The Business of Korean Reconciliation

SEOUL – 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 underway 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 million 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 demilitarized 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.