Disarming North Korea

Disarming North Korea

Abstract: This essay seeks to cast doubt on conventional assumptions about China’s coercive ability and intent concerning North Korea, and proposes an unconventional geoeconomic solution to the growing nuclear threat that upholds Chinese security and saves face for Beijing. With incentives for private underwriting, a Reunification Investment Fund is introduced as a platform to create US-China cooperation and elite North Korean support in reuniting Korea.

Foreign Policy editor and Beltway insider David Rothkopf complains about “dumb-downed smart people” in Washington, and claims there is an “institutionalized aversion to creativity.” Indeed, conventional US North Korea policy remains stuck in the muck and mire of Cold War causation, without nuance, imagination, or reasonably substantiated expectations of positive-sum outcomes. The fatalistic diplomatic doctrine is: “There are no good options.” This can and must change.

After North Korea’s quadruple missile launch in March, nonproliferation analyst Jeffrey Lewis has convincingly argued that Pyongyang is “preparing for a nuclear first strike” on US and allied military installations in the Asia-Pacific. Experts predict that sometime during the Trump presidency North Korea will be able to deliver a nuclear-tipped ICBM to the United States homeland. Past US presidents have drawn a red line, claiming they would not allow a nuclear North Korea; however none has been successful in undermining this danger or in dissuading China from supporting the Kim regime. After eight years of strategic patience there is a growing consensus that something must be done in a hurry and that China must be compelled to cooperate.

Chinese President and communist Party general secretary Xi Jinping must feel uneasy about an unconventional US president with a conservative populist mandate, as Donald Trump has already made China’s trade surplus a political issue, and as Beijing quietly continues to prop up a regime in North Korea that is developing nuclear weapons it threatens to use against the United States. With several million manufacturing jobs lost to alleged unfair trade with China, and North Korea in the final stages of developing a nuclear-tipped ICBM, Washington may seek a grand bargain with Beijing to rebalance US-China trade and denuclearize North Korea. As the preponderant economic and military power in the world today, the United States has considerable ability to achieve both objectives. However, avoiding conflict may require unconventional means of deploying US power over China and North Korea.

In a book Henry Kissinger hopes will convince policymakers to reassess geoeconomic tools, in War by Other Means Ambassador Robert Blackwell and Jennifer Harris critique conventional US foreign policy and present a prescient prescription for what must change. Blackwell and Harris contend the Vietnam War pushed geoeconomics off the policy stage, and then as now, the US too often reaches for the gun instead of the purse. Citing ideas introduced by the influential Johns Hopkins foreign policy professor Michael Mandelbaum, Blackwell and Harris assert, “Understanding geoeconomics requires appreciating deeply embedded differences in the operating assumptions of geopolitics and economics. The logic of geopolitics is traditionally zero-sum, while the logic of economics is traditionally positive-sum.” They conclude that US policy should de-emphasize zero-sum conventional power politics in favor of positive-sum geoeconomic statecraft.

To achieve this objective, I have designed a model to peacefully denuclearize North Korea while creating economic and security benefits for concerned stakeholders—including China. In this essay I will introduce a pragmatic platform for positive-sum private and multilateral cooperation that expands the set of options at a time when it is painfully obvious conventional strategies derived from institutional think tanks and policy professionals are not working, and sentiment is growing for more drastic actions.

However, before introducing this proactive geoeconomic approach, let us review evidence that supports the prevailing opinion that China could do more to stop North Korea, and possible reasons for its reluctance.

China’s Reluctance to Stop North Korea
Conventional wisdom is that China prefers a divided peninsula in order to preserve a fraternally allied communist authoritarian state as a buffer between itself and the US allied (and occupied) democratic South Korea. While perhaps a valid concern for a more insecure generation, there is little rationale for this today. In addition to the borderless diffusion of news and information via digital communications and the Internet, with over two million men in boots and 2,000 fighter aircraft, no modern army would dare push toward Beijing over land through Korea, and after unification, the presence of anti-ballistic missile systems (THADD) and the US military are unnecessary. Let me suggest another reason that has largely escaped critical analysis.

