What does the future hold for North Korea? In 2013 North Korean Kim Jong-un proclaimed a national strategy he called byungjin (“parallel strategy”) – simultaneously developing nuclear weapons and the economy. He has raised expectations among North Korea’s 24 million citizens that he will lead the nation to prosperity.
Kim appears to have borrowed a few ideas from late Chinese leader Deng Xiaoping’s initial wave of reforms in the 1980s, though at a smaller scale and at an early stage. Farmers are to be allowed to keep or sell 30 percent of their crops rather than turning all their produce over to the state. North Korea has created 18 special economic zones, offering favorable terms to investors, and is trying to boost tourism.
But Pyongyang does not use the term “reform” and certainly not “opening.” This may hint at part of the problem. There remains deep skepticism among potential foreign investors. Pyongyang is trying to recruit foreign investment on their own often arbitrary terms. North Koreans appear not to grasp that their sometimes odd behavior has consequences.
For example, in 2013 they closed down the Kaesong industrial region, a joint venture with South Korea because of a perceived political slight. And there is the occasional jailing of stray Americans. All this comes on top of their occasional nuclear weapon and ballistic missile tests, and the international agreements they have failed to implement.
But the Kaesong episode sent a negative message not just to South Korean investors, but to international investors everywhere. Those considering foreign direct investment want to know two things: Can I make a good profit and is my money safe? The Kaesong incident sent exactly the wrong signal.
Then there is the case of the Egyptian IT firm that is the source of some 5 million mobile phones in North Korea. They have been in conflict with Pyongyang, which is trying to prevent them from sending profits home. The possibility of conflict, an absence of credible legal protections for investments, and, the occasionally strange behavior of its leader, all inhibit major foreign investment.
North Korea’s economy has been growing slowly, at only about 1 percent a year in recent years. This follows a decade during which its economy shriveled following the end of the Cold War, when Soviet subsidies disappeared. It is still only at the level it was in 1991.
One of the more revealing comparisons is that 25 percent of North Korea’s GDP is spent on the military, while Seoul spends just 2.8 percent of its annual wealth on things military – which is still more money than Pyongyang, since the South’s GDP is 40 times larger. North Korea’s distorted economy invests in nuclear weapons and ballistic missiles, while Kim builds ski resorts and amusement parks.
This gets to the problem for Kim’s byungjin policy. Byungjin contradicts the basis of nuclear diplomacy that began in the 1990s, and has continued in the China-hosted Six-Party Talks. The negotiations have sought to get Pyongyang to make a choice: If it seeks to join the global economy, and obtain energy and other economic aid and investment as well as security guarantees, it must give up its nuclear weapons.
It is difficult to see how byungjin can reduce the risk factor keeping investors away and bring prosperity to North Korea if Kim does not make the choice all in Northeast Asia are waiting for.