Sanctions, Inducements, and the Case of North Korea
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Munich Personal RePEc Archive Hard Target: Sanctions, Inducements, and the Case of North Korea Haggard, Stephan and Noland, Marcus 18 April 2016 Online at https://mpra.ub.uni-muenchen.de/105812/ MPRA Paper No. 105812, posted 08 Feb 2021 11:11 UTC Hard Target: Sanctions, Engagement and the Case of North Korea Stephan Haggard and Marcus Noland October 18, 2016 Hard Target: Sanctions, Engagement and the Case of North Korea Stephan Haggard and Marcus Noland Table of Contents Chapter One. Introduction: The Political Economy of Engagement Chapter Two. The Political Economy of North Korea: The Paradigmatic Hard Target Chapter Three. North Korea’s External Economic Relations Chapter Four. The Dilemmas of Humanitarian Assistance: The Political Economy of Food Chapter Five. The Microeconomics of Engagement Chapter Six. Negotiating on Nuclear Weapons I: The Rise and Fall of the Six Party Talks, 2002-2008 Chapter Seven. Negotiating on Nuclear Weapons II: Permanent Crisis, 2009-2015 Chapter Eight. Conclusion: Whither North Korea? Whither Economic Statecraft? Preface and Acknowledgements This book addresses the debate over economic sanctions and inducements in the context of North Korea’s nuclear weapons and missile programs. The focus on the country’s external economic relations that runs through it can be regarded as a complement to our previous work, Famine in North Korea: Markets, Aid and Reform (2007) and Witness to Transformation: Refugee Insights into North Korea (2011), which centered on the country’s internal political economy. Methodologically, that latter work was built on surveys of North Korean refugees undertaken with the support of the Smith Richardson Foundation. We were fortunate that the foundation was willing to support further activity in this vein. In this book we extended our analysis of the political economy of North Korea by surveying Chinese and South Korean businesses operating there. Our thanks to the Horizon Group and Milward Brown for their conduct of the Chinese and Korean surveys, respectively. From those surveys, which make up the backbone of chapter 5, our focus was subsequently widened to encompass North Korea’s broader foreign economic and political relations with the other five parties in the Six Party Talks. Al Song, our interlocutor at Smith Richardson, was endlessly patient as we reformulated what we were doing and delayed drawing the story to a conclusion. Workshops convened at the Asia Society by Chuck Kartman and Susan Shirk in 2009 (Asia Society 2010) and by Etel Solingen (Solingen 2012) at the Woodrow Wilson International Center for Scholars in 2010 sharpened our focus on the logic of sanctions and engagement. In addition to his affiliation with the Peterson Institute for International Economics, Noland is a Senior Fellow at the East-West Center. Haggard also benefitted from a POSCO Fellowship there in 2015; thanks to Denny Roy for his support. The Center graciously provided support during multiple occasions of joint residency and published a monograph (Haggard and Noland 2011b) that was a test run for some of the ideas here. One reason for the delay in bringing the book to a conclusion was that we simply started to learn more. At the time our refugee book was published, we launched the Witness to Transformation blog at the Peterson Institute for International Economics (http://blogs.piie.com/nk/). Initially tied to the theme of refugees and the humanitarian and human rights issues surrounding them, the blog ultimately became a site where we analyzed current events, published interim findings of various sorts, and kept up with other research and writing on the Koreas. We consider the blog as a kind of repository that pursues many issues we address here in more detail than we can address in the text. We would like to thank the Peterson Institute for International Economics for graciously supporting our work on North Korea. Special thanks are due to its publications department and web team, for their support in hosting and promoting the blog. Needless to say given the long-gestation and wide-ranging nature of this project, we have benefitted from interaction with innumerable colleagues, students, and conference and seminar participants. Like breathless Academy Award winners, we would like to thank everyone for everything, particularly the numerous colleagues from both academia and the policy world where we presented this work over the years. We will surely forget some and not get to others before the exit music starts playing. So instead of even trying to go down that road, we would like to keep things short and sweet and recognize some of the people without whom the book would not exist. At the Peterson Institute, research analysts Erik Weeks, Jennifer Lee, Alex Melton, Kevin Stahler, and Kent Boydston, all contributed to various aspects of the project. It should also be noted that all are graduates of Graduate School at the University of California San Diego where Haggard