Reforming North Korea’s economy: What role for ASEAN?

Shah Suraj Bharat/Jakarta

Photo by Uri Tours (Wikipedia)

The peace process between the two Koreas is exactly– a peace process – something that has eluded the peninsula after 70 years of hostility. Investors, policymakers and the international community will have to be patient on the potential for market reform in North Korea. Yet, there is reason for quiet optimism, judging by the actions and statements of North Korean leader Kim Jong-un.

After becoming leader in 2012, Kim signaled a change in economic strategy to a focus on development, saying North Koreans would no longer have to “tighten their belts twice”, a subtle acknowledgment of the shortcomings of the command economy. In March 2013, Kim called for byungjin (parallel advance) on developing nuclear capabilities while building the economy. This contrasted to his father Kim Jong-il’s focus on defense, implicitly survival, as the paramount concern of the state.

State and regime survival is, of course, of paramount concern for the younger Kim. But the emphasis has shifted, from a stance of defensive (and sometimes offensive) neorealism through promoting nuclear capabilities, to deriving legitimacy and strength from economic growth. Confirming this strategic shift in April 2018 prior to meeting South Korean President Moon Jae-in, Kim declared that his signature policy of byungjin was to be retired and replaced with “all-out socialist economic reconstruction”.

After Kim’s summit in Singapore with the United States President Donald Trump in June 2018, war-like rhetoric markedly decreased. The economy has taken center stage in state propaganda and media coverage has shown Kim visiting farms, factories and tourist resorts. Going beyond rhetoric, the seeds of  market-oriented policies are quietly flourishing. Black markets have long been a vital means of acquiring daily necessities for ordinary Koreans, but they have been given more freedom to operate in recent years. Kim has also softly decentralized some economic controls, giving greater freedom to farmers selling crops and factory managers over wages and production.

Kim’s unprecedented steps of lifting economic controls are underpinned by the notion that economic openness does not necessarily pose a threat to the regime. This is underlined by the experience of reform and opening up in China and doimoi reforms in Vietnam, which led to phenomenal growth but cemented rather than eroded the power of the communist parties.

Moreover, such a reform strategy is something of an enigma for supposedly socialist economies. University of North Korean Studies professor Yang Moon-soo sees Kim’s strategy as mimicking China’s early period of opening up and reform, which itself was based on Soviet Union leader Vladimir Lenin’s New Economic Policy, characterized as capitalism subject to state control. Indeed such a reform strategy would suit Kim’s economic ideology, as state-led development will be imperative given the absence of an indigenous industrial class.

The question remains on whether North Korea will give up its nuclear weapons as demanded chiefly by the US. It would, however, be naive to assume that North Korea will completely denuclearize. This is a regime paranoid about its survival with an ingrained neorealist worldview of an anarchical international system, which views maintaining a balance of power through nuclear power as the key to survival.

It is worth noting that in 2003, Muammar Gaddafi and the Libyan regime decommissioned its weapons of mass destruction, winning favor from Western powers. Yet in 2011 during the First Libyan Civil War, NATO enforced a no-fly zone over Libya, which turned into a bombing campaign against government and loyalist forces, leaving Gaddafi feeling betrayed by the West. When Gaddafi  was apprehended in a culvert, he was subsequently tortured, sodomized with a bayonet and shot several times as he pleaded for his life. North Korea will certainly take note of this episode.

In this scenario, a quantum of utilitarianism may be necessary: An isolated, under pressure, nuclear armed and offensive neorealist North Korea with a hemorrhaging economy is more dangerous than a defensive neorealist, nuclear armed North Korea that is enjoying the fruits of economic growth and trading internationally as a result of market reform. The message needs to be sold to North Korea that being a member of international society, which is empathetic to North Korea’s worldview of the anarchic order but recognizes areas for mutual cooperation – in the spirit of raison de systeme (it pays to make the system work) – will give the regime a survival and power advantage as opposed to isolation.

Crucially, South Korea has shown that it understands and is sympathetic to North Korea’s strategic conundrum. During President Moon’s visit to Pyongyang where he addressed a crowd of 150,000 North Koreans, he pledged to “hasten a future of common prosperity”, praising North Korea’s “remarkable progress” and said he “understood what kind of country chairman Kim and his compatriots in the North want to build”.

South Korea’s stance means it is likely to continue pursuing cooperation with North Korea even if denuclearization falters, which would put it at odds with the US, although lifting international sanctions will be critical to kick-starting growth. Indeed this understanding is arguably a key reason as to why diplomatic overtures have made progress and kept North Korea at the negotiating table.

In the broader region, peace on the Korean Peninsula is certainly in everyone’s interests. The question also arises as to whether there is a role for ASEAN in contributing to peace on the peninsula and reforming North Korea’s economy.

ASEAN is certainly neutral ground in which to bring all stakeholders together, indeed Singapore was the host of the summit between Trump and Kim in June 2018 and Hanoi played host in February 2019.

Skeptics may point out that once again Southeast Asia acts as a venue instead of power broker, and ASEAN’s chief asset is its ability to organize meetings that have little tangible outcome.

On reflection, however, we must not underestimate the importance of the norms, socialization and legitimacy that ASEAN can bring in welcoming North Korea into a club of international society. The norms of the “ASEAN way” are surely attractive to North Korea as it seeks regime survival while ending its isolation. Peace and stability is often taken for granted, but in the context of development it is a mandatory precursor to growth and lifting ordinary people out of poverty. China and Vietnam are testament to this.

A dose of realism, however, for ASEAN member states is also necessary. A North Korea open to trade and investment will be another economic competitor for Southeast Asia’s developing economies. From afar, North Korea does appear to have the right conditions for takeoff growth. Similarly to South Korea before it began its journey of phenomenal growth, North Korea has the advantages a highly centralized state, high levels of elite unity, a relatively well educated but low waged labor force, a strategic geographical position and supposedly under Kim a developmental ideology.

Significantly, a reforming North Korea will capture precious value-added industries from South Korea, and all the technology, expertise and opportunities that come with it, something that ASEAN member states desperately need as they try to climb up the value-chain.

If we truly believe North Korea is on a path to market reform, then there is added urgency for ASEAN member states to upgrade economic relations with South Korea to remain competitive, and ensure that the economic benefits of a peaceful Korea can be shared by all.

The writer is an emerging markets editor and analyst. Find him on Twitter @ShahSurajBharat.