Thank you, Dr. Rourke, and thank you all for being here. Just to sort of, since you mentioned the podcast, and I'm actually going to be doing an interview, if you're interested in the North Korean Human Rights issue, I'm going to interview Judge Kirby, who did the UN Commission on Inquiry's report. Supposed to interview him later this month, hopefully it'll be up maybe early March. So if you're interested in that, please give it a look. But to start off on our presentation, Unification of Bonanza or Continued Division. This year marks the 70th anniversary of the division of the Korean Peninsula. Needless to say, there's been very little progress on unification. But this title comes from something that President Park and Hay said recently, which, or last year. At the moment, I'm aware that there are some people who think unification is unnecessary, especially in light of the costs of financial burdens. However, I believe that unification is a bonanza. It will allow the Korean economy to take a fresh leap forward and inject great vitality and energy. Now, the question you might ask yourself is, this year was the end of last year, it was the 25th anniversary of the fall of the Berlin Wall. It's been almost 25 years since Germany was reunified. We've seen in the interim the unification of Yemen, which was another divided state. So the only remaining divisions are China and Korea. So why, other than the approach of the 70th anniversary, might Park and Hay take and bring up the issue of unification? And why would she call it a bonanza specifically? It seems sort of like a strange type of term. Sometimes this is translated as jackpot, which makes you think maybe this is sort of almost a gamble. So part of the reason why is basically over time, people have become less and less interested in unification. You still have people in their 60s, 70s, those who lived through the war, who are still alive, who have family members who they hope to see, who are very much interested in unification. But as you move down the age cohorts, things start to become less meaningful for people. And so there's a couple of things I want to put up here. And first, a little warning about polling. When I was at Asan, I had the fortune, because they were very generous to do some polling work in South Korea. And working with one of my colleagues there, one of the things that he pointed out, which often we feel we understand, but we don't necessarily, is that how you phrase a question is very important and how you're going to get a response. And that often, even when you feel you're trying to take and simply give someone the proper information they need to answer the question, you're leading them unconsciously in a direction to get the answer that you may or may not want. So that's one reason why I put up these two different polls. SNU does a yearly poll, and I haven't seen the poll for all of last year, but essentially support for unification when Park and Hay was considering this was at about 54%, and only 40% for those between the ages of 19 and 29. Now, the Asan Institute asked a slightly different question. Rather than do you support unification? Are you interested in unification? So naturally, it's much easier to be interested in something than to support it. And if you look at that, the numbers are much higher, 82%, and this is from a poll that came out very recently, but only 71.8% for those in their 20s. But if we get back to what Park and Hay was looking at, what we'll find is that essentially, those in the 20s and the 40s, they view unification as an economic issue. It's not a question of, you know, the North Koreans are our brothers, and we need to be together again. It is more of a question of will this as an economy. Now, if you also look at overall, the importance of ethnicity in terms of people's general perceptions of unification is also falling. But perhaps more importantly, when you get right down to it, if you look at those in their 20s and 30s, they're 20% less likely to take and support a tax increase to pay for unification, and it's below 50%. It's about 36 points something for those in their 20s and 38% for those in their 30s. So essentially, the younger you are, the less likely you are going to be willing to pay for unification. So I think this sort of points to why we're seeing Park and Hay sort of phrase this in, you know, this is something that's going to be worthwhile. It's going to be beneficial economically. And there's another reason why this is important. Anybody who's even casually listened to anything about German unification will know. The first thing people talk about is that it costs a lot of money. It still costs Germany a lot. There are some differing perspectives on that because much of the investment in East Germany was done to build infrastructure and it was done to take and benefit what ultimately were West German companies. So there are some who believe it costs less because the money funneled back into the state. But ultimately the one thing we do know is that unification will cost a significant amount of money. So this is why I think she's trying to take and focus on the economic side of it rather than simply, you know, the country. So here's the real question. You know, can it be a bonanza? Last fall, Marcus Nolan of the Peterson Institute did a study on this. And for any of you who know Marcus's work or have read any of his papers, you'll know one, he's very thorough, very skeptical and he's not one to exaggerate numbers. So when you ask what he found, basically what he found is that it would benefit both North and South Korea. And one of the key points that he points out is that unification will not take and slow growth or make growth a loss in the negative absolute sense in the South. Growth will slow in the South but it will continue. So the South simply won't grow as fast. The North will grow much faster and you'll see a quick drop in overall poverty in a united South Korea. But one of the other things that I thought was interesting is he was asked when he did this paper to address the issue of will there be a piece of dividend? And in essence what he found was is that if you look at it in 2013 dollars there'll be about a $600 million piece of dividend for South Korea. For the United States it's questionable whether there would be one. But for North Korea or the northern half of the peninsula once you take and you relocate resources that are being pumped into the military essentially it would be worth perhaps up to 10% of North Korea's current GDP. So there'd be a significant benefit for the North in taking it moving towards unification. Now one other option is essentially, you might have heard if you've studied Korea any, this idea of gradual unification, of having a confederation before having a unitary state. And if you were to do that and create a customs union there would be in essence no real impact on South Korea for the simple fact that all you're doing is you're allowing goods to travel back and forth. You're not allowing the factors of production like labor and capital to move back and forth. So it's less of an issue in that sense. But here's one of the other questions too and I put this on here because Korea has the lowest birth rate in the world right now lower than Japan's it's aging, Japan is older than Korea but Korea is aging more rapidly it's setting new records in terms of becoming the super aged society. Now this year or next year I think the number of workers in Korea will actually drop and will continue to decline. So the question has been in South Korea setting aside the issue of unification. How do we take and increase the workforce or stem the tide of population to decline? There's a series of things South Korea can do but one that people will bring up from time to time is unification. North Korea's population is believed to be both younger and more fertile it's believed that North Korea reproduces at about roughly replacement level so if you were to take and unify the country you would likely see a small dividend on the population side but demographically speaking if we look at for example the German experience within five years you see that births quickly fell off in a more broad sense has any country becomes wealthier births tend to tail off so while there may be a short term benefit to unification in terms of demographics in the long run it likely will not address the unified Korea's or South Korea's long term demographic issues. So when we think about unification after Puck and Hay made the quote that I put up earlier she gave in Dresden what's referred to as the Dresden address and it laid out essentially a three part agenda one deals with the human dimension one deals with prosperity and one deals with laying the framework for unification ultimately and if we go through roughly what this means is one start on the human level so separated families humanitarian aid support for pregnant mothers and young children these sort of basic types of steps when we get into the co-prosperity agenda we're looking at things like infrastructure so building roads and rail telecommunications working on taking and improving farming in North Korea taking and going into the extractive industries mining by South Korean companies and joint projects of that type of nature when we move into the agenda for integration this is where you get a series of different things you get one for example right now North Korean culture and South Korean culture are becoming more and more different as we go on so cultural exchange you're talking about mutual educational standards different kinds of things would lay the groundwork for the foundation of a unified society some of these would be much broader based in terms of sending in South Korean economic management help so things that would help on the economic side but it's a mixture of cultural and economic issues and in the long run taking and providing support for North Korea's entry into international financial institutions so that way can receive financial aid as well so what sort of underlays all of this and President Park before she came to office in a foreign affairs article put out this idea of trust politic and I won't necessarily go through and read the quote because it's somewhat long but the broader idea is that right now you have a lack of trust between the two Koreas and that without rebuilding that trust it will be impossible to take and solve the larger issues of denuclearization of unification you know of any type of major issue that you're going to deal with between the two countries and so this policy though is embedded within a broader context which is the Asian paradox which Park and I has also talked about which is this idea that the countries of northeast Asia are becoming wealthier and wealthier but at the same time the security dimension is becoming more and more difficult that rather than taking an economic solving your security issues it's actually in some ways exacerbating them so what are the elements of trust politic well one unshakable commitment to safeguarding sovereignty and national security so no compromise on security issues with North Korea two resolving the nuclear issue through deterrence and parallel pursuits of negotiations and then three the normalization of north relations through a trust policy so essentially what we're talking about is moving from smaller to bigger unification now where does Park and Hay want to start as I mentioned early on you have divided families in Korea still many of them each year are dying off the Park and Hay administration has been fairly consistent over the last two years of pushing for family reunions we had one last year but there has not been one since but the idea is is that you would start