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The Case for North Korea’s Liberalization

China and Vietnam have tepidly embraced reform. Why can’t the Hermit Kingdom?

|May 9, 2018

By Phillip Orchard

North Korean leader Kim Jong Un made another surprise visit to China on May 7 for a banquet and a languid stroll along the beach with Chinese President Xi Jinping in the coastal city of Dalian. According to a Chinese statement, Kim told Xi that he wants to focus on economic development now that he has “succeeded” at nuclear development. For much of the spring, Kim has been laying the groundwork for just such a move.

In a speech to the ruling Workers’ Party in April, Kim declared his country’s nuclear program complete and said Pyongyang’s strategy now rests on “socialist economic construction” – echoing former Chinese leader Deng Xiaoping’s infamous push for “socialism with Chinese characteristics.” At the landmark summit between Kim and South Korean President Moon Jae-in last month, Kim reportedly told Moon that he was interested in reforming similarly to how Vietnam, another communist country, did years before. Kim even made a rare acknowledgement of the North’s economic woes, lamenting the decrepit state of the country’s railroads. To nudge the young leader further down the path of reform, Moon reportedly gave Kim a thumb drive containing a “blueprint” for economic cooperation that could be made possible by a continued reconciliation, including a plan for an economic belt connecting the west coast of the Korean Peninsula to China.

North Korea has viewed China’s tepid embrace of capitalism skeptically for nearly 40 years, and it has never attempted to emulate it. But there’s reason to believe this time might be different.

Risks Evolve

One striking aspect of North Korean behavior since the end of the Cold War has been its apparent disinterest in implementing the reforms its communist brethren implemented. China, of course, has gone from a self-sequestered basket case to the world’s second-largest economy with astonishing speed. Vietnam didn’t truly reunify until the late 1970s. After collectivism ended in catastrophe in China, Cambodia and the Soviet Union, Hanoi was quick to embrace Deng Xiaoping’s vision of a socialist-oriented market economy. As a result, Hanoi launched its “Doi Moi” transition in 1986 and, more recently, began to see integration with Western economies as a strategic imperative. Vietnam and China still face some serious political and economic challenges, given that they adhere to a curious blend of Marxism and capitalism, but in neither one has the Communist Party truly been challenged.

North Korea also experimented with attracting foreign investment through special economic zones on the Russian, Chinese and South Korean borders. But the North continued to operate largely as it always had, with state planning and central distribution dominating the economy, an outsize share of resources devoted to the military, and precious little foreign trade.

Perhaps the most important reason North Korea never bothered to reform is that, in the opinion of the government, the political risks of an economic opening outweighed any potential material benefits. These risks have evolved somewhat with time.

When China’s opening began, the economic pressures in the North were not nearly as acute as they would soon become, making it easier to hold off on reform. The narrative that the North Korean model was vastly superior to the South’s was central to founder Kim Il Sung’s legitimacy. And though deep cracks in the North’s economic model were beginning to show, they weren’t bad enough to justify a dramatic change in policy and thus an admission of failure. The North was still benefiting from colonial-era investments made by its Japanese occupiers, who had industrialized the northern half of the peninsula where the mineral deposits and hydropower potential were. Moreover, the fear that economic integration with China would lead to political dependence on China – a fear shared by North Korea and the Soviet Union alike – kept Russian aid flowing.

Since then, as the North’s economy has atrophied and the South’s economy has flourished, opening up has become only riskier. It’d be impossible to build a modern, globally integrated economy without allowing internet and cellphone use to proliferate. This means less control of the flow of information into the country, but more exposure to the prosperity of its neighbors. This would no doubt discredit the government’s legitimacy and disprove all the propaganda it has issued about the inferiority of other economic models. It would also risk sparking a scramble for wealth among North Korean elites and allow competing power centers to arise.

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As the disparities widened between the North and its neighbors, it became harder for the North Korean economy to catch up. It would have few inherent advantages over other low-cost manufacturers in the region, and it would lack the basic infrastructure, technology and skill base needed to get up to speed quickly. Rewards would come eventually, but hardly quickly, and the North would be overly dependent on outside aid and exposed to outside influences in the meantime.

The Path of Least Resistance

The political risks of opening the economy to the outside remain, but strategic considerations may be making North Korea more willing to stomach them.

The biggest change compared to years past relates to North Korea’s nuclear program. (Notably, China’s opening began only after it had already gone nuclear in the 1960s.) In the past, the North’s program was something to be bargained away for outside aid. Today, even if its missiles can’t hit targets in the United States with the utmost accuracy, it’s safe to say North Korea is effectively a nuclear power. Pyongyang believes this will insulate it somewhat from the political risks of liberalization. A nuclear arsenal will make outside powers, particularly China and South Korea, more hesitant to try to use an economic opening to foment a social revolt against the regime. After all, no one wants nuclear missiles to be lost in the chaos of a revolution and end up on the black market. Meanwhile, the regime can claim to have fulfilled its pledge to make North Korea the guarantor of its own security, no longer dependent on protection rackets with extortionist outside powers. And it can claim that it will now do the same on the economic front.

Already there has been some modest progress on that front – at least by the standards of North Korea. The economy is once again rotting from isolation and mismanagement, thanks in part to economic sanctions, but the regime has been inching toward liberalization over the past few years. It has gradually legalized local markets and encouraged agricultural co-ops to sell produce there. Factories have been freed to sell surplus goods to whomever they’d like, and state-owned firms have been allowed to set up their own loosely controlled enterprises.

Strategically, it’s in North Korea’s best interest to keep the detente with South Korea going as long as possible. Doing so could give it some much-needed sanctions relief and provide it an opportunity to show the international community it can, when necessary, act rationally. More important, it forestalls U.S. military action, which is still theoretically in play if talks between Trump and Kim fall through.

Outside powers may never trust the Kim regime, and they may have strategic reasons to try to keep the North weak. But going to war in the North would be extraordinarily costly. The path of least resistance would be simply to decide that North Korea is another China or Pakistan – problematic but rational nuclear powers everyone has decided just to live with. This path becomes all the more attractive if North Korea convinces others that it is on the path toward reform and, perhaps, peaceful reunification with the South.

All this lends credence to reports of Kim’s interest in finally leading his country out of extreme isolation. Any integration process will be glacially slow; these things are slow by nature, but Kim would need to protract them as long as possible to manage political risk, which, as history shows, may prove unmanageable. But, given their shared interest in taking the air out of the nuclear standoff while preventing an abrupt regime collapse in the North, glacial integration may be what Pyongyang, Seoul and Beijing all have in mind.