Since the chorus of disapproval in China following North Korea’s February 2013 nuclear test, the prevailing consensus is that Beijing has distanced itself from Pyongyang. It is cited that Chinese President Xi has yet to meet with Kim Jong-un and has warned the Kim regime to stop provocations. Although there is circumstantial evidence for estrangement this does not discredit an alternative hypothesis that China is feigning displeasure to disguise its real intent. Analysts who presume acrimony fail to identify the silent surrogate role North Korea plays in promoting Communist China’s historical anti-imperialist anti-Western foreign policy through the transfer of technical knowledge and advanced weaponry. An incomplete flow chart of the chain of interlinking proxy relationships (including Russia’s role) and weapon transfers between anti-Western authoritarian states and non-state terrorist/resistance groups is represented in the figure below:

Anti-Western International Weapons Supply Chain

This chain of strategic relationships destabilizes the Middle East and challenges US interests in the Persian Gulf. A history of Chinese weapon exports to the greater Middle East and current North Korean weapon exports through Chinese ports to Syria and Iran (arming Hezbollah and Hamas) suggests collusion. China policy expert Denny Roy points out that an increasingly dangerous “anti-U.S. Iran diverts U.S. resources away from East Asia and attention away from China.” According to newly released records obtained under the Freedom of Information Act, China exported nuclear materials to the Middle East in the early 1980s. Declassified CIA reports reveal that Chinese entities have been key suppliers of nuclear and missile-related technology to Pakistan and missile-related technology to Iran.

In 2011 a U.N. Panel of Experts report was blocked by Beijing in the Security Council because it contained incriminating details that Iran and North Korea exchanged missile technology using Air Koryo and Iran Air, involving transshipment through China. Before the JCPOA agreement was finalized, Beijing repeatedly opposed UN sanctions against Tehran, vetoed sanctions against the Bashar al-Assad regime, and stymied possible P5+1 action in Syria. Beginning in 2009 the Obama Administration imposed sanctions 16 different times on Chinese entities for weapons proliferation, including after 445 North Korean-made graphite cylinders used in ballistic missiles were seized in 2012 from a Chinese cargo ship bound for Syria.

In February 2014 the US Defense Intelligence Agency Director testified before the Senate Armed Services Committee that Syria’s liquid-propellant missile program depends on equipment and assistance primarily from North Korea.
These intelligence discoveries, plus Beijing’s lackluster response to Pyongyang’s nuclear and ballistic missile tests and its failure eliminate munitions transshipments and enforce UN sanctions, suggest that China’s support for North Korea may not be a benign legacy of the Cold War, but part of a larger geopolitical strategy. After establishing Pakistan as a nuclear power on one flank, China may prefer a surrogate ally with nuclear muscle on its other flank.
While China may currently lack resolve to stop North Korea, evidence it could prevent its nuclear proliferation would create a strategic opening for geoeconomic diplomacy.

Can China Stop North Korea?
Taking the CCP at its word that it disapproves of North Korea’s nuclear missile program, most institutional analysts also presume Beijing cannot stop it. However, evidence of substantial economic leverage suggests otherwise. According to a US Congressional research report, in addition to over one billion dollars in direct aid, Beijing purchases 90 percent of North Korea’s commercial exports, provides 80 percent of its consumer goods, 90 percent of its energy, over $100 million in UN banned luxury goods, and enough food to feed over a million people per year. However, the most profit is derived from the trade itself, which despite Beijing’s alleged discomfort with Pyongyang’s provocations, has quietly increased four fold since North Korea’s first nuclear test in 2006, as shown in the graph below.

China-North Korea Trade 2006-2015

Source: Korea Trade-Investment Promotion Agency (KOTRA)

Although there are indications of a recent reversal, this dramatic increase in trade since 2006 is undeniable evidence of China’s growing support for North Korea and at least tacit approval of its nuclear weapons program. As Beijing props up the Kim regime without bringing attention to itself—or anyone losing face—it may undervalue exports by at least one-third—a strategic discount—while the bulk of North Korea’s exports of mineral products and textiles—utilizing work camp labor—may return a 90 percent profit. The structural trade deficit (highlighted above) with China is effectively foreign aid since it is inconceivable it will ever be paid back, as with the $10 billion Russian debt that was forgiven in 2012 after decades in arrears. Given these assumptions, from available data Chinese trade and aid is responsible for direct and in kind fungible profits that paid for more than three-quarters of North Korea’s $6 billion 2015 military budget.

Despite benign policy pronouncements, this suggests China is underwriting the stability of the Kim regime and paying for a portion of its nuclear weapons program. Indeed, if China were to abide by UN sanctions and suspend support—even if food aid was maintained at humanitarian levels—without luxury goods for elites, oil for the military, and essential commodities for its people, it is improbable the Kim regime would last long. American Enterprise Institute economist Nicholas Eberstadt describes North Korea as more dependent on aid than the poorest countries in Africa. According to the highest ranking émigré and a senior member of the Korean Workers Party: “Without Chinese capital goods, it would be impossible for the North Korean government to operate, and ordinary people would not be able to carry on with their daily lives.”

