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 enterprises 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 neighbors, 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 fulfill 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 fulfill 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.
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In this undated image made from KRT video, North Korea's new young leader Kim Jong Un appears from a military vehicle at an undisclosed place in North Korea, aired Sunday, Jan. 8, 2012. Kim Jong Un, who was named "supreme leader" of North Korea's people, ruling Workers' Party and military following the death last month of his father, Kim Jong Il, was shown observing firing exercises and posing for photographs with soldiers in footage that was shot before his father's death and aired as a documentary Sunday. (AP Photo/KRT via APTN)
In this Oct. 10, 2010 file photo Kim Jong Un, right, along with his father and North Korea leader Kim Jong Il, left, attends a massive military parade marking the 65th anniversary of the ruling Workers' Party in Pyongyang, North Korea. (AP Photo/Kyodo News, File)
North Korea's next leader, Kim Jong Un, front center, salutes beside the hearse carrying the body of his late father and North Korean leader Kim Jong Il during the funeral procession in Pyongyang, North Korea Wednesday Dec. 28, 2011. (AP Photo/Kyodo News)
North Korean leader Kim Jong Un speaks to tens of thousands before a mass military parade in Pyongyang's Kim Il Sung Square to celebrate 100 years since the birth of the late North Korean founder Kim Il Sung on Sunday, April 15, 2012. (AP Photo/David Guttenfelder)
North Korean leader Kim Jong Un arrives for the unveiling ceremony for statues of late leaders Kim Jong Il and Kim Il Sung on Mansudae in Pyongyang, North Korea, Friday, April 13, 2012. (AP Photo/Ng Han Guan)
In this Wednesday, July 25, 2012 photo released by the Korean Central News Agency (KCNA) and distributed in Tokyo by the Korea News Service Thursday, July 26, 2012, North Korean leader Kim Jong Un, center, accompanied by his wife Ri Sol Ju, right, waves to the crowd as they inspect the Rungna People's Pleasure Ground in Pyongyang. (AP Photo/Korean Central News Agency via Korea News Service)
In this undated file photo released by the Korean Central News Agency and distributed in Tokyo by the Korea News Service, North Korean leader Kim Jong Un, third from right, looks at food items as he inspects a military unit at an undisclosed location in North Korea. (AP Photo/KCNA via KNS, File)
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