The solution that Kim Dal-hyon and his technocrats proposed sounded like the ultimate test of totalitarianism: establish free economic zones, but segregate them so tightly they would have no effect on people and institutions elsewhere in the country. Kim insisted that there should be little problem of other North Koreans envying the wages and living conditions of workers inside the zones, since “we believe in our people.” But Kim Duk-choong and other visitors speculated that the regime had picked Rajin and Sonbong as the first free-trade zone precisely because the area was remote from main population centers. (Years later it was reported that the state was clearing out the zone’s population, replacing it with new residents whose ideological commitment was considered beyond reproach.)
The experience of other countries such as China suggested that the economic apartheid envisioned would not work for long, and that real economic takeoff would both require and contribute to real market reform and opening. Pyongyang officials, however, had their marching orders. While capitalistic methods would be allowed in the trade zones, Kim Song-sik said, “we think we can keep those methods from affecting enterprises elsewhere in the country, where the government’s economic policy is unchanged.”
In addition to more rather than less control over the people, the strategy to accomplish such a containment of capitalist ideas envisioned even more intense propaganda efforts to whip up mass enthusiasm for the status quo. In April 1992, the regime unveiled a new stage extravaganza, Song of Best Wishes, featuring a cast of thousands who wished Kim Il-sung a happy eightieth birthday and praised the system he had installed. “Winds of temptation may blow,” the gigantic chorus sang, but “we’ll go our way forever. Hey hey let’s defend socialism!”
“There are quite a number of people on earth who are anxious to see our style of socialism corrupted by the filthy germ of revisionism,” Kim Il-sung explained in a volume of his memoirs published around that time. “We do not want our Party to be reduced to a club or a market-place by the tendency of ultra-democracy The suffering inflicted upon us by the evils of ultra-democracy in military affairs during the anti-Japanese war and the lessons of Eastern Europe cry out to us that we must not allow this.”16
To prospective foreign investors, officials audaciously pointed out the discreet charms of totalitarianism—social stability not least among them. At his press conference, Kim Dal-hyon was asked whether workers for foreign firms would be subjected to the time-consuming ideological cheerleading sessions that workers in other enterprises were required to attend. Perhaps not, he indicated, but “I think our ideology will help the creation of the free economic zones. There won’t be any thieves, punks or pimps in our zones. We are constantly educating our younger generation and our older population to work as hard as possible. In fact, the mission of the Three Revolutions teams—not that they-will be in the zones—is to stimulate overproduction.”
Indeed, a South Korean lawyer who was one of my companions on the trip marveled at the “naive, pure, unsophisticated” personalities of North Koreans he met. “These people know how to cooperate,” he said. He noted the attentive hospitality and prompt service in hotels and restaurants, contrasting with the lackadaisical and even sullen behavior he had experienced in a communist neighbor, China. Irreverent Westerners might be tempted to credit lobotomies, or at least lifelong brain-washing, for the discipline displayed by North Koreans. But I reflected that true-believer cults everywhere do tend to produce devotees who exhibit sweet personalities—just think of the starry-eyed young cultists who, around that time, were accosting passersby for contributions in Western cities. The Kim Il-sung cult was no exception.
Still, most outsiders reacted warily They were put off not only by the unlikely strategy of development without real change but also by Pyongyang’s general profile—from its record of debt default to its reputation for aggression to doubts about political stability once Kim Il-sung should pass from the scene. Particularly unexcited were Japanese, who had the resources, the proximity and the history of interest in the Korean peninsula to become a major factor if they should-wish to do so. North Korea still had not paid its debts despite repeated reschedulings. Japan had heard offers to repay its portion in fish and in gold, but nothing ever had come of those, either. The Japanese government in the 1980s made export insurance payments to companies left in the lurch. In the process, Tokyo refused to offer any more export insurance. Some Japanese suggested it would be hard to take Pyongyang seriously until it began paying off the old debts with some of the money that had been going for monuments and birthday bashes. (Japanese general contractors were an obvious exception to the usual caution. Contractors eyed the Rajin-Sonbong and Chongjin port-expansion projects hungrily. They figured that normalization of Tokyo-Pyongyang diplomatic ties would come before too much longer, and with it Japanese aid. Such funding would pay for expensive construction contracts, of which Japanese contractors could hope to win the larger share.)
To those focused on the debt, Kim Dal-hyon asked for patience. “There is no reason we should pay these debts right at this moment,” he said. “Creditor countries should understand the economic situation faced by socialist countries.” Blood ties could go a long way toward producing the sort of understanding for which Kim Dal-hyon was pleading. In some periods there had been considerable talk of economic cooperation between North and South Korea. There were even reports of South Korean proposals to buy up some of the North Koreans’ overseas debt, as a fraternal gesture.
South Koreans and their counterparts in the North had talked of cooperation in the past without much coming of it. In a July 7, 1988, special declaration, South Korean President Roh Tae-woo said it was time to improve North-South relations. As part of the process, he proposed introducing tariff-free North-South trade as if the two were a single country. Analysts at the time doubted that immediate results would amount to much. Actually, Roh’s economic olive branch to the North had been motivated in part by a wish to give China and the Soviet Union an excuse to betray their Pyongyang ally by stepping up economic and political ties with Seoul.
