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Can trade and commerce foster peace and mutual understanding between hostile governments? When it comes to the Koreas, this question may seem to be beside the point, given the ruthless purge now under way in the North. But it remains an essential consideration for the longer-term future of North Korea and other outcast regimes.
The Kaesong Industrial Complex, a joint venture of the North and South Korean governments, is both a tribute to the concept of diplomatic reconciliation through business and a difficult test of its feasibility. Roughly 50,000 North Korean workers are employed in 123 factories that produce about $450 billion worth of goods (mainly textiles, shoes, and household goods).
Kaesong is an expensive investment for South Korea, which provides capital and infrastructure, including a power station, a water purification plant, and a hospital. But, more than a decade after its inauguration, the complex runs at 40% capacity and has attracted only medium-size companies.
Despite generous tax incentives, South Korea’s huge conglomerates, the chaebol, have spurned the experiment, at least partly because of enduring transportation and communications problems. The complex can be accessed only through the demilitarised zone separating the two Koreas, which requires entry and exit passes. The lack of mobile-phone networks and broadband internet means that South Korean managers must communicate with their headquarters by landline phones and fax.
Of course, commercial gain is not the only motivation behind the Kaesong complex. The South Korean authorities are rightly proud of the initiative, which they view as an investment in future reunification with the North.
Seen from this perspective, North Korea’s recent announcement that it will open another 14 special economic zones is a positive development—one that is underpinned by significant financial incentives. Aside from enabling the North to acquire technology and learn market-oriented business practices, the Kaesong complex generates about $80 million annually in workers’ compensation (the monthly wage of $160 is far higher than in North Korea).
But political and historical tensions continue to shape daily life in Kaesong, where companies operate under the constant threat that North Korea, for whatever reason, will react rashly, even abandoning the joint project altogether. Already last year, rising inter-Korean tensions led to a temporary shutdown of the complex.
As a result, firms must dedicate considerable time and effort to dealing with North Korea’s often volatile and opaque politics, exemplified in the recent execution of North Korean leader Kim Jong-un’s powerful uncle, Jang Song-thaek. This challenging climate