Under such conditions, leaders of surrogate states need not like their overseers in order to do as expected when money—or its equivalent—is on the table, especially if they have no one else to turn to and when these activities are consistent with their geopolitical designs. The degree of animus or friendship between Beijing and the Kim regime is immaterial to this client-proxy relationship, which would dissolve if North Korea’s nuclear missile program, and missile exports and nuclear technology transfers to the Middle East were unacceptable to China’s larger strategic objectives. Indeed, Beijing would surely withhold support if Pyongyang started selling weapons to Xinjiang rebels or to the Dali Lama.

Breaking With the Past
As shown, China has more leverage over North Korea than most analysts presume. However, enlisting China’s cooperation may not be as prohibitive as observers might think. Dartmouth political scientist Jennifer Lind points out that when China and North Korea originally formed an alliance both countries were weak, resentful, isolated, and the target of Cold War containment by the US and its allies. China has since moved beyond this state of affairs, has joined multilateral institutions, and now depends on the international system as the world’s largest trader. Although its North Korea policy remains anchored to the past, influential factions in the PLA and the CCP regard the Kim regime as a threat to regional stability.

In a September 2014 article, published in the China state journal, World Knowledge, Renmin university international relations expert Li Wei describes North Korea as inappropriate as a “strategic ally” because it does not conform to the general criteria of a “strategic hub country” that supports Chinese political, diplomatic and security goals. Party elites are uneasy about an unruly state on their border that may provoke a US military response or prompt regional nuclear proliferation. Indeed, Richard Haass at the Council on Foreign Relations notes: “China needs years and more likely decades of relative stability in the region so that it can continue to address its many domestic challenges. North Korea is a threat to such stability.”

Although hardliner traditionalists still prevail over a new generation of policy pragmatists, their authority is not unlimited, and Beijing is not immune to its own populist pressures. China may not renew this relationship indefinitely, as it is forced to accept more important concerns that loom on the horizon. Since the Mao era, Chinese leaders have exhibited an admirable faculty for reform in response to changing real-world circumstances. As relations between the US and North Korea deteriorate and the geopolitical calculus changes, the geoeconomic model outlined below may be China’s golden opportunity to resolve this eroding security dilemma before it loses control over the situation. Sixty-five years ago when its frontline value was beyond reproach, North Korea was a protected pawn in the chess match of great power rivalry. However, now that it has invited danger into the region for China, it may be sacrificed for a larger strategic vision.

In a world of massive capital flows, unequal abundance, structural stagnation, and global satellite communication, where expanding trade and creating jobs is as important to political survival as free access to well endowed consumer markets, it is likely that over the course of the twenty-first century a more pragmatic modernization of foreign policy will involve a greater emphasis on geoeconomic statecraft to solve political disputes and promote and defend national interests. The following plan to disarm North Korea was designed as a bridge to this future.

Creating Geoeconomic Incentives
What if there was a way to reunify Korea and stop nuclear proliferation without inciting fear or administering punishment, but instead, by promising personal rewards? Novel approaches often seem untenable until they are fully understood. Therefore, I ask readers to be open-minded and suspend judgment until they comprehend the interacting details of this model.

To begin, imagine you control a multi-billion dollar capital fund and North Korea is a poorly run underperforming corporation that is controlled by an incompetent board of directors—the Kim family and a small number of ultra-elites—who will not negotiate a deal. In this regressive situation it is logical to offer shareholders—political and military elites, government managers and bureaucrats, and the general population—a higher price for their shares to convince them to overrule their board of directors. This is the plan in a nutshell.

After a quarter century of failed conventional policies, a geoeconomic strategy that injects the persuasive power of personalized money into the diplomatic process may be necessary in order to overcome institutional inertia and path dependencies that too often terminate in conflict. My assumption is that in social settings, where almost everything is for sale, there must be some level of security assurance and personal financial incentive that will impose insurmountable domestic pressure on the Kim regime to acquiesce to South Korean political control.

