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.
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.