Hands Across The DMZ

North Korea has what South Korea wants

For decades, there has not been much traffic across the demilitarized zone dividing North and South Korea, where hundreds of thousands of soldiers are on constant alert. But these days, some 200 cars, trucks, and buses cross the border every day.

They're going to the Kaesong Industrial Complex, a dusty outpost that is North Korea's boldest economic initiative in decades. Just an hour north of Seoul, Kaesong is cordoned off from the rest of North Korea by seven-foot-high fences patrolled by squads of soldiers.

Just after 7:00 a.m., Monday through Saturday, dozens of buses from North Korea enter Kaesong, ferrying some 6,000 northern workers to 11 South Korean-owned factories to make shoes, clothing, pots, and other low-tech goods. Another 28 South Korean outfits have signed agreements to set up plants there, while 1,000 more are considering such a move, the Seoul government says.

The idea behind the effort is simple: North Korea is home to a huge, cheap, and underemployed workforce. South Korea needs a low-wage manufacturing base to compete with China. By 2012, Kaesong could be home to 725,000 jobs and generate $500 million in wages annually for the North Korean economy, figures Park Suhk Sam, senior economist at Bank of Korea. After a five-year tax holiday expires, another $1.8 billion might tumble in annually from corporate taxes levied on South Korean companies operating there. "The overall impact on the North will be huge," Park says.

North Korea's "Dear Leader," Kim Jong Il, has little choice but to experiment, given the dire condition of the North's economy. True, Kim's first priority is political self-preservation, so any opening will be measured. But since 2002 he has embraced -- however grudgingly -- tentative economic reforms. State-owned farms and factories that exceed production targets are now rewarded with higher wages. And Pyongyang has eased price controls and opened private markets where food and consumer goods are sold. "North Korea is pushing ahead with changes to the extent that they will not jeopardize its regime," says Paik Hak Soon, a security expert at the Sejong Institute, a Seoul think tank.

For South Korean companies, Kaesong offers plenty of advantages. North Korean workers at Kaesong earn about $50 a month, around half the average wage for unskilled workers in China and less than 10% of what South Koreans earn. Kaesong "offers better business conditions than China," says Moon Chang Seop, president of shoemaker Samduk Stafild. The company has invested $10 million in its spotless Kaesong factory, where some 1,200 workers cut and stitch shoes.

Outsourced work for South Korean capitalists may not be exactly what Marx and Engels -- or Kim Il Sung (Kim Jong Il's father) -- had in mind, but it could be the only hope for Pyongyang.

By Moon Ihlwan

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