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Breaching North Korea’s Walls using Economic Development

September 2, 2008


North Korea looks to be once again a country in trouble that cannot even feed its own people [see “U.N. says North Korea needs $503 million in food aid,” by Ben Blanchard, Washington Post, 2 September 2008]. I have repeatedly asserted that historically economic progress precedes political progress. Impoverished people are much more tolerant of repressive governments if they believe they hold the key to a better economic future. Rising middle classes, however, are much less tolerable of restraints on their civil liberties. They want to freely enjoy the fruits of their newfound wealth, including the ability to select who it is that enacts the laws under which they live. Therefore, I see any program that can help foster prosperity and a growing middle class as a program with the potential to change the political landscape as well. That is exactly what the South Koreans are hoping is the outcome of a new industrial park being built on the Korean Peninsula [“Big Dreams for North Korean Industrial Park,” by Martin Fackler, New York Times, 20 August 2008].

“The Kaesong Industrial Park is worlds away from the North Korean city on whose outskirts it sits. While the South Korean-run industrial park has modern factories and motorists in sport utility vehicles, the city of Kaesong is straight out of the cold war. Long stretches of joyless gray apartment blocks loom above empty boulevards, and loud red signs proclaim the victory of the workers’ party. Fences and vigilant soldiers separate the park from the rest of North Korea. That has not prevented South Koreans from dreaming of the industrial park as a capitalist foothold that might someday undermine this Stalinist state, making it the North Korean equivalent of Shenzhen, the special investment zone that helped begin China’s free-market miracle nearly 20 years ago.”

The very fact that a North Korean industrial park is being guarded to prevent North Koreans from entering it, testifies to the legitimate concerns of the North Korean government that within those fences lay the seeds of revolution.

“Despite its isolation and prisonlike feel, the Kaesong Industrial Park is booming with construction. The park’s operator, a South Korean developer, Hyundai Asan, hopes to expand it into a minicity over the next 12 years, with high-rise apartments and hotels, an artificial lake and three golf courses. By that time, the company hopes there will be about 2,000 factories here employing 350,000 North Koreans and producing $20 billion worth of goods a year.”

Those 350,000 North Korean workers represent the seed corn from which the country’s middle class could grow. Just as American’s once wondered if farm boys who went off to war in Europe and discovered Paris could ever return to the farms of Iowa, North Korean leaders have misgivings about workers in the industrial park ever being able to return to the impoverished conditions of the rest of the country. The industrial park is already producing in a significant way.

“In the six months through June [2008], the flow of goods in and out of the industrial park accounted for 42 percent of the $881 million in trade between the two Koreas, the [South Korean unification] ministry said.”

North Korea’s continuing “pariah” status limits the park’s rate of growth, but that too could change.

“The United States eased some sanctions against North Korea earlier this summer after the country detailed its nuclear program and destroyed the cooling tower at nuclear facilities in Yongbyon, but import restrictions remain in place, making the Kaesong park less appealing to large South Korean and foreign companies. Indeed, South Korea’s own conservative president, Lee Myung-bak, provoked North Korea’s ire by initially suggesting he would not honor his predecessor’s agreements to expand economic cooperation. Despite all that, 72 smaller South Korean companies have already built factories here, looking to tap the North’s supply of low-cost, Korean-speaking labor. So far, only one foreign company has come.”

Wedged as it is between two economic powerhouses, North Korean leaders understand that the regime must carve a path to prosperity or be crushed under the constant pressure of poverty and cries for relief. Unfortunately, it has demonstrated a dogged determination to hold on to the past that makes China’s leadership look remarkably enlightened. Fackler goes on to provide some anecdotal evidence of how the industrial park is changing the economic landscape.

“The piecemeal brand of change is seen in the experiences of SJ Tech, a South Korean maker of car and cellphone parts that built a $4 million factory here four years ago. The company’s first North Korean employees had never even seen a keyboard, much less a computer, said Yoo Chang-geun, SJ Tech’s president. SJ Tech has spent so much time teaching them things like machinery operation and management concepts that Mr. Yoo jokingly calls his factory ‘North Korea’s first business school.’ But the North Koreans were eager learners, sketching keyboards on paper to teach themselves typing. Now, SJ Tech’s 430 North Korean employees have learned enough to run the factory without South Korean supervisors. In a telling sign, they have also changed their haircuts to look more like their South Korean colleagues. ‘The North Koreans are like sponges,’ Mr. Yoo said, ‘quickly absorbing everything we show them.’ This is exactly the sort of result the South Korean government is hoping for. It has pursued investment and tourism in the North despite criticism from its biggest ally, the United States. Even Mr. Lee, elected in December, has lately indicated that he will back economic cooperation.”

