The more North Korea trades, the more it reforms, right? Wrong.

Yesterday, I questioned the premises of economic engagement with Pyongyang — that Pyongyang is socialist, that trade is capitalism, that capitalism inexorably erodes socialism, and that capitalism (least of all, state capitalism) is inherently liberal and peaceful. I argued that Pyongyang adopted state capitalism decades ago, and that it has grown steadily more menacing and repressive ever since. It feigns socialism to feed our false hopes of reform and arguments against sanctions, to tempt investors, to recruit apologists who embrace its socialist pretenses, and to justify the economic totalitarianism it uses to starve and isolate the vast majority of its subjects. Pyongyang doesn’t practice socialism; it imposes it on the underclasses. The underclasses are the only ones who can change that.

Sincere advocates of changing North Korea by engaging Pyongyang may accept that their best intentions didn’t work, yet still not lose heart. If they’re willing to rethink engagement in terms of engaging the people rather than the state, they’ll find more reason than ever to believe that change is in sight. For example, it now seems likely that within the next five years, anyone, anywhere in the world, will be able to access the internet. The signal might come from Google’s Project Loon, or Facebook’s Internet.org, or maybe some combination of both. Universal internet access will shatter Korea’s virtual DMZ; eventually, it can break the physical one, too. The day is coming when North Koreans will be able to attend South Korean classes, sermons, movies, clinics, lectures, and family reunions. There can be a revolution in the people-to-people engagement that the Sunshine Policy promised, but couldn’t deliver, if South Koreans have the vision and the courage to weave a virtual Ho Chi Minh Trail of clandestine communication from South to North. North and South Koreans can use this network to rebuild the North’s civil institutions from the ground up, to establish shadow governments, to build the capacity to resist the state’s most repressive policies, and to begin the process of reconstruction.

Today, however, the South Korean government remains too timid to broadcast to its northern countrymen on AM radio. My friend (and now, National Assemblyman) Ha Tae Kyung, interviewed by the Daily NK, calls for Seoul to make broadcasting a part of its unification policy, which at present desperately lacks a Phase 2. Ha wonders how the Blue House and the Unifiction Ministry can be serious about reunification when they haven’t called for radio broadcasts to the North, broadcasts that could play an important part in the cultural and social reunification.

Of course, Pyongyang will try to enforce the poverty and isolation of its subjects as if its survival depends on it. Just as it cracked down on its northern border, tracks down and arrests the users of Chinese cell phones, and sends distributors of foreign media to the gulag, it will try to arrest, imprison, terrorize, or kill anyone who listens to South-to-North broadcasts, or who makes inter-Korean phone calls. Yet the right policies on our part can give the people a fighting chance.

This picture taken on April 6, 2013 shows a Chinese border guard standing on a look out post by the bridge that crosses the Yalu river to the North Korean town of Sinuiju across from the city of Dandong. The US is pressuring China's new President Xi Jinping to crack down on the regime in North Korea or face an increased US military presence in the region, The New York Times reported late April 5, 2013. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)

[STR/AFP/Getty Images, via WaPo]

Isolating a country costs money, and with the decline in the Chinese economy, Pyongyang may be having more difficulty finding that money. The Wall Street Journal‘s Alastair Gale cites Chinese trade data showing that “[t]he value of North Korean exports to China … fell 9.8% through August from the year-earlier period … accelerating from a 2.4% decline last year.” Meanwhile, another report confirms what I’ve long suspected — that the security forces are funding themselves through some of this trade:

North Korea’s feared State Security Department (SSD) has established a new “trade organization” tasked with earning foreign currency from China, according to sources who say the branch will likely use its broad powers to tap into channels used by the impoverished nation’s subsistence smugglers.

The SSD, also known as the Ministry of State Security, set up the organization “very recently” with its headquarters in the capital Pyongyang and several satellite offices in “local areas” of North Korea, a source from North Hamgyong province, along the border with China, told RFA’s Korean Service.

“While the whole nation is aware of the shortage of foreign currency in North Korea, it seems strange to establish a new trade organization under the SSD, which traditionally monitors the population’s activities to ensure they do not contravene the rules of the regime,” said the source, who spoke to RFA on condition of anonymity, after recently visiting China.

In addition to keeping an eye on the political actions of the public in North Korea, the SSD’s secret police force keeps tabs on North Koreans who travel to and from China, as well as telephone communications in border areas.

Sources said the move will likely have implications for North Koreans who subsist on Chinese currency they earn by running smuggling operations over the border. [….]

A source based in China who maintains a close relationship with North Koreans earning foreign currency there told RFA that a “large number of people belonging to the SSD” had been dispatched across the border since spring to “monitor and control the activities of North Korean residents” in the country.

