North Korea and Sons, (Very) Ltd.

We could not pass up the delicious irony provided by last week’s coincidental occurrences of the failure of the missile launch by North Korea and the release of the new Three Stooges movie.  In short order Nuke, Nuke, Nuke became Nyuk, Nyuk, Nyuk.

As both good things and bad things are said to come in threes, and last week’s events offering a modicum of proof, we felt it timely to weigh in on the nascent reign of Kim Jong-un.  Nascent may be too optimistic a word, but it’s still early.

The question that we wish to address here is whether there is any comparison to be made between the new “Young General” as Kim Il-un is known, and other third generation leaders who are the designated heirs to family-run businesses.

It is a fairly well-established theory that by the third generation leadership, business operations tend to suffer.  An enterprising individual starts a business, works long hours and long years to build it, and brings his child/children along to take over when he retires, or more likely dies.  Most of 20th century history would have an alpha child, usually a son, assume the top leadership role. Having lived with and through the hardships of his father’s toil, and presumably having been taught directly by his father, continues to run the business in a similar way.

By the third generation, the new leader does not have the benefit of direct experience with what it took to start and build the business.  On the other hand, he or she may have received formal business education.   Still, there may be a lack of respect, or at least appreciation, for how the company got to where it is.  Statistically, only about 30% of family businesses survive into the second generation.  Beyond that, about 12% make it to a third, and a mere 3% to a fourth or more.

Change is certainly the catalyst for most of the problems faced by family-run businesses, but it’s not all the fault of the later generations.  New technologies, new
competitors and a constantly changing landscape create issues that the founder
may never have had to deal with.

Is this the case with North Korea?  If anything, the problem here may be the lack
of change.  The problems facing North Korea now are little changed from the ones faced by North Korea in 1948 when Kim Il-sung established the Korean Workers’ Party.  Stephan Haggard’s recent piece in Foreign Policy (www.foreignpolicy.com/articles/2012/04/13/could_north_korea_have_struck_it_rich?print=yes&hideco) suggests that poor choices made by both follow-on generations of leaders have kept the country in its economically-challenged place.

In the first few years of the Split peninsula, both North and South were in similar economic situations.  During the cold war years, The North chose a socialist path and the South a capitalist one.  The result is that the South Korean incomes are now 20 times those in the North.

How could things have been different?  As Haggard points out, Kim Jong-Il faced a
momentous decision when the Soviet Union fell apart.  They were heavily dependent on the USSR for oil and other products.  Three years later the only ruler the country had ever known died.  Enter Kim Jong-Il, unprepared for this new world, distrustful of foreigners, and most importantly, concerned with establishing his own power.

So rather than look to open the economy, he relied on the familiar and maintained as much of the status quo as possible while he consolidated his base and made sure to differentiate his North from the South.  Any move toward reconciliation would look like
capitulation, and was rebuffed.

Of course, along the way, Kim Jong-Il made North Korea a nuclear power, something his father did not do.  Yet the most positive result of this leverage is to bargain with the West for food.  North Korea is chronically short of food, and its people suffer mass
starvation on a regular basis.  The timing of its flexing of nuclear muscle so closely tracks its need for food, that it is beyond question that the two are linked.  Many believe this latest missile launch was designed to showcase its technological prowess to Iran, so they could either barter or acquire some hard currency from the Ayatollah.

The death of Kim Jong-Il at the end of last year ushered in the third generation.  To be
fair, Kim Jong-un was not supposed to be the successor, as he is the third-oldest
son.  The job was supposed to go to Kim Jong-nam, but he got into a spot of  trouble when he tried to enter Japan in 2001 with a fake passport in order to visit Tokyo Disneyland (really, you can’t make this stuff up).

As pointed out by Jaswant Singh on Project Syndicate (http://www.project-syndicate.org/commentary/north-korea-s-nuclear-parable), it
was just this past February that North Korea promised to halt nuclear tests, uranium enrichment and long-range-missile launches in exchange for food.  But hunger does not wait for politics, and leaders do not sleep easily when their people are denied the most basic necessities.

While it is much too soon to know if the third generation scion will improve or not on his father’s performance, one thing is clear.  The first actions of the “Young General,”
(who has no military experience) closely mirror those of his father.  The nukes for food approach is alive and well in the new leader.  But the world is losing patience with the games of North Korea, and there is not enough food to waste any of it on pie fights.  It’s a small world, after all, and there is no room for a new stooge.

                                                                                                                                4.17.12

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