Can North Korea save the south?

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Can North Korea save the south?


William Pesek

As Park Geun-hye searches for ways to compete with China and Japan, the South Korean president is eyeing a rather surprising ally: Kim Jong-un.

“Unification will allow the Korean economy to take a fresh leap forward and inject great vitality and energy,” Park told Bloomberg News on Jan. 10. “People would even sing, ‘We dream of unification even in our dreams.’?”

The idea isn’t as dippy as it sounds. Economists generally rate Park’s first year in office as a dud. She arrived at the presidential Blue House with big talk of building a more “creative” economy. Yet her plans to empower small and midsize companies and to rein in the family-run conglomerates, or chaebol, that dominate the economy remain embryonic.

As her second year begins, Park must accelerate efforts to restructure Korea’s outdated and top-heavy growth model. Folding unification into the strategy is audacious. In theory, combining the South’s capital and technology with the North’s human and natural resources could create a powerful growth engine.

Of course, this entire discussion hinges on Kim’s willingness to remove the soldiers, artillery and barbed wire that continue to line the DMZ. Kim’s recent purge of his No. 2, Jang Song-thaek (perhaps even feeding his uncle to a pack of rabid dogs), suggests the 30-something dictator has no interest in rapprochement. Convincing the Dear Leader to turn his back on Stalin or his face toward capitalism will be no easy sell.

Park could face an equally tough sales challenge with her own people, who have less and less interest in dealing with the Kim Dynasty. I was in Seoul in April 2013 when Kim precipitated what many characterized as Park’s Cuban missile crisis. His threats to carry out pre-emptive nuclear strikes against the U.S. and South Korea had governments around the globe on edge, markets gyrating and credit-rating companies ready to pounce. For young Koreans - those for whom war in the 1950s is the stuff of dry textbook passages and who feel little connection to those above the 38th parallel - it was the last straw.

The share of South Koreans who view unification as necessary fell to 54.8 percent in 2013 from 57 percent a year earlier, according to Seoul National University. The ratio is falling more precipitously among Koreans ages 19 to 29 - to a scant 40.4 percent.

The under-30 crowd worries primarily about bearing the cost of reunification. Absorbing 24 million impoverished people who’ve never had a bank account, touched a decent computer or visited a modern dentist would be a breathtaking challenge. In February, Park’s finance ministry vastly lowballed the price tag. Anyone who thinks this can be done for $591 billion or less if the process occurred around 2020 is as delusional as a North Korean convinced that Kim is God.

Take the long-standing $2 trillion to $5 trillion estimate by North Korea experts, including Peter Beck of the Washington-based Atlantic Council. Even these guesstimates are likely to prove very conservative as reunification begins.

Pyongyang is a complete black box. Really, Dennis Rodman knows more about the state of play there than World Bank President Jim Yong Kim. There are also no precedents. Germany’s reunification, for example, was far less daunting, and even there costs vastly exceeded estimates, having reached at least $2 trillion so far. East Germans in 1990 were infinitely more plugged in to the global economy than North Koreans are now. Nor did they suffer from crushing poverty.

West German officials didn’t have to worry about a big store of nuclear weapons just on the other side of the Wall or more than a million brainwashed and agitated soldiers. Given how disastrously dissolving Iraq’s military went, this must be handled wisely.

Reunification won’t pay for itself. Sure, North Korea has coal, copper, gold, manganese, tungsten, uranium, zinc and other underground riches. But big cheques will have to be written by South Korea, the United States, Japan, Europe and, of course, China, Kim’s main enabler. China will hate Park’s push to join forces with Kim’s people. It would put American boots right on China’s northeast border and rob the Communist Party of a key means of keeping Washington and Tokyo off balance.

This could all just be spin. Park clearly wants to move the story away from parliamentary gridlock and a scandal over whether Korea’s spy agency helped her win the December 2012 election. It’s promising, though, to hear Park framing the issue not in terms of emotions, but economics. Leaders of the past tried the Korean brotherhood gambit, to no avail. Now the South needs a big bang if it’s going to match Japan and stay ahead of China. Pooling energy and resources across the peninsula could indeed have a transformative effect. And paying for it today would be much cheaper than dealing with an outright collapse in the North later.

*The author is a Bloomberg View columnist.

by William Pesek

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