with family reunions you would move to things such as cultural exchange you would then take and have marry that with humanitarian aid and then as trust built and progressed you would move on to larger economic projects so perhaps the expansion of K-Song you would move to things like the creation of another industrial zone the reopening of Mount Kumgong and the idea would be as you build trust hopefully you can move further and further and this would then take and alleviate the problems so what does that also include though trust politic is not necessarily simply a North-South policy it's also a policy that has aspects that are embedded within South Korea's regional policy and it's broader global policy and so if we look at South Korea right now Seoul is trying to do what sometimes referred to as the Seoul process or the Northeast Asia peace and cooperation initiative and the idea is to take and use the same methods within Northeast Asia to build trust amongst the different parties so China, Japan South Korea and Mongolia and the United States so the idea is once again take start on manageable things like energy cooperation places where you have mutual interest to try and build up trust and cooperation between the countries in the region and over time slowly move that into a broader policy to take and create regional stability now more broadly then it moves into what is called the Eurasian initiative which deals with things such as completing the rail lines through North Korea connecting Europe to Asia all the way through Korea and then building economically forward through that so as you go through essentially what trust politic is is a series of policies aimed both bilaterally, regionally and more broadly globally designed to take and start from a very simple level an area where both sides can pull back if need be and then move forward and to take and build on that with broader projects that would integrate both North Korea and South Korea, the region and then more broadly integrate the region into the broader global economy so if South Korea has a policy of trust politic and is trying to reach out the question we next have to ask is what is North Korea's interest if we consider any type of engagement policy you know it's fine for me to say I would like to take and talk to you and build a relationship but if you are unwilling then my efforts will only go so far so how, what are North Korea's interest in improved relations well, Kim Jong-un has essentially followed what's been called the beyond-gen line policy which is the idea that North Korea can pursue both its nuclear weapons policy and improve its economy at the same time the United States and our allies have essentially put forward a policy counter that which is that North Korea has the choice of either pursuing its nuclear weapons program or reforming its economy and joining the global economy but that it cannot do both at the same time North Korea is essentially taking and trying to establish a series of things one is regime security two is unconditional assistance if you look back at North Korea's pattern of behavior and you know this is sort of interesting is that they tend to not want conditions attached to food aid or other things now over time we'll take and we'll get them to allow certain amounts of monitoring and other things but they essentially want to take and be able to take and receive aid from us but not have to take and have any conditions like other countries might have on it one of the big issues in talks with North Korea is essentially the sequencing issue right now the Korean War technically still is in play we have an armistice in place we do not have a formal peace treaty North Korea has pushed forward the idea that before disarming and giving up its nuclear weapons there has to be a peace treaty in place to ensure the security of the regime North Korea is also looking for the removal of sanctions there are a series of sanctions on the regime they include everything from UN sanctions related to its missile and its nuclear programs to unilateral United States sanctions to the May 24th sanctions on South Korea put in place after the sinking of the Cheonan and the shelling of Youngpyong Do North Korea also often talks about the end of a US hostile policy if you've seen the news of the last few days and North Korea's announcement that it will no longer talk to the United States you can kind of see some of this playing out this idea that the US is taking and permanently trying to take and eliminate the regime and that that is our only real goal and that there is no real possibility for engagement some of the things at the end of a hostile US policy might include would be the removal of US troops from the peninsula the removal of the US nuclear umbrella and the end of military exercises the one we hear most often about is the end of the exercises this has come up recently in both the North Korean proposal to South Korea for talks and the North Korean proposal to the United States for talks through the process but also of taking and putting a pause on its nuclear program now as a colleague of mine, Seth Haggard pointed out recently this is somewhat contradictory that North Korea wants the US and South Korea to end exercises both to take and put a pause on a nuclear program and for the right to talks so not really one or the other but in order to attain both you have to do this one thing so another question we have to ask is Kim Jong-un has been in power for a little over three years now has anything in North Korea really changed in some ways it has under the Jung Jin line there have been efforts to take and build up the North Korean economy depending on what source you look at there are now between anywhere between 16 and 20 something special economic zones most of these are very small having talked to a colleague of mine who works in North Korea and tries to provide them assistance on how to take and get these things up and running there's probably only two or three that are really viable in the long run maybe in terms of the way they're being run but one of the interesting things that has come out of this is that you are finally starting to see some delegation of power and control from the top to local actors so the cities and the regions are able to take and influence some of these zones so we are seeing some types of economic reform there have been efforts to take and reform the agricultural sector farmers are now allowed to keep about a third of their crops and there's talk that they may be able to keep more so it's taking to help them boost yields even though North Korea has less fertilizer than it did in the past shows sort of the benefits of a market-based incentive system so there have been some changes but we've also seen the nuclear test in 2013 North Korea finally put a satellite in orbit even if it didn't stay long it's still helping and pushing forward their ICBM program so on the military side one might say things haven't changed in 2013 one of the things that came up at the time was everyone also said that North Korea is more unstable it's more belligerent in its discussions and it got me and two of my colleagues Andrew Kwan and Peter Taves thinking and so we went and we pulled through essentially all to just KCNA's website and we wanted to see for example for war and peace how have things changed and you can see looking at 2012 there's one point in March which is when a lot of the provocations began that there's this huge spike up to almost 450 mentions at the same time peace is much lower so you're seeing this increase in hostile language in terms of both using terms like war and using peace at least relatively speaking less often now if you look at the ratios of change once again you can see there's this huge spike when you start comparing for example 2012 to 1998 and if you go to 2009 you have a similar push then if you look more constructive terms like reconciliation and dialogue there is one spike but for the most part it's fairly consistent everything is sort of grouped in there together and these aren't necessarily terms that regardless of what North Korea's policy at the time is whether they're engaging or whether they're being provocative that they really tend to push forward and as you can see you know for the most part other than that one spike it doesn't ever get really above maybe 32 mentions a month so not something relatively speaking when you're considering they're mentioning war up to 400 times a month that they're really verbally expressing to the outside world that they're interested in so where are we now in terms of relations at the beginning well slightly before the beginning of the year South Korea offered for talks we haven't seen that go anywhere the North Koreans said that they would be willing to under the right circumstances take and hold a summit this year which is somewhat interesting given that we haven't been able to take and arrange even sort of basic level talks but yet they want to jump all the way to a leader's summit this year essentially right now we have you know the question of dialogue or confrontation last year South Korea hosted the Asian Games at Incheon and just before the games included North Korea sent three individuals who were generally believed to be within the top of the leadership Wang Kyung Soo who went as generally believed to be the number two person in the regime they had expressed a willingness to meet with South Korea one might even say that they essentially said give us a time and a place and we will be there those talks have yet to happen the talks I mentioned from the New Year's statements have yet to happen so then the question becomes given the current environment if we're unable to take and reach talks and if the North is now pushing back against the US are we likely to see despite these efforts towards engagement there to be another nuclear or a missile test now there were sort of low scale missile tests last year so the idea that missile tests will continue I would say is a strong one a nuclear test most likely really depends on where they feel they are in the development cycle in a broad sense North Korea tends to test when they believe they are ready and need to as opposed to around the circumstances so I think a nuclear test is really going to be dependent on where they feel internally their program is at the moment so what else is different now in terms of North Korea well the environment within which the North is working is changing human rights has now become a much more important issue we saw the commission of inquiry report come out last March the report goes through it in some ways graphic detail describes political prison camps forced abortions rape or pretty much any crime against humanity you can think of largely the regime has been documented as having done the report put forward a series of recommendations one of which was that the issue be referred to the security council ultimately the international criminal court and that potentially Kim Jong-un be prosecuted for these crimes we have seen the report be forwarded to the security council it is likely to take and stay there it is unlikely that China or Russia will allow it to move forward to the criminal court but the fact that it is now on the security council agenda I think is an important step forward but one of the other things that has changed is South Korea is now looking at its own North Korean Human Rights Act and what to do and this is a significant step forward and that there had been a lot of sensitivity to this in the past in South Korea concerns that talking about human rights in North Korea would only take and antagonize the regime and would inhibit its ability to take and try to deal with it