2. Originality/value—This research shows the value of an alternate approach in
economic engagement with North Korea.
Key Words: Non-State-Centric International Economic
Engagement (NSCIEE), North Korean economic policy,
Special Economic Zones (SEZ), Track Two
Introduction
Resolving the security threats between North Korea and its regional neighbors
remains key to building a viable Northeast Asian security regime. Relationships with
the United States and the Republic of Korea (ROK) are marked by episodes of
urgency and high tensions in an otherwise predictable operating environment in
which all actors seem resigned to the continuation of the status quo.1
Since the Dem-
ocratic People’s Republic of Korea (DPRK) revealed its nuclear ambitions in 2002,
withdrawing from the Non-Proliferation Treaty of Nuclear Weapons (NPT) the fol-
lowing year, the U.S.–ROK Alliance has held the resolution of the nuclear crisis as
a precondition for normalizing diplomatic ties. This hardline stance, arguably, has
contributed to the present diplomatic impasse and there appears to be little impe-
tus for progress under the prevailing rigid policies.2
The current stalemate warrants exploration of a second front in engaging North
Korea—one not mired by the politics of denuclearization. The carrot-and-stick
approach, offering incentives for good behavior and punishing bad, has contributed
little toward normalizing North Korea’s relations with the international community,
and has failed to coerce obedience towards international norms.3
The contempo-
rary U.S. policy of “strategic patience”4
hints at fatigue and lack of direction. When
combined with economic sanctions, “strategic patience” affords North Korea more
time to develop a credible nuclear delivery capability while simultaneously build-
ing resentment. This article contends that continuation of this combination will (1)
harden the positions and rhetoric of relevant political actors, increasing the politi-
cal cost, internationally and domestically, of reversing stances5
; (2) increase the like-
lihood of unintentional military clashes and escalation6
; and (3) increase the internal
insecurity of the North Korean regime.
Appreciation of the North Korean regime’s insecurity dilemma7
is essential to
deciphering its motivations and designing a more effective North Korea policy.
Under current conditions, Pyongyang arguably faces greater existential threats from
internal forces than external ones. The elimination or collapse of the current regime
in North Korea in the short- to mid-term, given the resulting unpredictable fallout,
is not in the interests of any of the strategically engaged regional powers. North
Korea therefore likely faces external existential threats only in the event of uncon-
tainable internal insecurity spillover, or a humanitarian crisis of such magnitude that
it shocks the conscience of humankind, compelling outside actors to intervene. Inter-
nally, however, waves of domestic change, including “marketization from below”8
40 NORTH KOREAN REVIEW, SPRING 2014
3. and external knowledge proliferation, have already started to undermine the state’s
absolute control over the economy and information. In the current internal envi-
ronment, the North Korean regime lacks desirable alternative options; the regime
must eventually pursue reforms to survive, but those same reforms will likely sow
the seeds of its collapse. In order to change the regime’s calculus of policy options
vis-à-vis economic reform, the ruling elite’s insecurity must first be addressed.
This article introduces a new concept, Non-State-Centric International Eco-
nomic Engagement (NSCIEE), to be used as a non-exclusive approach to amelio-
rating Pyongyang’s insecurity. NSCIEE would create an environment for non-state
international actors, such as private enterprises and international financial institu-
tions, to interact with North Korea in economic engagements based on the princi-
ples of market forces rather than national interest. NSCIEE is fundamentally different
from economic engagement policies of the past in that the economic benefits to the
North Korean regime and its ruling elites through economic engagement would not
be a negative externality of the policy or a “cost of doing business” with the regime,
but rather one of the explicit goals of the policy. Ideally, the policy would allow the
regime to re-legitimize its economic authority before leading any reforms and, in
the process, secure a stake in the future of a reformed system. The purpose of NSCIEE
is not necessarily to push for the general economic reform of North Korea. As will
be discussed below, Pyongyang is currently not in a position to lead or accept such
wholesale reforms without risking the destabilization of the country and the secu-
rity of the regime. Rather, NSCIEE recognizes the limited policy alternatives of a
regime that is increasingly insecure from within and may eventually be forced to
pursue drastic means to ensure its survival. NSCIEE seeks to tilt the balance in favor
of economic reform rather than the belligerent externalization of internal weakness.
The authors have constructed a strictly rational and security-focused argument
for pursuing NSCIEE, aimed at the stimulation of conditions conducive to peace-
ful relations between actors in Northeast Asia. This article does not therefore address
the normative considerations of doing business with such an abhorrent regime, or
the potential human rights abuses that may result from the expansion of unfettered
capitalist operations in North Korea.
Economic engagement per se is not a new concept. Neoliberal economic
approaches emphasize that the national interest of states is not to be found exclu-
sively in the realm of power maximization, but rather a high priority is to be placed
upon economic well-being. By demonstrating, through repeat-play or iterated pris-
oners’ dilemma game theoretical modeling and related concepts, that states and their
subjects will be better off in absolute terms through cooperation in the pursuit of
mutually beneficial projects, proponents argue that a form of international society
can emerge in the absence of a leviathan regulating behavior. States not only need
to co-exist, they need each other to prosper, and prosperity leads to a virtuous cycle
of conflict de-escalation. An opponent is likely to embark on a course of action that
will result in an outcome detrimental to one’s interests if for them the costs of the
action are less than the difference between an unhappy status quo and a happier post-
bellum operating environment. So rather than increasing the costs to them of the
Addressing North Korean Security Challenges 41
4. action (defense), or decreasing the desirability to them of the outcome (deterrence),
one can instead increase the desirability of the status quo. The conflict of interests
is resolved through a process of making everybody better off economically through
cooperation and the creation of collective goods.
