Pity poor Korea--and not, anymore, just the brooding North. On both sides of the feared demilitarized zone (DMZ), trends have taken a sharp turn for the worse. Start with Seoul: When the Asian financial crisis washed over it, South Korea's economy simply collapsed. The won lost more than half its value against the dollar, the Seoul stock market plunged 70 percent, and the crisis laid bare the cruel fact that South Korea resides on the edge of bankruptcy, and will remain there for some time to come. The country reportedly has more than $150 billion in foreign debt coming due in the next year or two, and just a few billion in currency reserves to pay it back.

On the political front, the December election of opposition candidate Kim Dae Jung was a triumph for South Korean democracy. (In a move delicious for its symbolism, North Korea angrily refused to allow South Korean contract workers in the North to cast absentee ballots, calling the act an infringement of its sovereignty.) But Kim's party is a minority in the National Assembly, the urgent need for painful reform confronts his left-leaning political base, and South Korean politics may well be stuck in an erratic period of realignment for some time. Gridlock, and resulting political unrest, are hardly out of the question.

Now shift your gaze north. Between floods, droughts, typhoons, and tidal waves, North Korea has endured one of the worst series of natural disasters visited on a country in recent memory. Each successive calamity, layered on top of the foundational catastrophe that is the North Korean economy, has inched the regime in Pyongyang closer to its inevitable ruin. The latest word from the World Food Program is that, in order to forestall the starvation of as much as a third of the North's population in 1998, the international community needs to spend almost $400 million to pump three-quarters of a million tons of food into the North. Things have gotten so bad that in December power shortages forced Pyongyang to suspend operation of the speakers near the DMZ that blare absurd propaganda into the South.

The ingredients are therefore all in place for serious instability on the Korean Peninsula, something that is not to be welcomed in the most militarized region on earth. Yet on the central strategic issue at hand--dealing with the North Korean threat--the past few months have done nothing to relieve the distinct impression that Washington and Seoul have abdicated responsibility for North Korea policy and left it to be determined by fate. Apart from routine exchanges resulting from the 1994 Agreed Framework and listless four-party talks about talks on the subject of a peace treaty, the sum total of U.S. and South Korean action on the North amounts to offering a few bags of rice and hoping that Pyongyang will make the first move toward better relations. U.S. officials have repeated the phrase "The ball is in North Korea's court" so many times that it might as well be tattooed on their foreheads.

Early hopes that Kim Dae Jung would dash into office with a bag full of ideas for enhanced North-South contact, beginning with a quick summit, seem to have been misplaced. Kim recently told IMF head Michel Camdessus that "I will not rush" to improve relations with the North, and that he would focus instead on economic issues. Aides quoted Kim as saying that, "If North Korea proposes to hold talks, we will respond. But if they don't, we won't."
Meanwhile, the North simmers. Famine persists and the risk of war through accident or miscalculation lingers. As always, the North's million-man army is poised across the demilitarized zone, just a cannon shell's throw from Seoul.

For several years, the American and South Korean approach to North Korea has been of two minds--or, perhaps more accurately, many minds. One can think of policy toward the North as a set of Russian matroshka figures, wooden dolls successively nestled inside each other. The outermost layer--the face the policy shows to the world and its top public priority--is the unassailable touchstone of "deterrence." Washington and Seoul seek to prevent the North from attacking the South, from building nuclear weapons, and from deploying or selling mid- and long-range ballistic missiles.

In some policy contexts, deterrence can imply boldness and energy. This is not the case with respect to North Korea, where a strategic foundation of negation and defensiveness engenders limp and insubstantial policy, in part because deterrence constitutes a de facto veto of other possible approaches. Thus, obsessed with deterrence, we cannot give the North much food aid because it might go to the army; and we cannot allow foreign investment because it might provide hard currency for new bullets and bombs.

Residing uneasily inside deterrence is the second layer of the matroshka, the broad notion that Washington and Seoul are concerned not to provoke North Korea so much that it opts for a war. We might call this principle "reassurance", and it is this element of North Korean policy that Kim Dae Jung has traditionally (but not exclusively) emphasized. Reassurance is also a largely negative axiom: It furnishes persuasive reasons not to deny the North any food aid at all, not to conduct provocative military exercises near the border, and not to threaten decisive action when the North suggests it might leave the Non-Proliferation Treaty.

