The Political Economy of Sanctions Against North Korea

Ruediger Frank
Asian Perspective, Vol. 30, No.3, 2006 pp. 536

PDF Here: DPRK sanctions.pdf

This article explores sanctions as a policy tool to coerce North Korea’s behavior, such as by discontinuing its nuclear weapons program. It discusses the characteristics of sanctions as well as the practical experience with these restrictions on North Korea. It becomes clear that the concrete goals of coercion through sanctions and the relative power of the sending country to a large extent determine the outcome. Nevertheless, the general limitations of sanctions also apply, including the detrimental effects of unilateral and prolonged restrictions. It appears that the imposition of sanctions against the DPRK is unlikely to succeed. As an alternative way of changing the operating environment for North Korea, assistance deserves consideration. Despite many weaknesses, this instrument is relatively low in cost and risk, and can be applied continuously and flexibly.

Highlights below the fold:

Are sanctions or assistance the proper way to coerce the North Korean leadership to behave in the desired way? 

Historically, sanctions have a poor track record, and unilateral sanctions have the least effectiveness.  O’Quinn at the Heritage Foundation points to the adverse effects they can have on all parties involved.  Frequently this is because sanctions are not actually intended to change any behavior abroad but to please a local constituency or to make a public statement of displeasure.

Sanctions can be: unilateral or multilateral, comprehensive or selective, military, economic or non-economic (diplomatic).

Sender countries delineate three general categories of policy objectives for which sanctions might be applied: national security, foreign policy, international trade and dispute resolution.

The US has shown a strong inclination to impose unilateral sanctions rather than organize the necessary multilateral support.

When it comes to North Korea, the author finds a number of basic goals shared by all parties: to improve human rights, to ensure peace on the peninsula, to prevent the proliferation of nuclear materials, prepare for a smooth reunification.  The international community is most concerned about the nuclear issue.

Assistance could encourage them to end the program.  Sanctions could discourage continuation.  Which is likely to be the most efficient in achieving its outcome?

If the goal is to make North Korea collapse quickly, to isolate and eventually eradicate its leadership, and to use this process for a realignment of forces in the region, then an economic suffocation through sanctions combined with diplomatic pressure and the use of hard means such as military intervention appears to be a rational strategy. Such a strategy is even more appropriate if the humanitarian costs of such an approach count but are not regarded as a priority; if a potential destabilization of the region is not a major problem as long as it does not involve a nuclear conflict; and if the national interests of Korea are of secondary importance.

Bossuyt (the Adverse Consequences of Economic Sanctions) shows even the most optimistic accounts of sanctions point to only a third having partial success.  Others find a mere 5% rate and a dismal 2% rate among authoritarian regimes.

The chances are good that an external “central planning of change in North Korea” will have the same unsatisfactory results as its socialist pendant and eventually end in failure.  The reasons are because of imperfect information about the future and the inability to foresee all impacts of economic policies.

Sanctions, like siege, intend to harm civilians.  Sanctions affect the supply side, and demand remains inelastic, especially for food and energy.  As these goods become scarcer, their price will rise.  In Cuba this resulted in a price rise of 30%.  Those with the least resources will see the chances of satisfying their needs dwindle.  The poor (or least politically connected) will have to spend more on subsistence.  The wealthy will just be inconvenienced.  This deliberately inflicts damage on the innocent, hoping that their pain will translate into resistance against their leaders.

This theory is bankrupt.  Those in power perversely benefit from sanctions by their ability to control and profit from black market activity, and by exploiting them as a pretext for eliminating domestic sources of political opposition.

The response to this has been to develop “smart sanctions.”  Financial sanctions could have a greater effect than trade sanctions because this affects the pet projects of leaders and their bank accounts.  But a ban on financial transactions affects the flow of goods since they are two sides of the same coin.  When the international sector of an economy is hit, there is the risk of retarding the growth of a domestic middle class and slowing the process of democratization.  There is a high risk that sanctions actually strengthen the regime they are supposed to weaken.

The population of North Korea believes that sanctions are the source of their suffering.

In the case of North Korea, sanctions are based on agreements in a cartel that is formed by an oligopoly of political players with different sets of goals.  Cartels only work if everyone cooperates, but they don’t.  Mean lifespan of a cartel is only a few years.  The longer sanctions are imposed, the smaller their chance for success.

The leadership of a targeted nation will not let itself be forced down a path of externally prescribed reforms.  There will be less interpersonal exchange, less interdependence, less understanding of international norms.

Sanctions invite evasion.  When people cannot earn money legally, they will do so illegally.  This encourages the DPRK to undertake illicit activities.  The result is discouragement of “good” behavior such as marketization and intensified contacts with the outside world.  They do not conduct illicit activities for fun, but because they have few other options.  A hungry man will steal no matter how much he is punished.

Normalization and the prosperity arising from a growing economy will have substantial effects on DPRK society.  It will promote the emergence of a middle class, a group of people with substantial economic power with an interest in the status quo.

Critics of assistance will ask if we can expect substantial peaceful change in North Korea.  Because of socialism’s inherent characteristics, economic inefficiency is endimic.  Making it work is an illusion.  The only sustainable path is reform.

North Korea is making moves to open up.  Growing international trade, foreign direct investment, western economic seminars, more visitors, etc… Although not entirely voluntary, the leadership in North Korea has decided to take the risk and start top-down experiments with a market economy because the decision makers have understood that such a policy is in their interest.

There is an extensive and not positive experience with assistance.  Successful assistance should make itself obsolete. 

Aid is fungible.  Even if we make sure that a particular kilogram of food aid reaches “deserving” people, this food can-and will-serve as a mere substitute for food from other sources that can now be distributed to anybody, including “non-deserving” groups. This thinking itself is controversial.  Is it okay if an eighteen year old conscript starves to death?


One Response to “The Political Economy of Sanctions Against North Korea”

  1. […] Bossuyt (Adverse Consequences of Economic Sanctions) shows even the most optimistic accounts of sanctions point to only a third having partial success.  Others find a mere 2% rate among authoritarian regimes.  So sanctions have a poor track record of inducing positive policy changes, particularly in North Ko…  […]