The North Korean economic reform refers to the program of reform and restructuring of the North Korean economy. Economic reforms have been increasing in the last years, particularly after Kim Jong Un came to power in 2012.[1] [2]
Economic reforms in North Korea has its roots to the 1970s, when North Korean government agencies, provincial governments and military units were unofficially granted permission to establish their own companies. Number of such companies have increased dramatically since the 2000s.
After the Korean War, Kim Il Sung focused on modernizing its economy through Soviet and Sino aid. His most notable economic reform, such as the one in 1992, was prompted by external and internal factors, including the collapse of the Soviet Union. The reform was designed to bolster the country's self-reliance and appeal to foreign investors, representing a cautious embrace of market-oriented policies. The amendment to the Constitution in 1992 included a provision of Article 37, which laid the ground for the "open-door" policy. Article 37 established that "[t]he State shall encourage institutions, enterprises or associations of the DPRK to establish and operate equity and contractual joint venture enterprises with corporations or individuals of foreign countries."[3]
In 1998, Kim Jong Il revised the Constitution to consolidate power and address economic difficulties. The revisions expanded ownership rights to include social organizations alongside the state and cooperatives, reducing state control and fostering a more conducive environment for private ownership. This shift allowed citizens to engage in legal and economic activities and earn income, marking a significant departure towards a rudimentary market economy. Furthermore, the protection of intellectual property rights was introduced, underscoring the government's recognition of the importance of innovation and creativity in economic development. Despite these reforms, North Korea remained committed to its socialist principles, particularly the pursuit of self-sufficiency. The collapse of the Soviet Union in the 1990s necessitated a loosening of central control, as resource shortages compelled the government to grant more autonomy to lower units and individuals. This decentralization of authority led to a weakening of bureaucratic coherence, the disintegration of party structures, and an increase in corruption among officials.[4]
Post-1998, the government shifted its focus towards ensuring political stability, restructuring governance, and promoting economic recovery. Policies were implemented to empower state entities and localities, acknowledging the altered power dynamics within the country. However, economic challenges persisted, prompting individuals and businesses to seek greater independence from state control. In the 21st century, under Kim Jong Un's regime, a new phase of economic reform was initiated by introducing the 'socialist enterprise responsibility management system.' This system aimed to enhance the efficiency of state-owned enterprises, particularly within the industrial sector, through measures such as granting autonomy in production planning, pricing, and revenue management. Additionally, enterprises were given greater flexibility in managing residual revenue and making investments, reflecting a partial embrace of market mechanisms.[5]
North Korea's economic growth under Kim Jong Un is estimated to be ranging from 1 percent to 5 percent.[6] North Korea expert Andrei Lankov has said that North Korea's real growth rate is 3–4%.[7]
Economic reforms in North Korea has been encouraged by China. While visiting Pyongyang in June 2019, Chinese paramount leader Xi Jinping said that Kim Jong Un had “initiated a new strategic line of economic development and improving people’s livelihoods, raising socialist construction in the country to a new high tide.”[8]