Toward a Unified Korea: Economic Challenges and Opportunities

Eric Olsen
June 29, 2021

Economists and Korea experts from the United States and South Korea, and a former senior North Korean official who defected to South Korea in 2014, examined North Korea’s economic landscape and the challenges and prospects for reunification and economic integration in the latest virtual convening of the International Forum on One Korea on June 29, 2021.

Speaker headshots

Forum participants from left: John Dickson, MC; James Flynn, Global Peace Foundation International President (welcoming remarks); Panelists: Jong-ho Ri; Wan-ryoung Yoo; Eun-lee Joung; Mark Tokola; William Parker.

South Korean businessman Wan-ryoung Yoo, Chairman of the South and North Korea Technology and Education Co-operation Centre, discussed his more than 20-year business engagement with North Korea, including manufacturing, joint venture software development, consultancy services for businesses, investment, and market research.

Gaesong Hot Spring Development project

Gaesong Hot Spring Development project.

Yoo described what he called “win-win strategies” for engaging in business with North Korea, including assessment of a potentially changing business environment or appended policies of North Korea, and contingencies to maintain the sustainability of a business.

“North Korean officials most likely demand ‘justification’ of your business whereby they could also persuade their superiors,” Yoo said. “So explain about the business venture from the perspective of your North Korean partner.”

Discussing negotiation strategies, Yoo said prospective business partners should compare and contrast the benefits and risks of the project and discuss the venture with patience until the North Korean partner fully understands it.

“Avoid unilateral talk about issues that do not fall in the direct interest of North Korean negotiation partners,” Yoo advised, and “avoid making unplanned decisions.”

North Korea’s ‘money masters’

Dr. Eun-lee Joung, a Research Fellow at Korea Institute for National Unification, offered an analysis of a new socio-economic class of “money masters” in North Korea, locally known as donju and defined as managing over $U.S. 100,000 in funds.

Donju can be traced back to Korean residents in Japan who were moved to North Korea through a repatriation program in the late 1950s. They were considered political enemies in North Korean society but belonged to an upper class economically, she explained. Most received supplies or foreign currency from their families or relatives living in Japan and were instrumental in forming a black market in the mid-1960s, when North Korea’s socialist, planned economy was about to reach its final stage.

“The U.S. needs to remember the lesson that it is the spread of American values and humanitarian cooperation that has helped change countries like South Korea, Germany, and Japan into respected, global leaders.”

She stressed the significance of recent donju capital investment in domestic production, “a combination of general economic logic and changing policies under Kim Jong-un that acknowledges that manufacturing and selling products domestically is more profitable than selling imported, finished products.

Donju networks go beyond regional economics and facilitate an inflow and circulation of foreign currency and contribute to expansion of an informal economy, much of which has now come under the framework of established institutions, including commercial banks.

Arguing that the U.S. should remember the successes of postwar policy toward vanquished dictatorships, Joung said “military power and economic sanctions are not a solution to change the North Korean regime and its people and would cause North Koreans to rally behind Kim Jong-un and end up justifying development of nuclear weapons and inciting hatred against the US. Therefore, I think the U.S. needs to remember the lesson that it is the spread of American values and humanitarian cooperation that has helped change countries like South Korea, Germany, and Japan into respected, global leaders.”

Bringing an important perspective on prospects for economic engagement with North Korea Jong-ho Ri, a former high-ranking North Korean official and advisor to the DPRK Workers’ Party on economic development policy and foreign investment, cautioned about business collaboration or investment in North Korea without fundamental reforms.

North Korean grocery store shelves

A North Korean grocery store.

“An inclusive economic system with freedom provides opportunities and incentives for everyone to participate in economic activities, and use their talents and abilities,” Ri told the forum. “On the other hand, a planned economic system without freedom is a corrupt system in which people’s private property is taken away, labor is exploited, and wealth is concentrated in the hands of those in power.

“North Korea denies the most rudimentary human rights, the freedom of economic activity, private property rights, freedom of movement and freedom of expression. There is no law in North Korea that can protect the assets, interests, and personal security of investors. It is dangerous to attempt economic cooperation with North Korea, which defines South Korea as an enemy.Therefore, economic cooperation is possible only when North Korea reforms and opens up to unify the economic systems of the two Koreas.”

