[OUTLOOK]Seoul must set limits on NorthA shock in the market that was expected or predicted is no longer a shock. South Korea’s exchange market and foreign exchange market did not fluctuate but remained comparatively calm after North Korea reported it had conducted a nuclear test, because the detonation had been expected and that expectation was already reflected in the markets.
In markets, even risks are traded and valued like products. Insurers deal with risk as an item. Corporate activities are a process of distributing and internalizing risk. Thus, high probability, or increased risk, can be a factor to increase cost but does not necessarily shrink economic activities.
As long as profits are guaranteed, investors invest and businessmen do business, even on battlefields. Thus, controllable risk factors do not threaten economic activities. South Korea’s economy has retained stability so far after the North’s nuclear test because there is belief in the market that the situation is under control.
However, in economics, risk and uncertainty are different notions. Risk is determined as a known probability, while uncertainty is determined as an unknown probability. Uncertainty is uncontrollable. Uncertainty leads to insecurity, making insecure businessmen stop investing and insecure consumers reduce spending.
The shadow that has been cast on South Korea’s economy since the North’s nuclear test is not one of risk but of uncertainty. In order for South Korea to overcome this crisis safely, the uncertainty that has spread in its economy should be removed quickly.
However, the North’s nuclear armaments and international society’s sanctions on the communist country are already beyond the South Korean government’s control.
Seoul should have had the issue under its control but the incompetent government has lost the chance to do so. The Roh administration’s weak and vague stance on the North increases uncertainty about the situation.
North Korea has developed nuclear weapons that threaten the existence of our country but the South Korean government and the governing party say, “Let’s understand the North.” These leaders say if they give up their policy to engage the North, tension will build up and the economy will be damaged.
To keep smiling at the person who slapped our face and to keep giving him money cannot be engagement. How could it be the deterrence of war? It is the forced smile of the defeated, and the bribery of begging for survival.
Some worry that tension between the South and the North will exert a negative impact on our economy. But for the past 50 years, South Korea has achieved tremendous economic development amid tension in inter-Korean relations. The risk of war never blocked South Korea’s economic advancement.
The threat of war by the North during this period was a risk under our control because we had a firm mutual defense treaty with the United States. That was different from the uncontrollable uncertainty we face now.
The stronger that international society’s pressure becomes, the more North Korea will demand from us. North Korea will demand economic aid first and later will add requests in the political and military fields.
The North will threaten that it will hit back mercilessly at us if we do not meet its demands. It is scary even to imagine how far the North will go with its demands once armed with nuclear weapons.
If North Korea says it will wage war if a certain candidate is elected as the next president of South Korea in next year’s presidential election, what should we do? If we have to designate a certain figure that the North favors, in fear of war, South Korea will no longer be a sovereign state.
If a country becomes hostage to nuclear threats, if a country cannot protect its political and economic sovereignty, if a country must do whatever the North wants in order to avoid war, and if the government of that country mistakes that situation for peace, the country is insecure and its future is uncertain. Normal economic activities and investments cannot be conducted in such a country.
The South Korean government should draw a clear limit on the North’s provocation and should show its competence to handle the crisis properly while working together with international society. Only then can our economy be free of uncertainty about the North’s nuclear development.
* The writer is a professor of economics at Hongik University. Translation by the JoongAng Daily staff.
by Kim Jong-seok