The foundational concepts have a significant prehistory. The belief in peace
through trade reached a false dawn with Normal Angell’s “Great Illusion,” in which
he outlined how an intertwining of interests—complementary interests resulting
from a division of labor, the cobweb-structure of monetary interests, and the com-
plex relations between finance and trade—made war for profit an irrational under-
taking.9
Angell did not claim that war had become impossible, only that in economic
terms it was no longer a rational enterprise, and that man can, since he makes war,
also make wars to cease.10
In David Mitrany’s “functionalism,” “material interde-
pendence” develops its own internal dynamic as states integrate in limited func-
tional, technical, and/or economic areas. This promotes a peaceful outlook among
actors because everyone is made better off by cooperation, because economic inter-
dependence increases the cost of war and the benefits of peace (status quo), and
because cooperation “spills over” into the high political sphere of security through
the establishment of a culture of cooperation rather than conflict.11
Thus as Edward
Morse has contended, “Foreign policy has been radically transformed by the revo-
lutionary process of modernization … wherever high levels of modernization exist.”12
Liberal engagement policies therefore divorce “wealth and welfare from con-
trol over territory, and thereby remove one of the main reasons for the use of force.”13
This is the logic behind the economic side of Russet and Oneal’s virtuous triangle.14
Such thinking can be found behind a number of engagement initiatives toward North
Korea, ranging from the “Sunshine Policy” of South Korea’s Kim Dae-jung admin-
istration, through the Peace and Prosperity Policy of Rho Moo-hyun, to (arguably)
the current Park Geun-hye administration’s “Trustpolitik”—a more “balanced”
approach to “sustainable peace” with Pyongyang when compared to the hardline
policies of her predecessor, Lee Myung-bak. It is also one of the rationales behind
other international assistance to the failing DPRK state—a happy coincidence
between doing the normatively right thing in helping the vulnerable citizenry, and
the strategically rational thing in terms of enhancing regional security through pro-
moting regime transition. The Kaesong Industrial Complex (KIC) was designed to
facilitate the growth of economic interdependence and trust between the two Koreas,
to provide much needed hard currency for the North, and to promote a gradual
transition within the DPRK. It also serves as a gauge of the severity of tensions
between the North and South. In 2013, inflammatory rhetoric and actions by both
sides was not sufficient to disconcert most observers until the KIC was shut down
in April.
All of these previous initiatives, however, suffer from an overtly state-centric
and inter-governmental focus leading to them being undermined by the practical
internal and international politics of regime survival. They have failed to promote
interdependence between the conflicting parties. Due to disgust with the North
Korean regime among international actors, and fear of a loss of national sovereignty
42 NORTH KOREAN REVIEW, SPRING 2014
5. and policy control in Pyongyang, they have failed to promote development or regime
transition. International economic engagement has been politicized and then secu-
ritized to the extent that it has become unconscionable for either side to give ground.
Thus, key to NSCIEE is the extent to which economic development issues can be
depoliticized through the use of international non-state actors. The authors acknowl-
edge the limits of NSCIEE insofar that it is not a silver bullet to resolve the security
conundrum on the Korean Peninsula, nor a universal prescriptive policy frame-
work. Instead, NSCIEE would be an engagement mechanism independent of, rather
than mutually exclusive to, broader policies. NSCIEE would therefore initially be
akin to an economic version of Track II dialogues.
This article first addresses the extent to which, due to lack of palatability of
alternatives, major state actors in the region have vested interests in the survival of
the North Korean regime. It then identifies existential threats to the regime. Finally,
it considers how policies and strategic operating environments could be transformed
for the collective good through NSCIEE, and the advantages this approach holds over
traditional, state-centric policies.
Actors and Interests
The stability and continuation of the North Korean regime, albeit on a more
promising trajectory, may serve the common interests of all states involved in the
six-party talks.15
Within the geopolitical and historical constraints of the current
environment there is no consensus on a superior alternative, and the sudden desta-
bilization or overthrow of the North Korean regime would not lead to a positive out-
come for the Northeast Asian security environment.16
Likewise, a North Korean
entity weakened to the extent of being merely a puppet of either China or U.S.–ROK,
or fully absorbed by either side, would be strategically unacceptable to the other.17
China will not accept the possibility of rival forces camped on its border (a prospect
which triggered Chinese intervention in the Korean War). South Korea has vocif-
erously condemned Chinese claims to Goguryeo heritage precisely due to the fact
that it is seen as an attempt by China to swallow half of historic Korea.18
And the
U.S. cannot accept the geostrategic consequences of having its democratic bridge-
head in East Asia undermined. Unification by force would only be exercised in the
absence of alternatives due to the economic and human costs inevitable in such an
undertaking.19
By default therefore, albeit unwillingly, regional neighbors have a
vested interest in the viability of the current North Korean regime.
The major regional actors favor North Korea becoming a more responsible
actor. From belligerent rhetoric to military provocations and its nuclear program,
Pyongyang’s actions are widely considered irresponsible and a threat to regional
security.20
The spiral model of escalation even considers the possibility of North
Korea unilaterally and unintentionally initiating conflict on a larger scale.21
Given
this lowest common denominator for stability and responsibility, building a “status
quo plus” even through a successful gradual transition within the current regime
Addressing North Korean Security Challenges 43
6. should be an acceptable and consensus-building objective. In order to secure this
objective, however, the international community needs to give greater considera-
tion to the interests of the North Korean regime itself.