on broader issues the policy of the Park In-hae government has largely been to deal with human rights issues through international fora I don't think we'll see that necessarily change but the fact that there's more of a discussion and it's more on the surface in South Korea that these are real issues that need to be addressed I think is important but what else has changed you know we had the issue of the Sony hack now there still and there will likely always be questions about whether North Korea was actually behind the attack if you listen to any cybersecurity experts they will tell you there are a lot of things that the US government has not put forward in its case that would indicate that it could have been any other group if you listen to administration statements in the way they phrase things my perspective is that they're leaving open the possibility that even if North Korea itself did not actually do the hack that it took and encouraged someone else to do it so that there is a tie that ultimately it does go back to Pyongyang now the more interesting evidence which we probably won't for a long time get any comment on is there was a I think it was the telegraph in the UK if I remember but it was a or the BBC wanted to but excuse me sorry it was actually Germany Der Spiegel who published a classified US document that indicates that we have been in the North Korean computer system since 2010 now if that's the case then we very much likely do know that it was North Korea if we were able to see inside their systems but either way the administration seems very convinced that North Korea was ultimately responsible we've taken and placed new sanctions on the regime contrary to what a lot of people believe is not the most sanctioned regime on the planet Iran is more sanctioned there's some other countries that might be as well but the interesting thing about the new sanctions are sort of two fold one the individuals who were targeted by the sanctions specifically fit the pattern of countries who we know North Korea either does missile or nuclear weapons business with so places like Syria Iran and other partners like China so in essence we're saying we're going to go after your direct lines of money but two Treasury now has a more explicit authorization to go after third parties who are engaging in transactions with North Korea so rather than the specific entities that were being targeted by the sanctions is this ability to take and over time go after the third parties that might actually take and do a dent in North Korea's international transactions I think the comparison that you've seen in the press a lot with these sanctions being like the Bank of Delta Asia sanctions back during the six party talks are somewhat off the mark in that case we went after one institution where we knew there was a significant amount of North Korean funds and we knew they were doing illegal transactions we seized those funds in this case there isn't necessarily a large pot of money anywhere we've gone after and to be honest it's much more difficult to go after North Korean finances today because in the aftermath of Bank of Delta Asia North Korea has become much more diverse in how it moves its money around it moves its money around in smaller increments so finding a large stash is going to be much more difficult but in light of that North Korea is now under pressure on sort of multiple fronts well how else is the regional dynamic change since Kim Jong-un's come to power we've seen him reach out to different actors early in his regime he reached out to Southeast Asia a lot Singapore and some of the other countries Singapore and Malaysia are two of the countries who were thought to perhaps be involved in some of the new economic zones in North Korea so you've got that but more interestingly there is often discussion that North Korea is too dependent upon China and one of the challenges when you look at North Korean economic data all we have is mirror statistics North Korea doesn't report data we know very little factually about how large the economy is how much trade they're doing and mirror statistics can sometimes be wrong if you've seen the press there is this great debate going on of whether China provided any fuel oil to North Korea at all last year in the commercial statistics there's none there's no trade in fuel oil the belief though is that China gave it in terms of economic aid and so therefore doesn't publicly classify it but because of this thought that from what we do know North Korea has become much more dependent upon especially in light of the South Korean sanctions of China there has been efforts to reach out to both Japan and Russia the Japan part of this I think is somewhat interesting it is unlikely I think that they're going to be able to solve the abductees issue but if they did it would change the dynamics both from an economic front potentially on a diplomatic front in very interesting ways in the six party talks one of the concerns with Japan was always that rather than denuclearization the abductee issue was always number one for Japan if you can take that off the table it might help on the denuclearization side but it would definitely take and potentially give North Korea another economic outlet because Japan would remove some of its sanctions and they already have removed a few but it's not necessarily things that impact North Korea very much Russia I wrote a piece to where basically I called them the new odd couple of Northeast Asia so the two guys who are under international sanction and increasingly more isolated are now basically ripping together but the Russians of the North Koreans have talked about not only military exercises and economic projects but Kim Jong may make his first international visit for the VE Day celebrations in Russia it's unclear if it will actually be him because the Russians have only said the North Korean leader and that could mean you know the nominal head of state rather than Kim Jong-un so we'll probably have to wait and see but I think it's likely that he does attend also interesting is we've seen relations between North Korea and China cool they have been trying to move to what they call state rather than party-to-party relations and to normalize the relationship I think it is somewhat telling that Xi Jinping has met with Park Gun-hye five times now and that he explicitly visited Seoul before meeting with Kim Jong-un I wouldn't go so far as to say necessarily that China's policies are changing but they are clearly expressing their displeasure to North Korea and its current behavior and we've talked already about the offer to engage the United States in dialogue and sort of where that stands and Sun Kim has recently said that we did try to reach out to the North Koreans but we couldn't come to terms on logistical details primarily because the North Koreans wanted us to come to Pyongyang which would raise an interesting question of since they still have a quarantine for Ebola in place whether Sun Kim would have had to have stayed in a private room for three weeks before he could even meet with anyone so what is really preventing them from sitting down at the table? Well if you listen to the North Koreans and the reason why specifically the offer from the Asian Games hasn't happened well one activists in South Korea take and send balloons across the border sometimes they put money sometimes they put propaganda there's been talk about attaching the interview to some of these and floating it over but in essence the North would like the South to stop the balloons from crossing the border South Korea has taken the position that this is an expression of freedom of speech and that they have no legal way to stop them the only way would be is if there was a specific reason that they might be in danger such as if the North were actually going to shoot at them so the North had shot at some of the balloons so this could become a bigger issue you have the May 24th sanctions in place North Korea's response to South on humanitarian issues is if you really want a unite separated family stop worrying about that and lift the May 24th sanctions they've obviously called for an end to the military exercises and then of course the nuclear program and the missile programs are obstacles to dialogue specifically the fact that the North doesn't actually want to engage on these issues so are there other challenges to improved relations well one of the problems we were in the six party talks was the verification issue in essence you can make a case that the North has agreed twice to denuclearize once with South Korea when they agreed to have a nuclear free peninsula and then in the six party talks interestingly this September will be the 10th anniversary of them agreeing to the denuclearization process in the six party talks North Korean security concerns they want assurances that what happened in Libya Iraq and other countries won't happen to them the northern limit line at the end of the Korean war we essentially took in place a series of islands on the South Korean side and drew a line in the West Sea and said that everything south of it was South Korean and the north of it was the North the North has never formally acknowledged that territorial line and it often becomes a sticking point and this is where you sometimes see the change of fire between the two the inability to manage low level cooperation if we look at some of the projects that have gone on be they things like the family reunions be they simple economic exchanges everything constantly runs into a problem either for political reasons or other reasons there's just an inability to really sort of get something going and keep it going and to not interrupt it so you know they have difficulty managing low level cooperation you know another challenge is and this came up in a project I was working on about a year ago is that to a large extent many of the countries in the region are comfortable with the status quo we've talked about the concerns of the costs and the difficulties of unification so the South isn't necessarily keen for changes if you look at this from the North's perspective there's a lot of difficult decisions in the regime for example that would come so really you know engaging more taking moving towards unification changing the status quo it's not something necessarily the two Koreas maybe find appealing you know there might be questions in terms of China what it would think of unification or greater cooperation Japan the United States everyone is sort of as much as we'd like the nuclear issue to disappear to a large extent the status quo is somewhat comfortable and then the question of can both sides live by prior agreements and I guess I'll give just two sort of quick examples here one you know the North has taken and moved off its commitments to utilization a number of times so whether it be you know in the agreed framework when they were taking and doing the HEU tests and had the HEU program running when we thought we had a deal for them to stop their nuclear program though admittedly it wasn't explicit that HEU was banned at the time be it you know the six party talks where they broke off from verification and moving through and have tested since subsequently or if you look at this from the North Korean perspective North and South Korea at the end of the no move young administration held a second summit meeting they reached a series of agreements among bought came to power did not implement those agreements so in terms of the perspective of both sides there's sort of been a lack of follow through on agreements that have been reached so you know even if we get a deal you know both sides might have reasons to think that the other might not