Predictably, North Korea—still smarting over the 1988 Olympics and loath to get involved in an exchange that would expose its economic inferiority to its own people—had immediately dismissed Roh’s offer as “nothing new.” But Pyongyang’s long-term need remained. North Korea-with the collapse of communism elsewhere was thrown back on a form of juche that was too truly self-reliant for comfort. Now forced to do without the vital resources it had been accustomed to receiving from its communist brethren, the North badly needed reunification from an economic standpoint. To Seoul business leaders, mean-while, the economies of North and South offered a complementary fit that was equally tempting, in a pure pocketbook sense. Transportation was one factor. Gaining rights to use North Korean rail-ways and to overfly the North could save substantial sums for the South as it expanded its continental markets, particularly in China and Russia.
For the South, labor was another key factor, more important than natural resources. After all, South Korea had done without Northern natural resources, going abroad to buy replacements. Resource-poor South Korea now had enormous experience and know-how in producing world-class manufactured goods. But its very success had become a problem. By the 1990s, the South had encountered the typical rich-country problems of overpaid and complacent labor. Southern industrialists paid their workers ten times North Korean wages, while the picky Southern workers increasingly turned up their noses at jobs that combined the “three D’s”: dirty, dangerous and difficult. “Here we’re trying to trade in our Hyundai Stellars,” a Seoul resident said to me in 1991. Mean-while in North Korea, he noted, the latest catchy public campaign slogan was, “Let’s watch the stars while we work.” The South’s need for a cheap, hard-working labor force to continue its “economic miracle” sparked a revival of economic interest in unification.
Industrialists from the South could see considerable attraction in a polite, well-behaved population and a lab
or force that was low-paid for the moment and, apparently, highly disciplined. When we visited Pyongyang’s Eguk Moran Garment Factory, the general manager, Jon Song-won, said of his employees: “They don’t even know the word ‘strike.’” His factory made suits for ethnic Korean buyers in Japan in exchange for materials and management costs plus a flat labor charge of $10 a suit. Someone asked Jon if he would be surprised to learn that the Japanese merchants buying the suits marked them up ten-fold or more before sale. Jon, almost as naive as his workers, replied: “I don’t think they-would do such a tricky thing.”
For South Koreans, argued Kim Duk-choong, investing in the North was “less risky than investing in Southeast Asia. You’re investing in your own country, in the long run.” He was pleased that Kim Dal-hyon at his press conference remarked that he hoped South Koreans would be the first to invest in Rajin-Sonbong development, “because they are our own compatriots.” Kim Duk-choong marveled: “It’s the first time they expressed that: ‘We welcome our brothers.’ ”
The fact that North Korea was playing up to prospective Japanese investors had helped—despite the unenthusiastic Japanese response—to trigger a competitive urge in the South to beat the former colonial master to the punch. The largest Southern corporate groups—Hyundai, Samsung, Daewoo, Lucky-Goldstar—had been excited enough by the long-term prospects to race each other in establishing task forces that would try to increase indirect trade with the North via third countries, and prepare for the day when direct trade would become a reality. Finally, on October 17, 1988, the government in Seoul had authorized private companies to trade with the North and permitted businessmen’s exchanges.
Hyundai founder Chung Ju-yung had been the first to take advantage of the new dispensation, traveling to the North in January 1989 and returning with a tentative agreement on a $700 million joint project: development of a resort on both sides of the border around North Korea’s scenic Mount Kum-gang near the east coast. It was time to test Kim Jong-il’s promise to China’s Hu Yaobang that he would promote tourism. The Kumgang idea didn’t sound totally preposterous. As Seoul architect-planner Kwaak Young-hoon told me, first-time visitors from the South tended to react to aspects of North Korea the way surveys showed first-time visitors reacting to Disneyland: Both were seen as “clean and friendly.”
Political considerations had intervened, however. The collapse of East Germany in 1990 had triggered a major reassessment on both sides of the Korean Demilitarized Zone. The euphoria in Seoul had been palpable as some people predicted Korean reunification within five years. Southerners had licked their lips at what seemed the near-certainty that communism would self-destruct in North Korea without the South’s having to lift a finger. As in Germany reunification would come through absorption of the former communist state by the victorious capitalist state. Only then would the South invest in the North.
As a bonus, mean-while, news of the demise of European communism had nipped in the bud the leftist radical movement in the South, in which Pyongyang had placed some hopes for the eventual peninsula-wide victory of Kim Il-sung’s revolution. The idea of doing anything that could feed money into North Korea and help prolong its separate existence had become anathema in Seoul, especially to government officials. For two years after Chung Ju-yung’s 1989 visit to Pyongyang, no other top-ranked South Korean businessman had followed in his footsteps.
