Enterprise in North Korea

A factory/enterprise in North Korea (북한의 공장/기업소) refers to an economic unit for production in North Korea. The latter has its own management while the former without managerial function.

In connection with the declaration of the “Strong and Prosperous Nation” (강성대국) in the Milestone Year of 2012, the Pyongyang regime established and revised overall legislation in 2010, including the Enterprise Act (기업소법/企業所法).

This Act deserves outsider’s attention as a useful indicator how North Korean enterprises would be managed and operated. There have been two expectations: One is that factories and enterprises will be managed in a quite different way, and another is that North Korea’s door will be eventually open to the outside world.

Key words
enterprise, factory, Taean Work System (大安의 사업체계), socialist constitution, Workers' Party (노동당)

Succession of Power in Pyongyang
In April 2012, Kim Jong-un rose to the top three posts at the Party, Administration and the military four months after his father’s death. The young leader’s succession was speedy compared to that of late Kim Jong-il who waited for three or four years after Kim Il Sung’s death in 1994.

Though he succeeded to seize power taking advantage of his father’s authority, Kim Jong-un does not seem to hold his own authority.

To this end, it is inevitable for the young leader to rush to young Kim’s policy to attract North Koreans’ support. The policy measures are expected to center on the improvement of living standards of common people and the economic reform as he promised to fulfil. The Japanese newspaper’s report that Kim Jong-un has allowed bureaucrats’ discussion on the capitalistic methods to attain the goal remains to be seen.

Implications of the Enterprise Act
An enterprise is an independent economic entity, or a company in the sense of market economy.

Is it true that Pyongyang is boastful of its unique socialist economic unit by establishing the Act?

Is the Taean Work System suggested by Kim Il Sung when he visited Taean Electrical Appliance Plant in Pyongan-Namdo in December 1961 really incorporated in the Act? The Taean System refers to a unique industrial management in which a Party committee headed by a Party secretary directed business operations to the factory manager and the chief engineer under the guidance and ideological control of the Workers’ Party. The slogan has been stipulated in the 1972 Socialist Constitution and thereafter. However, the economic hardship and famine in the Mid-1990s and July 2002 Economic Measures caused a fundamental shift in the operation of factories and enterprises. The shortfalls of national treasure and aggravating energy shortage put an end to the Party-led factory operations. Rather financially lucrative enterprises engaged in foreign exchange revenues used to establish enterprises which are usually directed by the Party committee with less influence than before. The botched currency reform in the late 2009 aimed reportedly to curtail the privately operated funds only to fail, thus undermining the official state economy. In this regard, the enactment of the Enterprise Act in 2010 was to bolster the basement of business operations and to reconstruct the fragile state economy. So it has been taken for granted that the enterprises care for employees by providing goods and necessities which should have been supplied by the state. It’s a dilemma faced by the Pyongyang leaders.

Where is the Taean System gone?
As a matter of fact, the Enterprise Act containing declaratory provisions and manual-like clauses seems too far from the Commercial Act (상법, 회사법) of the South.

Also it should be noted the Act has apparently skipped the wording of the Taean Work System.

What is the implications of this intentional omission?
 * First, the Taean System seems to be estranged from the instructions of Kim Jong-il regarding necessary economic reforms.
 * Second, the resultant conflicts among the factory manager, chief engineer and Party secretary cannot be conducive to such economic reforms.
 * Third, the emphasis was shifted from the Taean Work System which has been replaced by the so-called self-supporting accounting system. In terms of the socialist frame of reference such as cost, price, income, etc., ‘profit’ in place of ‘price’ will inevitably lead to the self-supporting accounting system, and eventually to the market economy.

Conclusion
In conclusion, although everyone, except Pyongyang’s political leaders, is anticipating the paradigm shift of the North Korean economy, only Kim Jong-un with little experience can determine the course of the North Korea’s future. So is the prospect of the new Act which is actually inferior to the Party platform and the supreme words of Kim’s dynasty.