To achieve this result I have designed a plan for the institution of a seven year $52.5 billion Reunification Investment Fund—with private underwriting—that would offer personal financial incentives for North Koreans to unify with their wealthy relatives to the South. As in the final days of the Soviet Union, the efficacy of this model is enhanced by the word-of-mouth rumor currently spreading across North Korean social networks that the outside world is a better place to live. People are ready for change; this fund is a platform to unleash and manage it. The bold arrows below represent the essential elements of this Reunification Investment Fund:

Reunification Investment Fund Financial Flow Chart

* The Bank of Korea may act as the lender of last resort

In this scenario, the South Korean government would offer resources awards and private sector contracts for infrastructural improvements and portions of future markets, industries, and business enterprises worth trillions of dollars in profitable assets, including open markets in telecommunications, transportation, building materials, and automotive products, ownership or licensing agreements for control over mines, seaports, and tourist attractions, and exclusive construction contracts for a gas pipeline, railroads, tar roads, energy generation, and a multitude of necessary projects.

In exchange for these resource awards and government assurances, business investors would be required to endow this fund to pay an annual $4.2 billion golden parachute for seven-years to North Korea political and military elites, to compensate for their loss of power and position. Since it is impractical to expect democratically elected officials to agree to pay large amounts of public money to North Korean elites, these payments must come from private sources, for whom the prospect of enormous business profits make this a wise investment.

Lucrative business opportunities abound in the hermit kingdom. North Korea ranks 10th among all nations in mineral reserves; valued at $6-10 trillion. A multi-billion dollar pipeline must be built from Russia to supply the industrial and population centers of Korea with an estimated $3 billion in natural gas per year. Railroads must be rebuilt for rapid commodity transport to Europe and China. Unification would stimulate exports through the northernmost ice-free Pacific port in Rason, just a few miles from landlocked China and bordering the resource rich Russian Far East. Roads must be tarred, cars imported; only 3 percent of the roads are paved and the North has only 50 thousand private cars compared to 18 million in the South. Cheap labor will be available for at least a generation, as internal markets spring up. Tourism is another unexploited multi-billion dollar industry, where control over specific attractions may be turned over to private enterprise in return for contributions to the fund.

After decades of globalization profits and unprecedented QE, the world is awash in money. Business tycoons, transnational corporations, and institutional investors have surplus capital and are looking for opportunities. International business, banking, and multilateral underwriting, with G-20 leadership, will impart confidence by indemnifying this fund with broad assurances from the global community. In today’s multilayered global balance of power, private interests often serve as a unifying force in the competitive nation-state system of world governance. This plan is based on the assumption that geopolitics may sometimes be more effectively managed through positive-sum geoeconomic incentives acting on the personal and cultural level.

Culture Unifying Incentives
Almost everyone in North Korea has abandoned Leninist ideology and is aware of and envious of South Korea’s remarkable prosperity. The steady diffusion of news and information across the semi-permeable Chinese border has changed the cognitive landscape, as a market-motivated underground word-of-mouth information highway challenges the state’s meta-narrative and monopoly on information. Rumors of the inordinately better life in the South have saturated cultural impressions and created a new social context for political change that has not existed before.

After decades of silent transformation the mere existence of this fund sitting in escrow ready to pay out vast sums may catalyze overwhelming support for reunification at all levels of North Korean society. The promise of $29.4 billion to elites—$4.2 billion times 7 years—can win a lot of hearts and minds. The top ten power elite families would receive $30 million each, while the top thousand would get more than $5 million; 11,000 upper elites—including all generals—will be offered at least $1 million; more than 50,000 mid-level political elites and military officers will receive $100,000 to $500,000, while the incomes of 300,000 families in Pyongyang will increase many fold if Korea were to unify.

This provision of money is compensation for loss of status and income. On the surface, these payments may seem unethical, possibly even immoral, but most of the elites who will benefit are merely innocent inheritors of their fathers’ ill-begotten estate (position and power) and were not complicit in its original acquisition or in the malevolence that followed. We do not punish the descendants of slaveholders or the children of thieves and murderers. Their only guilt is the origin of their birth. Indeed, this payment would amount to a bailout for the misdeeds of their ancestors—without moral hazard.

As designated by the thin arrows in the financial flow chart shown above, the masses outside Pyongyang should also be awarded financial benefits. This will help jump-start the new economy and ensure social stability. Non-taxpayer derived investment capital may come from South Korea’s half-trillion dollar sovereign wealth and foreign reserve assets, QE, helicopter money, or from the presumptive peace dividend. Post-unification investments in infrastructure from Korean government bonds ($300 billion has been proposed), international banks (IMF, ADB, and AIIB), and the B-20 (the investment arm of the G-20) may amount to more than a trillion dollars over the next decade, creating millions of productive jobs and securing the democratic transition.