Countering the view that China has robust investments in the DPRK , Ri said the Chinese government has been demanding that North Korea reform and open up for more than 30 years and maintains the principle that it will not invest at the government level until North Korea reforms.

“Chinese private companies have never succeeded in investing in North Korea,” he said, “and as of 2014, the bonds they have to withdraw from the North amounted to about $500 million.”

As part of the North Korean delegation to Beijing in 2011, Ri said North Korea’s demanded $10 billion in investment from China’s Commerce Department, with Musan Mine as collateral. However, the Chinese government refused, insisting that investment can proceed only if companies in North Korea and China have a win-win relationship.

As world history and the 75-year history of the Korean peninsula show, Ri concluded, two opposing systems cannot coexist peacefully. ”I think peace on the Korean peninsula is completed when institutional unification is achieved with liberal democracy and a market economy rather than emotional logic. Therefore, we should all actively try to change the communist dictatorship of North Korea, which is a cancerous enemy of unification of the Korean peninsula.”

U.S. perspectives

Mark Tokola, a career U.S. Senior Foreign Service Officer and Vice President of the Korea Economic Institute of America, said that numerous indicators—the price of food, the exchange rate for the North Korean won, droughts and floods in recent years, the effect of international sanctions, and Kim Jong-un’s repeated warnings about difficult economic challenges ahead—pointed to severe economic stress in North Korea.

Inchon International Airport in South Korea (top) and a waiting room at Pyongyang  Airport.

Inchon International Airport in South Korea (top) and a waiting room at Pyongyang Airport.

“The little improvement they have achieved in the lives of the population have come from modest market liberalization,” Tokola observed. “North Koreans now rely more on markets than rely on state salaries or rations.”

In the long-term,  unification will clearly benefit both North and South Korea, Tokola said. “South Korea can offer know-how, financial resources, and strong connections to international markets.  North Korea can offer mineral resources, a skilled labor force, an opportunity for infrastructure construction contracts, and perhaps most important, overland access for South Korea to China, Russia and beyond.”

Obstacles to engagement

North Korea’s nuclear arsenal and the threat posed by the Kim regime present an “existential threat” that precludes meaningful economic reform, reunification and integration into the global economy according to that Dr. William Parker, a national security expert who served as the CEO and President of the EastWest Institute and the National Defense University Foundation.

Parker warned that the world may be closer to its first exchange of nuclear weapons than at any time since the Cold War. He said the reality is that “until the Kim regime either dramatically changes its approach to leadership, or more likely is removed from power, economic policies in the DPRK will not change. And none of these humanitarian improvements are possible as long has North Korea is considered a rogue state, that threatens to use their significant nuclear, chemical, and biological weapons capabilities.”

Parker said a strong, collaborative US-ROK alliance with the support of other key nations, and security assurances for China, Russia, Japan, Korea and the United States that at least retain the status quo, are necessary to advance any prospect of peace and economic integration.

“Engagement strategies on the peninsula toward the endgame of peaceful unification must be fostered with a Korean-led process,” Parker said. “In the near-term, efforts must first stabilize inter-Korean relations and security matters and induce the North toward a more open society with more access to information and opportunity, respecting the human rights of all.

The forum was the latest in a series of expert virtual forums in 2020 and 2021 sponsored by the Global Peace Foundation, Action for Korea United, and One Korea Foundation.

The Global Peace Foundation builds international support for a free and unified Korea, as an immediate not distant goal. Such a Korea would be nuclear-free and uphold freedom, democratic values, rule of law and human rights, based on the shared identity and cultural heritage of the Korean people. The Korean Dream approach, predicated on the ideals embodied in the ancient Korean ethos of Hongik Ingan (living for the greater benefit of all humanity), can serve as a guiding framework for building this new nation which can be a catalyst for regional and global peace and development. GPF advances this agenda using a collaborative and comprehensive approach with focused attention on critical issue areas, including peace and security, human rights and governance, and economic development.

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