International actors and policy analysts have historically found it difficult to
assess what successive administrations in Pyongyang actually want, with the lead-
ership seen as unpredictable, irrational, and governed by the whims of an eccentric
supreme leader.22
Pyongyang’s negotiating strategies even seem designed to take
advantage of this “madman” reputation and asymmetrical knowledge of intentions.23
Nevertheless, although misunderstandings persist, there is something of a contem-
porary consensus recognizing the North Korean regime as a rational actor that holds
its survival as the foremost objective.24
The regime has displayed flexibility in achiev-
ing this objective: morphing ideology to suit the need of the day,25
conducting super-
ficial economic reforms to appease an unsettled populace, and granting timely
“concessions” to extract international aid.26
The calculus of regime survival out-
weighs all others and ultimately, regime survival is in the name of self-interest and
political survival of the leadership. North Korean rulers “sincerely believe that their
current policy has no alternatives, and that any other policy choice will bring ruin
to them and their families.”27
The goal of regime survival and the maintenance of
special privileges for the regime’s power elites are intertwined.28
In North Korea, the
power elite can be defined as the members of the extended Kim family, the Worker’s
Party, the military and security apparati, and the state bureaucracy.29
As in other authoritarian states, the loyalty of the elites is necessary for the sur-
vival of the current regime.30
Indeed, the regime has reliably provided special priv-
ileges for the elites even at the cost of the general populace: the provisions of extra
rations and even luxury goods, rent-seeking opportunities, and confiscatory eco-
nomic policies designed to transfer wealth to the elites.31
The fate of the regime and
the ruling elite is interdependent; the ruling elite’s loyalty is necessary for the regime’s
survival and the regime’s survival is the most predictable and reliable way for the
elites to maintain their privileges.32
Therefore, the effectiveness of a policy that seeks
to motivate cooperative responses from Pyongyang will be influenced by its align-
ment with interests of the ruling elites.
Existential Threats to the Regime
North Korea conceivably faces existential threats from U.S.–ROK and China,
both of which have the ability to absorb North Korea. Such a scenario is, however,
unlikely due to geopolitical, economic and humanitarian reasons. South Korea is
disinclined to invade the North primarily because “the North Korean military holds
Seoul hostage”33
and “in the case of unification by force, the cost for Korean unifi-
cation is considered too high to calculate.”34
The U.S. is unlikely to invade the North
without South Korea’s support, and would face overwhelming resistance from
domestic and international political constituencies. Barring an unexpected and unin-
tentional military escalation with U.S.–ROK, therefore, “war is extremely unlikely.”35
44 NORTH KOREAN REVIEW, SPRING 2014
7. While China could look to increase its influence in North Korea to counter that of
U.S.–ROK, it would only move to annex the DPRK as a result of regime collapse—
i.e., once the regime had ceased to exist, and thus China does not pose an existen-
tial threat. Indeed, collapse or at least significant destabilization of the regime is the
prerequisite for the majority of external intervention scenarios.36
In the absence of
a catalyst from North Korea, however, the status quo looks likely to remain. Thus
we must turn toward the internal dynamics of the DPRK to uncover existential
threats to the regime.
Internally, the regime is stuck between an unsustainable present and an unas-
sured future. Irreversible changes in state control over economy and information
have loosened the regime’s absolute control over the populace. Since the de facto
failure of the centrally planned economy in the 90s and the ensuing “marketization
from below,” the North Korean population is no longer exclusively dependent on
the state for its needs, with informal economic activities contributing to 78 percent
of North Korean households’ total income between 1998 and 2008.37
“If anything,
reliance on the market appears to have gone up over time.”38
The loosening grip of
central authority through “shadow” markets can be seen in the proliferation of cor-
ruption, cases of social mobility, and the growing authority and leadership of the
new merchant class.39
More worryingly for the regime, past attempts to rein in pri-
vate markets have been fruitless, and the state does not have the option to disband
the markets without risking severe economic instability.40
Now the only question is
how successful will the state be in its efforts to systematically control the market
and to extract rents.
Loss of the information monopoly is symptomatic of the loss of absolute con-
trol over the population. From illegal VCD/DVDs and radio programs, to first-hand
accounts of the outside world, non-state sources of information have flourished.41
Referring to a survey of North Korean defectors in which 40 percent listened to an
illegal South Korean radio station more than twice a week, and another 40 percent
on a daily basis, Silberstein states that although the survey sample may be skewed,
“Monopoly on mass communication has not only begun to erode, but has been heav-
ily damaged.”42
This amounts to a devastating blow to the North Korean regime’s
traditional methods of control, including the carefully crafted cult of personality
and the propaganda of a destitute and hostile outside world.43
Approximately half
a million North Korean refugees have been repatriated from China where they
learned that, “more or less everything that he or she used to read in the official media
about the South is a blatant and grotesque lie.”44
The regime continues to lose legit-
imacy with growing awareness of where the blame lies for North Korea’s economic
backwardness and the aggrandized nature of purported external existential threats.
Under present conditions, however, the North Korean regime cannot attempt
broad and systematic reform without risking regime stability. True economic reform
would require the reform of the whole system, including the “considerable relax-
ation of the information blockade and daily surveillance.”45
Moon goes as far as stat-
ing, “Economic opening and increased exposure to the outside world following the
reform will instantly trigger political and social instability.”46
In the case of regime
Addressing North Korean Security Challenges 45
8. collapse, the elites will have the most at stake to lose. Unlike certain ex–Soviet states,
where former party bosses benefited most from the collapse of the communist
regimes, the elites of North Korea would likely become personae non grata and per-
haps even prosecuted by the international community for the humanitarian disas-
ter perpetuated by the regime.47
Given the regime’s lack of experience and expertise in market systems, honest
efforts to reform are unlikely to improve economic performance.48
Even if economic
reforms are successful, there is no guarantee that the existing elites would maintain
their pre-reform political and economic clout. Elite insecurity is amplified by the
fact that, even today, the new class of entrepreneurs is the relative winner of the coun-
try’s marketization trend.49
Therefore, as Kim Jong-nam sums up, “The North
Korean leadership is stuck in a bind. Without reforms the country’s economy will
go bankrupt, but reforms are fraught with the danger of systemic collapse.”50
The
regime has little choice but to pursue its current strategy either in an effort to buy
time to plan its future course or as a result of paralysis due to limited options.
