By Ruediger Frank
23 April 2014
The first session of the newly elected 13th Supreme People’s Assembly (SPA, North Korea’s parliament) was fairly mundane without too many big surprises. There were no unexpected changes on the personnel front, the constitution was not amended, no new laws were promulgated, no reform and opening policy was formulated, no new weapons were announced, and no major purge took place.
Nevertheless, there were some notable developments, on which I will comment in more detail below. These include:
- Bureaucrats still dominate the parliament;
- North Korea is continuing an expansionary fiscal policy;
- Revenue from economic and trade zones is listed for the first time;
- The defense budget has been officially increased after many years, albeit minimally;
- Profits from real estate rent are expected to grow much more strongly than before;
- The projected growth rates of expenditures on items including education, health care and social insurance are substantially reduced; and
- Sports are a new top priority reflected in a tripling of this item’s growth rate.
SPA Composition and Leadership
As usual, a report on the composition of the new SPA has been presented at the April session. If we compare the 2014 results with 2009, we find a few marginal, but no significant changes.
Women are still underrepresented, as are workers and military personnel as well, despite the socialist emphasis on the working class and the “Military First” (songun) policy’s prioritization of the armed forces. The number of bureaucrats among the SPA members has dropped by about 4% but they still hold about two-fifths of all seats. The classification of age groups has been changed in the report on the 2014 SPA, so that a comparison is more difficult here. It seems that, on average, the 13th SPA has become somewhat younger. About 55% of the members of the previous SPA were not reelected in 2014, which is a slight but not major deviation from previous elections.
Table 1. Detailed Results of SPA Elections in 2003, 2009 and 2014
|11th SPA 2003||12th SPA 2009||13th SPA 2014|
|Winners of Order of Kim Il Sung, Kim Il Sung Prize and the titles of “Hero of the Republic” and “Labor Hero”||48%||42.4%||44.8%|
|Holders of academic degrees and titles||89.5%||90.4%||91.7%|
|Below 35 years of age||2.2%||1%|
|Below 39 years of age||3.9%|
|Age group 36-55 years||50.1%||48.5%|
|Age group 40-59 years||66.9%|
|Age group above 56 years||47.7||50.5%|
|Age group above 60 years||29.2%|
(Source: KCNA, various issues, compiled by Ruediger Frank.)
Regarding the various appointments including membership in the NDC and the cabinet, I will refrain from making too detailed comments here. (See “The DPRK Political Season,” by Michael Madden for a detailed account.)
We should note, however, that the fields of state planning, chemical industry, and agriculture continue to be represented by Vice Premiers, giving them a higher status than the other fields that are only covered by Ministers. If we regard state planning as the antithesis to markets, this heightened importance of state planning can be interpreted as the continued absence of a comprehensive reform policy. The focus on the chemical industry (fertilizer) and agriculture highlights attention that is being given to the resolution of the food issue, which is somehow contradicted by the amalgamation of growth data on these sectors with others as will be discussed below.
In terms of the leadership, it was no surprise that Kim Jong Un was reelected as First Chairman of the National Defense Commission. However, the election of Choe Ryong Hae as one of the Vice Chairmen, at least for now, seems to contradict rumors that Choe had fallen out of favor.
Pak Pong Ju remained Prime Minister, which is a positive sign for those who regard him as a potential reformer based on his role in the July 2002 measures. Kim Yong Nam again became the President of the SPA Presidium and thus, according to article 117 of the constitution, titular head of state, continuing an impressive record of occupying this position since 1998 after having served as Minister of Foreign Affairs under Kim Il Sung since 1983.
Along with former Prime Minister Choe Yong Rim, a certain Kim Yong Ju was again listed as Honorary Vice President of the SPA Presidium. He is none else but the younger brother of Kim Song Ju, better known under his nom-de-guerre Kim Il Sung. Given the latter’s towering position in North Korea, the relative low profile of his brother should make us think twice before we embark on simplistic analyses of the leadership and the meaning of blood relations. Obviously, power politics in North Korea is a complex matter.
