There is no question that north korea will collapse politically, whether it’s an internal revolution, meaning a general or a member of the elite group leading a revolution or there is a mass uprising, North Korea cannot last much longer in its current political configuration. This is not in doubt. History shows us that such regimes that operate for the benefit of the few at the expense of the many cannot survive for long.
So, the only question is what happens to North Korea and what will the effects be to other nations? Most people believe that it will cause mass collapse of the North Korean economy and migration into both South Korea and China, which would then spread economic instability to both nations. This is conventional thinking and has some merit and potential to occur; however, it doesn’t have to be, and I believe that there is a way to transition the country from communism to capitalism that would not destabilize the region.
First, with the collapse of the North Korean political system, no one other than South Koreans should be allowed into the North. Second, all military units of South Korea should be accompanied by economists that would help to explain the new economic system that will be set-up in the North. Using these economists and taking advantage of the societal structure of North Koreans, each North Korean should be required to learn about capitalism, its contrast to communism and how the North Korean economy will function going forward.
The key to orderly transition of the North Korean economy will be ownership: Ownership of farms, factories and all businesses. All businesses, industries and farms will be organized as corporations and 50% of the stock certificates will be issued equally to all North Koreans, literally allowing all North Koreans to have an equal share in their economy. The remaining 50% of shares shall be used to fund investment projects. Next, all corporations will have South Korean advisors and all businesses will seek new management that will have a salary and bonus paid from profits but no additional ownership shares above and beyond their normal share. All management teams will be North Korean, but have South Korean advisors for a minimum of 20 years or until the North Korean management teams earn at least 1% over their cost of capital for 5 consecutive years, whichever comes first.
Next, two stock markets will be allowed to open where individuals and funds can both make trades. North Korea will adopt South Korean securities laws for 30 years, at which time the government of North Korea may change or modify those laws.
Third, mutual and hedge fund businesses shall be allowed to establish themselves run by South Korean managers. These South Korean managers must employ at least 50% North Koreans, increasing to 90% within 10 years and, as the South Korean managers retire, they will be replaced by North Korean managers, but within 30 years, North Korean managers will manage all funds.
Fourth, ALL North Korean citizens will be educated in the basics of money management and capital markets and will be required to select one or more funds to deposit their shares. No North Korean citizens will be allowed to directly trade their shares in the market for 10 years. After which any North Korean will be allowed to open a brokerage account and manage their ownership shares directly. However, each North Korean citizen will be allowed to change managers once a year starting at the beginning of the fourth year after their initial deposit of shares. This restriction will be present for the first 10 years after which all restrictions shall be lifted regarding the selection of funds. However, each fund shall establish rules that govern when money will be accepted, when an investor can withdraw funds and what the process for withdrawing funds will be.
Fifth, ALL North Koreans will be paid from profits of the firms that they work for and through dividends paid.
Sixth, ALL North Korean corporations will be subject to strict by-laws regarding management conduct, pay and shareholder rights, and protections.
Seventh, taxes paid will be limited to self-defense, infrastructure and education. All tax amounts shall be equal for every citizen.
Eight, ALL North Koreans will own the residence that they occupy. If they occupy more than one than they must sell, at market value, all other properties within 3-years.
Nine, initially, ALL North Koreans will continue to work in the positions that they labored in before the revolution, but any senior government officials that conducted policy, had influence over policy or were responsible for executing policy will be subject to trials and prosecution as appropriate. Nuremberg trials post-World War 2 will serve as both model and guideline for trials against humanity in North Korea, and the American occupation of Japan will be used as a model and guideline as to who would be allowed to continue in their government positions and who must resign.
Ten, North Korean corporations will not be allowed to layoff any workers for five years. Any deficits will be covered by capital markets activities, changing compensation levels, and government taxes, which shall be collected 50% from citizens of North Korea and 50% from citizens of South Korea. After such period, corporations will be allowed to freely conduct labor market activities without restrictions other than restrictions imposed by labor market laws that are prevalent in South Korea. North Korean workers will be educated and informed about pending changes in the make-up of their labor force, well before any changes are made. Severance packages will be in-line with those of South Korean corporations. Retirement packages will similar to those provided by South Korean corporations. All North Korean citizens will be required to save a minimum of 5% of their annual income for retirement.
Eleventh, continuous education regarding capitalism, capital markets, labor markets, compensation practices, human resources issues, corporate conduct, retirement and retirement planning will be required for every North Korean citizens and such education classes will be mandatory for ALL high school students
Twelfth, all entrepreneurial businesses will be allowed to freely flourish and no corporate taxes will be allowed in North Korea.
Thirteenth, all foreign (including South Korea) investments will be welcome; however, no land shall be allowed to be owned by foreigners for at least 50 years and foreigners, in aggregate, will not be allowed to own a majority of any North Korean corporation. However, foreigners may establish subsidiaries of their businesses in North Korea as long as at least 50% of the products manufactured or services provided is exported to other countries from North Korea. These investment restriction will be eased 50-years after the revolution.
Fourteenth, outstanding North Korean government debt will not be allowed to exceed their three-year average GDP by 2x. Any amount above and beyond shall be repaid by South Korea, Russia, US, China and Japan. All five nations have had a hand in creating, sustaining and supporting North Korea and, so, shall be responsible for repaying the overage. The proportion shall be 50% by South Korea and the rest will be in proportion to the GDP of the other countries.
Fifteenth, no migration of North Koreans to neighboring countries (including South Korea) will be allowed for 20 years, unless neighboring countries request migration of North Koreans to their country.
Sixteenth, once North Korea’s per capita GDP reaches 75% of that of South Korea, full labor and economic unification will be allowed. However, foreign tourists will be allowed and welcome to North Korea.
Seventeenth, no military personnel from any country other than South Korea will be allowed in the territories of North Korea. And, the US will withdraw all of its forces to within the “Busan perimeter,” if the South Korean people and the US government both desire the presence of the US military in the unified Korea. Whether or not US military presence is desired in Korea shall be determined by a public referendum in South Korea. This referendum will require majority vote of at least 75% of the citizens of South Korea that are allowed to vote within three years of the unification of the Koreas.
I believe that these ideas will allow North Koreans to prosper and benefit from the privatization of their country, unlike Russia and other former east European communist countries. It should also alleviate the concerns that South Koreans have for their country’s economy and labor markets. And, alleviate the fears of Russia and China regarding the presence of US military in the Korean peninsula, while giving the Koreans a say in their own security.
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