
It increasingly looks like the inter-Korean Kaesong industrial zone is closed for good.

President Park Geun-Hye of South Korea inadvertently indicated her low opinion of investing in North Korea, and even Chinese investors have been shaken down and extorted in North Korea. Although a potent symbol of inter-Korean cooperation, in practice the zone became a cash-cow for a Pyongyang elite unwilling to adopt even the most basic business norms. So don’t mourn its passing too much.

The zone was set-up during the Sunshine Policy period (1998-2007) when leftist South Korean administrations adopted a North Korean policy of unprecedented cooperation. Politically, Kaesong and its sister project, the resort at Mt. Kumgang, were intended to achieve three objectives: to 1) lead to some liberal-capitalist spill-over in the North, 2) expose regular North Koreans (the workers in the area) to regular South Koreans (the managers and staff), and 3) generally provide some inter-Korean cooperation that might hopefully reduce larger tensions. Economically, of course, the South Korean firms that operated in these zones benefitted from the low labor costs, but that was never the primary reason for the complex. And they were relentless criticized for exploiting semi-slave labor.

Broadly speaking, the politics behind this outreach followed liberal explanations for the Soviet Union’s changes in the 1980s: the Helsinki Accords and Conference on Security and Cooperation in Europe opened the USSR to the outside world, and the inflowing liberalism slowly changed attitudes that eventually helped wind-down the Cold War. Unfortunately, none of this seems to be working in the North Korean case.

The Kumgang resort was closed after a South Korean tourist was shot in 2008 by Northern guards. Kaesong has been a geopolitical football for years. Neither seemed to lead to much spill-over. Instead, North Korea basically sealed off both facilities, managing them as enclave economies with tight controls. No capitalist-liberalizing influences seemed to have been allowed to spread. Semi-private Northern industries have not sprung up around the Kaesong zone, for instance, and the Northern workers in these areas are checked and proofed by the government. Nor did the zones seem to cool tensions between the North and South; instead Kaesong got instrumentalized in those tensions – as in this current crisis.

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It is true that there are many private grey markets in North Korea, especially in the north. But they come from semi-legal-but-widely-tolerated interactions with China and border merchants, not from Kaesong/Kumgang. One might portray Kaesong as the catalyst for North Korea’s partial marketization, but most of the analyst community would likely argue that the Northern black/grey markets sprung up out of necessity when the state distribution system broke down in the 1990s, causing famine. Since then, the state has been unwilling or unable, or both, to crack down on them.

Finally, it is completely unknowable, unfortunately, how much psychological liberalization there has been; that is, whether the everyday exposure and interaction of North and South Koreans in Kaesong has created a ‘gestalt shift’ in those North Koreans regarding South Korea. Ideally, these changed North Koreans would then share their stories of normal, friendly, and healthy South Koreans with their family and friends. One might then see some moderation in North Korea bubbling up from below over the years to come. Andrei Lankov particularly is well-known for making this sort of argument for long-term change in North Korea.


My own sense from talking to South Koreans is disappointment over the near-closure (at the time of this writing, it is not inconceivable that facility will re-open, but it seems doubtful). Kaesong seemed to suggest that the Koreas could get along, that North Korea could be nice and open, at least a little, and did not have to be fearsome and terrifying all the time. One hears this touching anecdote a lot: North Korean workers in Kaesong would save their snack cookies (choco pies) from the Southern managers and trade them on the black market at home. There is fear in the South that closing Kaesong means the loss of the last shreds of Sunshine Policy cooperation/interaction.

On the other hand, it must be noted that the Southern companies that operated in Kaesong and Kumgang paid the North Korean government, not the North Korean staff, and paid them in U.S. dollars. The staff were paid later in the all-but-worthless Northern won and coupons – hence the slave labor critique. So effectively, Kaesong and Kumgang became a big, easy cash-cow subsidy for the hard currency-starved North Korean regime. As it became increasingly obvious that neither project was leading to spill-over liberalization or tension-reduction, Southern conservatives increasingly criticized them as little more than subsidies for the Pyongyang “court economy.” These dollars allowed the Kims and their cronies (the military elite mostly) to get foreign liquor, HDTVs, cigarettes, appliances, etc., despite the sanctions. I have flown into Pyongyang myself, and you can see people loading up in the Beijing duty-free shops before the flight. It is blatant sanctions-running, and no one cares.

I am not sure which interpretation – Kaesong as a hole in the Korean iron curtain, or a subsidy to the Kim monarchy–is correct; I tilt toward the latter probably. Given how little the hoped-for benefits from Kaesong have actually materialized, it is hard at this point not to see it as just a subvention to the degenerate clique that has impoverished the whole country while living well on sanction-busting.

Like the Sunshine Policy, I do think Kaesong was worth the effort. Just about anything that might encourage change in North Korea is worth a try at this point; we should not be so ideological with a regime that is this dangerous. At the time the Sunshine Policy was launched in 1998, there was no way to predict how the North would respond, so it was worth a real effort. Those conservatives who criticize President Kim Dae-Jung as “naïve” for the policy are unfairly relying on information that is only available in hindsight.

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That said, it also needs to be admitted today, that this noble experiment did in fact fail. My left-progressive students tell me that ten years was not enough time for the Sunshine Policy and Kaesong to succeed; that North Korea needs more time to come around; that hawks like me and all those American-influenced think-tanks in Seoul make North Korea permanently paranoid.

Maybe. I suppose it is possible that a decade is too short a time for real change in a country like North Korea. But ten years is also a long time for South Korea to receive the “sucker” pay-off — basically nothing besides some family reunions — in the “prisoner’s dilemma” — game with North Korea. It is hard to miss that South Korea was effectively subsidizing the North in those years, even as the North duplicitously advanced its nuclear program. In the end, political investments in North Korea offer the same paltry return as economic ones.

Maybe Kim Jong-un is the reformer of rumor, but until he shows real movement on something important like human rights or nuclear weapons, Kaesong was just easy money. So good riddance its closing.

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Robert E. Kelly (@Robert_E_Kelly) is an associate professor of international relations in the Department of Political Science and Diplomacy at Pusan National University in South Korea. He blogs at Asian Security Blog.