The Budget Report and Economic Growth
The part of the SPA reporting I usually find most interesting, for a number of reasons, is the budget report. To begin with, it offers a rare opportunity to view official statistics on macroeconomic development shared by the North Korean state with the public. Despite the lack of detail, the selective and inconsistent nature of the information presented, and its questionable reliability, we can hardly afford to simply ignore this source.
For example, over the past years, I have extracted what I consider to be the North Korean view on its economic growth rate. The logic I apply is simple: If the state owns the economy and no private companies contribute to national income, then the state budget comes close to the Gross Domestic Product (GDP). Of course, there is the large military sector, also known as the “Second Economy,” which is most likely excluded from the state budget as reported by the cabinet. There are also other, non-state economic activities that are not reflected. But as an estimate, the budget numbers are as good as they get.
Figure 1. Growth Rates of Expenditure and Revenue According to the Annual Budget Reports, 2000-2014
What some observers might find unexpected regarding this graph is the fact that the curves go up and down, rather than just steeply pointing upwards or indicating a constant growth level as we would expect from socialist propaganda. Moreover, there is a negative gap between planned revenue and planned expenditure since 2009 that points to a changed approach in fiscal policy. This gap had been positive from 2005 to 2008. The actual results notwithstanding, the numbers suggest that the North Korean government had, in those years, planned to earn more than it would spend: a seemingly sound fiscal policy that would result in a surplus.
But since then, the state has reversed its policy and now officially expects to spend more than it will earn. This is a rather typical feature of state budgets internationally. However, given North Korea’s isolation, it would be interesting to know how Pyongyang intends to deal with the inevitable debt. The graph above implies that, in fact, there might not be such debt, as the “achieved revenue” has usually grown in tandem with the planned expenditure. Over-fulfillment of the plan may have been the state’s way of compensating for this gap. While “over-fulfillment” can hardly be regarded as something new for a state socialist economy, the switch in 2008/2009 is thus only partially explained. As long as we have no absolute numbers—which had been provided in the annual budget reports until spring 2002—we will not really be able to answer this question. The phenomenon, as such, is nevertheless worth noting.
Concerning the validity of the data in the budget report as reflected in the graph above, I have compared the “achieved revenue” numbers with the South Korean estimates of the North Korean GDP growth rate. Needless to say, the numbers deviate sharply; the South Koreans are much more pessimistic about the state of the North Korean economy. What is interesting, however, is that the two curves are relatively strongly correlated with r = 0.66 (data for 2005-12). In other words, despite numerical differences, both the South Korean estimates and the official North Korean data on the state budget indicate a similar direction and strength of growth. This supports my approach of using the official budget growth data as a synonym for North Korea’s official GDP growth on which, otherwise, no numbers are published.
The Budget Report and Economic Priorities
The budget reports often include hints about economic priorities, sometimes confirming or elaborating on pronouncements in the New Year editorial/speech or even including new information. For example, in the 2014 report, we find confirmation of the “byungjin” line of simultaneously developing the country’s economy and its nuclear arsenal as announced in late March 2013. The ideological contradictions and questionable economic feasibility of that policy aside, it seems to be the current credo of Kim Jong Un’s government.
The 2014 budget report contains at least two qualitative changes compared to previous versions. The most remarkable is that revenue from “economic and trade zones” is mentioned, and expected to increase by 5.1% year-on-year in 2014. This item has never been listed before. An optimist would regard this as a visible sign of a new approach to economic policy, acknowledging and even documenting the contribution of foreign direct investment (FDI) and of limited experiments with the market to the national economy.
Also in this year’s report, as previously mentioned, growth rates in state spending on agriculture and light industry were put into one group with the “commanding heights” of the economy, namely metal, power, coal and other sectors. Considering that in the New Year speech, energy and agriculture were identified as key items, this is somewhat strange. One would expect priority sectors to be highlighted, not lumped together with other, unrelated industries.