live up to it so since we've been talking about unification and cooperation and since Terry pointed out I do a lot of economic stuff I thought it might be interesting to take and look at a test case and sort of see where the relationship stands and what the prospects might be and I want to take and look primarily at the case on the national complex now the reason being for that is that the May 24th sanctions have cut off all economic cooperation except for through case on and it actually prohibits new investments in case on by South Korean companies so essentially everything is frozen at case on so processing commission which is how North and South Korea first started economically cooperating is essentially disappeared and Park and Hayes administration has done some economic aid over the last year or so but it's still fairly small so we're largely talking about case on prior to the suspension of the complex in 2013 you had a hundred 23 firms about 53,000 workers and about 1.9 billion in trade now after the shutdown the question was can we internationalize this complex and Park and Hayes basically hit it on the head which is that if you're going to take and break regulations and promises and suspend case on no country in the world will invest basic business if I can't trust that you're not going to take and seize my assets or lock me up or shut the border down or just do arbitrary things it's not a very good business decision so after the complex was reopened the question of internationalization came up now before it had been shut down there had actually been one joint venture a Japanese South Korean venture called Taesang Hata I've been to the plant eventually the Japanese side of the venture sold out and it became just a Korean venture the Japanese auto company Predle and some Chinese firms looked at the past at going to Taesang and interestingly Kimberley Clark which is a US company had considered at one point actually investing in Taesang now since the shutdown we've seen the following former Italian Prime Minister Enrico Leta had suggested that it would be a good idea for European companies to invest I just want to be clear this wasn't the reason he ended up losing his job but not something necessarily which you're probably going to find much support of in Europe and having talked to some Europeans the human rights issue is actually a bigger impediment to investment there than it is than the nuclear issue would be for them you have me and friends which is a German apparel company that already has a partnership with one of the firms in Taesang who had thought about investing through the South Korean firms so indirectly some Korean American apparel wholesalers had thought about investing they foolishly said that they thought they could get around US sanctions which I found somewhat interesting especially if you're saying it publicly probably not a good idea perennially there's talk of Chinese firms Korea has largely concluded a new free trade agreement with China Taesang is included in that agreement the expectation is is that with that inclusion Chinese firms might find the complex more appealing and lastly there was a G20 delegation which did a tour but nothing pretty much came from that the one we have is Rose Beckert which is a German company they make industrial sized needles they are going to set up a sales office in Taesang I think that's somewhat interesting because it gets around a lot of the sanction issues because they wouldn't actually be doing business with North Koreans though they would be hiring two North Koreans for their shop they would be selling to the South Korean firms in Taesang so it's once again somewhat indirect now basic problems well we've talked about political risk in terms of profitability some companies are slowly becoming profitable but largely even though South Korea gives significant subsidies it's been fairly unprofitable for most of the companies labor and wages North Korea has contractually agreed with South Korea to a certain wage scale North Korea consistently and even last year tries to unilaterally change the wages companies are not allowed to compete with each other in terms of wages so if I have a garment factory and you have a garment factory and you want to get my workers because they're better than yours and you're willing to pay them more you can't do that you have to work through the North Korean government to take and have your workers assigned to your company so there's not a free labor market you can decline certain workers but once again you don't really have a choice of your workforce logistics and communications when they reopened Taesang one of the big things they talked about when they set up a new committee to run the complex was we're going to take and deal with the transportation issues you have we're going to take and set up cell phone access and internet access which don't exist in Taesang and which I'd point out if you go back to the original documents agreeing to open the complex it says that all those things should actually be allowed in Taesang we've yet to see that still so the North is continuing to drag their feet on the setting up of internet and cell phone coverage things which any modern business today needs you have reputational and perception risks this is my guess of why the Japanese venture in Taesang how to get out it happened about the same time there were stories in the US that they had a North Korean factory this is sort of like if you remember the Nike issue with third world labor standards and everything it doesn't matter necessarily how good the conditions are in Kaesang the fact that it's in North Korea will create a certain perception publicly and could hurt your business later on it's also why I think if you look at the companies that are in Kaesang you don't see Hyundai, Samsung, LG these are all small South Korean firms just real quick another problem no MFN which means any country who you would chip a good to from Kaesang is going to have the highest tariff level that could be applied rather than a low one so even though you have low labor costs it becomes less economically beneficial because it costs you more in terms of tariffs you have the sanction issue third party trade issue and while Kaesang is in a series of South Korean FTAs as you can see these numbers don't come out very often there's been very little trade to third parties and at the same time none of that has been done under any of the FTAs and the primary reason being that when a lot of the conditions are in the FTAs they don't actually cover goods that are produced in Kaesang so why would you want to do this well you have from a South Korean perspective the spillover effect the idea being if you can take and eventually connect back into the North Korean economy so start getting suppliers from North Korea if you can take and start trading from Kaesang the Chinese have a few zones on their border as well you can start integrating the North Korean economy and start moving it towards economic reforms the challenge is good from the South Korean US Chinese perspective bad from the North Korean perspective any time you start involving people in economic transactions you start creating alternative power centers as somebody becomes wealthy and wealth tends to bring power with it now the downside of doing business again is the more you integrate into North Korea the more likely you're going to take and start doing business with a sanctioned entity even if you look at the post-Soviet Union a lot of the oligarchs these were all sort of mid-level or upper mid-level who took over state owned enterprises at some point if anybody can actually supply you anything in North Korea they're most likely going to be tied to somebody who's been sanctioned at some point by the United States and the United Nations and so that's one of the perennial risk you run in terms of trying to actually integrate into the North Korean economy so who might actually do this well it's going to have to be someone who has a high tolerance for risk most likely it's going to be someone who already has experience dealing with North Korea in some form or fashion and they're most likely also going to come from what I like to refer to as non-threatening non-ideological countries so once again Singapore, Malaysia Mongolia has talked about trying to do different things with North Korea countries that don't necessarily have a large stake in their issue so where are we now at K-Song most of the South Korean firms are back up and running there are a couple who decided to take and sell their business you had seven who because of this May 24 sanctions couldn't move forward on their construction projects and have decided to take and not wait for the sanctions to be removed so they've given up their lend lease options one of the other challenges is South Korea does provide political risk insurance for firms in K-Song but the way the risk insurance was set up is that once the complex opens back up they were all required to take and then pay back those loans now the challenge for businesses, especially if you're a small or a medium-sized business if most of your production is shut down that means you've lost your revenue and if you have the insurance to take and cover your revenue so that we don't go out of business in the interim where are you going to immediately find the revenue then to pay the state back they ended up giving them a six month delay to try and work through this problem but in the long run in terms of any kind of risk insurance this is something they're going to have to change it just doesn't really feasibly work in terms of insurance form the numbers on North Korean workers you get just a lot of different perspectives it's probably back close to the number that was working there beforehand but maybe my guess is it's slightly below but roughly the same number of workers more interestingly last year you had $2.3 billion in trade so that means that you had an increase now a lot of the papers are touting this as more than a 50% increase from 2013 I don't think that counts I mean the complex was shut down half the year the more interesting thing is if you compare it to the baseline before the complex was shut down it means it's up 15% well, about 17% the other challenge though I was looking through and I had a chance to finish some of the inflation numbers and a lot of the goods that are produced in K-Song there's been in South Korea a relatively large level of inflation so the increase may not actually be that much some of this may be inflationary as well but it is interesting that despite the fact they've been struggling to get things back up and going that trade is roughly at least back to where it was before it shut down so what does this mean for a unification bonanza I think if you look at K-Song K-Song is largely sort of the microcosm for what unification might look like there will be some benefits North Koreans will have better jobs than they have now they will take and live better lives than they had been living but it will be very challenging and some of the challenges won't necessarily be economic now obviously a lot of the sanction issues would go away but if you look at sort of the difficulties of getting custom clearance done getting internet, cellphone these are some of the things that one in the short term will be a challenge because there isn't the infrastructure in the north to take and build up business quickly but two it sort of raises questions of on a cultural political level to take and actually integrate people in now you won't necessarily have a regime in place anymore that it will be trying to stop change but you'll have a populace that won't necessarily understand how a free market economy