North Korea: Expect the Unexpected

Why 2014 could be a rough year in Northeast Asia.

Where is North Korea headed? When we last heard from the Boy General, Kim Jong-un, he was rationalizing the sudden and brutal execution of Pyongyang’s No.2, Jang Sang Thaek, followed by threats to “strike mercilessly without notice” in response to anti-Kim protests in Seoul.

Now Kim has offered us a glimpse of things to come. Pyongyang’s New Year’s statement, which often contain hints of coming attractions, reiterated all the vitriol about Jang’s alleged misdeeds, but contained few indications of anything except more of the same: Songun, it’s “military first” policy was praised as the way forward.

What was missing from Kim Jong-un’s New Year’s statement was any mention of the core problems leading Pyongyang down a steady, if gradual, path to oblivion. The words “nuclear weapons” and “US” were noticeably absent. Indeed, South Korean President Park Geun-Hye emphatically called Kim out on it in her first 2014 Press conference on January 6th explaining, “a nuclear North Korea is an obstacle to unification and world peace, and can never be allowed.”

The one intriguing element was a hint of possible interest in advancing North-South relations. Kim urged a move away from confrontation and said that, “Respecting and thoroughly implementing the north-south joint declarations is a basic prerequisite to promoting the inter-Korean relations and hastening the country’s reunification.”

Whether Kim is serious, or just seeking more handouts from Seoul remains to be seen. But previous North-South accords, particularly the 1990 North-South Basic Agreement contains – at least on paper – provisions to address all outstanding issues, from denuclearization to North-South reconciliation. Here again, President Park countered Kim in no uncertain terms: “We must prepare for an era of unification. The primary barrier to this is North Korea’s nuclear program.” President Park put Kim to the test, calling for resuming reunions of divided families, after Pyongyang quashed an agreement to do so last year.

If the New Year’s message is any indicator, progress on the nuclear issue and the possibilities of more than marginal improvement in the North Korean economy range from slim to none.

Can’t Have Both

Unfortunately Pyongyang fails to understand the integral linkage between these two fundamental issues. At a Worker’s Party Congress last March, Kim Jong-un adopted the “byungjin” line: simultaneously pursuing nuclear and economic development. The bulk of Kim’s 10 page New Year’s message was focused on the economy, its purported achievements and what needs to be done to advance it. Yet for more than two decades, US-led global efforts to denuclearize North Korea have been based on the premise that the North must choose: it can join the global economy and prosper or it can have nukes. It can’t have both. Pyongyang has chosen self-imposed isolation reinforced by UN sanctions.

Even after several years of modest growth, the North Korean economy is now at roughly the level it was at the end of the Cold War in 1991. Even the Chinese, who account for nearly 90% of the North’s total foreign trade (a miniscule $6.8 billion) have trouble doing business with the North. Indeed, among the alleged sins of the executed Jang was selling resources too cheaply, all but mentioning China by name. Arbitrarily shutting down the Kaesong Industrial Zone operated by South Korea, the one example of opening to outside investment, sent exactly the wrong message: don’t invest here, your investment is subject to our political whims. And holding an 85 year-old American tourist (because he fought in the Korean war) is not exactly a PR strategy for promoting tourism, which Kim’s new ski resort and dolphinariums are intended to do.

The reality is that so long as the enormous political risk factor remains, so long as military provocations can occur at any time, and no system of credible commercial arbitration exists, North Korea will have little chance to obtain any foreign investment. Pyongyang’s economic possibilities will remain very limited and it will continue to fall further behind its brethren in the South – not to mention the globalized economy. And the execution of Jang and destruction of his business networks will almost certainly chill China’s economic involvement in North Korea, a rare source of foreign investment.

Rising Expectations?