Broadening Options
The international community has the capacity to improve the calculus of pol-
icy options for the North Korean regime by supporting the mitigation of its insecu-
rity. To this end, external engagement policies toward Pyongyang should aim to
stabilize the present while offering viable alternatives that would lead to a soft land-
ing and gradual transformation. The interests of the international security regime
and the DPRK leadership are not mutually exclusive; both would benefit from a
North Korean regime with more flexibility in policy making. It would be unrealis-
tic to expect the regime suddenly to exercise its new options without a persuasive
catalyst, but even the existence of viable alternative paths has the potential to influ-
ence its decision making. In essence, the international community should support
the creation of a non-threatening environment that would allow for the North
Korean regime to pursue alternative paths without endangering its survival.
NSCIEE would be one such engagement policy as it could create an environ-
ment supportive of non-state international actors, such as private enterprises and
international financial institutions, interacting economically with North Korea based
on the principles of laissez-faire (i.e., with minimal involvement of national govern-
ments) market forces. The non-state-centric nature of NSCIEE is key to creating a
depoliticized environment for economic interaction. As a result of the structure of
commercial enterprises, in which even de facto private companies operate under an
official state license, direct or indirect state involvement on the North Korean side
of the economic engagement may be inevitable.51
Non-DPRK counterparties would,
however, be non-state concerns. Although it is unrealistic to expect economic
engagement under NSCIEE to be fully depoliticized, its non-state-centric nature
would contribute to depoliticization by: (1) separating the actors of commerce and
politics; (2) unburdening politicians from domestic pressures to demonstrate diplo-
46 NORTH KOREAN REVIEW, SPRING 2014
9. matic “progress” through economic engagement; and (3) distancing future economic
interactions from the failed state-state interactions of the past.
China’s trade with North Korea provides a rare example of a sustained and sub-
stantive economic relationship with the DPRK. In 2011, China accounted for 70.1
percent ($5.6 billion) of the North’s total trade volume of $8 billion, and the year-
on-year growth from 2010 was 62.4 percent.52
Although large-scale economic invest-
ments between the two countries in industries such as mining can be considered
state-driven, much of the bilateral trade involves private merchants and traders who
are driven chiefly by market opportunities.53
The Chinese government has been sup-
portive but, by and large, the actors are non-state commercial entities seeking to
profit and willing to remain uninvolved in political matters. The Chinese compa-
nies “for the most part do not rely on contacts with the Chinese government for the
success of their businesses.”54
Chinese ventures in North Korea that have gone awry
have not negatively affected state-level relations.55
In these cases, private investors
made a business bet in North Korea, they lost money, and their business relations
with their North Korean counterparts were terminated—not unlike any other cases
of failed businesses around the world.
By contrast, North Korea’s economic relationship with South Korea is charac-
terized by heavy state involvement,56
and is therefore hostage to the political moti-
vations of both the North and the South. The politics of the KIC exhibit what might
be called “reverse leverage” in that rather than moderating North Korean behavior
and encouraging the spread of reform, Pyongyang has sought to manipulate South
Korea’s high sunk costs in order to pressure Seoul.57
This tactic backfired when the
North was entrapped by its own bellicose rhetoric into shutting down the KIC in
2013, thereby denying itself vital revenue.58
Kaesong is now more a political than a
commercial concern. The politicization of economic interaction limited its eco-
nomic potential and did little to change the calculus of future policy options avail-
able to the regime.
State-centric economic engagements are viewed with suspicion. Despite oper-
ating principles such as “easy tasks first, difficult tasks later,” “economy first, poli-
tics later,” and “give first, take later,”59
the DPRK initially expressed strong antipathy
to the Sunshine Policy, calling it a vicious, cunning policy to disarm the North and
undermine its people’s integrity.60
Likewise, a senior official inside South Korea’s
Lee administration referred to Kaesong as a “Trojan Horse.”61
Indeed, “Kim Jong-
il had long been wise to the theory of ‘poisoned carrots,’ that an economic hand-
out could carry with it a political contagion that might endanger a closed system.”62
The difficulty of state-state economic engagement on the non–DPRK side of the
equation is its domestic political palatability, or rather its unpalatability. Politicians
are reluctant to appear to be “appeasing” North Korea or rewarding it for its mis-
conduct.63
In the U.S. arguments for the strategic benefits of economic engagement
will have to outweigh the many arguments against it.64
Moreover, given the higher
likelihood of corruption scandals from state-centric interactions, the justification
for state-state economic engagement may face additional hurdles. In reference to
the under-the-table payment scandal from the 2000 North-South summit, Babson
Addressing North Korean Security Challenges 47
10. states, “the risk of corruption’s playing a major role in use of public resources mobi-
lized for the DPRK is high … public funds can be used in nontransparent ways that
ultimately undermine the objectives of reconciliation and distort incentives for the
DPRK to adopt businesslike practices in its dealings with foreigners.”65
North Korea has expressed interest in attracting more foreign businesses and
has even included assumptions of significant inbound foreign capital in its future
development projections.66
Examples include North Korea’s burgeoning trade with
entities from China and other non-threatening countries.67
Koryolink, the 5-year-
old joint venture between North Korea’s state-owned Korea Post and Telecommu-
nications Corporation (KPTC) and Egypt’s Orascom Telecom Holding, now
provides mobile telecommunication to over 2 million subscribers, or approximately
eight percent of the country’s population.68
The scale of the joint venture, especially
in a potentially strategic industry, is both surprising and impressive, and it appears
to be a solely economics-driven engagement.69
Orascom appears to be flexible regard-
ing the regime’s sensitivities, providing capital, technology, and upfront investment
with few if any political tie-ins. Perhaps most importantly, Orascom’s interests do
not contradict the interests of the regime.70
Going forward, special attention should
be paid to Orascom’s business dealings in North Korea, especially in light of the
announcements that Orascom will seek to leverage its foothold in North Korea to
expand into other industries beyond telecommunication.71
Orascom’s business
arrangements with North Korea may be a precedent on which to explore future
modes of economic engagement with North Korea, especially for other non-state
enterprises.
