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.Predicting how much of each type of steel is required inadvance is impossible and therefore simply doesn t happen.8 Yet the plan-ning system gets around this by ignoring issues of quality and customersatisfaction, instead evaluating and predicting the performance of the steelindustry in terms of the aggregate weight of output.Ridiculous situationsthen arise, an example of which is the sale in the USSR in the 1980s oftitanium badminton rackets at cheaper prices than wooden ones.Local enterprises must accept the steel that is produced, even if itdoes not match their specifications exactly.Hence the notoriously heavytractors, cars and refrigerators produced by the Eastern bloc.To fulfilthe ever-expanding plan, more and more materials are used, leading towaste and multiplying the absurdities.Enterprises are not able to re-routeunused or unsuitable steel to other factories, as there is no effective inter-enterprise payment system in place, and because enterprise managers tendto hoard materials even if they are unsuitable or substandard.The impactof this wastefulness and squandering of materials in the command economycannot be overestimated.Even if the machinery produced is arguably morefunctional and long lasting, the absence of a concomitant spare-parts andmaintenance industry means that products rapidly become useless.As wellas wasting resources, the process also wastes the power used in producingit, the workers time, additional transportation costs, and so on. Economics Pyongyang Style 83The existence of the state planning mechanism meant that, apart fromthe most basic goods and materials, socialist countries could not operatesuccessfully as exporters, and consequently the DPRK s exports have beenminimal.While domestic enterprises were either not permitted to import orlack the hard currency to transact purchases and therefore had to accept, say,the wrong steel or rubber, foreign companies are not in this position.Theresult was that when steel was exported from the command economies itwas as a virtual raw material, priced cheaply due to the lack of value-addedand the fact that accounts are expressed in physical or material units in aplanned economy.The Soviet Union at one point produced over 20 per centof the world s steel output, yet, despite exporting virtually none, suffered asteel shortage.As was the case with most other products, little of the steelproduced by the Eastern bloc was of an international standard.This leftsocialist countries, and leaves the DPRK today, attempting to export itsmineral base in raw form with little opportunity for value-added profit.Another inherent absurdity in the planning system is that enterprisemanagers essentially the administrators of state property and ground-levelenforcers of the output plans have learnt to ensure they never manufactureat full capacity despite creating the illusion of doing so.Managers who havegrown up with an intimate knowledge of the planning system and its mecha-nisms know that if they produce to their full capacity (rare nowadays in theDPRK due to the scale of the industrial collapse and the energy shortage),their plan targets will simply be increased, forcing them to find a way toproduce more the ratchet effect.Managers therefore devise ways to run atunder full capacity; this allows for the increase in the next plan period.Thismanoeuvre accounts for the ability of enterprises to cope with the periodiccampaigns of intense production announced by the leadership.Again thesecampaigns are a feature of the Soviet-style system that has been adopted byPyongyang.In the Soviet Union they were referred to as storming and inthe DPRK as Speed Battles ; they can last from a period of a few weeks toover 70 days.If the DPRK s state-owned enterprises (SOEs) were operatingat full capacity then ramping up production significantly during these SpeedBattles would be near impossible.Yet, according to the official press, it doesoccur and virtually all SOEs manage it, at least in the newspapers.The Industrial Crown JewelsWith a rigid centralised planning system controlling the economy therehas been no space for the development of private enterprise.While thedevelopment of private enterprise was initially thus restricted in China, itwas the growth of this sector that largely propelled the reform process as 84 North Koreawell as winning a certain amount of public support for the reforms amongkey constituencies.A central failing in the command economy is that SOEs, the so-called industrial crown jewels of Stalinist economies, or, as Lenin described them, the commanding heights of the economy, do not purchase from each other.The manager of a rubber gloves factory cannot simply telephone the man-ager of a rubber factory, explain his requirements and then negotiate a priceand delivery date.In the DPRK firms invariably do not purchase directlyfrom one another but go through government agencies.These agencies al-locate resources according to the national plan.To avoid getting less thanthe factory needs to fulfil its plan, the manager orders more, effectivelyover-ordering, to compensate for the inherent discrepancies in the planningsystem as well as making sure there is additional supply in case of a suddenSpeed Battle or wastage.This naturally leads to the under-utilisation ofcapital through maldistribution of resources.Government planners, althoughaware of this tactic, allocate less than requested.In this situation being honest is not an option and the planners assumea lie.Supplies are anyway invariably interrupted leading to slowdowns,stoppages and shutdowns when reserves of raw materials or energy expire.Ultimately the demand for any material or product becomes unlimitedregardless of use, sale or need.In such a planned system with these built-incontradictions the concept of cost is immediately lost.Political connectionsare also a factor in procurement, which further distorts the system.Forexample, if the manager of one plant has more leverage or stronger con-nections with the allocation agency than another manager, he may achievea greater allocation; this can lead in turn to a wasteful system of bargainingbetween industrial units and the planners rather than active cooperationand feedback.The result is that some SOEs end up hoarding a surplus stockpiling while other enterprises suffer a shortage.Given the problems identified with SOEs caught within the centralplanning system, it is no surprise that they inevitably become insolvent, gobankrupt and production stops as the contradictions mount up along thechain of production and supply as is the case in the DPRK now.SOEsare, after all, not just economic units but representatives of the political-economic theory of the party-state.However, it is not always easy to establishthe final profitability of an SOE.The SOEs, by their nature, operate in acommand economy that fixes prices, subsidises various costs from distributionto wholesaling to advertising, and may receive yet more direct subsidies inthe form of power supplies and other utilities at below market rates [ Pobierz całość w formacie PDF ]