Inside reassurance rests a third layer of policy, "undermining the regime." Both the cause of peace and the welfare of the North Korean people dictate that we should push the government in Pyongyang toward collapse. This principle is partly negational--it opposes too much food aid, too much investment--but it also advises action, tough moves that will weaken the regime and prepare the way for its downfall while respecting the axiom of reassurance. It is, of course, difficult to imagine what such moves might be; both deterrence and reassurance can exercise vetoes on bold initiatives--particularly given the immense costs, in terms of money and instability, that the swift collapse of the regime in Pyongyang would entail.

Undermining the regime wraps around one last shell, one last face to our North Korea policy, that of "spurring change." Its goal is the same as the previous one: to abolish the government in Pyongyang and to unify the peninsula. But spurring change reflects the idea that all parties would like this transition to take place peacefully rather than violently, gradually rather than suddenly, and as cheaply as possible. It also embodies the recognition that achieving these goals demands a greater degree of dialogue and commerce with the North than the other three principles would suggest. A policy of spurring change would pursue its end by prying open North Korean society and exposing it to the benign infection of outside influences--something to which U.S. and South Korean policy rhetorically aspires, but never seriously pursues.

This may now change, at least in Seoul, because encouraging reform on the cheap has become essential for a South Korea that is nearly bankrupt. Seoul faces three immense financial burdens in the coming years: paying off its vast foreign debt; dealing with the huge number of dud loans in its domestic banking sector; and underwriting unification. Toss in the fact that the South is paying for food aid to send north and is on tap to finance the construction of the light-water reactors in the North mandated by the Agreed Framework, and you have an onrushing financial crisis of major proportions. Very suddenly, money means a good deal more in inter-Korean relations than it did just a few months ago, and Seoul has some powerful reasons to cozy up to Pyongyang if a few billion dollars can be saved in the process.

The distinction between undermining the regime and spurring change is, of course, a different take on the same old tune--the recurring debate between proponents of "isolating" and "engaging" the North. Washington and Seoul still face this fundamental decision; they have not yet made it, in part, because of the Rubik's Cube complexity of the interlocking layers of their North Korea policy. Deterrence trumps reassurance, which trumps undermining the regime, which trumps spurring change. We are left with a strange mixture of negation and initiative, isolation and engagement, the hope for a safer future alongside the persistent fear of an all-too-well remembered past.

Thus an irrational striking-out by Pyongyang is worrisome, but not as worrisome as our provoking it into such a move. And while we want to reduce tensions, we fear that easing them will prolong the life of the North Korean regime. We speak about a "soft landing" in the North, but refuse to contemplate providing the economic or social cushions to assure it. We worry about our food aid keeping North Korean soldiers hale and hearty in their DMZ trenches, but cannot bring ourselves to ignore the grainy photographs of waif-thin children. We conclude five years of intense diplomacy with a brilliant and historic bargain on nuclear non-proliferation that promises economic and political contacts with the North, and then we decline to extend them. We haggle over four-party talks on a formal peace treaty to end the Korean War (officially only suspended with an armistice), a treaty that is necessary and proper in the right context--and we ignore the larger task of shaping that context.

Some argue that this is the best we can do, that the present policy--which defenders characterize as "moderate" and "balanced" and good for "buying time"--best manages the demands of these dichotomies. Yet such arguments assume that all the alternatives are mutually exclusive, that the tug-of-war between deterrence and reassurance, between undermining the regime and encouraging it to change cannot end save by one option prevailing and the other collapsing. But the critical fact that should guide a reassessment of U.S. and South Korean policy is that the key contest between isolation and engagement poses an irreconcilable choice only for North Korea. The reason is, plainly put, that placing more emphasis on reassurance and encouraging change can no longer make North Korea measurably stronger.

North Korean society has decayed into utter impotence: the vast majority of its industry sits idle, and as much as a third of the population may face death by starvation. The North's official news agency can proclaim, as it recently did, that Kim Jong-il's ascension to head the Korean Worker's Party provoked a "wave of jubilation and emotion" across North Korea--but no one outside Pyongyang views such a claim as anything more than a cruel joke. (Even more darkly Orwellian was the Russian Itar-Tass report that Kim's appointment had elicited "merrymaking" and that "dancing people are seen everywhere in Pyongyang.")

Nor will foreign firms rush headlong into the golden economic opportunities promised in the North. With very few exceptions, no such opportunities exist. Several South Korean conglomerates will undoubtedly invest there, but these ventures cannot amount to more than a fraction of a fraction of what would be required to alter the ultimate fate of the North. The argument that "all aid and trade is fungible" is true only to a limited degree. Selling North Korea a thousand new tank engines would enhance its military power in a meaningful way; allowing a hotel chain to build a resort on one of the North's picturesque mountains would not.