In the context of NSCIEE, however, economic engagement would initially be
much more limited in scope, especially geographically. Pyongyang will likely only
be interested in a geographically limited and controlled economic complex, such as
a special economic zone (SEZ). The SEZ model would allow the North Korean regime
to discreetly explore reforms on a limited scale by “pursuing actions rather than
acknowledging that change is occurring in words.”72
Under NSCIEE, the market
discipline mechanism of “voting with the feet” is more effective because it lessens
the non-commercial frictions that often accompany market exits. This is because
private enterprises have the option of exiting North Korea based on economic ration-
ale and without lasting negative consequences, whereas states do not have this lux-
ury because of the political and sometimes security repercussions of ceasing
engagement. By transforming the nature of North Korea’s external relationships
into a more market-oriented one, NSCIEE increases the effectiveness of the market
discipline mechanism in imposing accountability on the North Korean regime.
Fortunately, the North Korean regime appears to be taking steps to familiarize
itself with the market system. These steps are significant not only because they show
that the regime may realize the value of market systems, but also because one must
know the rules of a game in order to play by the rules. Arguably, in the past North
Koreans may not have fully grasped the limits of what conditions were and were not
acceptable to international market participants. Perhaps in an effort to rectify this
shortcoming, in recent years, “North Korea’s economic officials have been sent over-
48 NORTH KOREAN REVIEW, SPRING 2014
11. seas to Canada, the UK, Southeast Asian countries and China to learn about capi-
tal markets, financial capitalism and capitalist management systems. These educa-
tional trips are geared to building of special economic zones, rather than reform of
the mainstream Northern economy.”73
Conclusion
Traditional state-centric engagements with North Korea, whether through polit-
ical power coercion or neo-liberal economic engagement, have failed to significantly
modify the destabilizing behavior of the regime in Pyongyang. This is primarily the
result of a perceived lack of policy options among the governing elite with regard
to preserving regime security. Thus, the authors advocate opening a new avenue of
engagement which is not only less threatening and politicized, but also may con-
tribute significantly to the resources available to the elite and therefore their own-
ership of and commitment to the process.
Non-state-centric international economic engagement would not push for the
general economic reform of North Korea. As argued above, the North Korean regime
is currently unprepared to lead such a reform without risking destabilization. Of the
multiple moving parts that must align before prudent reform of the overall system
is possible, NSCIEE would seek to address one critical piece—the internal insecu-
rity of the North Korean regime. As Choi notes, “History shows that any changes
in North Korean economic policies arise from internal political factors, and do not
follow from outside pressure, nor from Chinese advice.”74
The objective of NSCIEE
is to give the North Korean elites the tools to re-legitimize its economic authority
and to give them a stake in the future of a reformed system by providing them: (1)
legitimate ways to attain financial resources; (2) knowledge of the market economy;
and (3) legitimacy, on personal levels, as members in the international community.
The demand for workers from economic activity would allow the regime to dis-
tribute gainful employment to the populace. Despite the drawbacks of state-centric
engagement listed above, the KIC at least provides employment to some 53,000
workers under better conditions than the average North Korean worker, and the eco-
nomic spillover effect from KIC indirectly supports the livelihood of 200,000 North
Koreans in the broader Kaesong area.75
Reviving the peoples’ faith in the state as a
provider of gainful employment is a meaningful step in re-legitimizing the regime’s
economic authority. NSCIEE would provide similar benefits but with fewer draw-
backs than the state-centric model.
NSCIEE would give the North Korean elites much needed experience in navi-
gating the market economy. In previous limited economic reforms such as those in
July 2002 and the currency reform of 2009, the North Korean regime displayed its
incomplete understanding of market mechanisms. As detailed earlier, there are cur-
rently signs that the elites are being left behind in the marketization trend and are
seeking to benefit from it through rent-seeking and confiscatory policies rather than
through productive economic ventures.76
The elites’ hesitancy to spearhead any type
Addressing North Korean Security Challenges 49
12. of general economic reform is therefore understandable; they are not the best pre-
pared to succeed in the free market, and so will resist it unless sufficiently empow-
ered.
NSCIEE can give the elites a “sneak preview” of how markets operate and how
they can best compete within them. One of the key advantages of SEZs from a state’s
perspective is the opportunity to test reforms in “demonstration areas” and refine
policies while building human capital and an institutional knowledge base.77
Through
participating in these SEZs under NSCIEE, elites will gain understanding of market
systems, increasing their confidence in designing an institutional framework for
economic reforms and in competing effectively in a post-reform North Korea. Hard
currency earned from NSCIEE would also allow elites to accumulate investment
capital before general economic reforms. The accumulation of personal capital for
investment would prepare the elites to transition successfully into a market system
where power and influence is synonymous with wealth.
North Korean elites may further be able to legitimize themselves, on personal
levels, as members of the international community through building personal con-
nections with foreign counterparts under NSCIEE. At the regime level, David Kang
argues that, “North Korea’s search for status is as important as its search for mili-
tary power or economic wealth.”78
North Korean leaders recognize the value of sta-
tus and relevance; there is little reason to believe that they wouldn’t seek international
legitimacy for themselves on a personal level in the case of a market opening. NSCIEE
would arguably help the elites form personal and commercial ties with some of the
most relevant outside entities, since they would be the first entities to explore busi-
ness opportunities in North Korea.