In addition, the 2014 budget report included noteworthy quantitative data:
- For the first time since 2008, the percentage of budget to be spent on national defense has been increased, albeit only marginally: 0.1% (from 15.8% to 15.9%). This number itself has to be taken with a huge grain of salt, as it is assumed that North Korea spends much more than just one-sixth of its resources on the military. But it is worth noting that the state has decided to again slightly increase the percentage for this sensitive part of the budget, which is at least symbolically significant.
- “Profits from real estate rent” are expected to grow by no less than 9.5% in 2014. This item had been there before, but growth rates were in the range of 0.7% (2011) to 3.6% (2009). In addition, one wonders about its actual meaning: who rents what to whom in a country where officially, all real estate belongs to the state? Is this real income, or just creative bookkeeping? In any case, given the recent construction boom and rumors about a grey real estate market, this number is worth noting.
- Growth rates for expenses on the so-called priority sectors of the economy (including metal, power, coal, and railway industries) have almost been halved compared to 2013. Does this indicate satisfaction with the achievements, or a shortage of funds? The same is true for science and technology, capital construction, public health, social insurance, and even education; they all saw projected growth rates slashed. In particular, the cut in education growth is unexpected if we consider that the additional year of schooling, announced in September 2012, is finally to be introduced this year. With limited amounts of money, the state must obviously set its priorities, and a decision has been made that they are not these programs.
- One item does stand out with a large increase in growth rate, from 6.1% in 2013 to 17.1% in 2014: sports. Are the Pyeongchang Winter Olympics and the North’s hope to share hosting of the games or at least successfully participate in them, reflected in this number? One of the differences between Kim Jong Un and his predecessor has been a strengthened emphasis on sports as a public relations tool. North Korea’s decades-long abstinence on this front has been somewhat unusual if compared to the zeal with which other socialist countries, including my home East Germany, promoted sports. Now, the North seems to have adapted a similar strategy.
To summarize, the 2014 SPA session brought no major surprises, but a few interesting developments. It added to our understanding of Kim Jong Un’s North Korea and should be seen as another step towards the solidification of his leadership.
 These sessions follow a relatively standard procedure. They always include a report on the state budget. Usually, positions in the legislature, the executive branch and the judiciary are shuffled or filled with new candidates, including the powerful National Defense Commission (NDC). Occasionally, laws are promulgated, like in 2013 the “Law on the Kŭmsusan Palace of the Sun” and the “Law on Developing Space”. Every once in a while there is even a constitutional change, like in 1998 when Kim Il Sung was made the country’s Eternal President. The SPA sessions are also used to announce new policies, for example the introduction of an additional school year in September 2012. If a session follows after an election, details on the composition of the new parliament are published.
 In 2003, 50 % were not reelected; in 2009, 46 % were not reelected.
 There are two more Vice Chairmen: Ri Yong Mu and O Kuk Ryol. The five members of the NDC are Jang Jong Nam, Pak To Chun, Kim Won Hong, Choe Pu Il and Jo Chun Ryong.
 See Rudiger Frank (2005): Economic Reforms in North Korea (1998-2004): Systemic Restrictions, Quantitative Analysis, Ideological Background, Journal of the Asia Pacific Economy, Vol. 10 (2005), No. 3, pp. 278-311
 According to article 114 of the DPRK constitution, this position has been created for elder statesmen.
 Pearson’s r is a simple means of measuring a linear correlation between two sets of data. A value of -1 indicates a perfect negative correlation, 0 stands for no correlation, and +1 stands for a perfect positive correlation. Typically, a value for r > 0.5 is regarded as significant.
 I have argued that byungjin (economy and military) is logically different from songun (military only), and that one wonders how the additional spending is supposed to be financed. See http://www.globalasia.org/Issue/Detail/29/dark-and-mysterious.html.