Kaesong is a beginning

With the closing of Kaesong, President Park has essentially said goodbye not only to the industrial complex - the last vestige of the Sunshine era - but to her own idea of Trustpolitik as well.

The Kaesong project was more subversive in intent than could be admitted at the time it was launched. First, the very location of the complex in the middle of the attack corridors from the North signaled a willingness on both sides to prioritize economic cooperation over military rivalry.

Second, the project was designed to be only the first step in a wider opening of the North Korean economy. Not only was Kaesong designed to grow from 50,000 to nearly 350,000 workers. The larger plan was to multiply the number of such zones, moving North Korea in the direction of export-oriented growth and open to the world economy that South Korea followed in the early 1960s.

However, most significant was that exposure of North Korean cadre, managers and workers to a South Korean work environment would have a socializing effect. The experiment might tilt the internal political balance within the regime toward a more reformist course. And at the level of the individual worker, North Koreans would see the efficiency - if not exactly the humanity - of the South Korean economic system.

All of these expectations lie in ruins. The North Korean regime has made sure that such zones strictly limit social contact between cadre and shopfloor workers and South Korean managers. Linkages to other parts of the North Korean economy also failed to develop; there have been few if any “spread” effects.

It also became increasingly clear that the returns from the zone were not for the most part accruing to the workers, to North Korean firms or to the locale but to Pyongyang. The Minister of Unification Hong Yong-pyo has come under pressure to resign after claiming that 70% of Kaesong payments went directly into the nuclear and missile program. But Minister Hong is roughly correct with respect to the amount of fungible foreign exchange Kaesong generates for the regime; indeed, his estimates are too low.

Finally, it is hard to avoid altogether the complex moral issues surrounding the industrial complex. Yes, Kaesong provided employment (and choco pies) to North Korean workers and may have improved their livelihoods from what they would otherwise be. But how do we think about firms from a fully democratic South Korea taking advantage of labor that is completely controlled and repressed by an authoritarian regime?

President Park’s speech before the National Assembly showed deep frustration, and I sympathize with her predicament. Can such sanctions - and those negotiated at the UN Security Council and passed by the U.S. Congress - actually work? The earnings from Kaesong are not trivial. The $130 million in payments is sometimes compared to North Korea’s $9.5 billion in two-way trade and dismissed as trivial. But this comparison does not use the right metric. Marcus Noland and I calculate that Kaesong payments could account for as much as 30% of North Korea’s deficit with China.

But against that must be weighed the domestic political benefits Kim Jong-un has accrued by his pursuit of missiles and nuclear weapons. The regime’s favored Morangbong girl band gives performances with videos of the country’s satellite launches in the background to rapturous applause.

And while there is some chance that China may turn against North Korea, it has typically only taken cosmetic steps in response to North Korean provocations. Indeed, I interpret the closing of Kaesong as a signal to Xi Jinping as much as to Kim Jong-un. President Park staked her diplomacy with China on the bet that it would yield not only economic benefits for Korea but political and strategic ones as well. To date, China has done little but shift the blame for North Korea’s behavior on the failure of the United States to engage.

The next months are going to challenge President Park, as Kim Jong-un will figure out various ways to escalate, from the Northern Limit Line, to cyber attacks, to renewed missile and nuclear tests. Such crises are not the best times to change course.

But resolve is not enough to solve this problem. North Korea will not unilaterally disarm and Beijing will almost certainly not allow the Kim dynasty to collapse. The objective of any measures - from the Kaesong closure to other sanctions being contemplated - should be to move back to the negotiations that are ultimately required to denuclearize the peninsula and end the state of war on the peninsula. Plenty of thought has been given to wielding the stick, which may be necessary. But much less thought has been given to how to pick up the pieces following the period of tension that almost certainly lies ahead.

The author is Krause Distinguished Professor at the Graduate School of University of California in San Diego.

by Stephan Haggard