It is only through enrolling the support of North Korea’s elites, while at the same
time training them in the practicalities of economic wealth generation, can we hope
to address Pyongyang’s insecurity dilemma, while transforming domestic political
and international relations. It is only through thinking outside the box of tried and
tested, and ultimately unsuccessful state-centric engagement can we move beyond
the unsatisfactory status quo on the Korean Peninsula.
Notes
1. Zheng Jiyong, “The ‘Conflict-Reconciliation’ Cycle on the Korean Peninsula: A Chinese
Perspective,” The Korean Journal of Defense Analysis vol. 24, no. 1 (March 2013), pp. 123–139.
2. Samuel S. Kim, “North Korea’s Nuclear Strategy and the Interface Between International
and Domestic Politics,” Asian Perspective vol. 34, no. 1 (2010), pp. 49–85.
3. Richard Weitz, “Regional Powers Grapple with North Korea’s New Leader Kim Jong Un,”
Korean Journal of Defense Analysis vol. 24, no. 3 (September 2012), pp. 405–18.
4. Charles L. Pritchard, John H. Tilelli and Scott A. Snyder, “U.S. Policy Toward the Korean
Peninsula,” Council on Foreign Relations, Independent Task Force Report No. 64 (2010), http://
www.cfr.org/north-korea/us-policy-toward-korean-peninsula/p22205, accessed July 29, 2013.
5. For example, North Korea revised its constitution in 2012 to update its status as a “nuclear-
armed state,” thereby increasing the political sunk cost of rolling back a nuclear program integral
to its international and domestic prestige.
6. Paul B. Stares, “Military Escalation in Korea,” Council on Foreign Relations, Contingency
Planning Memorandum No. 10 (2010); Wesley Clark, “An Accident, Then War with North Korea?”
50 NORTH KOREAN REVIEW, SPRING 2014
13. CNN, April 8, 2013; Carla Robbins, “North Korea’s Nuclear Threats: 5 Minutes with U.S. National
Security Expert Carla Robbins,” Georgetown Journal of International Affairs, April 15, 2013.
7. Brendan Howe, “North Korea’s Insecurity Dilemma,” North Korean Review vol. 6, no.
2 (Fall 2010), pp. 74–85. http://dx.doi.org/10.3172/NKR.6.2.74.
8. Stephan Haggard and Marcus Noland, Famine in North Korea: Markets, Aid, and Reform
(New York: Columbia University Press, 2007).
9. Norman Angell, The Great Illusion (New York: G. P. Putnam’s Sons, G. P. Putnam’s Sons,
1913); Norman Angell, The Great Illusion—Now (Harmondsworth: Penguin, 1938).
10. Norman Angell, “Nobel Lecture,” University of Oslo, 1933, http://nobelprize.org/nobel_
prizes/peace/laureates/1933/angell-lecture.html, accessed December 7, 2013.
11. David Mitrany, The Progress of International Government (New Haven: Yale University
Press, 1933).
12. Edward Morse, “The Transformations of Foreign Policies: Modernization, Interdepend-
ence and Externalization,” World Politics 22(3) (1970), pp. 371–92.
http://dx.doi.org/10.2307/2009602.
13. Barry Buzan and George Segal “Rethinking East Asian Security.” In Klare, M. and Chan-
drani, Y. (eds.), World Security: Challenges for a New Century (New York: St. Martin’s Press, 1998),
pp. 103.
14. Bruce Russet and John O’Neal, Triangulating Peace: Democracy, Interdependence, and
International Organizations (New York: Norton, 2001).
15. Suk Hi Kim, “North Korea: Yesterday, Today, and Tomorrow.” In Suk Hi Kim, Terence
Roehrig and Bernhard Seliger (eds.), The Survival of North Korea (Jefferson, NC: McFarland, 2011),
pp. 11–26.
16. Moon Chung-in, “Managing Collateral Catastrophe: Rationale and Preconditions for
International Economic Support for North Korea.” In Ahn Choong-yong, Nicholas Eberstadt and
Lee Young-sun (eds.), A New International Engagement Framework for North Korea? (Washing-
ton, D.C.: Korea Economic Institute of America, 2004), pp. 117–142
17. Ibid.
18. Jae Ho Chung, “China’s ‘Soft’ Clash with South Korea: The History War and Beyond,”
Asian Survey vol. 49, no. 3 (May/June 2009), pp. 468–483.
http://dx.doi.org/10.1525/as.2009.49.3.468.
19. Jong-Yun Bae, “South Korean Strategic Thinking Toward North Korea: The Evolution
of the Engagement Policy and Its Impact Upon U.S.–ROK Relations,” Asian Survey,vol. 50, no. 2
(March/April 2010), pp. 335–355. http://dx.doi.org/10.1525/as.2010.50.2.335.
20. Mark Fitzpatrick, “North Korea: Is Regime Change the Answer?” Survival: Global Pol-
itics and Strategy vol. 55, no. 3 (May 2013), pp. 7–20.
21. Van Jackson, “Beyond Tailoring: North Korea and the Promise of Managed Deterrence,”
Contemporary Security Policy vol. 33, no. 2 (August 2012), pp. 289–310.
http://dx.doi.org/10.1080/13523260.2012.693795.
22. John Feffer, “Infantilizing North Korea,” Huffington Post, May 17, 2013.
23. Denny Roy, “Parsing Pyongyang’s Strategy,” Survival: Global Politics and Strategy vol.
52, no. 1 (February/March 2010), pp. 111–136.
