NEW YORK – North Korea leader Kim Jong Un’s No. 1 objective is surely the survival of his regime, and of himself as leader, preferably for several decades, given his youth. It is less clear how he can best achieve this. Outright collapse of the North Korean economy and mass starvation, or nuclear war with the United States are both bad outcomes from his point of view, because both would destabilize or end his regime.
Complete stasis is the alternative chosen since the 1950s by his father and grandfather. This keeps the North Korean people poor, but mostly not in crisis, while the U.S. and the West make no significant attempts to dislodge him.
At first sight, the ideal role model for a North Korean opening is Vietnam. That country is extremely open to foreign investment, at least by major corporations, and has a functioning stock market with several domestic corporations listed on it, although the largest companies are majority government controlled. However, Vietnam relies heavily on foreign investment, most of which is for production exported to rich-country markets. As a result, Vietnam is an exceptionally open economy, with exports amounting to almost 100 percent of GDP.
Even though its purchasing power parity GDP is $7,300, four times that of North Korea, it is not a model Kim may wish to emulate. North Korea lacks several characteristics that make Vietnam successful. Its workforce is nowhere near as well educated. The country is highly isolationist, with very little contact with the outside world. In contrast, Vietnam’s workforce had little more than a decade when outside contact was low, with a high level of contact (at least in the south) before 1975 and after the Doi Moi opening to the world, which began in 1986.
North Korea is also dependent on China, which takes nearly 90 percent of its exports, which are only around 15 percent of GDP.
Given the nature of North Korea’s workforce, and the discomfort of both its leadership and its people with international involvement, the Vietnam strategy is really not available to them. It would involve a level of openness and foreign presence that would be dangerous to Kim, unacceptable to his supporters in the regime (who must somehow be kept on board) and disquieting to the North Korean people.
There is however an alternative route. At present, North Korea is unacceptably dependent on China, with whom it shares 90 percent of its limited foreign trade. With only one buyer and one seller, it is very unlikely that North Korea gets a fair deal in its trading relationships. However, Russia also shares a 17 km land border with North Korea. In the past, they have had cordial relations.
Russia’s heavy industry-oriented economy can make use of North Korea’s mineral resources, and it also has a substantial private sector that after 25 years of freeish-market operation can certainly provide know-how to North Korea on adaptation to the new world.
Russia under President Vladimir Putin has shown a strong wish to develop “satellite” economies in its “near abroad” with strong links to Russia, mostly for strategic reasons.
Such a position does not require the degree of openness to international trade and the Western world that a Vietnam has. Yet, it can still result in considerable economic development from North Korea’s present position.
Examples of such countries, with different degrees of development and dependence on the Russian economy, are Kyrgyzstan, Uzbekistan, Tajikistan and Belarus. None of these countries is free in the Western sense (Kyrgyzstan is the freest, Uzbekistan the worst). Yet, all of them are substantially richer than North Korea in terms of purchasing power parity GDP per capita, although in the case of Kyrgyzstan and Tajikistan the advantage is modest ($3,100 and $2,200 against North Korea’s $1,800).
Uzbekistan at $5,600 and Belarus at an astounding $17,000 are far richer than North Korea, yet both are unpleasant dictatorships with strong traditions of Soviet central planning. These countries’ economic openness varies roughly with GDP, with Belarus having exports around 55 percent of GDP and Tajikistan the lowest at 16 percent of GDP. All are more open than North Korea, none are as open as Vietnam.
It should be noted that North Korea has an enormous advantage over the Central Asian members of this quartet — it has access to the sea, and hence to international trade routes.
In addition to its new possible Russian orientation, North Korea could conduct limited experiments in non-Russian foreign investment, notably from its neighbor South Korea, but also from the West which would gradually open its economy to world commerce as a whole.
From Kim’s vantage point, the ability to do this would keep Russian and Chinese investors “honest” and prevent the undue domination of the North Korean economy by outside forces, which Kim and the North Korean people both want to avoid. Western bank credit would also be useful to lubricate the process.
North Korea’s ideal to aim for, therefore, its shimmering vision of a more prosperous future, is not Vietnam but Belarus. To achieve a development of the North Korean economy and its re-orientation toward Russia, Kim probably needs two treaties — not just one.
With Trump, he needs a treaty ending sanctions on North Korea and allowing it to make arrangements with the Western private sector in its own interests. With Russia, he needs a treaty of alliance and assistance, ideally funded by the Western banking system.
Both these treaties should be available, given goodwill and competent negotiating by Kim and his colleagues. The main sticking point will be North Korea’s nuclear and missile programs.
Giving up the missiles might well shorten Kim’s life expectancy, since his military chiefs are very attached to those programs. Without the nuclear arsenal, they lose their sense of purpose, their position in North Korean society and, in the long term, their funding.
A Trump-Kim summit, if it happens, or indeed a three-way Trump-Kim-Putin summit, offers a chance for a deal that is beneficial to all sides, and to the North Korean people.
The incentives are there. The question is whether all sides are “smart” enough negotiators to attain an acceptable outcome.
Martin Hutchinson is the co-author of “Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System.” This article was first published in the author’s “True Blue Will Never Stain” blog. www.theglobalist.com