Members of the North Korean elite had gone into shock upon hearing the fate of their East German counterparts. In the new, unified Germany, Easterners initially seemed to have no claim to leadership and its perquisites—or even, in some cases, to decent jobs. That precedent had been as horrifying to Pyongyang as German unification had been inspirational to Seoul. Indeed, avoiding “absorption” had become an obsession in Pyongyang.17
By early 1992, Pyongyang’s panic over the prospect of absorption seemed to have abated slightly. The regime might have felt that a campaign to frighten any wavering members of its elite class and unify them around the Kim Il-sung and Kim Jong-il leadership was succeeding. As part of the campaign, North Korean television broadcast a documentary showing former East German officials looking for jobs and peddling hot dogs on the street.18
No doubt another cause for at least momentary relaxation in Pyongyang was a shift of opinion in South Korea so drastic that it appeared, for the moment, that the interests of the Northern and Southern regimes might actually overlap. German unification had proven so expensive that many South Koreans who had looked forward to a quick, German-style reunification of Korea now came to hope for a more gradual process, one that would allow time for the North to build up its economy so it would represent less of a burden to a prospective merger partner.
“German reunification is a good example of the worst case,” said Park Young-kyu, a scholar at Seoul’s Research Institute for National Reunification and one of the South Koreans on the trip. South Korea’s Finance Ministry estimated that the price tag, if the South should have to absorb the Northern economy before the year 2000, would be $980 billion—more than three times the South’s then-current gross national product of $280 billion.19 Such estimates took into account the needs for worker retraining, improvements in infrastructure such as roads and ports, social welfare benefits for Northerners and costs for environmental cleanup and administrative integration. One South Korean government-sponsored think tank reported that some 70 percent of East German firms would fail to survive reunification, and 20 percent of East Germans would lose their jobs in the process. As the North Korean economy stood then, the post-reunification job loss there would be far greater, on the order of 50 percent, said the Korea Institute of Economy and Technology.20
Many economists feared that the gap in incomes and living standards had grown too wide to permit splicing the two Korean economies together. The South was approaching a $7,000 per capita income, while the North was declining from a high that might have approached the $1,000 level.21 A consensus was building in South Korea that Seoul must help Pyongyang close that gap—and in the process help prop up the North Korean economy. As a theoretical bonus, prosperity presumably would make Pyongyang easier to deal with.
Mean-while, soaring labor costs had punched the export-based South Korean economy in the solar plexus—driving home the humbling lesson that a relatively scrawny Seoul would be much harder pressed than heavyweight Bonn to avoid the consequences of a sudden reunification. In their nightmares, Seoul residents saw their capital overrun by destitute Northern cousins fleeing south to pursue dreams of the good life. The Finance Ministry proposed severe limits on cross-border travel in the initial post-reunification period—-with an exception for the divided families whom the South sought to reunite.22 One Western diplomat with long experience studying Korean society painted for me an even more forbidding picture. “Abrupt unification along the lines of East and West Germany would be a disaster,” he told me in August 1991. “If they-were to reunify today, the South Koreans would take over everything. North Koreans would be the underlings—the guys sweeping, or wiping the babies’ asses.” Unlike the people from South Korea’s Cholla provinces, who previously had taken such menial roles in Seoul, North Koreans “are not stoic,” the diplomat said. “They wouldn’t take it. They’d get real violent real quick.”
Seoul’s Korea Institute of Economy and Technology, among others, argued that the South should help develop new, more competitive industry in the North before reunification to minimize such disruptions. The message went over expecially well with one particular group of South Koreans. Shin Woong-shik, a Seoul lawyer specializing in legal dealings with Pyongyang, went on the trip and told me that much of the Southern interest came from among the millions of South Koreans who hailed from the North. Before and during the Korean War people from the North, many of them from the upper socioeconomic groups purged by the communists, had migrated to the South. Himself the grandson of the operator of a gold mine in what became North Korea, Shin said many rich, Northern-born South Koreans had sentimental reaso
ns for helping to develop their home region. Topping the list were Daewoo Group Chairman Kim Woo-choong and Hyundai founder Chung Ju-yung—the latter an unsuccessful candidate for president of South Korea, in the December 18, 1992, election.23
In May of 1991, Daewoo’s Kim Woo-choong had gone to Pyongyang and discussed both commodity trade and joint manufacturing ventures in such fields as textiles and electronics. The South had traded rice for North Korean coal and cement later that summer—directly, without routing the ship through a third country as in past trade arrangements. That was a third-flag ship, to be sure, but the South had begun to study the possibility of opening a regular shipping service between the two Koreas. Also under study were a proposed settlement account between Seoul’s Export-Import Bank and Pyongyang’s Foreign Trade Bank, to clear payments once direct trade should become active, and eventual issuance of soft loans to North Korea. In August of 1991, the South’s President Roh himself had registered his government’s support for joint ventures, not just the trade that had been encouraged in the past. Negotiations resumed on joint tourist development around Mount Kumgang. Besides such projects and joint development of North Korean natural resources, there had been some talk of joint fisheries zones and of joint ventures in third countries—specifically, using North Korean labor in construction and development projects overseen by South Korean contractors in places like Pakistan and the Middle East and in logging schemes in Russia.
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