North Korean House of Cards

Before this time, the Royal Economy had been centered on a tax on the
People’s Economy, which was generated by economic activities controlled by the
Cabinet. This three percent tax funded the operations of Kim Il-sung’s Presidential
Office. 386 Facing increasing stagnation in the 1970s, Kim Il-sung came to the
conclusion that if Kim family control of the regime was to survive, the economic
model nested in the command economy would have to change. Critical funds
necessary for maintaining the defense-industrial complex would have to be generated
and controlled through separate channels. This was done by removing the munitions
industry from Cabinet control and placing it under the newly created SEC.
Chart 3: Royal Economy Under Kim Il-sung
KWP/Cabinet
Politburo
Administrative
Council
3% Tax
Kim Il-sung
State
Economy
Defense
Economy
People’s Economy
Domestic
Economy
Trade
In addition to securing national security, Kim Il-sung was also faced with
what to do about the future of the Kim family regime. The North Korean leadership
had just emerged from a decade of internal struggles that led to widespread purges
Korea’s minerals fell, leaving the country with a large amount of debt. Pyongyang was unable to pay off
these debts while still providing a high level of social welfare to its people. To further exacerbate this
situation, the centrally planned economy, which emphasized heavy industry, had reached the limits of its
productive potential in North Korea.
386 Discussion with North Korean defectors familiar with administration during the Kim Il-sung
era, 2010.
Ken E. Gause
177