North Korea Today: A Need to Join Asian Development

To understand what’s ahead for the Korean peninsula now that North Korea’s leader, Kim Il Sung, has died and there are worries over the ability of his son, Kim Jong Il, to succeed him, stop thinking in terms of the Cold War--of North Korea as resolute member of the Communist bloc or as a loony-bin house of horrors where a bloody factional struggle is about to erupt.

Think rather of regional development and the interest of North Korea’s neighbors--particularly China--that there be no disruption in the area. And think of the late Kim Il Sung’s reaching out to the United States just before he died in an attempt to integrate North Korea into Asia’s rapidly developing economy.

Sure, there’s always a chance of strife when a longtime dictator passes from the scene, concedes a manager of investments in South Korea, but it’s just as likely that what you’ll see next in North Korea is Kim Jong Il reaching out for foreign investment.

The country may have several cards to play to get such investment, says Andrew Kim of Sit/Kim International, a New York institutional investment firm. “Kim Jong Il should be asking for Japanese war reparations, U.S. aid and investment from South Korean and multinational companies,” he says.

Meanwhile, the wisest policy for the United States and South Korea would be to flood North Korea with food, clothing and consumer goods. Send in surplus grain, fashionable clothes and a few thousand Kia cars from South Korea (the model we know as the Ford Festiva). That would give North Koreans an introduction to the joys of motoring and help Kim Jong Il succeed his father without factional fighting.

Indeed, the consumer goods are already coming in. A healthy border trade carried on by Chinese merchants is relieving some of the tedium in an economy that has grown poorer in recent years while the rest of Asia advanced dramatically.

The gap in Korean living standards is immense: The output of goods and services of North Korea’s 22 million people is only $869 a person, while that of South Korea’s 44 million people is fully eight times that, at $6,850 a person.

The dangers are many and obvious. If factional fighting broke out and North Korea’s moribund economy collapsed totally, South Korea would have to take on the support of a far less productive population half the size of its own. Once upon a time, South Korea wanted rapid reunification with the north; now it wants gradual development of economic ties.

That’s not to mention the even greater danger a disorderly North Korea, possessing nuclear materials and an enormous army, would present to South Korea and to 33,000 U.S. troops stationed there.

But there are also great opportunities. If North Korea remains a separate state gradually developing its economy, South Korea’s major companies could benefit from less costly production in the north. Japanese business would also be an early investor.

And these days, the positive scenario is more likely than the negative simply because North Korea has no allies and no support from any country, including China, if it doesn’t develop economically.

A point to remember is that North Korea has always feared being isolated. Kim Il Sung, a clever despot who tried to rule by taking advantage of help from both the Soviet Union and China, considered opening Korea to the West in the early 1970s, according to Suh Dae Suk of the University of Hawaii, a highly respected Korean historian who wrote a biography of Kim in 1988.

Kim’s efforts in the ‘70s, when both Communist powers were welcoming President Nixon, came to nought. But lately, with the Soviet Union dismantled and China encouraging capitalist development, Kim tried again by welcoming former President Jimmy Carter and agreeing to participate in talks with the United States.

It’s likely his intentions will be carried out by Kim Jong Il, 52, who has run day-to-day government operations in North Korea for the last two years. Kim Jong Il has a reputation as a womanizing flake and a sponsor of terrorism, but that doesn’t mean he or his military officers are unaware of North Korea’s desperate need to join in Asia’s development.

“The Cold War is over and attitudes are changing--and not only in North Korea,” says Michael Robinson, a specialist in Korean history at USC. In South Korea, the North is no longer seen simply as a place of Socialist demons, but as part of the common development of the modern Korean economy that began at the turn of the century, when Korea came under Japanese rule.

Increasingly, Robinson reports, Korean development is being seen in the context of a century of Asian development marked by revolutions from dynastic rule in China and Korea, by the end of colonialism and by war and conquest.

Such philosophical change provides a foundation on which South and North Korea could cooperate in developments that have immense potential. If North Korea’s economy could be brought even to near parity with that of South Korea, the combined Korean economy would be one of the most productive and one of the richest on Earth.

“I am basically optimistic but cautious,” says John Lee, a manager for the Korea Fund, which has more than $300 million invested in South Korean companies.

Ironically, Korea Fund, which trades--lately at $22.375 a share--on the New York Stock Exchange, hit its all-time high of $43 a share in 1989, when the Berlin Wall fell and optimism ran high that a new era was beginning.

The sentiment was premature then, but it may be getting a chance to come true now on the Korean peninsula.