24. Among others: Yongho Kim, “North Korea’s Threat Perception and Provocation Under
Kim Jong-un: The Security Dilemma and the Obsession with Political Survival,” North Korean
Review vol. 9, no. 1 (Spring 2013), pp. 6–19; Park Young-taek, “The Structural Elements of North
Korea’s Insecurity Applying the ‘Regional Security Complex Theory,’” The Korean Journal of
Defense Analysis vol. 24, no. 3 (September 2012), pp. 321–333.
25. Charles Armstrong, “The Role and Influence of Ideology.” In Kyung-ae Park and Scott
Snyder (eds.), North Korea in Transition: Politics, Economy, and Society (Plymouth: Rowman &
Littlefield, 2012), pp. 3–18.
26. Nicholas Eberstadt, “Western Aid: The Missing Link for North Korea’s Economic
Revival?” The American Enterprise Institute Working Paper Series on Development Policy no. 6
(April 2011), http://www.aei.org/files/2011/04/26/files/2011/04/26/Updated-Eberstadt-DPWork-
ingPaper-April2011.pdf, accessed July 29, 2013.
27. Andrei Lankov, The Real North Korea: Life and Politics in the Failed Stalinist Utopia
(New York: Oxford University Press, 2013), p. xv.
Addressing North Korean Security Challenges 51
14. 28. Kim Jina, “An Analysis of Political Instability in the DPRK: Identity, Interest, and Leader-
Elite Relations,” The Korean Journal of Defense Analysis vol. 25, no. 1 (March 2013), pp. 87–107.
29. Kongdan Oh Hassig et al., “North Korean Policy Elites,” Institute for Defense Analyses
(June 2004), p. I-1, http://www.dtic.mil/dtic/tr/fulltext/u2/a427588.pdf, accessed July 29, 2013.
30. Erica Frantz and Natasha Ezrow, The Politics of Dictatorship: Institutions and Out-
comes in Authoritarian Regimes (Boulder: Lynne Rienner, 2011), p. 2.
31. Daniel Byman and Jennifer Lind, “Pyongyang’s Survival Strategy,” International Secu-
rity vol. 35, no. 1 (Summer 2010), pp. 44–74. http://dx.doi.org/10.1162/ISEC_a_00002.
32. Ibid.
33. Denny Roy, “Parsing Pyongyang’s Strategy.”
34. Jong-Yun Bae, “South Korean Strategic Thinking Toward North Korea: The Evolution
of the Engagement Policy and Its Impact upon U.S.–ROK Relations.”
35. Denny Roy, “Parsing Pyongyang’s Strategy.”
36. Yong-Sup Han, “The ROK–U.S. Cooperation for Dealing with Political Crises in North
Korea,” International Journal of Korean Studies vol. 16, no. 1 (Spring 2012), pp. 54–73.
37. Andrei Lankov, The Real North Korea: Life and Politics in the Failed Stalinist Utopia,
p. 82.
38. Stephan Haggard and Marcus Noland, “The Winter of Their Discontent: Pyongyang
Attacks the Market,” Policy Brief vol.10, no.1, (Washington, D.C.: Peterson Institute for Interna-
tional Economics, January 2010), http://www.iie.com/publications/pb/pb10-01.pdf, accessed July
29, 2013.
39. Jae-Cheon Lim and InJoo Yoon, “Institutional Entrepreneurs in North Korea: Emerg-
ing Shadowy Private Enterprises Under Dire Economic Conditions,” North Korean Review vol. 7,
no. 2 (Fall 2011), pp. 82–93. http://dx.doi.org/10.3172/NKR.7.2.82.
40. Ibid.
41. Stephan Haggard and Marcus Noland, “Sanctioning North Korea: The Political Econ-
omy of Denuclearization and Proliferation,” Occasional Paper No. 1 (La Jolla: UC Institute on
Global Conflict and Cooperation, September 2009), http://www.iie.com/publications/wp/wp09-
4.pdf, accessed July 29, 2013.
42. Benjamin Katzeff Silberstein, “North Korea: Fading Totalitarianism in the ‘Hermit King-
dom,’” North Korean Review vol. 6, no. 2. (Fall 2010), pp. 40–54.
http://dx.doi.org/10.3172/NKR.6.2.40.
43. Daniel Byman and Jennifer Lind, “Pyongyang’s Survival Strategy,” International Secu-
rity vol. 35, no. 1 (Summer 2010), pp. 44–74. http://dx.doi.org/10.1162/ISEC_a_00002.
44. Andrei Lankov, The Real North Korea: Life and Politics in the Failed Stalinist Utopia,
p. 102.
45. Ibid., p. 113.
46. Moon Chung-in, “Managing Collateral Catastrophe: Rationale and Preconditions for
International Economic Support for North Korea.”
47. Andrei Lankov, The Real North Korea: Life and Politics in the Failed Stalinist Utopia,
pp. 112–5.
48. Un-Chul Yang, “Downfall of the North Korean State Economy: Losing Political Author-
ity and Gaining Military Frailty,” International Journal of Korean Studies vol. 26, no. 1 (Spring
2012), pp. 209–31.
49. Ibid.
50. Tokyo Shimbun, February 2, 2011.
51. Jae-Cheon Lim and In Joo Yoon, “Institutional Entrepreneurs in North Korea: Emerg-
ing Shadowy Private Enterprises Under Dire Economic Conditions.”
52. Korea International Trade Association (KITA), “China–North Korea Trade 2011,” (April
2012).
53. Stephan Haggard and Marcus Noland, “Networks, Trust, and Trade: The Microeconom-
ics of China–North Korea Integration,” Working Paper 12–8, (Washington: Peterson Institute for
International Economics, May 2012), http://www.iie.com/publications/wp/wp12-8.pdf, accessed
July 29, 2013.