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.Predicting how much of each type of steel is required inadvance is impossible and therefore simply doesn t happen.8 Yet the plan-ning system gets around this by ignoring issues of quality and customersatisfaction, instead evaluating and predicting the performance of the steelindustry in terms of the aggregate weight of output.Ridiculous situationsthen arise, an example of which is the sale in the USSR in the 1980s oftitanium badminton rackets at cheaper prices than wooden ones.Local enterprises must accept the steel that is produced, even if itdoes not match their specifications exactly.Hence the notoriously heavytractors, cars and refrigerators produced by the Eastern bloc.To fulfilthe ever-expanding plan, more and more materials are used, leading towaste and multiplying the absurdities.Enterprises are not able to re-routeunused or unsuitable steel to other factories, as there is no effective inter-enterprise payment system in place, and because enterprise managers tendto hoard materials even if they are unsuitable or substandard.The impactof this wastefulness and squandering of materials in the command economycannot be overestimated.Even if the machinery produced is arguably morefunctional and long lasting, the absence of a concomitant spare-parts andmaintenance industry means that products rapidly become useless.As wellas wasting resources, the process also wastes the power used in producingit, the workers time, additional transportation costs, and so on. Economics Pyongyang Style 83The existence of the state planning mechanism meant that, apart fromthe most basic goods and materials, socialist countries could not operatesuccessfully as exporters, and consequently the DPRK s exports have beenminimal.While domestic enterprises were either not permitted to import orlack the hard currency to transact purchases and therefore had to accept, say,the wrong steel or rubber, foreign companies are not in this position.Theresult was that when steel was exported from the command economies itwas as a virtual raw material, priced cheaply due to the lack of value-addedand the fact that accounts are expressed in physical or material units in aplanned economy.The Soviet Union at one point produced over 20 per centof the world s steel output, yet, despite exporting virtually none, suffered asteel shortage.As was the case with most other products, little of the steelproduced by the Eastern bloc was of an international standard.This leftsocialist countries, and leaves the DPRK today, attempting to export itsmineral base in raw form with little opportunity for value-added profit.Another inherent absurdity in the planning system is that enterprisemanagers essentially the administrators of state property and ground-levelenforcers of the output plans have learnt to ensure they never manufactureat full capacity despite creating the illusion of doing so.Managers who havegrown up with an intimate knowledge of the planning system and its mecha-nisms know that if they produce to their full capacity (rare nowadays in theDPRK due to the scale of the industrial collapse and the energy shortage),their plan targets will simply be increased, forcing them to find a way toproduce more the ratchet effect.Managers therefore devise ways to run atunder full capacity; this allows for the increase in the next plan period.Thismanoeuvre accounts for the ability of enterprises to cope with the periodiccampaigns of intense production announced by the leadership.Again thesecampaigns are a feature of the Soviet-style system that has been adopted byPyongyang.In the Soviet Union they were referred to as storming and inthe DPRK as Speed Battles ; they can last from a period of a few weeks toover 70 days.If the DPRK s state-owned enterprises (SOEs) were operatingat full capacity then ramping up production significantly during these SpeedBattles would be near impossible.Yet, according to the official press, it doesoccur and virtually all SOEs manage it, at least in the newspapers.The Industrial Crown JewelsWith a rigid centralised planning system controlling the economy therehas been no space for the development of private enterprise.While thedevelopment of private enterprise was initially thus restricted in China, itwas the growth of this sector that largely propelled the reform process as 84 North Koreawell as winning a certain amount of public support for the reforms amongkey constituencies.A central failing in the command economy is that SOEs, the so-called industrial crown jewels of Stalinist economies, or, as Lenin described them, the commanding heights of the economy, do not purchase from each other.The manager of a rubber gloves factory cannot simply telephone the man-ager of a rubber factory, explain his requirements and then negotiate a priceand delivery date.In the DPRK firms invariably do not purchase directlyfrom one another but go through government agencies.These agencies al-locate resources according to the national plan.To avoid getting less thanthe factory needs to fulfil its plan, the manager orders more, effectivelyover-ordering, to compensate for the inherent discrepancies in the planningsystem as well as making sure there is additional supply in case of a suddenSpeed Battle or wastage.This naturally leads to the under-utilisation ofcapital through maldistribution of resources.Government planners, althoughaware of this tactic, allocate less than requested.In this situation being honest is not an option and the planners assumea lie.Supplies are anyway invariably interrupted leading to slowdowns,stoppages and shutdowns when reserves of raw materials or energy expire.Ultimately the demand for any material or product becomes unlimitedregardless of use, sale or need.In such a planned system with these built-incontradictions the concept of cost is immediately lost.Political connectionsare also a factor in procurement, which further distorts the system.Forexample, if the manager of one plant has more leverage or stronger con-nections with the allocation agency than another manager, he may achievea greater allocation; this can lead in turn to a wasteful system of bargainingbetween industrial units and the planners rather than active cooperationand feedback.The result is that some SOEs end up hoarding a surplus stockpiling while other enterprises suffer a shortage.Given the problems identified with SOEs caught within the centralplanning system, it is no surprise that they inevitably become insolvent, gobankrupt and production stops as the contradictions mount up along thechain of production and supply as is the case in the DPRK now.SOEsare, after all, not just economic units but representatives of the political-economic theory of the party-state.However, it is not always easy to establishthe final profitability of an SOE.The SOEs, by their nature, operate in acommand economy that fixes prices, subsidises various costs from distributionto wholesaling to advertising, and may receive yet more direct subsidies inthe form of power supplies and other utilities at below market rates [ Pobierz całość w formacie PDF ]