works how a democracy works and so I think the sort of stop and go that you see in K-Song is likely to be what unification is like so there will be benefits but there will be many challenges going forward thank you very much I'll take questions I've got a few questions I'm actually a China specialist here maybe I missed it but did you talk about how did Seoul or President Park what was the process by which they revisited the whole K-Song issue was it a no brainer like let's just get this going again or did you talk about that a little or was it controversial the other thing was and by the way I'm glad you brought up the German comparison I think it is very interesting I lived in Germany during a little bit after that I've actually seen some Chinese analyses of what are the lessons of German unification actually oddly enough one of the conclusions in the Chinese perspective is that the Soviet Union could accept German unification partly because it saw Germany as an entity somewhat separated from the US in other words they weren't operating in complete locks anyway that's interesting just a broader question here are you understanding that neither Russia nor Japan will kind of step up and play a big role in this the way China is can you see this as a kind of subset of US-China relations that is if US-China relations go really well then there might be some progress or alternatively do you think that that is a kind of not a constructive way of looking at it well first on K-Song just for time reasons I kind of skipped over some of the process of getting the complex back up and starting essentially what had happened was the process had become drawn out and nobody could quite get a formula up to take and run it and the South Koreans essentially took in while there was some debate internally in the South basically told the North either reopen the complex or we're going to take and shut it down and specifically what sort of drove that what some of the insurance issues I talked about they were starting to run further into the insurance claims of how long they could maintain that and the pocket administration made the decision that if we're going to have to pay out the claims we might as well go ahead and just and everything pay everyone and move on or get it reopened and literally within about 24 or 48 hours after saying that we will take and pay out the closure of claims if the complex isn't reopened the North came to the table and they they is late July early August the complex opened back up in September so it took about a month to get it all worked out working so 2013 sorry in essence it was ultimately the North becoming convinced that the South Koreans really were willing to end the whole thing incredible threat and I think it was I think she would have done it I think that this was a major miscalculation on the part of either Kim Jong-un or whoever in the regime actually made the decision I don't think it's anything where she could have back down on and she could feasibly say this was something that we were South Korea was doing in North Korea's interest and if the North was not willing to do it then why should the South continue to do so so I think they picked the wrong thing to really push her on the other issue that made it difficult is that because it is really the one area where the two actually interact with each other I sometimes kind of colloquially refer to it as their embassy there were a lot of concerns of what would happen on the South Korean side if we no longer have case on because we won't really have a connection to the North anymore because we don't hold regular meetings we don't have liaison offices all the food aid and everything had all been stopped that really was sort of the last form of inter-Korean cooperation but that's sort of how that all happened in terms of you know Russia and Japan and whether you should view it through a U.S.-China subset I think one of the things that's interesting about this and sort of I'll give a few different aspects is that one you have a situation to where if you look back at the German case there was a lot of and I'm working on something on this right now negotiation between the United States Germany and Russia on sort of what the post settlement would look like there's a lot of discussion on that because of Ukraine and at least what I'm seeing publicly now among some Korean experts is that there's not much of a desire to have that kind of discussion with China you know one comment recently was something to the effect of the forced structure of the U.S.-Korea alliance after unification is a decision for the ROK and the United States and not China I think that's somewhat hard to really sit with because one not only do you have the historical precedent but two it's hard to imagine that the United States and the ROK even if they don't talk to China at all they would not take China's interest consideration because to take and leave in place a structure that you think would only antagonize China is not in anyone's interest but in terms of moving this now forward into what do these kind of considerations mean then for Russian and Japanese I think in some ways the they move independently and China-U.S. relations can be a factor in terms of broader cooperation but if we look at sort of Russia Putin has long been interested in the Korean Peninsula he sees it as sort of his outlet into Asia the one area where Russia can perhaps have influence he knows ultimately that South Korea is the real you know economic prize for Russia but the only way to get there is you have to have the North Koreans behaving less badly so I think you're seeing a combination of things with Russia right now one is sort of it's their way of kind of showing the U.S. well we can still do things with other countries and you can't stop us two it is this sort of long-term strategy of trying to build up the Russian Far East, integrate it into Asia and have an outlet for both the oil and the other resources and because that entails South Korea we've got to improve relations with North Korea it's probably just a benefit that right now makes our lives difficult or an added benefit for him in terms of the Japanese North Korea situation I've sort of viewed this as more of a target of opportunity in that for both governments there's not much of a downside I mean there's really no, I mean there's Berkeley no trade anymore because of the different sanctions both for the nuclear issue and the abductees if Abe because he's very much tied to this issue politically can get real answers from the North Koreans it'd be a huge domestic win for him and what they'd ultimately give up in sanctions probably won't really be that much if you're the North Koreans if you get something and if you can improve relations with the Japanese well then it gives you one other partner to sort of wave the Chinese when they start acting up so I see this as sort of a win-win with no real downside for either now can the North Koreans come through and actually give the Japanese credible information on the abductees I think that's going to be really difficult my understanding is that the Japanese have asked them to delay some of the reports because they didn't feel they were good enough and they didn't want to risk the political backlash of it coming out but there's no opportunity yes I think when you look at the broader regional dynamic it makes unification more difficult I mean we've seen the tensions between China and Japan over the last year and a half or so over the Senkakus China is exerting itself more well if anyone has seen any of the excerpts from President Yimu Bak's most recent memoir or his memoir not most recent it discusses this idea that even the Chinese perhaps have said that they don't think North Korea will survive as a regime but that being said the question is is it in China's strategic interest to see unification most likely in the near term at least not China would probably want to have certain assurances in place beforehand and given the current dynamics both with Japan I think the one thing we need to realize is that if you look at sort of the post-Cold War scenario in Germany a lot of the lingering issues from the Second World War were finally resolved so Germany's permanent border with Poland you had the issues of troop deployments and troop sizes within Germany taking care of I think it's difficult right now to see a lot of the lingering issues from the Second World War be it either the territorial ones or even some of the more historical legacies which the different countries are more intensely debating right now being resolved in the near future and so the question then becomes if you can't sort of take and reach that kind of a settlement is there an incentive for anyone to take and encourage unification to be pushed forward you can see some of the best reasons for supporting unification but I think once you start getting into the question of is it in Japan's strategic interest to see a unified Korea is it in China's is it in Russia's it starts to become more questionable and until that changes I think it's more difficult ultimately this will be a north south driven process but as I was mentioning earlier this I think from the perspective of the North Korean regime the question becomes what is their interest in unification my guess is is that there's probably not much in the sense that one how would they secure their status in a new unified country what types of transitional justice issues would they face and even if there were an agreement to take and sort of do a truth commission type thing in Africa and sort of just move beyond the whole issue you're still going to see a lot of people who will move from being the leader of North Korea in Kim Jong Un's case or a high ranking general of someone of wealth and privilege into a much less certain political and economic status and people generally don't like to give up power so I think it's difficult to see the two moving forward right now and the regional dynamics sort of help cement that in place and provide options for North Korea to take and butchers itself should it need help well I want to avoid the mistake of many of predicting collapse at any certain point of time I tend to think that if and when it happens it'll be one of those things where we'll wake up one day and you know Kim Jong Un has fled the country or something and then there'll be questions of why we didn't see it coming and the reality is you don't see these kinds of things coming but could there be a coup or could there be some other type of transition to take place you know I think this is the question if you look at the Arab Spring as an example one of the things that was interesting to me that came out of that was there was a question when Egypt when Mubarak lost control of why did this happen because all the Middle East experts thought this is not possible you know there is no way you can remove Mubarak and the one conclusion one of the scholars came to in a foreign affairs article that he wrote at the time was that all the analysts had made the mistake of assuming that the interests of Mubarak and the interests of the regime were the same and in reality they were not and they were separable so I think if at some point people in the military or others believe that Kim Jong-un is behaving erratic that he is not looking after their best interests is it possible that they could seek to remove him I would say yes is it likely it's probably very difficult to make sure it's set up in the regime in terms of the way people are tapped in communications and things are monitored it's hard to imagine someone planning a coup you also run into the issue of Kim Jong-un has been fairly thorough in taking and removing