teaches. Dan Pinkston, Dave Kang and Chung-in Moon deserve particular mention, as they are fonts of useful analysis and information on the peninsula as well as good friends; all three have commented on various aspects of this evolving project over time. Haggard would also like to thank colleagues and former students from the Graduate School at UCSD, including TaiMing Cheung, Luke Herman, Jihyeon Jeong, Euijin Jung, Miles Kahler, Eddy Malesky, Barry Naughton, Jaesung Ryu, Susan Shirk, and Yu Zheng. Once the manuscript exists, it takes yet another team of dedicated individuals to turn it into the book that you are holding in your hands. We are particularly grateful for the efforts of Jenny Gavacs and the staff at Stanford University Press. Finally, our biggest debts are owed to our families who sometimes had to endure life with what must have seemed like absentee husbands and fathers. This book is little recompense for that lost time, but it is the best that we can do. Chapter 1 Introduction: The Political Economy of Engagement North Korea is routinely ranked among the most economically distorted, closed and politically anachronistic authoritarian systems in the world. If located elsewhere, interest in the country would be limited to its chronic humanitarian problems: pervasive human rights abuses, food shortages and even outright famine. But North Korea’s geographic position and nuclear ambitions have forced the major powers in Northeast Asia—China Japan, South Korea, Russia and the United States—to pay attention. Most analysis of the extended nuclear crisis that first broke in 2002 has focused, quite legitimately, on the realm of high politics: the diplomatic and military strategies of the contending parties and their consequences (for example Cha and Kang 2003; Funabashi 2007; Pritchard 2007; Chinoy 2008; Bechtol 2010; Pollack 2011; Cha 2012). What has driven North Korea to acquire nuclear weapons? What role do security concerns play in the regime’s calculations? What military or political pressures might be brought to bear on it? What are the risks of war? But the course of the crisis, and the prospects for reaching a durable settlement, have rested in no small measure on economic issues. Could economic engagement and side payments moderate North Korean behavior? Are sanctions a more effective route to getting North Korea’s attention? To what extent do economic inducements or constraints affect the North Korean leadership one way or another? These questions are ultimately tied to a host of important domestic political economy issues that have received far less attention than they should. How willing is the North Korean leadership to continue to pay the tremendous opportunity costs of autarky? Could the regime be induced onto a reform path that would also push the country toward a settlement of the nuclear issue? Or is a settlement of outstanding security issues a political precondition for coaxing North Korean out of its economic shell? In Famine in North Korea, we took a first cut at the political economy of the post- 1990 period, focusing on the economic and humanitarian consequences of North Korea’s 2 isolation (Haggard and Noland 2007). Highly dependent on support from Moscow— claims of self-reliance notwithstanding—the North Korean economy experienced a full- blown economic collapse following the demise of the Soviet Union. The country experienced one of the great famines of the 20th century; we estimate that between 600,000 and a million people died in this tragedy. Although external shocks and adverse weather played a role in this calamity, at root the famine was the manifestation of profound state failures. These failures included not only lack of accountability and unequal distribution of food through the public distribution system but also the unwillingness of the regime to tap foreign sources of food supply. We showed that with relatively minor adjustments to its economic strategy, the famine could largely have been avoided. The famine had wide-ranging economic and social consequences; we focused on two. First, the central planning system effectively collapsed and the North Korean economy underwent a largely unplanned and unintended process of marketization and privatization from below. Small-scale social units—households, work units, local government and party offices, and even military units—adopted entrepreneurial coping strategies to secure food and survive. Farmers took advantage of the dramatic shift in relative prices to work on private plots and engage in market-related activities as well. As we show in Chapter Two, the reaction of the regime to these new economic and social forces was ambivalent at best. The leadership initially acquiesced in the marketization process, decriminalizing coping behaviors, ratifying the changes taking place on the ground and even initiating tentative reforms in 2002. Following the onset of the second nuclear crisis in October 2002, the government oscillated between stricter and expansive controls on market forces and periods of relaxation and pilot reforms.