54. Drew Thompson, “Silent Partners: Chinese Joint Ventures in North Korea,” U.S.–Korea
Institute Report (Washington, D.C.: U.S.–Korea Institute at SAIS, February 2011), http://uskorea
52 NORTH KOREAN REVIEW, SPRING 2014
15. institute.org/wp-content/uploads/2011/02/USKI_Report_SilentPartners_DrewThompson_020311.
pdf, accessed July 29, 2013.
55. See Jane Perlez, “China-Korea Tensions Rise After Failed Venture,” New York Times,
October 20, 2012; Mark Mackinnon, “‘Ghost city’ of Dandong New District a Specter of North
Korea’s Paranoia,” The Globe and Mail, April 24, 2013.
56. Stephan Haggard and Marcus Noland, “The Microeconomics of North–South Korean
Cross-Border Integration,” Working Paper 12–9 (Washington, D.C.: Peterson Institute for Inter-
national Economics, May 2012), http://www.iie.com/publications/wp/wp12-9.pdf, accessed July 29,
2013.
57. Stephan Haggard and Marcus Noland, “Sanctioning North Korea: The Political Econ-
omy of Denuclearization and Proliferation.”
58 “N. Korea Pulls Workers Out of Kaesong Complex,” Chosun Ilbo, April 9, 2013.
59. Moon Chung-in, Sunshine Policy: In Defense of Engagement as a Path to Peace in Korea
(Seoul: Yonsei University Press, 2012), p. 26.
60. Chung Oknim, “The Role of South Korea’s NGOs: The Political Context.” In L. Gordon
Flake and Scott Snyder (eds.), Paved with Good Intentions: The NGO Experience in North Korea
(Westport: Praeger, 2003), p. 90.
61. Patrick M. Cronin, “Vital Venture: Economic Engagement of North Korea and the
Kaesong Industrial Complex,” Center for a New American Security (February 2012), http://www.
cnas.org/files/documents/publications/CNAS_VitalVenture_Cronin_0.pdf, accessed July 29, 2013.
62. Ibid.
63. Sung Chull Kim and David C. Kang, Engagement with North Korea: A Viable Alterna-
tive (New York: SUNY Press, 2009), pp. 12–13.
64. Mark E. Manyin and Mary Beth Nikitin, “Foreign Assistance to North Korea,” Con-
gressional Research Service, April 26, 2012, http://www.fas.org/sgp/crs/row/R40095.pdf, accessed
July 19, 2013.
65. Bradley O. Babson, “Designing Public Sector Capital Mobilization Strategies for the
DPRK.” In Ahn Choong-yong, Nicholas Eberstadt and Lee Young-sun (eds.), A New International
Engagement Framework for North Korea? (Washington, D.C.: Korea Economic Institute of Amer-
ica, December 2004), p. 233.
66. Charles Kartman and Susan Shirk, “North Korea Inside Out: The Case for Economic
Engagement,” Asia Society Center on U.S.–China Relations, October 2009; Nicholas Eberstadt,
“Western Aid: The Missing Link for North Korea’s Economic Revival?”
67. Stephan Haggard and Marcus Noland, “Sanctioning North Korea: The Political Econ-
omy of Denuclearization and Proliferation.”
68. Reuters, “Orascom N. Korea 3G Unit Gains 2mln Subscribers,” May 29, 2013.
69. Alexandre Y. Mansourov, “North Korea on the Cusp of Digital Transformation,” Nau-
tilus Institute Special Report, October 20, 2011, http://nautilus.org/wp-content/uploads/2011/12/
DPRK_Digital_Transformation.pdf, accessed July 19, 2013.
70. Ibid.
71. “Orascom and DPRK to Complete Ryugyong Hotel Construction,” Wilson Center, http://
www.wilsoncenter.org/sites/default/files/may_5.pdf, accessed July 12, 2013.
72. Jin Jingyi, “Prospects for Reform in North Korea,” SERI Quarterly (October 2012), pp.
114–120.
73. Ibid.
74. Choi Myeong-Hae, “The DPRK–PRC Joint Projects in Rason and Hwanggumpyong,”
SERI Quarterly (October 2011), pp. 130–136.
75. “A Band of Korea Brothers Bids Farewell in a Cold War Zone,” The Asahi Shimbun,
April 11, 2013.
76. Jae-Cheon Lim and InJoo Yoon, “Institutional Entrepreneurs in North Korea: Emerg-
ing Shadowy Private Enterprises Under Dire Economic Conditions.”
77. “Special Economic Zones: Performance, Lessons Learned, and Implications for Zone
Development,” The World Bank Group, 2008, https://www.wbginvestmentclimate.org/uploads/
SEZs%20-%20Performance,%20Lessons%20Learned%20and%20Implications%20for%20Zone%
20Development.pdf, accessed July 19, 2013.
78. David Kang, “North Korea’s Relations with the United States and the Rest of the World.”
Addressing North Korean Security Challenges 53
16. In Kyung-ae Park and Scott Snyder (eds.), North Korea in Transition: Politics, Economy, and Soci-
ety (New York: Rowman & Littlefield Publishers , 2005), pp. 261–72.
Biographical Statement
Brendan M. Howe is GSIS Department Chair and Professor at Ewha Womans
University. Trained at Oxford (BA/MA Modern History), UKC (MA International
Conflict Analysis), Trinity College Dublin (PhD Political Science), Georgetown
(International Law), and Harvard (International Negotiation), he has held Visiting
Research Fellow positions at Sydney University, at KNDU, and at the East-West
Centre in Hawaii. He publishes extensively on non-traditional security issues.
Jason Park is currently an MBA Candidate at the Wharton School of the Uni-
versity of Pennsylvania and a junior researcher at the Institute for Development and
Human Security at Ewha Womans University. He previously founded a frontier
market investment firm in Mongolia. He holds a degree in Finance with a special-
ization in entrepreneurship from NYU Stern School of Business.
54 NORTH KOREAN REVIEW, SPRING 2014