people from power and fairly quickly only two of the people on his father's Paul Bearers if I remember correctly are still in power in the regime we know what happened to Jung Jong-Tae though I think that might in the long run be a mistake in terms of the idea I'm sure was to demonstrate that you can't cross Kim Jong-un but it could also lead eventually people to reach the conclusion that if you don't move before he does that this is what will happen so that could play out either way but I think the coup is possible but difficult in terms of a popular rebellion if we look at the way North Korea takes and separates people you know you have to have a pass to leave your own town it's very difficult to travel you have a situation to where there is often family punishment so if you take and act against the state it's not just yourself that's punished it's your entire family and so there's a large degree of control and separation and disincentive to a popular uprising so I think the uprising is much more difficult than a coup would be once again I would never say nothing is impossible but I think that they're both unlikely and I think one of the challenges that we face in sort of looking at North Korea is and I mean this is understandable but we often sort of apply the constraints or the needs of the United States or China or some other that they have domestically on North Korea and what I mean by that is you'll often hear people say well North Korea has to reform economically because the economy has collapsed and if they don't the state will fall apart well the challenge is is that we're viewing that from the perspective of President Obama has to create jobs or else he'll face political consequences in China they don't have a democracy but they understand that if they don't keep creating jobs they will be domestic evil and that they have to take and keep growing the economy North Korea is different they simply have an elite they have to take and keep satisfied and so as long as they can extract enough revenue be it either from legal trade through things like Hay Song be it from illicit trade and their weapons and other programs and then bring in the luxury goods they need they can maintain control they don't face the same pressures that we do yes equalization unless it completes not only the patient but also the improvement of the relation impossible more more pressure against North Korea to give up a nuclear program and better than concession what's the more effective to give up the pressure or dialogue that's the classic question you know I think they both have difficulties Kim Dae-jung took the perspective you know he talked about Yisab's fable of if you take and engage and the idea being that with the sun in the wind you had this debate and the wind blew on the man and he pulled his coat tight but you know the sun gradually warmed him up he would get warm and take his coat off you know the challenge of this though is that in a fable time is on your side and a democracy time is not so if there may be a logic underpinning engagement the challenge is in any democratic society or democratic polity you need to see results in a relatively short period of time of the policy now there's people such as Moon Chung-in who was involved in the Kim Dae-jung administration and who's written on this and would argue that because it took the North Koreans a while to adjust this policy and then because you had President Bush who quickly changed U.S. policy that there was really only a six month period to where the sunshine policy was in practice and so it was never really given a fair chance to work there may be some truth to that but if you don't have engagement that if you don't see quantifiable demonstrable results in a short period of time then it's hard to continuously maintain you know engagement going forward and we've seen this in South Korea as you know there's sort of there's less support for simply unconditional engagement now you know there's an alternative to this which is the no-mooyeon idea which is that basically but you can in essence buy them off and so as long as you take and maintain you know a supply of food aid and you know other aid to the North that you know they'll cut back on their programs they'll be they'll feel less threatened and therefore you can take and you know maybe at some point reach denuclearization but I think even the no-mooyeon administration probably didn't really think the North was going to denuclearize you know the challenge with pressure is you know you have will say one in a tenth safety valves which is that you know you have China how much is China going to take and ultimately close the border and shut off trade to really pressure the North you know I think things like refugees into China are legitimate issues probably not the real reason the end of the day the Chinese wouldn't want to do it you have broader security you know issues at play but Russia you know itself you know could try to provide a lifeline as well that's where the you know maybe one tenth comes in because it wouldn't necessarily be as you know able or willing as China so I think it's hard to take and apply just pressure and so you know what I think we've seen and this isn't to say that there aren't other things that could have been done but you know Paken Hayes essentially tried to take and move policy towards one something that could be consensus in South Korea now I don't think we've got anywhere near a consensus in South Korea on policy towards North Korea but a policy that isn't primarily one of a hard line policy and one that isn't primarily one of a soft line engagement policy understanding that you need both tools to take and work with North Korea go ahead oh sorry I mean it's not it just looked like you had something to say education is impossible we need apology the China well you see and what Paken Hayes said we need talk relation improvement so I think it's not impossible no yeah and I think you actually you kind of need both but the challenge sort of comes down to I mean this is why she's worked to improve relations with China because if you're not somewhat on the same page as the Chinese then it's difficult to take and implement a policy in a certain sense South Korea and China can inhibit each other's policies but if you really want to achieve progress policy as well but at the same time you know here's the thing if the North Koreans engage in tests or other things that you know we're trying to discourage them from doing you have to take and engage what people call hardline policies be it sanctions or shut off some type of trade but that being said if they're responding positively you know you do need to try and engage and talk to see where it goes and then you do need to figure out where you can take and one of the things that I haven't understood is there's a lot of debate on the May 24th sanctions about whether they should stay in place or they should be removed but you don't ever hear really a lot of well what about partially removing them you know South Korea making a gesture of saying alright we will take and you know allow additional South Korean investment in case on you know might be one example you know we're not going to take and remove all the sanctions but it has a gesture to the North to bring them to the table you know so I think there's ways you can be creative with this completely in one direction or the other and I think that's important too because you need to keep the North in a perspective to where you're demonstrating to them that there are opportunities to take and have a better relationship with South Korea with the United States with everyone else but at the same time you need to also remind them that there are consequences when they take and engage in behavior that's not acceptable to the international community but at the same time I feel like with South Korea pursuing a policy of reintegration and the assumption that that brings that the regime the governing regime of North Korea no longer exists that there is no incentive for the North Korean government to engage in any kind of talks if their policy was more along the lines of a normalization of relations or recognition of you know a sovereign North Korea then that would at least leave the room for talks but as long as the public policy and President Park has her politics that she has to mind and her domestic audience that she has to mind also that really precludes that for her politically but as long as that begins with we're pursuing a policy of reintegration and the assumption that follows of North Korean government you no longer exist in our policy at the end of the day then that leaves very little room for any kind of real progress to take place. This was in essence the North Korean response to the Dresden Address which is that you're talking about absorption we don't believe in absorption we reject this policy I think it's the challenge because when you talk about unification the question then becomes how do you go about this on we'll say a political level because the economics I think has been over warned and everything if you have a unification of equals does that mean that South Korea becomes less democratic or is there a way you can split the difference now maybe I'm just not creative enough to come up with that way but I think it's difficult to sort of figure out how you do that and this is where I get in my comment earlier about if you're Kim Jong-un if you're any of the elite generals North Korea workers party people what happens to you how do you fit into this new regime does North Korea get the foreign minister South Korea gets the defense minister do you divide up the post that seems unlikely as well I think you're right on the one hand for domestic reasons and others you need to keep the idea of unification alive but on the other hand how appealing is what ultimately probably does to the North even if you're not trying to say that look like the elimination of the North Korean state how appealing is that to them probably not vary so it does make policy difficult sorry I keep looking that way is there any questions on this side how do you assess President Park's address in the rest of that actually I didn't notice the controversial point of the address but I saw the TV show yesterday to hear so many controversial points about the opinion address because some people said her address was outstanding because she gave some message to the internet or society such as why we have to unify to Korea but some people argued that it was not good because there is no some kind of doctrine or there is no impact it was not impressive to the internet or society so how do you think about that so I guess just to make sure that I understand correctly your question is wasn't it an effective speech because sort of what is the next step basically I think when you look at the speech there are parts of it that if you look at them in terms of sequencing makes sense I am a big proponent of trying to get the family reunion started back up basically for two reasons one is that many of these people will not be around much longer and if they are going to have a chance to meet their relatives they are going to have to be in the next few years but beyond that if setting aside the issue of whether unification is going to happen and be feasible I think if you are going to have long term understanding cooperation between the two Korean states a lot of it is going to happen on an interpersonal level and it is those families that are going to have the connections that will help build that cooperation and who will be able to say to their great uncle or something this is what we are really thinking these are the challenges we face now there is difficulty in