It's time for South Korea to face facts: The Kaesong experiment has failed. The ideologically motivated joint business venture with North Korea known as the Kaesong industrial complex is not economically viable, nor has it achieved any of its political objectives. To protest recent sanctions against it, the North pulled its workers out this month and locked out workers from the South.

Seoul tried to engage North Korea to resolve the dispute, coupled with an uncharacteristic deadline and a warning of "grave consequences." When Pyongyang rejected a dialogue, South Korea announced on Friday that it would recall its remaining 175 workers. Not very "grave" as consequences go, but at least Seoul had seized the initiative. South Korea did not divulge under what circumstances it would consider resuming the stalled venture.

Even if Pyongyang allows South Korean workers to return, Seoul should pause rather than plunging back in. But like an addicted gambler convinced one more throw of the dice will bring success, South Korea must first admit it has a problem.

When the complex opened in 2004, it was hailed for promoting Korean co-prosperity by marrying cheap North Korean labor with South Korean technology and entrepreneurialism. But the real intent was to push President Kim Dae-jung's "sunshine policy." Kim hoped that unconditional engagement would induce North Korean economic and political reform and moderate the regime's belligerent behavior.

Kaesong advocates predicted meteoric expansion, fueled by an ever-increasing number of South Korean and foreign firms. But the complex didn't even meet modest expectations. The anticipated benefits of cheap labor couldn't compensate for North Korean rejection of economic reform, as well as frequent production stoppages, security risks and plummeting business interest brought on by Pyongyang's actions.

There is now little South Korean economic incentive, corporate advocacy or political interest in expanding the complex. No large South Korean companies ever joined it. After North Korea sank the South Korean naval vessel Cheonan, President Lee Myung-bak severed all inter-Korean trade but exempted Kaesong. He did, however, prohibit any new investment. Even before the most recent round of North Korean threats, Kaesong was on life support with little hope of success.

Pyongyang politicized Kaesong by restricting access in retaliation for South Korea's co-sponsorship of a U.N. resolution on North Korean human rights, its participation in annual military exercises with the U.S., its membership in the Proliferation Security Initiative and for "insulting North Korea's dignity." North Korea also arbitrarily nullified existing contracts and demanded higher wages, retroactive taxes and preemptive rents.

Continuing the economic venture would be, in the words of a Korean adage, "pouring water into a cracked pot." Politically, the complex has been a fiasco. Kaesong has not led to any North Korean economic or political reforms. "To expect policy change and reform and opening from [North Korea] is nothing but a foolish and silly dream," the official North Korean news agency KCNA announced last year.

Nor did the operating the complex stop North Korea from repeatedly threatening the South or twice attacking in 2010, killing 50 South Koreans. Current North Korean leader Kim Jong Un has revealed himself to be just as dangerous and belligerent as his predecessors.

Rather than gaining leverage over Pyongyang, Seoul finds itself a hapless blackmail victim. Yet South Korea remained intent on continuing a policy of self-flagellation. Despite Pyongyang's withdrawing its workers from Kaesong, shutting out South Korean workers and threatening Seoul with nuclear annihilation, South Korean Minister of Unification Ryoo Kihl-jae had described Kaesong as a "symbol of inter-Korean reconciliation and cooperation."

South Korea's decision to withdraw its remaining workers is a welcome first step. But Seoul should wean itself from this extortion-based endeavor. The first step would be for President Park Geun-hye to prevent any South Korean citizens from returning to Kaesong until North Korea guarantees their safety. Pyongyang must, at a minimum, restore all communications links and formally affirm its commitment to all inter-Korean nonaggression agreements, the armistice ending the Korean War and existing business contracts.

Despite North Korean hostility, Park continues to offer dialogue and humanitarian aid as part of her trustpolitik policy. As such, it would be premature to formally renounce South Korean participation in Kaesong. But should Pyongyang conduct another attack or serious provocation, Seoul should sever all economic engagement with Pyongyang, including Kaesong.

South Korea shouldn't do business with a gun pointed at its head.

-Bruce Klingner is a senior research fellow at the Heritage Foundation and served as the CIA's deputy division chief for Korea analysis from 1996 to 2001.