Most of all, North Korea will help us minimize exchanges that could be strategically useful to Pyongyang. North Korean officials understand well the stark trade-off, for them, between isolation and engagement. Isolation allows them to preserve their one last trump card, their ability to threaten a split-second attack on the South led by a mortal artillery and missile barrage against Seoul. Isolation is their one remaining immunity from the contamination of foreign ideas. It keeps South Korean investors at arm's length, investors bearing tempting cash but also posing the threat of a growing dependence on hated capitalists from the South. In its pitiful, barbed-wire-enclosed "investment zones", the North has already furnished ample evidence that it understands the need to restrict the scope of foreign investment to the bare minimum. Hence, if Washington and Seoul announced an immediate end to virtually all restrictions on economic exchange with the North, the reaction--save for that of a few boardrooms in Seoul--would be a collective yawn. There is virtually nothing worthwhile for business to do in North Korea, given the narrow scope of what Pyongyang will allow.

Properly calibrated, an expanded program of engagement would be much more likely to destabilize than to perpetuate the North Korean regime. There is, after all, a wealth of historical evidence that dictatorial and hitherto closed political orders cannot long withstand the pressure of contrary ideas infused from the outside. Properly designed, the initiative would pull the rug from under North Korea's ideological nonsense about war-mongering U.S. and South Korean governments, and thereby weaken one of Pyongyang's major tools of popular control. More robust investment and trade would also begin the process of fashioning a social safety net in the North to offset the ultimate cost of unification for the South. Therefore, a U.S.-South Korean strategy of engagement could, if designed wisely, serve both the goals of deterrence and undermining the regime. Kim Dae Jung has arrived in the Blue House at just the right moment to take advantage of this simple truth.

Critics will charge that an engagement policy rides the horns of a dilemma: either the new investment will be too small to achieve these positive goals, or it will be large enough to prolong the survival of Kim Jong-il's regime. In the long run, this is false; the North is a bankrupt society, and no amount of investment will keep it from eventual change or collapse. It is in the short term that the complaint becomes more pointed--more food aid and some hard currency earnings might indeed help Kim Jong-il to consolidate his power for a time. But any active U.S. and South Korean approach to the North will involve tradeoffs; the trick is to find the policy that balances them most effectively in terms of our interests. Through its ability to reduce tensions, its tendency to undermine the legitimacy of Kim Jong-il's regime, and its ability to transfer the initiative to Washington and Seoul, an expanded program of engagement meets this test. Best of all, it would provide an avenue for addressing the single most worrisome risk posed by North Korea: the threat of a short-notice invasion of the South.

We can find a model for how expanded engagement of the North could achieve this last, indirect goal in the Agreed Framework of 1994. That accord represents a sort of grand bargain in which North Korea agreed to surrender its rapidly emerging nuclear weapons production capability in exchange for two new nuclear reactors and the promise of expanded political and commercial contacts with the United States and other countries. The result was termed a "package deal"--an apt name, for its genius was to gather a number of potentially unrelated issues into a comprehensive whole that addressed basic concerns of both Washington and Pyongyang.

The time has come for an even grander package deal with North Korea. Indeed, it had arrived even before the Asian financial crisis and the South Korean elections, though the combination of Seoul's dire economic situation and Kim Dae Jung's long-standing support for greater engagement of the North makes the case for such an initiative all the more compelling, as well as more doable.

The United States and South Korea could propose the following bargain to the North: Pyongyang would withdraw all of its military forces some defined distance (say, ten or fifteen miles) from the border, thus creating an expanded demilitarized zone, to be monitored by the United Nations. It would take other actions to place its military under wraps, such as allowing UN inspections farther north, gradually reducing the size of its armed forces, and pursuing other confidence-building measures. It would agree to end all missile production programs and sales, continue to respect the Agreed Framework, and renounce terrorism and incursions against the South. All of these steps, such as a wider DMZ and the absence of submarines bumping into South Korean beaches, can be verified fairly easily, reducing the risk that the process would get bogged down in Iraq-style inspection team debacles.

In exchange, the United States and South Korea would remove all restrictions on non-military commerce with the North and take steps to encourage investment. Council on Foreign Relations Senior Fellow Robert Manning, who has argued for a very similar offer, suggests a World Bank or Asian Development Bank program for North Korean reconstruction. We would respond to new appeals for food aid to the North, provide agricultural equipment and fertilizer, and continue that aid as long as necessary--and as long as the North's military withdrawals continue on schedule. To provide a fig leaf of impartiality, we would allow UN inspectors to roam through military bases in the South as well.