Anyone that has followed the Beijing Olympic Games has to have been struck by the Western character of the Chinese audience. I don’t know if the Chinese government issued grooming and dress standards for ticket holders, but gone were the drab military-style outfits that characterized the awful days of the Cultural Revolution. The Chinese audience was genuinely polite to the achievements of foreign athletes and just as clearly thrilled with the achievements of their own athletes. There was nothing staged about that. Economics has clearly changed China for the better and its citizens are the beneficiaries of most of those changes. That is exactly the kind of changes that the South Koreans would like to see in the North.

“Supporters of engagement in Seoul say their long-term aim is to peacefully prepare the North for smooth unification with the wealthier South. For the North, the economic links have become a source of precious hard currency to a moribund economy that cannot feed its 23 million people. The North earns cash by selling 50-year leases on the land in the Kaesong park. The park’s operator, Hyundai Asan, also pays the North up to $100 a tourist on two sightseeing tours that it operates, one to Kaesong and the other to scenic Mount Kumgang in southeastern North Korea. Critics in South Korea and the United States say money from these projects, in the final analysis, bankrolls the lavish lifestyle of North Korea’s leader, Kim Jung-Il, or worse, his nuclear ambitions. But with evidence mounting that the increased contacts provided by the enclaves are bringing about even small changes, a few once stolid critics have come out in support of the South’s engagement policy.”

I’m sure that North Korean leaders are confident they can control the speed and spread of prosperity within their borders, but they are probably wrong.

“‘When you are feeding a rat with poison, but you coat it with sugar, you are not really feeding the rat,’ said Andrei Lankov, a professor of North Korean history at Kookmin University in Seoul and a longtime critic of the regime who recently surprised colleagues by publishing an article supporting the Kaesong park. ‘When North and South Koreans can interact on a daily basis, it is a chance for the North Koreans to see with their eyes that their own propaganda doesn’t make sense,’ he said. The engagement policy has long enjoyed broad support among South Koreans, who largely view North Koreans as misguided cousins in need of help.”

The Kaesong park will perturb the system far beyond debunking propaganda, however. North Korean workers who are given better living conditions, better pay, free time (enough free time that they will apparently be able to golf), will start an economic revolution that will eventually spread across the North like a wild fire. For now, however, Korean leaders seem to have that fire contained.

“Most of the changes in the North may only be affecting people living near Kaesong, a city of 140,000 people. And it is hard to gauge change in a society as opaque as North Korea’s, which prevents unrestricted travel and most communication with its people. For example, on a recent tour to Kaesong, the only North Koreans with whom conversation was permitted were guides and gift shop clerks. The tourists, mainly South Koreans, visited an ancient school and a waterfall aboard big buses that charged down Kaesong’s empty, dusty streets without stopping. North Koreans could be seen peering shyly from the windows of apartment buildings. In the few conversations that were had, they adhered carefully to their country’s official line on political issues, admitting that North Korea was very poor but blaming American economic sanctions. Still, at times, North Koreans seemed more candid than in the past. A few described how the South Korean-run industrial park was improving lives by paying its workers the equivalent of about $60 a month, three times the average salary in the rest of Kaesong.”

As hopes and expectations rise, change will come faster. For now, the South Korean government is content that change is happening at all.

“The South Korean government, which spent more than $150 million subsidizing the park, provides low-interest loans and insurance to companies to offset the risks of investing in the unstable and still hostile North. Mr. Yoo of SJ Tech said his North Korean employees’ monthly salaries of $75, in contrast to the $2,000 he pays South Koreans, made investing in North Korea entirely worthwhile, despite any risks. ‘We would have regretted not coming here,’ he said. ‘I believe in the future.'”

Fackler selected a great quote on which to conclude his article. I, too, believe in the future. The Kaesong industrial park is the first indication that the tide of globalization is coming in. Once globalization washes over walls of North Korea’s isolation, it will help bring millions of people living there out of poverty. It will do it one job at a time, but it will succeed.

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