalist country obliged to eventually implement Soviet-style reforms.

The DPRK leadership is walking the same tightrope, with even less room to manoeuvre because of its rigid political dictatorship. The ‘supreme leader’ and his cohorts recognise that providing too much autonomy to firms could undermine their own political legitimacy. And yet, in the end, even the dictator must follow the dictates of capital.