Arbeit Macht Nichts: The End of Kaesong?
It always struck me as odd how unificationistas — the type who could probably nail 99 theses of class-war agitprop to the gates of factories in Indonesia that paid better wages — saw no contradiction in investing all of their dreamy ambitions in Kaesong, a place where North Koreans work as slave laborers and yet consider themselves more fortunate than their neighbors. Most observers agree that the regime banks most of the workers’ wages. What, if anything, is left over for them is a matter of speculation. One recent report claims they are paid a pittance in ration stamps, which many reinvest on the black market. This can’t be the sort of transformation either Seoul or Pyongyang wanted.
The Unification Ministry once predicted that 350,000 North Korean workers would be employed at Kaesong during its final phase, between 2009 and 2012. Proponents told us that Kaesong would bloom with international capital, enrich North Korea’s economy, transform North Korean society, and propel both Koreas toward a lowering of military tensions and eventual reunification.
The problem with this theory is that it assumed, despite all of the evidence to the contrary, that the North Korean regime was willing to let itself be transformed. Many of us knew all along that Kaesong would fail to achieve its lofty promise. In fact, Kaesong at its height never employed more than 35,000 workers, and as of today, it’s almost a sure thing that it never will:
Senior North Korean military officers reportedly told South Korean companies in the joint Kaesong Industrial Complex to go home and take their factories with them. The North Korean delegation included Lt. Gen. Kim Yong-chol, head of the Policy Planning Office of the North Korean National Defense Commission, who inspected the facility last Thursday in what was widely seen as a shot before the prow ahead of a threat to cut all cross-border communication this week.
In a closed-door meeting between Unification Minister Kim Ha-joong and representatives of the firms in Seoul, one of the representatives said his staff told him that North Korean officers made the remarks when they spent 45 minutes at the factory last Thursday. He quoted the North Korean officers as claiming the land belongs to the military.
It was earlier reported that Kim asked the South Korean company managers how long it would take for the South Korean firms to pull out.
Prof. Nam Joo-hong of Gyonggi University said, “If the North Korean military is taking the lead in pressuring the South, we cannot rule out a partial closure of the Kaesong complex or deportation of South Korean staff, or that the North will take over management of the complex. [Chosun Ilbo]
North Korea need not follow through on this threat for it to be fatal to Kaesong. For Kaesong to be profitable, it had to attract both international investors and export markets overseas. Yet economically, its success was always limited by the North Korean regime’s greed and unpredictability. The reunificationistas made Living Art company’s “peace pots” the focus of their fanfare. There was less of that when Living Art went bankrupt a year later. The record was similarly mixed with other operations at Kaesong. Of 23 enterprises that had committed to start operations in Kaesong by 2005, just 7 had actually done so by 2007. Clearly, Kaesong was not proving to be viable based on economics alone:
It is not yet clear whether South Korean companies operating in the KIC are doing so primarily for political purposes or whether their operations in the complex are economically viable. Also, it is not clear whether companies in the complex would be economically viable without South Korean government support in providing infrastructure and loans with below-market interest rates. [Congressional Research Service, July 2007]
Even in theory, the rules that applied to Kaesong were vague; in practice, they were subject to the regime’s perpetual reinterpretation. Capital is a cowardly thing, and the world is full of venues with cheap labor and governments far less likely to hold it hostage to its political whim. By closing the border between the Koreas last week, North Korea has demonstrated that to every potential Kaesong investor.
If you expect the North Koreans to respond rationally to economic incentives, this makes little sense. By all accounts, Kaesong was far more profitable for the North Korean regime than it ever was for either the North Korea workers or the mostly South Korean companies that had invested there. The regime has lost much of its revenue from direct South Korean aid and from the Kumgang tourist project, a revenue source the regime lost when its soldiers shot and killed a South Korean housewife there. It’s hard for me to imagine that the regime would, as Curtis at NK Econ Watch puts it, turn away free money — as much as $9.5 billion dollars:
This would include $4.6 billion in foreign currency earnings with $700 million derived directly from the operation of the KIC, $2.5 billion from sales of raw materials and other industrial products, and $1.4 billion from corporate taxes. [Congressional Research Service]
This figure does not include South Korea’s massive investments in infrastructure, electricity, and materials that may now be expropriated just as they were at the KEDO project.
Why turn down money you’ve never needed more? There must be some other motive than mere emotion. One possibility is that proponents of Kaesong weren’t completely wrong. Perhaps the minimal North-South interaction there really was starting to have a transformative effect. This, I predicted, would never be tolerated by the regime. It’s a more likely reason for the North to have taken this action than a few leaflets blowing in the wind.
Curtis Melvin sees the same irony here as I do — North Korea’s ostensible reason for closing the border is its anger at a small number of non-governmental activists sending leaflet balloons into North Korea. Yet many of us who support the leafleting — provided it is done from the safety of South Korean territory or waters — seek to embarrass governments that are enriching the regime, publicize North Korea’s oppressive system, and cut off regime-sustaining funding sources like Kaesong. And ironically, it is the North Korean regime — not democratic governments or news media — that has helped us advance those very goals.