“Since they are ostensibly working for foreign currency, they are called ‘trade representatives,’ just like others [who have been sent to earn cash for the regime],” said the source, who also declined to provide his name. [Radio Free Asia]

The regime’s use of trade to finance this crackdown sets up a zero-sum competition between state capitalism and free-market capitalism, the kind that has genuine potential to transform North Korean society. The SSD’s profiteering is neither a quiet capitalist revolution nor a sign of reform that is washing away the foundations of socialism. It pays for the enforcement of isolationism, and makes North Korea more unequal, oligarchical, and totalitarian (read: fascist). This may also be true of Pyongyang’s other trade relations, too, but we can only guess, because its finances are so opaque that not even the Treasury Department knows how it uses the proceeds.

In addition to broadcasting and people-to-people engagement, then, sanctions targeting the SSD’s assets are an important part of a policy to protect North Koreans from censorship and help them liberalize their society. By starving the security forces of cash, anti-censorship sanctions would deny the SSD the means to equip and pay its officers. They would foster the corruption that facilitates smuggling, and preferentially support engagement through independent free markets. The use of sanctions to fight censorship and support freedom of expression is nothing new. Treasury has anti-censorship sanctions against Iran to “facilitate communications by the Iranian people.” Why not North Korea?

Ha is dismissive of sanctions, perhaps because he lumps all kinds of sanctions together, and (like most people) doesn’t know the significant gaps in their enforcement. It’s a common myth that sanctions against Pyongyang are still strong, although I’ve previously debunked this myth in detail. Ha argues that the trade sanctions Seoul imposed on Pyongyang in 2010, after the attack on the ROKS Cheonan, haven’t made Pyongyang apologize or come to the negotiating table. He concludes that “economic sanctions don’t have effects, but broadcasts do.”

Respectfully, I think Assemblyman Ha is missing a few key points, including the role sanctions can play in protecting his North Korean listeners. First, the lifting of these trade sanctions has been at the top of Pyongyang’s list of demands since 2010. If it can be argued that loudspeaker propaganda was effective because Pyongyang sounded desperate to switch it off, the same can be argued of the bilateral trade sanctions.

Second, by lumping all “sanctions” together, Ha overlooks what is beyond serious dispute — that financial sanctions hit Pyongyang where it hurt most:

Practically overnight, banks throughout the region, even in China, began turning away or throwing out North Korean government business. By this one simple act, Mr. Zarate writes, “the United States set powerful shock waves into motion across the banking world, isolating Pyongyang from the international financial system to an unprecedented degree.” [….]

Then, Mr. Zarate writes, a North Korean representative contacted the United States, seeking relief from the 311. At the State Department’s insistence, negotiations began in Beijing, and appeared to end when a Chinese bank volunteered to handle a measly $25 million of North Korean money the authorities in Macau had frozen.

Mr. Zarate writes that “the amount of money wasn’t the issue” and that the North Koreans “wanted the frozen assets returned so as to remove the scarlet letter from their reputation.”

Then, he says, something amazing happened. Despite its government’s support of North Korea, the Chinese central bank refused to approve this solution, indicating that it, too, wanted nothing to do with a bank hit by a 311. “Perhaps the most important lesson was that the Chinese could in fact be moved to follow the U.S. Treasury’s lead and act against their own stated foreign policy and political interests,” he writes. “The predominance of American market dominance had leapfrogged traditional notions of financial sanctions.” [N.Y. Times Review, “Treasury’s War,” by Juan Zarate]

Third, the May 24, 2010 sanctions are narrow sanctions with narrow purposes — they exclude Kaesong, after all. Ha has a vision for reunification and has articulated it; Park Geun-Hye doesn’t and hasn’t. Still, even Park’s limited goals can be valid ones. Trade sanctions deter Pyongyang by imposing a (small) price for murdering South Koreans with premeditation and malice aforethought. They’re also consistent with U.N. Security Council resolutions, which prohibit member states from providing “public financial support for trade with the DPRK (including the granting of export credits, guarantees or insurance to their nationals or entities involved in such trade) where such financial support could contribute to the DPRK’s nuclear or ballistic missile programmes.” South Korea voted for those sanctions when it was a member of the Security Council. The other members of the Security Council approved them, in large part for South Korea’s own protection. Seoul can’t very well ignore them now.

We now have evidence that regime-controlled trade funds the oppression that isolates North Koreans, retards change, and helps Pyongyang repress the people who would listen to the broadcasts Ha supports. If the world wants North Korea to change, it has to give free markets — North Korea’s only independent institutions, on which most North Koreans depend for their survival — a fighting chance to survive. As long as Pyongyang’s oligarchy has unrestricted access to our financial system, it will use it to isolate and repress its people. We should seek to shift North Korea’s internal balance of power away from the ones with the guns and food toward those without. That means giving North Korea’s people information and access to markets. That, in turn, means blocking the funds that pay for Pyongyang’s policy of isolation and oppression.