that because of the control of information in North Korean society and the lack of desire to have them really interact with the South but I think if there was a seriousness on the North part to have a normalized relationship with the South that a significant part of that is bringing the North Koreans and bringing the families back together letting them communicate, talk and meet because they are going to be the foundation of that sort of society some of the other aspects the humanitarian side aid for women and infants these are all important things at some point you have to take and work on building the North Korean society back up and part of that is the population making sure it is healthy a lot of the companies at K-Song have talked about that the workers are intelligent that they learn quickly and everything and that may be true but we are probably also seeing a lot of people who are somewhat tied into the elites as well so there are questions as to how good the North Korean education system overall is and so building up educational structures and everything I think there is a lot of good things there that would benefit North Korea even if you ended up in a confederation if you ended up with two separate states you know the challenge though is probably is that it is all wrapped up in this broader vision so then does that make the North Koreans less likely to engage on these types of issues but I do think that there were actual ways forward the challenge is just as I sort of said early on if you don't have a willing partner you can have the best of intentions you can have the best of ideas but they won't go very far and one of the things I think that's come up in South Korea at times is you know if you look at for example polling most people view Park and Hay's policy as a hard line policy similar to E-mail and Box policy having talked to some of the people who designed the policy early on my take would be that they were fairly genuine in their desire to reach out to North Korea just as I think the Obama administration was fairly genuine in its desire to try and reach out to North Korea when it first came into power you know when Kim Jong-un first took over but at the end of the day be it either for its own internal domestic reasons or others you know North Korea hasn't been at a spot to where it felt it could really do these things now can North Korea ever get to that point and maybe that's the real question we should be looking at is regardless of who's in power regardless of what the policies are when you build a North Korean state machinery be in a position to take and engage on things you know of substance be they either economically be they either humanitarian you know North Korea other than trying to take and on the UN human rights report to discredit it wherever possible hasn't substantively engaged on any of the issues you know is there ever a time or way I don't think North Korea is going to change overnight of course starvation and things to where we can get them to agree you will work to make sure the populace has adequate food you know we're not talking about political rights or anything here anything dangerous simply you know feeding your own people you know and you know there's difficulty even getting to sort of those basic levels and the question is like I said when can we get to a point to where we can work on those kinds of things okay we are out of time unfortunately so Troy thank you very much for an excellent question


Now let's look at the types of innovation. Is there only one kind of innovation or the many kinds? So broadly, you can look at two or three different types of innovation in terms of scale. The most, the biggest, the most disruptive innovations are new to the world. Nobody's ever seen it before. The examples that I gave, the wheel when it was first invented. The first wheel, the first printing press, the first robot, the first drone. So it's new to the world. And I'll give you some examples later on. They're usually very disruptive. They disrupt a way of life. Horse riders stop riding horses and drive cars. Human beings learn how to use a mobile phone anywhere in the train, in the bus, in the class, in the office. It's a new way of life. And these are typically deep tech. Today you might think that the wheel was not deep tech. But 5,000 years back, the wheel was deep tech.  The printing press was deep tech. The light bulb was deep tech when it was first invented. Today it may not be. So new to the world, very disruptive, changes the behavior of millions of people around the world. And they usually deep tech, which means there's a lot of science behind it. It could be not new to the world, it could be new to the country. So it could be something which is invented and used in China or US or Europe or Japan and used in India. Or vice versa. Invented in India but used abroad. And I'll give you examples of that as well. Typically they don't change the world's behavior, but they change the behavior in the country. And it's adaptive because an Indian invention can be taken to a Singapore or a Middle East, but it needs to be adapted to that country. So it's adaptive. And it may not be deep tech because it's not the first ever use. It's already in use in some other country. But it's still breakthrough in that country. So new to the world, new to the country. And then of course you have got new to the company. So someone else is doing it, but we do it. Our company does it slightly better, slightly differently. And this is called sustaining innovation because if the companies don't sustain the innovation stream, the company will die. And that has happened. And there are lots of very famous companies which have struggled as other companies have innovated. In phones there's a company called Nokia. In camera there's a way of taking picture called Polaroid which you could take and get the print quickly, immediately. There's a famous phone company called Blackberry and they got out invented. So if you do not invent in your company, the company will struggle to survive. That's why it's called sustaining. But it doesn't change the world or the country's behavior. So it's incremental. It's not disruptive. Let's start looking at a few examples. The best and the newest and probably the most impactful new to the world innovation was when COVID hit us two, three years back. And it devastated the entire world. And some companies in India, US, China, etc. invented the COVID vaccine. And by God's grace today sitting in 2023, hopefully the pandemic of COVID is controlled because of this COVID vaccine. It was a new to the world innovation. Chad Gipiti and many of you would have read about it or been using it. And if you have not read about it or not using it, please look it up on the internet. It's a new to the world innovation just six, seven months old. And it's taken the world by storm. Now let's look at a few new to the country innovation. The Indian missile called BrahMos. All of you probably know about it. If you don't, please look it up on the internet. It's a hypersonic missile developed in India. It's innovation for us. But other countries also have similar missiles. Russia may have it, American, US may have it, Europe may have it. So it may not be new to the world, but it's new to the country. And these are highly innovative missile systems. Here is something which is new to the country, India, but is now going outside of India. And therefore in many ways it is a new to the country becoming new to the world, which is the UPI payment system. Today most of us use an UPI, a GPay or phone pay or Bharat pay or Amazon pay or one of the bank UPIs. We may be using a rupee card, etc. So this UPI, instant money transfers between people, is an innovation which came out of India. It's new to the country, but it may well become new to the world as more and more countries outside of India adopted. It's brilliant innovation coming out of India, going out of India and may become a new to the world innovation. So what's new to the company? Look at this example from Tata Motors. This is from the website. And I encourage you to go to the website and read more about it. Tata Motors makes trucks and vehicles, passenger vehicles, now electric vehicles. So new to the company for them is how to make better vehicles, better motors. And you can read it on the screen, futuristic technology. It's there on the website. Go and have a look at it. The first one, top left, is modular car platform. So every car, you don't have to probably assemble it from zero. You can build it in modules. Not that I'm an expert, but I encourage you to understand how Tata Motors is innovating within their own company to build better and better vehicles. And then there are others, IoT, and you can read it yourself. Adaptive right to control, new generation infotainment systems, and so on and so forth. This may be existing in the world, definitely is. This may be existing in the country because other companies may be using it. But for this company, Tata Motors, it is an innovation which will lead to that company's products being better, faster, cheaper, or more satisfying. Let's look at another new to the company innovation. Almost all of us use phones, either a Samsung phone or a OnePlus or any of those for Motorola or whatever. Some of us are using Apple phones. So when you look at different models of the same company phone, in Apple's case it will be iPhone 13 to iPhone 14. It could be a Samsung S23 to 24 to 25, whatever. For the same company, for the same product, newer version. So for the company it is an innovation. Because it's a newer product with newer features, maybe faster, better, maybe cheaper. But it's not new to the world or new to the country. So these are examples of different types of innovation. Some companies build their entire growth and future plans around innovation. And a great example on the screen is Reliance. And if you can read and extract from the website, I encourage all of you to go and have a look at the Reliance website. It talks of innovation led growth. And it talks of innovation is a way of life at Reliance. So it's embedded in everything that the company does. And that's a great example of where the whole corporate strategy and growth strategy is around innovation. So what is the innovation process looks like? You have looked at what is innovation and the types of innovation. So how do you innovate in a company? It starts with a customer. Because if there is no customer, there is no business. You can innovate in an academic institute, in a research company, in an R&D organization, in a contract research firm. But for business innovation, which is what this course is all about, business innovation, it starts with the customer. And a customer problem and an identification of who the customers are, how many of them are there. And then it works backwards to create the solution. So innovation is not in isolation. Innovation is in context of a customer problem. And then you design the product and then you keep testing it so that it's faster, better, cheaper than what exists today.  