Gradual reunification the answerTo supporters of rapid reunification: Please excuse me for writing about such a serious issue on a balmy autumn day. There are various opinions on how to accomplish reunification. You believe that the sooner reunification is attained the better, considering the loss on South Korea and the suffering of the North Korean people. You have repeatedly said that since the North Korean regime is not likely to last long, Korea needs to be ready.
I agree with your awareness of the problem. However, sudden reunification by absorption would lead to near catastrophic outcomes. First, Korea’s financial situation cannot accommodate the burden. In the case of Germany, which went through a sudden reunification, nearly 3 quadrillion won ($2.64 trillion) in transfer payments were made from West Germany to East Germany. West Germany had four times more population of East Germany, and East German workers’ productivity was 30 percent of West Germans.
However, the population ratio between the South and the North is two-to-one, and the per-capita national income of North Korea is less than 3 percent of South Korea’s. The simple mathematical calculation suggests the shock of sudden reunification on Korea’s finances would be 2.7 times of what Germany had to endure. In the short term, the cost of reunification will be far greater than its benefits.
Sixty percent of Germany’s reunification expenses were welfare spending for East Germans. The cost was not a fund that could be recovered and no investor could be found. So the West Germans had to pay more taxes. There are proposals to sell North Korea’s land and natural resources to pay for the reunification cost. However, these important assets would be sold at giveaway prices to Korean and foreign capitalists if they were sold in the early stages of reunification. North Koreans’ resistance would intensify inter-Korean discord, and desirable land development plans and industrial policies cannot be properly implemented, distorting the economy from the beginning.
Interest rates and exchange rates would be affected considerably. Compared to pre-unification, Germany’s interest rate nearly doubled after unification. West Germany’s Deutche mark was a key currency in the European exchange rate mechanism (ERM) and remained safe. But the values of British and Italian currencies plummeted, and the two countries had to secede from ERM.
The Korean economy is much more vulnerable than West Germany’s at the time. If sudden unification took place, political and economic uncertainty would make foreign capital leave the Korean capital market immediately and the value of the Korean won could fall. If the authorities try to prevent this by raising the interest rate, household and government debts would become the detonator, destroying the Korean economy altogether.
The political system of unified Korea is a more serious problem. When sudden unification is attained, North Korean residents would have a vote according to Korea’s constitution. According to an economics experiment on North Korean defectors I conducted jointly with Seoul National University professors Lee Suk-bae, Choi Seung-joo and Sogang University professor Lee Jung-min, they have largely different social norms from South Koreans.
When a respondent is offered a certain amount of money that he is allowed to take or share with an anonymous partner, most North Korean defectors were willing to share half of their money. But South Korean college students offered about 20 percent. While the behavior of the South Korean students was similar to the experiment results in other countries, North Korean defectors were most inclined to equality in the world. What’s more surprising is that even those who entered South Korea five years ago and go to college here continue to show the tendency.
North Koreans who pursue equality as a social norm would vote for the presidential candidate and political party that emphasizes distribution and welfare. If South Korean voters are divided between the conservative and the progressive, the North Koreans’ vote would determine the political regime of a unified Korea. This is a new kind of issue that Germany did not experience due to its population structure. Ironically, the current ruling party, which is not likely to produce a president for a while and whose seats are likely to decrease when rapid reunification is attained, support rapid reunification while the opposition party is supporting gradual reunification.
Of course, I may be underestimating the adaptability of politicians to offer welfare and distribution regardless party allegiance after the reunification. Considering the decision to relocate administrative offices to Sejong City, you are right to assume politicians would do anything for votes.
Further problems can be avoided if North Koreans’ migration to the South is not allowed and the North Korean territory remains separated from the South for a while. However, offering incentive to reside in North Korea would not be enough to prevent mass migration. If migration is forcibly prohibited, we cannot avoid international criticism, and reunification is likely to go up in smoke.
How can we achieve reunification without winning the hearts of North Koreans and empathy of the international community?
We must prepare for rapid reunification. However, we should not promote policies forcing a direction. Reunification should be attained peacefully and gradually.
JoongAng Ilbo, Oct. 22, Page 35
*The author is an economics professor at Seoul National University.