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North Korea Wants To Open Up Its Economy

December 7, 2018

View of the North Korean capital. Via Wikimedia Commons.

Vietnam’s state-owned media revealed an important, if uncontroversial, summit took place at the beginning of the month involving high-ranking officials from Hanoi and Pyongyang. The VIPs in attendance were Prime Minister Nguyen Xuan Phuc and North Korean Foreign Minister Ri Yong-ho, whose travel schedule has been packed for much of 2018, and the substance of their meeting suggests the latter is cultivating trade partners. This new effort comes as the historic Singapore Summit in June is still believed to have set North Korea on the path of “denuclearization.”

The opaque language used in Vietnam’s official press releases barely concealed the summit’s agenda. It turns out PM Nguyen “discussed with the guest the Doi Moi policy of Vietnam and measures to implement the policy under the leadership of the Communist Party over the past 30 years.”

Bringing up “Doi Moi” in the context of North Korea’s foreign policy is a telling sign. It serves as proof that Pyongyang is now looking to adopt economic reforms by seeking help from a friendly ally. The Socialist Republic of Vietnam is perhaps the most successful communist state in the 21st century (when not taking account China’s rise as a global power) after it opened up to foreign investment during the mid-1980s. Since then the national economy has soared and maintained consistent growth over three decades. Vietnam’s economic stats are impressive, with a nominal GDP reaching $224 billion and an official unemployment rate of 2.2% in a country whose population nears 100 million.

North Korea, on the other hand, can boast of possessing a modest nuclear missile arsenal while its economy remains in shambles. It’s true Kim Jong Un’s leadership has seen an improvement in citizens’ access to material goods and the state even allows small businesses to flourish, but every serious metric for economic performance still ranks North Korea an underdeveloped country. To offset its pariah status and widespread stagnation, Pyongyang allows its citizens to become migrant workers who send their wages home. Other illicit sources of income for the state are clandestine arms exports and cybercrime.

How exactly a “free market” in North Korea is supposed to look like is unclear. But judging by Vietnam’s own approach there will be no changes to the country’s governing structure while “reform” comes from opening parcels of land to foreign investors. The major draw to North Korea is its cheap labor and the relative freedom manufacturers can enjoy within their facilities. Its proximity to China is also a plus. So-called “Special Economic Zones” already operate inside North Korea but these are modest locations whose impact on nominal GDP is debatable.

There are a few caveats to welcoming North Korea’s anticipated experiment with economic reform. First, to applaud denucleariz/sation is ill-founded since Pyongyang and Washington, DC, must schedule additional conferences for hammering out its details. There’s a strong chance both sides are merely buying time until an inevitable collapse in diplomatic contact. This dashes any hope of North Korea selling itself as a new frontier for risk-hungry investors.

Second, if North Korea did manage to produce a detailed roadmap for improving its economy, the state maintains an unwelcome influence on business activities. Even if this isn’t apparent to investors and trade partners outside East Asia, transferring production facilities and skills for joint ventures in state-owned manufacturing hubs risks giving Pyongyang access to valuable technology it can use for its own ends. This isn’t a far-fetched scenario because it already happened in China during the 1980s and 1990s, a period when its state-owned enterprises evolved from assembling licensed commercial products to full-blown corporate espionage.

Third, North Korea remains on the brink of war with its neighbor across the 38th parallel despite warm relations between Pyongyang and Seoul. If sweeping economic reforms allow Kim Jong Un to adopt foreign technology, build infrastructure, improve telecommunications, and save up foreign currency reserves, his military stands to benefit from these. There’s ample proof of a sweeping modernization in its conventional arsenal now that a viable nuclear missile inventory exists. This is bad news for South Korea’s armed forces whose advantages over the North are limited to airpower, naval deterrence, and a US garrison.

Vietnam might have put a lot of effort in hyping its image as a business friendly destination to the world’s largest companies but this hasn’t diminished its role as Southeast Asia’s most heavily armed state. The same appears inevitable with North Korea as its economic reforms are laid out to serve the state’s ultimate goals: Unifying the Korean Peninsula and making the Kim regime even stronger.

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