Booking the tickets at home versus going out to a movie hall or an airline counter to book the tickets and save money. So that's the solution, product or service, with the benefits. And then once you have identified the customer and have tested a product, and I'll talk a bit about it later on. And I've got a solution, then the next step and the last step really is taking it to market. But taking it to market itself has many steps. In the innovation process, you're just doing a problem solution fit. And you make probably 5 pieces, 10 pieces, 50 pieces, 100 pieces, 1,000 pieces, 10,000 pieces to test the solution. But to build a great business, you'll need to build millions of those pieces and sell those millions of pieces to millions of customers across the country or across the world. And that will be later modules like mass manufacturing, mass marketing, quality testing, all those aspects will come in. But it starts with this innovation process. Let's now come to an important question of if you innovate once, is it forever an innovation? No. Think about it. When you innovate something new, a new phone, a new artificial intelligence program, a new app, or a wheel thousands years back, it comes as new and because it's new and novel and better, faster, cheaper, there are benefits and everybody wants to buy it and it keeps going, going, going. Till a time comes when everybody who wants to buy it or has a need for it has actually got it and then there's no more demand.  One of the things you can sustain the growth and you can see in the curve there is to add a few features. So in an app, you can add a few additional feature to just prolong the life for few months, few years, etc. But ultimately it does not sustain because if you look at the pink line in this slide, the next generation of innovation has come in and customers stop using the last generation of innovation and move to the new generation. And in my earlier module, I had given an example of music. The invention was records. So you don't have to listen live to someone. You could record it in a vinyl record, which many of you may not have seen. And that grew, it was new, till the tapes came in. Again, most of you would not have seen it, but the tapes replaced the records. And then MP3 was invented, which is digital music. And then they came in CDs and then DVDs. The difference being a DVD could store as much music as 10 or 20 CDs. So you get different curves. And then it went to streaming music. As I said in the previous module, it went through some of the Amazon music or Ghana or whatever music app that we're using. And you neither need a record nor a tape nor a CD nor a DVD. All you need is a phone. So that is the typical cycle and every innovation goes through this. And if you go to the net and if you look for internet cycle, the companies like Gartner which show the technology cycles, they call it the hype cycle, and I'd encourage you strongly to go and look it up. And you'll see different products in different waves or parts of that wave. So if you look at the year 2022, and remember Gartner is only capturing some very recent technology. There's something which is completely on the left side, still on the innovation side, things like digital tweens. Look it up, digital tweens or open telemetry. Look it up.  And today, as I'm taping it, there's a news of a brain implant with which if you implant the chip in the brain, the neural link, you can actually talk to the computer. It's still at the innovation phase, very early phase. And then it'll get commercialized. But then 10, 15 years later, that will also mature and that will also decline till the next thing comes in. So that's an innovation cycle. So how do you convert an innovation into a new product? And this is where things like proof of concepts, et cetera, comes in. So you start again with the customer insights. The best companies co-create the products with the customer.  No, the best companies don't do that. In that room where the company employees are there, they'll invite the customers. And the company employees will ask the customer, what's your problem? Are you happy with my product? How can I improve it? How can I make it faster? How much will you pay for it? But that's customer insights. And the customer gives the ideas. And the customer says, yeah, I want it like that. And I'm willing to pay that much for that. And then the company employees will probably develop what's called a prototype, which is a very early version. And then I can show it to the customer. And the customer said, no, no, no, this is not what I wanted. I had actually wanted something else. And the employees go back to the lab and build it slightly differently. And again, they come back to the customer and say, is this what you wanted? And the customer says, no, please, almost there, but change it. And they again go back. And the cycle goes on. So on the right side, you see what is called plan, act, check. So as you're getting the feedback from the customer, the company employees, the researchers, the developers, the engineers in the company, they're planning how to create the prototype based on the customer insights. But once they plan, then they act, which means they create a prototype, a 3D printed prototype, a wireframe prototype, on a Raspberry Pi prototypes, or both prototypes. There are many of these toolkits which are available, where you can do fast prototyping. And once a prototype is accepted by the customer, then you do testing with the customer. And you go to the customer and say, OK, here's the prototype. Please use it and give us your feedback. And the customer uses it for a day, for five days, five weeks, sometimes a year, sometimes two years. And they say, OK, this works. This doesn't work. It's too heavy. It's too slow. It's too thick. The battery runs out. And based on the customer feedback, you keep changing it and developing it. So every stage, you're talking to the customer, and you're going through the plan, act, check. Check means you're measuring it and adjusting it. And it's a cycle. You co-create it with the customer. Once the customer says, OK, I've used it for sufficiently long time, and that may be 10 customers or 100 customers or 1,000 customers. They are your lead customers. And you have given them 10 samples or 100 samples or 1,000 samples. Then you have to do the quality testing. And there are many kinds of quality testing, which I'll talk in my next module. Is it dust proof, waterproof, drop proof? These are some physical testing. If it's a food, does it comply with the food grade material? If it's a drug, does it comply with the drug guidelines? Does it spoil over time? Does it bend? Does it break up? Does it tear? So these are the quality testing. Once you have quality tested some of the prototypes, then you start thinking about, OK, I have made about 1,000 pieces, 100 pieces, 500 pieces, 5,000 pieces. So now you need to make a million pieces or 10 million pieces, 1 crore pieces, so that I can sell it to the market. And then you start thinking about, OK, how do I mass manufacture it? And how do I mass market it to millions of users? And that gets you to what is called the new product launch. And it's a very iterative process. Depending on how novel, how sophisticated, how complicated, how deep-tech the innovation is, it can take a few days. It's just changing the packaging. It takes a few days. Just changing the name color of the brand. It takes a few days. Two, where you're developing a whole new chip, a computer chip, designing a whole new phone or a computer or a robot or a drone. It can take years. And that's the innovation cycle taking the innovation to the product. Let's do a case study very quickly with a company called 3M. It's a multinational company, also works in India. And I'd strongly encourage you to go to the website of 3M and look it up for yourself. And I'd like to first start with the purpose, which you can see right on the top left, science applied to life. And this is a company which is very innovative in terms of products, innovation to products. They've got 60,000 products in a portfolio, 60,000. And they've got products, as they've said, across 51 technology platforms. And you can look it up yourself. Those of you who are in science or engineering. They're materials, they're in processing. And I'll show, I'll give some examples of brands and so on. In terms of capabilities, digital applications. So these are the 51 technology platforms that they have and they've got 60,000 products. So what are some of the brands? And how do they sustain so much of innovation? Because innovation is at the heart of this company called 3M. I've already talked about the 51,000 technology platforms. Look at how many new patents that they're developing just this year. These are screenshots from the website as of now. They've got labs in 50 countries. They've got 8,000 scientists. And look at the budget that they have for innovation, research and development, $1.9 billion. That's almost 15 to 16,000 crores of a piece. And what are the brands? So after all of this work, how do you or I, as a customer, see these brands? So all of those people and innovation and technology platforms comes to us as usable products which solves the problem that you and I may have. And some of the brands you may be very familiar with. Post-it. Those yellow tags which you post, which comes with gum and stick it in a piece of, in a notebook or on the wall and make a noting. Post-it. A lot of technology innovation, but we see it as a brand called Post-it. Scotch Bright. In your kitchen, someone would be cleaning the utensils with something called Scotch Bright. Same with Scotch tape and so on and so forth. So here's the process of where technology platforms, scientists, R&D labs, billions of research funding ultimately comes to the user as brands and products. You can look that up yourself. Also, it is important that as you create this new technology platforms and new brands, good companies are also aware of the environment and society. And that's why they talk about sustainable processes, which is good for the environment, starting from the way they develop and design the products. And I encourage all of you to go to the website and read more about it or any other company which is building a lot of products and go to the website and look it up. And in fact, that's the next reflection point. Think of a company you'd like to work for or you already work for. It could be a dream company if you're a student. Please study the innovation strategy. You can do it by thinking about the products that you use.  See how many of the products are there. Or you go to an electronic shop or go to the website or do a search on internet. And think about the innovation strategy and look and think about the questions that are there on the screen. What are the current brands and products? What are the new brands and products? So current brands and product may be something which you have been seeing for the last three years, four years, five years, ten years. But something new has come to the market. Maybe you have seen it on an e-commerce site or a store. Think about new products. Which company is bringing the newest products to you? It could be a earphone. It could be a wearable. It could be a phone. It could be a pen. And how innovative are their products? If it's a earphone, this is the same as one thousand other earphones in the e-commerce site. Or is there something new and exciting? Or it's just one more earphone. If it's a smart watch, is it the same smart watch that already exists for the last few years? Or is it something really new and exciting? And when you look at that product, think about whether you think it's the best and the first in the world. Or is it just new to the country? It was always there in US or Europe or Japan. And it's just come to India. Or an Indian product, which has been there in India for four, five years, like UPI, and it's now going out of India. And then think about how are the products that you see superior? What are the benefits? Are they cheaper? Are they faster? Are they better? Are they more satisfying? Are they easier to use?  And as I said for each of these reflection points, write down in your journal your reflections. So with this, we come to the end of the module. Thank you very much. And look forward to having you with me in the next module.