Center for International Policy

As printed in the Sydney Morning Herald

July 17, 2006

Help Needed in Move to Market Economy
by John Garnaut

GEORGE BUSH "loathes" Kim Jong-il. He has promoted North Korea's "Dear Leader" above Iran's Mahmoud Ahmadinejad to the top of his Axis of Evil file.

After all, Kim is the godfather of a "Soprano state", according to David Asher, head of Bush's North Korea working group, "whose actions, attitudes and affiliations increasingly resemble those of an organised crime family more than a normal nation".

Shinzo Abe, who is Japan's chief cabinet secretary and tipped to be the country's next prime minister, believes the North Korean tyrant is so dangerous that Japan should contemplate pre-emptive strikes.

The Australian Prime Minister, John Howard, says Abe's reaction is "understandable" and Kim Jong-il is "irrational".

But if Kim Jong-il is a nutter, as some Western leaders believe, he certainly understands the calculus of international relations.

With just seven test missiles - all of which were legal under international law and either exploded after take-off or dropped harmlessly to sea - he split the five great powers that had been negotiating his future.

Four of those countries happen to be Australia's four largest trading partners.

Washington blamed Beijing for being impotent. Tokyo talked of abandoning six decades of pacifist restraint. Seoul said Tokyo's rhetoric "may seriously threaten peace in North-East Asia".

Beijing, more quietly, blamed Washington's policy of economic strangulation for forcing Pyongyang's desperate measures.

While Western leaders have read about Kim Jong-il in Bush's Axis of Evil file, there are those, mainly in South Korea and China but also Russia, Australia and the United States, who have met the Korean leader or made some effort to understand how he thinks. They talk of a sane and even engaging kind of tyrant.

"I didn't see anything irrational," says Moon Chung-in, a South Korean political scientist who dined with Kim Jong-il when the two countries made their rapprochement in 2000.

"He is an extremely rational guy and extremely well-versed in what is going on in the rest of the world."

A recently retired intelligence officer says Kim Jong-il's "only objective is survival". But it's a misconception "to think of them as foaming-at-the-mouth nutters".

To understand how a cruel, ruthless but rational man can take the world to the brink of nuclear war, you need to look back to the death of Kim Jong-il's father in 1994, Kim Il-sung. Kim senior was a "very good manager of men" says Selig Harrison, the first and last Western reporter to interview him - in 1972 and 1994.

Kim junior took another three years to establish himself as leader. His continuing weakness requires him to court a massively strengthened military establishment by asserting his nuclear credentials.

"Kim Jong-il is essentially a reform-minded leader," says Harrison, a former Washington Post correspondent and author of six books on the region.

"The problem with North Korea today is he's not as good a politician and he does not have the full, unchallenged power his father did."

Others put it more mildly: Kim Jong-il is capable of reform when it suits his power-balancing, both inside and outside the country.

There is no reliable economic data but estimates by the Bank of [South] Korea show the North's economy contracted by an annual average of about 4 per cent from 1990 to 1998, amounting to a massive collapse in living standards.

Hundreds of thousands of people are thought to have died in two great famines - as the regime funnelled what food there was to the party and the military.

But, since 1999, the economy may have grown at about 3 per cent a year and managed, more or less, to avoid mass starvation.

The country was industrialised and until the 1960s had a stronger economy than the South.

Most importantly, it is educated. The national emblem is a hammer, sickle and pen.

"One gets the feeling that the education system, warped though it may be, has continued all the way through," says one recent visitor who is based in the region.

In 2002 North Korea introduced a series of price and foreign exchange reforms. A special economic zone was opened jointly with South Korea, just north of the demilitarised zone.

Recent visitors report that fibre-optic cable has been laid throughout Pyongyang and other major centres - supporting a national intranet (as opposed to internet). The online network hosts some surprisingly counter-revolutionary English language classics.

A mobile phone system was established and then dismantled.

South Korea and China, the free-market neophytes, are inclined to give North Korea space and encouragement to develop into a market economy while condemning its reckless missile tests.

Trade and foreign investment between the two countries and North Korea has soared.

But Japan and the US, the capitalist giants, believe North Korea cannot be appeased. They are bent on imposing economic sanctions and freezing bank accounts to reimpose a state of autarky.

Last week North Korea said it would re-start negotiations when the US releases money held in its international bank accounts.

The more that South Korea and China engage with North Korea, the better life is likely to become inside the hermit kingdom and the more power is likely to flow to those inclined towards reform. And the more Japan and the US talk the language of punishment, the more persuasively Pyongyang's generals can argue that nuclear deterrence is the only guarantor of security.

"There is a very interesting coalition of military hardliners in Washington and military hardliners in Pyongyang - and now in Tokyo, too," says Moon.

There are some who believe North Korea is capable of following the outward-oriented economic reforms pursued by the South - and this will lead to peace. This can happen only if no one misjudges the game of brinkmanship and triggers a nuclear war.

"The only way to achieve peace is to enable North Korea to transform itself inside out," says Peter Hayes, executive director of the Nautilus Institute and one of the world's most respected North Korea analysts.

"The alternative is a civil war, or a Korean peninsular war, or simply a war."

The US has pursued "a campaign of unrelenting hostility" since September, he says. "We don't have a policy but we do have an attitude."

He says the policy has hurt the North Korean people but it hasn't hurt the regime "in the slightest".

It is surprising that Australia has followed the US prompt by cutting off an agricultural economics training program for North Korean bureaucrats - when exposure to the outside world would seem one of the few ways out.