N. Korea Introduces Performance-based Incentive System

Pyongyang has reportedly decided to offer incentives to workers as it pushed for wage and price reforms, taking a major step towards the introduction of a market economy.

Press reports on July 24 quoted a source close to the reclusive country as saying, “The world is closely watching North Korea as it raises prices and workers’ wages and abolish its rationing system, but key to the series of reforms is introduction of an incentive system.”

Under the new economic system, local units and workplaces will be allowed to use profits after tax to improve workers’ welfare or facilities.

“The North’s incentive system is similar to the responsible production program China adopted in 1978 as it moved towards an open economy,” the source noted. “North Korea intends to improve productivity across the board to avoid the collapse of its famine-stricken economy.”

“The economic reforms have already begun to take effect, and laborers began to return to their works,” the diplomatic source also said. “As wage hikes are being offset by higher prices, they are more interested in the performance-based incentives than raised salaries.”

North Korean laborers, indeed, have begun to go back to workplaces, seeing salaries raises and offering of incentives as a better alternative to selling goods in black markets. In the past, up to 70 to 80% of workers left their units to make livings for survival.

“Reform measures seemingly stick to the socialist worker-oriented principle of “you get as much as you work,” but they embrace capitalist elements within,” said another source. “To prevent their regime from falling apart, Pyongyang is selectively introducing certain programs from China, a communist country that has successfully conducted its open-market experiment.”

“Then its next move will likely be circulation of foreign currencies,” he continued to say. “Given the impact on its economy, Pyongyang will adopt the greenback only after a preparation period.” “Reform measures are already in place in part, and they will go into effect nationwide beginning August 1,” he added.

yshwang@donga.com