Unification no free lunch

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Unification no free lunch

During the American frontier period, some bars gave lunches when you ordered drinks. They were free lunches, but the drinks were expensive and the food was salty, causing guests to order more drinks. It appeared like a free lunch, but you were actually paying the price. That was the origin of the famous saying, “There’s no such thing as a free lunch.” It is used for a situation where you will eventually have to pay the price in the future, although it’s free for now.

A few weeks ago, the Korea University’s Asiatic Research Institute hosted an international conference on Korea’s reunification and experts from around the world stressed repeatedly that Korean unification would not be a free lunch.

Michael Burda, a professor of economics at Humboldt University in Germany, said residents of both sides have enjoyed many benefits over the past 25 years since German reunification, but they also paid a price. Korean participants said their country also is seriously concerned about the cost of unification, but they could not properly answer questions about the level of the funding so far. The Inter-Korean Cooperation Fund of the South Korean government is far too small compared with the 1.4 trillion euros ($1.51 trillion) that Germany spent during the first 15 years after unification.

Comparing the unification of the two Koreas to a wedding reception, Katharine Moon of the Brookings Institution criticized the Park Geun-hye administration for heightening expectations of a grand wedding with the idea that “unification is a jackpot,” without preparing to pay the bill. She criticized the South for not even having sat down for a date with the North, who will be the bride for the wedding.

A vice chairman of the Presidential Committee for Unification Preparation recently said the Park administration was preparing for the possibility of non-consensual unification scenarios, such as the absorption of North Korea, then hurriedly retracted the comment. It shows how difficult it is to prepare for unification. Although there is a long time until the wedding, we appeared to be worrying about the bride’s family being bankrupt.

South Korea, however, needs to prepare for unification, taking into account a wide range of possibilities. If the North reforms its economy, eases military confrontation and continues cultural and economic exchanges, a peaceful unification toward a free market economy can be accomplished through gradual agreements. But the unification could come abruptly. Even in Germany, not many people believed the Berlin Wall would fall so quickly.

We have to wait and see how much preparation this administration would do for the two Koreas’ integration, including inter-Korean talks, family reunions, increasing the number of civilian exchanges and expansion of economic exchanges, such as the Kaesong Industrial Complex and Rajin-Khasan project, and how unification will approach in our future. But no matter what way unification comes, we still will have to pay an expensive bill. Unprepared unification will be more expensive. If unification is not a free lunch, we have to prepare for unification expense.

First, we need to study ways to minimize the cost of unification. Unified Germany spent 4 to 5 percent of its gross domestic product on unification expenses each year. More than half of the money was supplied by issuing government bonds. If future generations will enjoy the benefits of unification, it is reasonable for the future generation to pay for a large portion of the burden.

When the international interest rate is low, the government can issue bonds with maturities of 30 years at home and abroad to raise funds. In the case of Germany, the wages of laborers in East Germany were increased too rapidly and the social security system was expanded greatly, increasing unification expenses too much. We have to prepare what systems we will introduce after unification.

Second, we need efforts to unify society. Today, South Korean society faces deep rifts over ideological groups and wealth classes, making us wonder if we are healthy enough to endure unification. Some extremist groups hinder society’s harmony and concerns are deeper for the future of a unified Korea.

There also is much criticism that the South has failed to properly embrace the 30,000 defectors. We have to prepare thoroughly to restore the homogeneity of the Korean people in order to reduce the cost of social integration with 5 million North Korean people after unification.

South and North Yemen accomplished unification in 1990 based on the two governments’ agreement, but political and social conflicts and economic chaos prompted a civil war in 1994. It now faces a higher possibility of division again. We must learn a lesson from the case that without efforts for true reconciliation, conflicts will continue even after unification.

Third, international relations are important. Concerned superpowers such as the United States and China won’t automatically support Korean unification only because the two Koreas will improve their relations. In the process of unification, influences from the neighbors cannot be ignored. We must prepare a unification and foreign affairs strategy to encourage their support.

Large aids and loans from foreign governments and international economic organizations will be needed to develop the North in the future, and that is why international relations are important to finance unification.

Seven decades have passed since Korea’s liberation and national division. During the Japanese colonization period, a poet longed for liberation by writing the poem, “Does Spring Come to Stolen Fields?” Just as winter passes and spring arrives, unification will eventually come. We have to prepare in advance to celebrate this grand feast with a minimum of expense.

JoongAng Ilbo, Mar. 20, Page 31

*The author is a professor of economics at Korea University.

by Lee Jong-wha

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