PYONGYANG, North Korea - North Korea relaxed state control of salaries last month, a government economist said, outlining a change in policy intended to boost production by giving companies latitude to provide workers with financial incentives.
In an interview with The Associated Press, Ri Ki Song, a professor at the Institute of Economics at North Korea's Academy of Social Sciences in Pyongyang, said enteprises are now allowed to use some of their earnings to pay workers more.
Until recently, most salaries were set by the state. The new policy gives managers of factories and other businesses the right to determine workers' salaries if they are able to improve productivity. The change follows a similar move last year to give managers at North Korean farms more power to make management decisions and to allow farmers to keep any surplus harvest to sell or barter instead of turning them over to the state.
"After repaying the state for its investment, enterprises can set salaries themselves, regardless of salaries fixed by the state, and pay workers according to their performance," Ri said last week. Companies must also put aside funds for investment, continued production, development of technology and cultural activities, he said.
But Ri said the new economic management methods enacted April 1 were not signs that North Korea is adopting a capitalist free market system.
"This is nothing to do with reform and opening," Ri said. "As I've said, the socialist ownership of the means of production is firmly established in our country, and we defend this."
Foreign governments have looked for indications that North Korean leader Kim Jong Un might be open to reform since coming to power in December 2011. North Korea has a per capita GDP of $1,800 per year, according to the U.S. State Department, just a fraction of the living standards in its Northeast Asian neighbours, Japan and South Korea.
Kim, the third generation of his family to lead North Korea since 1948, inherited a nation plagued by chronic food, fuel and power shortages. He has said improving the economy is a priority, acknowledging economic hardship in North Korea and pledging to raise the standard of living.
Kim in a speech in January said the country's most important task is the "building of an economic giant" and called for all of the year's economic undertakings to be aimed "a radical increase in production and stabilizing and improving the people's living standards."
"We should hold fast to the socialist economic system of our own style, steadily improve and perfect the methods of economic management on the principle of encouraging the working masses to fulfil their responsibility and role befitting the masters of production," Kim said.
However, Kim also has made the costly building of a nuclear arsenal a priority at a time when the United Nations says two-thirds of the population is coping with chronic food shortages.
The new policy on salaries went into effect after a trial period, Ri said.
"In the past, the state used to fix standard salaries, which meant you couldn't pay more than a certain amount," he said.
Now, factories and enterprises that perform well will be allowed to raise salaries, Ri said.
"And individual workers who work more can earn more," he said.
Last September, AP quoted farmers as saying new directives aimed at boosting productivity at collective farms give managers more control over decisions on how to farm the land and allow farmers to keep any surplus after they fulfil state-mandated quotas.
By giving farmers incentives to grow more food, North Korea could be starting down the same path as China when it first began experimenting with a market-based economy, analysts said.