To understand the world of North Korean leader Kim Jong-un is to remember the remarks of legendary US Admiral Chester Nimitz.  Nimitz, who had always aspired to command the Pacific Fleet, wryly observed upon taking charge after Pearl Harbor, that he assumed it would be a fleet of floating ships.

Kim could appreciate the irony. In charge of the Hermit Kingdom  for a year, the young and inexperienced leader is a prisoner of history and circumstance.

His grandfather, Kim Il sung, founder of the state and instigator of the calamitous war (1950-53) with the US and UN, spent his time in the mid 20th century focused on national self-sufficiency through the creation of heavy industry and a massive military machine. He did this to the exclusion of everything else, most notably, agriculture.  In a country with only 20 percent arable, it was a disastrous choice.

Kim I doubled down on failure by refusing to recognize the practices that triggered successful agricultural revolutions in other developing countries in the 1960s and 70s (India). Later, pursuing a policy of economic autarky, North Korea became mostly isolated from the world trading system. The collapse of the Soviet Union, and the end of generous subsidies that had kept the regime afloat, had a staggering impact. At the same time, China too cut back on its subsidies, causing further economic hardship.

The tangible results today from this horrendous, decade’s long economic policy are grim.

Oil, coal and electricity production have slowly declined, in real terms, since 1989. Large scale investment in infrastructure has floundered. Isolated from the outside world, such business and industry that North Korea does have are increasingly obsolete.  The Bank of Korea in the south estimates that the entire North Korean GDP is just $22 billion – less than the GDP of the state of Vermont. Most tellingly, as Victor Cha, Asia Chair at CSIS points out,  North Korea is one of the few countries to have experienced famine after industrialization.

To maintain order amid dire economic deprivation, North Korea uses domestic terror as a tool of state control, operating a system of concentration camps with over  200,000 prisoners. “Once condemned as political criminals, the defendant and his or her family (including children and the elderly) are incarcerated without trial and cut off from all outside contact. Prisoners reportedly work long days at hard labor and ideological re-education. Starvation, torture and disease are commonplace.” The story of Camp 22 speak to the systematic horrors the government inflicts on its own people to maintain control.

This is the legacy that the Kims have left to Kim Jong-un.

A natural impulse would be to implement radical economic and social reform, both to strengthen the state and the quality of life for its people. Indeed, for the North Koreans, China stands as a model for a communist state that has lifted millions out of poverty and created staggering levels of new wealth through staged economic reform.

But reform holds real risks for Kim III. 68 years of dominance has created a society with its own elites, not unlike those described in George Orwell’s Animal Farm, “All animals are equal, but some animals are more equal than others.”

As Cha has pointed out, ” Even within a totalitarian dictatorship, there are different factions, coalitions, and bureaucratic interests that will be injured by any change in the status quo. Economic reforms, for example, may ultimately help the country but will risk chaos in the markets, weaken powerful stakeholders within the vast bureaucracy, and potentially unleash rising expectations from the general public.”

So the risks of reform are as great or greater than the continued risks of stagnation.

What to do? Diplomacy has proved no more useful.

It has been an axiom in the West for over two decades  that relative insecurity and economic deprivation drive North Korea’s “obsession” with nuclear weapons, and that if only the West could find the right mix of security guarantees, money, food, trade and formal recognition, that this would be enough to for the North Koreans to give up their nukes.

But for the North Koreans, nuclear weapons are not the substance of negotiation, but rather the foundation of their negotiating position as a peer.

While it has not always been obvious, Pyongyang is seeking the same arrangement that the US has reached with India and Pakistan (formally) and Israel (informally); recognition as a nuclear state, with accompanying diplomatic, trade, and security guarantees. Indeed, the North Koreans have alluded to an extraordinary request; an American guarantee to keep the regime in Pyongyang in power as economic changes create uncertainty.

Thus the central reason talks with North Korea have collapsed time and again, while past agreements have been broken repeatedly , is the fundamental misunderstanding between North Korea and the West on the role of nukes in the talks. Neither side seems prepared to accept the position of the other, and there can be no diplomatic deal without that movement.

Thus a young leader in Pyongyang is faced with daunting realities.

To the south, the Republic of Korea (ROK) has risen from the ashes of the Korean War to become an economic powerhouse. South Korea today is the 12th largest economy in the world with a GDP of $1.2 trillion. Tied directly into the international economy, South Korea is at the forefront of economic innovation that will drive future expansion and wealth creation. It will also provide the ROK with the means to deploy the most sophisticated military equipment, incorporating cutting edge technologies.

To the west, there is China.

There can be no North Korea without China. China accounts for 57 percent of North Korean imports and 42 percent of its exports.  China provides diplomatic cover for Pyongyang at the UN.

But the relationship is not without its own historical complexities.

Chinese influence in northern Korea dates back to the first century AD and continued until the early 20th century.  In 1982, China amended its constitution to define the PRC as a, “unitary, multi-national state built up jointly by the people of all nationalities.” This was the context for a firestorm of criticism when, in 2004, the Chinese Academy of Social Science established the “Northeast Project.” Ostensibly an effort to sort out historical inaccuracies about early history in Manchuria and Korea, the project was seen by Koreans (both North and South) as a foundational effort to lay a Chinese legal and cultural claim to the Korean peninsula.

Kim III cannot be a disinterested party as China ramps up its rhetoric in conjunction with its increasingly sophisticated military power, to extend claims over vast stretches of the Pacific Ocean and South China Sea. In addition, the NKs are still smarting for China’s official recognition of South Korea 20 years ago.  And it cannot be unmindful that South Korean-Chinese trade was 10x the GDP of North Korea in 2011 alone, with South Korea as China’s third largest trading partner. With that as a predicate, the North Koreans have to wonder at what point Chinese support will be something other than certain.

And finally, to the west, there is the rich and more militarily powerful  and newly aggressive Japanese, who once occupied Korea, and beyond the horizon, the United States, which continues to orchestrate international policy against North Korean objectives, and provide economic and military support to the South.

As Kim III looks at this bleak balance of power, he has but a single comparative advantage on the balance sheet of sovereign power – an enormous and lethal military machine.  Huge conventional forces, buttressed by advanced missile systems and an arsenal of chemical, biological and nuclear weapons.

But this comparative advantage is defined by two realities. First, is that the enormous conventional forces are increasingly obsolete, with little hope for modernization.  Generations of toil and investment in a system that risks becoming a museum collection fo military hardware. Second is that the use of its missile forces, or its arsenal of WMD would trigger an ELE “Extinction Level Event” for the Pyongyang, as the US would use all force necessary to ensure that if there is a new Korean war, it will be the last.

So the status quo is unsustainable, reform is dangerous, diplomacy is a stalemate and war is a cosmic roll of the dice.

What do you do when you don’t have any good choices?