Three Myths About North Korea

Dec. 1.10 | About: iShares MSCI (EWY)

This column originally appeared in Forbes

Since North Korea killed several South Korean citizens last week in shelling attacks on Yeonpyeong Island, political leaders and analysts have called the country evil and insane. Are they right? Evil, perhaps. Insane? Most definitely not. If anything, the North Koreans have proven to be wily tacticians, able to amplify their power by acting psychotic. The regime's actions follow a long-used playbook of leveraging fear and uncertainty to gain power--and they indicate that North Korea's leaders are anything but nuts. For instance, the North's sinking of the South's warship the Cheonan earlier this year served to heighten anxieties in the South, just as did its issuance of threats immediately after former South Korean president Roh Moo-hyun committed suicide last year. Since Seoul, one of the world's densest cities, is within North Korean artillery range, at only 31 miles from the border, the South is scared to react with military power.

North Korea stunned the world earlier this month by having Stanford professor and former director of the Los Alamos Laboratory Siegfried Hecker confirm that it has far more sophisticated uranium enrichment capability than previously thought. After this unsettling disclosure, North Korea sought to leverage the fear it created by attacking soon afterward. Such incidents follow one another like clockwork, and even the effect on stock markets is the same each time. The market dips 2% to 3%, and then everyone calms down and it recovers. If investors bought stocks like Hyundai or Samsung every time North Korea acted up, they'd make a pretty good return.

What is surprising is not North Korea's actions but that the West and South Korea were so ill-prepared and don't seem to understand the logic behind the North's attacks. The attacks are not the actions of an insane regime. They are coolly calculated measures to gain power. If North Korea didn't attack and appear crazy, no one would care about it, and it would become forgotten, similar to smaller countries like Laos. Instead Kim Jong Il plays the part of the loose cannon and thereby gains attention and clout for his country, pressures China to give more aid, and even gets visits from former American presidents like Bill Clinton and Jimmy Carter, all of which makes him appear more powerful to North Korean citizens.

Aside from the notion that North Korea's regime is insane, there are two other myths that plague Western analysts' thinking about the country, and which need to be disposed of in order to develop an effective solution to the North Korea problem. The problem cannot be ignored, for the Kim regime causes global instability and fosters terrible quality of life for ordinary North Koreans.

The second myth is that the U.S. has the means to pressure China into forcing North Korea to stop its nuclear initiatives. If anything, the more frustrated America gets about North Korea, the better it is for the Chinese, because all that tension helps to create a buffer against American hegemony.

Since the shelling last week, Chinese media has broadcast North Korea's statements that the South attacked first. China's Premier, Wen Jiabao, has appealed for a peaceful solution, a return to the six-party talks (which will help China gain more power, as it is seen as the only rational player with close ties to North Korea), and has been careful not to criticize the North. In other words, in the current situation, North Korea is playing the useful role of a buffer state for the Chinese.

Since Hillary Clinton's push for more stringent economic sanctions against North Korea, and her declaration that the South China Sea is a core interest of the U.S., China has reacted by showing Kim Jong Il and his son and heir apparent Kim Jong Un in the news more. China's senior leaders have also increased their high- profile meetings with Kim.

Why? China worries about an unstable North Korea because it rightly doesn't want floods of refugees rushing over its border. Perhaps most important, though, China doesn't want the U.S. and its military, which already has more than 30,000 troops stationed in South Korea, any closer to China's border.

China can and will play a pivotal role in ensuring that North Korea doesn't go too far, but it will not likely want to stop North Korea from being a thorn in America's side.

Finally, the third myth: Increased economic sanctions, as many are calling for now, will not cause the Kim regime to be more cooperative or be replaced. If anything, economic sanctions, though they further impoverish ordinary North Koreans, bolster the power of Kim and his close coterie of family and friends. Sanctions are a tenet of American diplomacy that should be shelved--permanently.

The world basically has two choices for addressing the North Korea problem. It can conduct more active economic engagement and hold to that strategy for more than a handful of years, or it can launch targeted or covert military strikes. Military strikes should be an absolute last resort. Peaceful resolutions are always better, as Premier Wen has said.

South Korea's current President Lee wrongly scaled back the engagement his predecessors launched. The South should be taking advantage of the North's upcoming leadership change, to Kim's son, by pushing for more economic engagement before he becomes too hard-line, and it should push companies like General Electric, Nike and Corning to invest there. Increasing economic interdependence would lead to more freedoms for the mass of North Koreans and would disperse power on the peninsula.

Disclosure: No positions