Of Materialism and the National Interest: The Case for Economic Reform in North Korea

When presenting the intelligence community's case that North Korea covertly assisted Syria in building a nuclear reactor in the desert, one officer was asked precisely why Pyongyang was involved in the project. His answer? "Cash."

North Korea's interest in hard currency is the same as nearly any dictatorship: placate the military constituency (which is even more important to Pyongyang given Kim Jong-Il's military-first policy), provide a minimal level of services to the public in order to maintain the pretense of legitimacy, and keep the state itself afloat. But North Korea does not command a resource-rich, export-driven economy. In fact, its exports are of little use to the average consumer. Sheena Chestnut had an excellent article in International Security [Vol. 32, No. 1 (Summer 2007)] detailing North Korea's dabbling in illicit trade. Drug trafficking and currency counterfeiting are just two realms of the black market that North Korea has experience in.

If the stories of cooperation with Syria in building a nuclear reactor are proved true, this would represent yet another covert means of currency for Pyongyang and one with even greater consequences for security than all of the regime's other lines of trade. Expecting North Korea to abandon these sources of income, however illicit and destabilizing, will not occur unless Pyongyang knows it will be compensated by other means, which will not come without true economic reform of the North Korean state. Realizing this, the US, South Korea, and Japan should urge the one state with true leverage of Pyongyang - China - to press its own model of economic reform on the North's leadership.

Two complimentary reasons stand out for this long-term policy course. The first is that, as hinted above, without doing so, there will be little incentive for Pyongyang to cease its involvement in the trade of illicit goods. There is a much greater chance of reigning this activities in if sustainable revenue - with positive consequences for the state that do not threaten its neighbors, international security, or international markets - is a tangible reality for North Korea.

The second is that there is no alternative. A maintenance of the status quo does little to rescue North Korea's incentives to remain mired in the black market. Seeking to choke the regime, as Washington was doing until recently, can only force it into a desperate corner. Moreover, forcing a state collapse in Pyongyang is not, and probably never will be, an attractive or feasible option for a number of reasons. First and foremost, it assumes that Washington is capable of doing so, which in turn assumes that the US has any real leverage over North Korea. This is not the case so long as Beijing remains the regime's true financier and largest external source of goods. Furthermore, North Korea's neighbors have no desire to see the regime collapse anytime soon primarily because they will be the ones tasked with picking up the pieces. China, for instance, already struggles with the flow of refugees from North Korea and knows very well that in the event of a North Korean collapse, those problems will worsen exponentially and might even materialize a host of unknown (and perhaps worse) scenarios. South Korea, for its part, fears a North Korean collapse that would force it to absorb the poverty-stricken Northern state into its territorial protection - an immediate reunification that no one would have anticipated or truly planned for. The result would be a premature merging of the world's twelfth largest economy with one of the world's weakest states. Seoul is not opposed to Korean reunification in principle, but it is not willing to do so at the expense of its own economic growth, hence its emphasis on raising the standard of living in North Korea (something designed to soften the eventual blow, apart from the obvious humanitarian reasons).

This case stands on its own even if North Korea had not provided extensive technical assistance to Syria in constructing a reactor; its other black market activities are cause enough. The destabilizing consequences of the most recent behavior, however, highlights the seriousness with which these events should be viewed. And one hopes that Washington, with the help of Beijing, is able to convey that impression unambiguously to Pyongyang.

Ultimately there can be no excuses for North Korea's behavior. As many have repeatedly noted, it is the author of most if not all of its own troubles. But this behavior can and should be corrected (sooner rather than later) with the help of the country's neighbors and other members of the international community. One logical starting point would be to press Beijing to encourage Pyongyang to chart a path of economic reform that helps modernize its infrastructure, improves the lot of its people, and to nudge the regime's leadership to accept that its illicit activities are counter-productive.

Some have poured cold water on this idea by arguing that North Korea is skeptical of all-out reform for fear of losing control of the process. The Chinese are well-positioned to argue quite the contrary: that economic modernization in the 21st century hardly means weakening the state's grip on power. But if North Korea is truly desperate for cash, a vigorous attempt should be made to convince the regime that such funds are available - for a price. As with all other diplomatic efforts, the worst we could do is fail. And considering the stakes involved, it's well worth a shot.