North Korean Workers Are Not Cheap Labor

As the possibility of North Korea opening its economy is rising, many companies and investors immediately focus on one factor: labor. More specifically, they often assume that North Korea will become a source of low-cost labor.

This assumption is understandable. Since the late 1970s, China transformed itself into the world’s manufacturing center through Deng Xiaoping’s reform and opening policies. Vietnam later followed a similar path by expanding its manufacturing sector on the basis of relatively low labor costs. Consequently, many companies and investors expect North Korea to follow the same trajectory.

However, viewing North Korea primarily as a low-wage labor market would be a serious miscalculation. North Korea is not merely a poor country. It is a country that developed nuclear weapons and intercontinental ballistic missiles despite decades of economic isolation. In the process, North Korea demonstrated a capacity to train scientific and technical personnel and adapt to technological challenges that has often been underestimated by the international community.

North Korea is also widely regarded as possessing significant cyber capabilities. For many years, the U.S. government and intelligence agencies have identified North Korean cyber groups as major cybersecurity threats. At the same time, institutions such as Kim Il Sung University have continued to produce talents in mathematics, science, and engineering despite operating under highly constrained conditions.

The Kaesong Industrial Complex, a large manufacturing zone that began operations in 2004, provides another example. North Korean workers successfully adapted to manufacturing processes at the rate of speed rarely seen before, and were often viewed as highly competitive in terms of productivity and quality.

The challenge is that many investors may approach North Korea with the same assumptions they previously applied to China and Southeast Asia. If companies entering North Korea treat workers merely as inexpensive labor, offer only minimum compensation, and fail to provide dignified treatment, trust between North Korean workers, the government, and foreign companies may deteriorate.

The labor-management conflicts observed in South Korea today are, to a considerable extent, rooted in the issues of trust. China’s early reform era also demonstrated the importance of incentives. Through the Household Responsibility System, workers and producers were rewarded for performance, contributing significantly to higher agricultural productivity and stronger economic motivation. People are more willing to contribute when they can see a future and believe that their efforts will be rewarded.

The same principle is likely to apply to North Korea. Following its opening, both the government and workers will possess far more choices than they did previously. The North Korean government will likely prefer companies and countries that offer greater value and more favorable conditions than those that fail to meet its expectations.

For so long, North Korea has been one of the most isolated countries in the world. However, once it begins to open, North Korean policymakers and workers will be able to compare opportunities offered by South Korea, China, Japan, the United States, and many other countries simultaneously. At that point, North Korea may no longer be a market seeking acceptance from others. Instead, it may become a market capable of making its own choices.

As a result, the success or failure of North Korea’s industrial development will likely depend not on how cheaply its labor force can be utilized, but on how convincingly companies can present a vision of the future to North Koreans.