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North Korea on the Road to Ruin
By Aidan Foster-Carter

Last year saw two spectacular own goals. Missile and nuclear tests were a weird way to greet a new US president ready to reach out to old foes. The predictable outcome was condemnation by the UN Security Council, plus sanctions on arms exports that are biting.

Domestic policy is just as disastrous. December’s currency ‘reform’ beggars belief. Did Kim Jong-il really not grasp that redenomination would not cure inflation, but worsen it? Or that brazenly stealing people’s savings – beyond a paltry minimum, citizens only got 10 per cent of their money back – would finally goad his long-suffering subjects into anger and rioting? Forced to retreat, officials even apologised. One scapegoat was sacked – and possibly shot.

By his own admission Kim does not do economics. In a speech in 1996, when famine was starting to bite, the Dear Leader whined defensively that his late father, Kim Il-sung, had told him ‘not to get involved in economic work, but just concentrate on the military and the party.’

That awful advice explains much. Incredibly, North Korea was once richer than the South. In today’s world, this is the contest that counts. ‘It’s the economy, stupid’ is no mere slogan but a law of social science.

Having taken an early lead, Kim senior threw it all away. He built the world’s fourth largest army, crippling an economy which he refused to reform, viewing liberalisation as betrayal. His own personality cult was and is a literally monumental weight of unproductive spending.

Used to milking Moscow and Beijing, in the 1970s North Korea borrowed from Western banks – and promptly defaulted. That was not smart; it has had to pay cash up front ever since.

Pyongyang also resorts to less orthodox financing. In 1976 the Nordic nations expelled a dozen DPRK diplomats for trafficking cigarettes and booze. In December, a Swedish court jailed two for smuggling cigarettes. More than 100 busts worldwide over 30 years, of everything from ivory and heroin to ‘supernotes’ (fake US$100 bills), leave scant doubt that this is policy.

Yet morality aside, it is stupid policy. Pariahs stay poor. North Korea could earn far more by going straight. The Kaesong Industrial Complex (KIC), where South Korean SMEs employ  Northern workers to make a range of goods, shows that win-win can work. Yet Pyongyang keeps harassing it: imposing arbitrary border restrictions and demanding absurd wage hikes.

Now it threatens to seize US$370 million of South Korean assets at Mount Kumgang, a tourist zone idle since a Southern tourist was shot dead in 2008 and the North refused a proper investigation. Even before that, Pyongyang’s greed in extorting inflated fees from Hyundai ensured that no other chaebol has ventured North. Contrast how China has gained Taiwanese investment.

In this catalogue of crassness, the nadir came in 1991 when the dying Soviet Union abruptly pulled the plug on its clients. All suffered, but most adapted. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. Only North Korea, bizarrely, did nothing – except  watch its old system crumble. GDP plunged by half, and hunger killed up to a million. Now famine again stalks the land. The state cannot provide, yet still it seeks to suppress markets.

All this is as puzzling as it is terrible. China and Vietnam show how Asian communist states can morph towards capitalism and thrive. Kim Jong-il may fear the fate of the Soviet Union if he follows suit. True, his regime has survived – even if many of its people did not. Yet the path he is on is patently a dead end. Kim’s own ill-health, and a belated opaque bid to install his unknown third son as dauphin, only heighten uncertainty. Militant mendicancy over the nuclear issue – demanding to be paid for every tiny step towards a distant disarmament, then backsliding and trying the same trick again – will no longer wash. North Korea has run out of road; the game is finally up.

What now? A soft landing, with Kim Jong-il embracing peace abroad and reform at home, remains the best outcome. But if Kim obdurately refuses change, we need a plan B. The US and South Korea have contingency plans for the North’s collapse. So does China, separately. Tacit coordination is urgent, lest future chaos be compounded by a clash of rival powers – as in the 1890s. Koreans have a rueful proverb: when whales fight, the shrimp’s back is broken.

But Beijing will not let it come to that. China is quietly moving into North Korea, buying up mines and ports. Some in Seoul cry colonialism, but it was they who created this vacuum by short-sightedly ditching the past decade’s ‘sunshine’ policy of patient outreach. President Lee Myung-bak may have gained the G-20 chairmanship, but he has lost North Korea.

Nor will Kim Jong-il nuzzle docile under China’s wing, though his son might. As ever North Korea will take others’ money and do its own thing. In early 2010 new fake ‘super-yuan’ of high quality, very hard to detect, started appearing in China. They wouldn’t, would they?

http://www.eastasiaforum.org/2010/04/01/north-korea-on-the-road-to-ruin

Related articles:
☞ The trap of drawing a picture of N.Korea (Hankyoreh, 4.02)

☞ Chinese Financial Support of N. Korea Questioned (VoA, 3.31) 

☞ North Korea Strains Under New Pressures (WSJ, 3.30) 

☞ N. Korea faces likelihood of widespread upheaval (HonululuAdvertiser, 3.28)