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In every capitalistic society, companies produce and sell goods with the purpose of making a profit. They comprise a unit of the production economy and are an important axis of a nation’s economy. In North Korea, that role is assumed by a gieopso(기업소), which is roughly translated as “enterprise.” On today’s edition of “Inside North Korea” we’ll learn more about North Korea’s enterprises from Hyun In-ae, a visiting professor at the Department of North Korean Studies at Ewha Womans University. Hyun is a North Korean defector who graduated from the North’s prestigious Kim Il-sung University and taught at Chongjin Medical University. 

Enterprises in North Korea are similar to companies or factories in other countries. More specifically, they are equivalent to state-run firms as they are run entirely by the government. While the head of a company is called the president in the South, the chief of an enterprise in North Korea is called the manager. 

An enterprise in North Korea refers to a large economic unit for production. The State Planning Commission, a key central agency, issues production plans to enterprises, and economic guidance committees in each province direct the enterprises in their regions to execute the plans in a proper way. Each enterprise has a manager as its head, a chief engineer in charge of technical guidance and workers assigned to different sections. So why are the enterprises in North Korea under state control?

North Korea is a country controlled by the party. The party in the socialist state is given ultimate power to operate the enterprises. In general, a president or CEO is at the top of a company. In the North, however, enterprise managers follow the instructions of the party committee which is led by a party secretary. This unique industrial management is called the Daean(대안) Work System. The party committee in charge of mobilizing laborers, office workers and engineers has full power and the authority to manage the enterprises. 

After Korea’s liberation from Japanese colonial rule in 1945, enterprises or factories in North Korea were basically owned by laborers, who organized their own autonomous committees to manage the firms. But this system prompted managers, who had the final say, to reign over the laborers. In 1961, this problem of the “one-man management system” was highlighted by then-North Korean leader Kim Il-sung when he visited the Daean Electrical Appliance Plant. After his visit, the party committee was given the authority and responsibility to operate enterprises. Under this “Daean Work System,” the power of managers at all enterprises was reduced and collective responsibility was introduced instead. Industrial management has since been discussed and decided collectively in North Korea. 

In recent years, however, there has been a change in the nation’s economic policies. 

In the centrally-planned economy, North Korean enterprises were completely run by the state. But various problems arose in the process. Production decreased, as the firms or factories were not given autonomy. While the economies of other countries developed rapidly, the North Korean economy made little progress. North Korean authorities wondered what was wrong with its economic system. They found that socialist economies in other parts of the world also had serious flaws and that an answer could be found in a market economy. 

Even so, it was not right for North Korea to fully introduce a market economy because of its political system. As a compromise, the nation came up with a new scheme called the “socialist responsible management system of enterprises” that embraced some elements of capitalism. 

In 2014, North Korean leader Kim Jong-un suggested that his nation establish an economic management system in its own style. The key to the new plan was stronger autonomy and material incentives. 

As part of agricultural reform, the nation introduced the “field management system,” in which farmers are allowed to keep any surplus left after meeting the state’s quota. The purpose of the system, of course, was to promote more autonomy for farmers and increase agricultural output. 

Meanwhile, state-run companies or factories were given the authority to decide on their amounts of production as well as prices and wages. They were even allowed to sell surplus products at markets. An enterprise producing food, for example, can procure raw materials on its own and produce cookies, candies or bread before selling them at market prices and not at prices set by the state. 

These measures were aimed at boosting the economy through reform and openness while maintaining the socialist political system. However, they have failed to generate the intended effect. 

In reality, the “socialist responsible management system of enterprises” hasn’t worked well because it only adopted a small part of capitalism. Actually, North Korea was not bold enough to recognize private ownership. To make matters worse, international sanctions against the North made it even more difficult for the nation to draw investment. Without money, what’s the use of a great management system? 

During the initial period of the new management system, it is said that laborers at the Musan(무산) Mine and a textile factory in Pyongyang received 100-thousand won a month. Some enterprises that successfully attracted investment from China gave their employees as much as 400-thousand won in monthly wages. But workers at the Musan Mine received the same salary only for about a year, while many factories have grinded to a halt in recent years. 

It is still significant that North Korea officially approved market activities for enterprises through reform. In addition, unofficial or private markets known as janagmadang have expanded considerably since the new measures. According to the U.S.-Korea Institute at the Johns Hopkins School of Advanced International Studies, there were 200 jangmadangs in 2010 but that number more than doubled in 2017. Also, in the early and mid-2000s, North Korean enterprises were operating at around 10 percent capacity, but that figure rose to about 40 percent while workers’ incomes increased as well.  

However, as time went by, wage differences between enterprises widened and some companies even stopped operations due to stiffer international sanctions. As a result, newly wealthy businesspeople called donju lent money to state-run firms suffering from a lack of funds or operated their own private companies. 

North Korea stresses the importance of self-reliance, but Professor Hyun says that it will be hard for the nation to achieve that goal unless it fully introduces a market economy. 

North Korea is pursuing a self-sustaining economy, where a nation can produce everything needed for its people with its own resources and technology. But with the global economy now requiring a greater division of labor, it is almost impossible for a country to produce everything within its territory. 

I think it is necessary for North Korea to redefine the concept of a self-sustaining economy. In a self-supporting economy, its people can earn enough money to buy anything they want from overseas. The answer is clear. The North should adopt a market economy. Of course, it should not blindly imitate other countries. Rather, they must find economic measures to better reflect their situation and develop their economy through effective reform measures. I think this is how North Korea can truly achieve economic independence. 

North Korea will hopefully be able to pave the way for economic development, with its enterprises comprising the central axis of its economy, when it improves relations with neighboring countries through denuclearization. 

(Next week, we’ll take a glimpse at the daily lives of Pyongyang’s citizens.)