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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Glimmers of Light

North Korea should be encouraged down the path of reform


BACK IN EARLY 1979, when China earmarked Shenzhen as its first special economic zone, the market economy was a newfangled concept. Factory managers were hampered by a 30-year-old legacy of socialism even as they tried to embrace manufacturing techniques from nearby Hong Kong. Some fledgling textile operators did not want to divide labor in any way that resembled an assembly line. Their reasoning: if a single worker were responsible for producing one shirt, then the damage from a mistake would be limited. But if a worker specialized in cuffs, then scores could be ruined if the person were to sleep on the job or have a bad day.

Many years of double-digit growth later, that kind of mindset has vanished in Shenzhen. The change is instructive when evaluating the first tentative steps -- and missteps -- North Korea is taking toward economic reform. Five years have passed since Pyongyang set up the Rajin-Sonbong Economic and Free Trade Zone in the country's northeastern corner. The project has not taken off with the speed of a Shenzhen, which had inspired it. In fact, one wag describes Rajin-Sonbong as "the world's most scenic industrial development zone" -- where there is little industry or development to mar the natural beauty. Yet there are unmistakable signs of economic life in the area, where Korea meets China and Russia. In fact, the unfolding experiment at Rajin-Sonbong may prove as much a milestone in North Korea's development and eventual international emergence as Shenzhen was for China's.

Recently, even as a small group of North Korean commandos botched a bizarre infiltration of South Korea, officials at the special zone were trying to convince 550 foreign business executives, government bureaucrats and journalists that the "hermit kingdom" was opening up. Together, the two events point to a schizophrenia that is likely to characterize North Korea in the years ahead as it grapples with change. Despite the murkiness of Pyongyang politics, it is clear that reformers and orthodox communists are engaged in a tussle for the country's future -- as they were in China 20 years ago.

For now, it is impossible to say who will win. But the recent investment forum was a promising sign. According to the North Koreans, it generated $842 million in contracts, memoranda of agreement and promised partnerships. The Emperor Group of Hong Kong, with property, gaming and jewelry interests, was the biggest potential investor, pledging $210 million to build a bank, a hotel and a casino. The Rajin-Sonbong region offers many advantages. It is close to the western terminus of the Trans-Siberian Railway, has the makings of a fine ice-free port, and could be a nexus for commerce involving Korean natural resources, Chinese labor and markets, and Russian heavy industry.

Another clue that North Korea's reformers are making progress can be found in agricultural developments. According to Japanese experts, Pyongyang has begun allowing farmers to keep some of what they grow and to sell it on the free market. Again, the parallel with China's experience is striking. One of Mr. Deng Xiaoping's first -- and most important -- reform initiatives in the late 1970s was to introduce the "family responsibility system" in some parts of rural China. It gave farmers the right to use or sell some of their produce for themselves. A Chinese precedent can be seen in a second key agricultural reform in North Korea: a winding-down of communal farming. "Work units" are reportedly being cut from about 100 people to between 15 and 20.

Clearly, both agricultural measures are responses to the famine that has gripped North Korea since last year. And this year's harvest offers little respite. The nation's entire economy is in a shambles. Trade volume has fallen 57% since 1990. GNP, which at $20 billion is roughly equivalent to the annual revenues of the American telecommunications conglomerate GTE, is shrinking by 5% a year. According to an economist with a top U.S. think-tank, North Korea would need more than half a trillion investment dollars in the next two decades to raise its per-capita income to 60% of the South's level.

Such dire circumstances have clearly made Pyongyang's leaders more amenable to the suggestions of their Chinese and U.N. advisers. Mainly to promote greater stability in the Korean peninsula, Beijing for years urged the North Koreans to adopt economic reforms, taking them on many tours of Shenzhen and other Chinese showcases. But Pyongyang never seemed to pay much heed -- until now.

North Korea clearly has a very long way to go. Tactical gaffs it made in connection with the Rajin-Sonbong forum suggest just how far. Mr. Ian Davies, an official with the U.N. Industrial Development Organization in Beijing, says Pyongyang initially issued several hundred invitations. With little more than a month to go, most of the responses received were from journalists, academics and government officials. By the end of August, though, requests from about 1,000 South Korean companies poured in. So Pyongyang simply canceled the invitations of some non-business people, many of whom were not even notified. Nor was the South Korean government particularly helpful. Perhaps annoyed that some of its non-business invitations had been rescinded, Seoul authorities barred all companies from attending the forum.

Clearly, North Korea will not be exhibiting tigerish economic behavior anytime soon. There are many steps it should take to put things on the right track. Most immediately, it ought to capitalize on the momentum generated by the Rajin-Sonbong forum. That means follow-up action to maintain the interest of multinationals -- something entirely new to Pyongyang. The North Koreans should plan another investment forum soon, and maybe a trade fair later. They also need to figure out how they can accommodate international interest that goes beyond their expectations. More hotel rooms would be one measure, back-to-back forums to deal with the overflow another.

The government needs to establish a permanent presence in the Rajin-Sonbong zone without delay. There should be no more cumbersome shuttling of people and resources between there and the capital. Investors need to know their money is not going into an unmanned, unplanned black hole. In the same vein, North Korea needs to loosen travel restrictions on foreign business people, both into and out of the country as well as within it. One executive reports that in Pyongyang, he is permitted to travel only from his hotel to a golf course.

North Korea is arguably East Asia's most combustible security flashpoint. So neighboring countries as well as the world have a big stake in encouraging Pyongyang to proceed steadily toward reform and greater openness. In particular, Seoul should foster, not hamper, enhanced business ties between the South and the North. Developed nations, for their part, should engage Pyongyang as much as possible. Washington is expected soon to ease a 46-year-old trade embargo -- a positive step indeed. The recent submarine incident may be a pointer more to North Korea's internal conflict than to any inherent wickedness. While the fate of Pyongyang's nascent reform effort will be determined chiefly by domestic factors, a welcoming hand from the global business community would give it a much-needed boost.


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