Following the formal coronation of the Kim Jong Eun in early 2012, a boomlet of optimism followed some purported statements on reform: the so-called June 28 directive (“On the Establishment of a New Economic Management System in our Own Way”) and a speech entitled ““Let Us Effect Kim Jong Il’s Patriotism and Step Up the Building of a Prosperous Country”; our initial reviews of these developments can be found here and here. Of particular interest were a set of incremental agricultural reforms, purportedly undertaken on an experimental basis; Marc Noland reviewed them here. Then the September SPA meeting yielded nothing more than the announcement of a small educational reform, and it was downhill from there: from the satellite launch in December through the new strategic line combining economic reconstruction and nuclear weapons, we have seen virtually nothing on the reforms.
A couple of weeks ago, however, Radio Free Asia ran a piece that contained some interesting details; unfortunately, most confirm the difficulty the regime has getting incentives right. The story claims that the reforms are now being carried out in South Hamgyung province. The piece also makes reference to two reforms that are seen as central to the broader agricultural reform effort:
- Authorities have “divided up the traditional collective farms and allocated fields to smaller groups.” The objective is to increase incentives to effort by bringing work teams down to the size of an extended family.
- Under the reforms, “farm workers may keep up to 30 percent of their unit’s produce and are allowed to sell them at market prices.”
Unfortunately, however, the RFA report also suggests uncertainties that undermine these experiments. First the management structures of the cooperatives remain in place; these officials have long been a drag on the cooperatives and may or may not have incentives to comply with directives from on high.
Second, interviewed cooperative members report being uncertain about how the division of output would actually occur. Would the 30% be taken from the total output of the collective or total output minus the officials’ take, whatever that may be? Or would farmers be able to keep 30% of output from each work team’s land? The differences are not trivial and influence how farmers respond; the last of these options obviously provides the most high-powered incentives.
Finally—as is frequently the case with North Korean reforms—what is given with one hand is taken away with the other. Back in January, the DailyNK and IFES both reported on efforts to reduce the size of private plots—not to be confused with the work unit plots—in order to shift effort back into the cooperative framework. The new directive limited the individual usage of paddy fields (in the mountains) and vegetable gardens from 30 pyong (99 square meters) to 10 pyong (33 square meters), and required the excess to revert to the collective farms.
One of the best discussions of the incentive issues around the new reforms is offered by Randy Ireson in a succinct post at 38North. Ireson lists the measures that would have real effect as a kind of benchmark:
- Eliminate the dual price structure altogether; doing away with artificially low prices may seem inhumane to the urban consumer, but the PDS doesn’t deliver anyway and higher prices in the short-run will lower them in the long-run through increased supply.
- Allow farmers and middlemen to trade in grains.
- Set production quotas at the work team or even sub-work team level; as noted, this provides the most high-powered incentives.
- Allow sub-work teams to make their own management decisions: crop choice, fuel, fertilizer, labor and so on.
- Allow sub-work teams to procure additional inputs on the market; higher incomes do not only feed back into consumption, but also to investment.
Reforms in a country like North Korea are bound to be incremental. But if fundamental uncertainties remain about issues such as how cooperative output will be divided and whether households will have recourse to adequate private plots, then cultivators will not respond and the reforms will not have their intended effect.
On a related note, the National Committee on North Korea has posted up an interesting document that summarizes the content of all of the FAO/WFP food assessments, from the time of the famine through the present; we rely heavily on these documents for all of our work on agriculture. The early reports were skittish to make any mention of markets or incentive reforms; one assessment even praised the government’s ability to mobilize workers. The reports have since become more straightforward about the importance of procurement policy and individual incentives, but still must operate under the shadow of the basic cooperative framework.