North Korea is a country of 25 million people held hostage by its warlord ruler. Its real GDP per capita is estimated at less than 10% of Bulgaria’s and less than 5% of South Korea’s.  Its main export is fear, sustained by long credible threats of devastating Seoul just south of the border and increasingly credible threats of wreaking nuclear havoc on Japan or the U.S. Its main Achilles’ heel is dependence on foreign oil, which China supplies in part to protect an ally on its border and in part because the enemy of its enemies is its friend. Its main protection is its long-screamed eagerness to take others down in flames with it.

 

Ideally, South Korea and North Korea should reunite the way West Germany and East Germany did, with the absorption of the discredited communist side into a democratic market-oriented state. Formally, South Korea still favors reunification and guarantees to accept every north Korean as citizen. In reality, South Korea is terrified by the costs and trauma of absorbing all its lightly skilled and heavily indoctrinated kin. With South Korea only twice as populous as North Korea, and with no evidence from Soviet bloc collapse that outside aid can quickly work wonders, one can hardly fault its reticence.

 

The next-best hope is for North Korea to follow a Chinese path, promoting market-spurring economic reforms coupled with gradual social and political liberalization. If North Korea had done this thirty years ago, there is little doubt that its people’s average incomes would approach Chinese incomes now, which in turn are approaching Bulgarian levels. China has long encouraged North Korea to do so and offers various forms of practical assistance. However, North Korea’s leadership has resisted this, out of its fear that any weakening of central control would topple it. Such fear is far from unreasonable, given how terribly it has abused its own people for so long and how crazily it has exalted itself.

 

The next-next-best hope is to keep kicking the can down the road. Keep supplying North Korea with oil, warn it not to get too nasty, offer it various ransom payments when it doesn’t, and pray for a change of heart. For the past two decades this has been the global policy consensus, even for hawks who wished it weren’t. On the surface it worked: no wars, no mass destruction, and suffering mostly contained to the North Korean people. Underneath, it encouraged the warlords running North Korea to keep improving their weapons of mass destruction, so that they could better up their ransom demands.

 

The problem now is that North Korea has become too dangerous for its own good. Its nuclear bombs and delivery mechanisms are getting sufficiently credible, and its refusal to abide by previous agreements sufficiently routine, that the West (as I will clumsily call the South Korea/Japan/U.S. axis) can’t give in without at least the appearances of a fight.

 

In this showdown, the West’s best negotiating advantage is a leader who appears as unpredictable and ready for war as North Korea’s Kim does. Trump provides this better than any U.S. president since Reagan. Like with Reagan, this is amplified by many critics’ conviction that Trump is indeed borderline crazy. Hence, while the West appears frantically divided over how best to respond to North Korea, the very frenzy offers the best chance in decades to cure the North Korean menace without mass destruction.

 

What would such a cure entail? I think the only reasonable solution is to make North Korea a ward of China for the next few decades. China has better relations with North Korea than any other country, knows more than another country about managing market reforms, and stands to gain substantially in both security and prestige from managing this well. Its control of the border gives it the best leverage over North Korea. China’s regency would let South Korea postpone reunification without losing face. It will also let Japan and the U.S. sleep easier without stirring enmity as imperialists or appearing to threaten China.

 

Does China want to be North Korea’s regent? Most likely not, or it would already have squeezed oil supplies to North Korea. North Korea’s mad dog helps keep South Korea, Japan and the U.S. at bay. However, if the U.S., seconded by Japan and South Korea, insist strongly enough that the status quo is untenable, China would likely favor regency to war, US occupation or South Korea’s expansion to China’s border. The U.S. and South Korea could sweeten the offer by promising to dismantle the recently installed THAAD missile defense system.

 

Granted, using Western military pressure to expand China’s sphere of influence will strike many as preposterous. It runs against the grain of half a century of policy inertia. All the more reason that we need a lot of sound and fury, the better to camouflage and speed diplomatic negotiations.

 

I admit this is wishful thinking. I have no knowledge of such negotiations. I don’t know for sure whether any policymakers in any country are currently thinking along these lines. However, I do believe that life will eventually force such notions to the fore. Every time politicians kick the North Korea can down the road, it looms up later even bigger.

 

By Kent Osband

This entry was posted in The Region and tagged , , by Kent Osband.

About Kent Osband

Dr. Osband is an American economist, strategist, financial risk analyst and longtime student of Bulgaria. He is the author of two well-known books on quantitative risk analysis (Iceberg Risk: An Adventure in Portfolio Theory and Pandora Risk: Uncertainty at the Core of Finance) and has served both in the public (IMF, WB) and private sectors (Goldman Sachs, CSFB, Fortress Investments).
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