Little is known about the sentiments of the Pyongyang poor, who comprise about two million people living in close quarters, just a stone’s throw from the guarded compounds of the power elite. Few have refrigerators and even fewer own washing machines; electricity and water are intermittent. They live along dirt roads in brick-and-clay huts without toilets, heat their homes with charcoal, and bathe infrequently in public cold-water showers—even in the bitter cold of winter. Promises of food security, modern health and dental care for their children, property ownership, a regularly functioning water and energy infrastructure, high-speed international communication links, and thousands of dollars deposited into their personal bank accounts each year for seven years may spread unification fever and many may take to the streets.

Safe from international retribution, the Kim regime may acquiesce long before the social situation devolves into a state of general chaos and insurrection. Although Kim Jong-un receives no money, that personal safety is more precious than power would give him little choice but to accept this offer. He may be granted immunity from criminal prosecution, allowed to keep a portion of his fortune, and promised freedom to live and travel anywhere in the world. Nothing is gained by his vilification or punishment, while promising safety and security to Kim and his family may prevent bloodshed.

Or if Kim is unwilling to acquiesce, motivated by the $20-30 million promised to the 200 most prominent families, elites may take matters into their own hands. Or a coup d’état may be sponsored by well-compensated political and military elites. In either event, violent overthrow or peaceful acquiescence—and with or without Chinese assistance—the transfer of power to South Korea would disarm a nuclear threat and end more than half a century of abject tyranny.

The Trump administration has made it clear that America’s patience has run out and that it will not allow the Kim regime time to develop the ability to nuke the United States. With the horror of 9/11 indelibly etched into American minds, many believe a surgical military strike now may have significantly lower risks than a nuclear-ICBM endangered future. All options are on the table; the US is prepared to act unilaterally and unpredictably—as in the April 7 cruise missile strike on a Syrian airfield. Since conventional geopolitics has failed to stop North Korea from developing weapons of mass destruction, this geoeconomic approach should be considered in lieu of another missile strike. Indeed, the extraordinary plan proposed here might be the only realistically achievable path to denuclearize Korea at this late stage without resorting to a kinetic solution.

Mutual US-China security concerns may compel reciprocal compromise and cooperation. China may facilitate reunification by suspending all support for Pyongyang while the US would agree to withdraw its military from mainland Korea pending unification and the removal of nuclear weapons. Both nations may diplomatically promote and financially support this fund. Indeed, ubiquitous benefits from reunification should help promote this peace initiative.

If popularized in the media, business leaders and heads of state may see this is a workable plan that would benefit everyone with something at stake in the region. The US would get the dissolution of a grave nuclear threat, an end to the possible transfer of nuclear materials and technology to terrorists or rogue states, and a chance to reassess its geopolitical interests in a less threatening Asia-Pacific; Japan gets safety from missile attack and weapons of mass destruction, along with large new labor, export, and investment markets; Russia gets secure rail and energy profits, and year-round passage to Pacific shipping; China gets a reprieve from the possibility of regional nuclear proliferation, free-market access to Korean minerals and ports, cooperation in developing its northeast provinces, the removal of US troops from mainland Korea and an easing of great power rivalry; and South Korea gets permanent peace, trillions of dollars in mineral resources, energy security and diversification, several valuable Pacific ports, rail connection to China and continental Europe, 50 percent more people, 120 percent more territory, and according to a Goldman Sachs study, development synergies that may propel its GNP past France, Germany, and Japan in just one generation.

Although nuclear proliferation and the trajectory of geopolitics seem unstoppable, we need not continue down this road leading into the abyss. Instead we may think outside the box and create novel solutions to unique contemporary geopolitical problems. Realizing the potential of this fund will require the inspired vision of business and political leaders who can bring out the best in all of us; those who perceive the big picture and understand that the ideas that move humanity forward are often initially considered crazy, disruptive, or impossible; leaders who can show us what we should want, while employing positive-sum geoeconomic incentives to get us there.

To get from here to there we must transcend zero-sum geopolitics with a strategic plan that at least has some chance of positive-sum success. This Reunification Investment Fund is such a plan. As Ambassador Blackwell and Jennifer Harris astutely assert: “U.S. foreign policy must be reshaped to address a world in which economic concerns often outweigh traditional military imperatives and where geoeconomic approaches are often the surest means of advancing American national interests.”

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