Politically, we would accelerate the process of normalizing relations between North Korea and the United States and pledge a regular series of multi-party political dialogues in the region to include the North, commencing with the four-party peace treaty talks. All of those forums would include China, whose counsel and support should be sought before proposing the idea. Manning has also advanced the helpful idea of naming a special coordinator for Korea policy in the U.S. government to shepherd the initiative through the bureaucracy.

Traditionally, the greatest barrier to such a proposal has lain south of the DMZ, not north of it. Many a radical initiative toward North Korea has foundered in Seoul, which, for perfectly understandable reasons, feels the contradictions of policy toward the North much more intensely than Washington. Kim Dae Jung can change all of this, if he wishes. His election--and the more energetic South Korean foreign policy it presumably heralds--may turn out to be the most important foundation for a bold new approach to the North, for the simple reason that South Korea must take the lead in any such approach. This is true partly because it is most threatened by the risk of war, and partly because only vigorous arm-twisting by Seoul will convince a skeptical U.S. Congress of the wisdom of engaging the North. The U.S. ability to force events is severely constrained by the North's persistent campaign to drive a wedge between Washington and Seoul; anything smacking of a bilateral U.S.-North Korean axis panics the South.

Skeptics will scoff at these proposals. We will be rewarding a known proliferant for its nuclear (and chemical and biological) skullduggery, they will say. And it is certainly true that the bargain proposed here would not address all of our concerns regarding North Korea. No policy will do that--certainly the current one does not. But, if accepted by the North, it would rapidly and fundamentally reduce the military threat to South Korea and accelerate, not retard, change in the North. The United States and South Korea would have their geopolitical cake and eat it too--because, again, the contest between isolation and engagement is irreconcilable only for Pyongyang.

Precisely for that reason, other skeptics will ask whether there is any hope of North Korea accepting the offer. No one can say for certain one way or the other. The only sure thing is that the North would not accept it without a great deal of hemming and hawing, without ridiculous counter-proposals followed by bluster and brinkmanship, and without hard bargaining and debate. But Pyongyang might decide ultimately that, its countryside ravaged by famine and its economic prospects hovering between poor and desperate, it has no choice. The widely rumored "new generation" of leaders surrounding Kim Jong-il might seize on the proposal as an opportunity to put into effect long-standing plans for modest, one-notch-less-bold-than-Chinese-style economic reform and international engagement. The younger Kim himself, freshly installed in some of his father's political posts, might find the carrot of international economic and political recognition too tempting to resist.

On the other hand, Pyongyang knows only too well that the intimidation of a sudden hammer blow to the south is its last geopolitical card, to be played in the fated endgame of inter-Korean hostility, and not frittered away for "concessions" that would merely accelerate its extinction. If the military is indeed pulling Kim's strings, as some believe, then it will hardly favor a move that would shift the playing field from its area of advantage to that of the economists and diplomats. Whoever has shaped its behavior of recent years--its veiled references to hidden atom bombs while demanding nuclear talks with Washington; its bellicose language and occasional raids into South Korea while talking trade and aid with Seoul; its fairly public toying with intermediate-range missiles as it demands Korean War reparations from Tokyo--Pyongyang has demonstrated a clear understanding of the leverage it derives from its role as the irrational bad boy of world politics. And even (perhaps especially) if he is truly his own man, Kim Jong-il might be in no mood to forfeit his father's legacy of nationalist war-mongering so soon after officially inheriting his mantle.

But perhaps, just perhaps, the timing for a mid-1998 initiative would be perfect. Kim Dae Jung will no doubt want to leave his mark on relations with the North. Kim Jong-il might be ready to deal, as North Korea's February 19 overture proposing political exchanges with the South may suggest. The United States as well might be frustrated enough with business as usual to try something new. In any case, the success of such an exercise would rest only partly on whether the North agreed to it. Almost as important would be the effect on our own policy. It would finally have a clear direction, a source of energy, and a meaningful content. We would attempt to shape events rather than merely react to them, and would take the first real steps since the early 1990s to reduce in a substantial way the military threat posed by North Korea. No mean consideration, too, is the fact that merely making the offer would almost certainly reduce tensions on the peninsula and open a new channel of dialogue to avoid war. For the first time, Pyongyang would perceive a clear alternative to military action or crisis-mongering as a means of promoting its long-term interests. A new strategy toward North Korea, in other words, might just enable us to recover custody of our policy from fate. At a minimum, it would shape events to encourage fate to work on our behalf. Seneca put it well: "Fortune dreads the brave, and is only terrible to the coward."