Be bold yet don’t rush
The author, a former chief economist at the Asian Development Bank, is a professor of economics at Korea University.
The Korean Peninsula’s journey to lasting peace will not be easy. Last year, North Korea’s nuclear and missile development increased concerns about a possible military clash on the peninsula. This year, the two Koreas’ leaders met three times, and the United States and North Korea had a summit. But it is hard to predict the future. As President Moon Jae-in’s European tour and negotiations for a second U.S.-North summit demonstrate, the international community does not trust North Korea fully. Opinion polls show that many South Koreans don’t believe that North Korea will give up its nuclear program easily. The Odyssey for peace on the Korean Peninsula will surely face challenges.
Inter-Korean exchange and cooperation will be affected by denuclearization talks and international sanctions, but South Korea needs to prepare in advance. On the path to peace, inter-Korean cooperation and North Korea’s economic development are very important. Economic exchanges can drive peace.
Research on the history of military clashes suggests that neighboring countries with high level economic interdependence and cultural and religious similarities are less likely to go to war. That’s because countries with major trade and investment relations have more to lose from a conflict. If North Korea substantially changes as a result of economic exchange, a new pathway to inter-Korean relations and peace will open.
As the North Korean economy develops and the gap between South and North Korea narrows, national parity should gradually be achieved. If economic cooperation turns into unilateral assistance, as North Korea demands, moral hazard will increase and substantial changes cannot be attained. Instead, the efforts could serve to reinforce North Korea’s socialist dictatorship.
To maximize the effect of inter-Korean economic cooperation and help peace on the Korean Peninsula, certain principles should be established. First, South Korea should demand North Korea open its economy and pressure it to change through the inter-Korean talks. North Korea has yet to adopt the sort of laws and the systems put into place by China and Vietnam when they opened and pursued reform. Measures should be taken to recognize private ownership, establish private companies and protect foreign investment.
If we are forced to act like North Korean companies or residents while in North Korea, then North Korea will not change. If companies operating in the North are protected by law and profitable as the North promotes reform policies reliably and consistently, private inter-Korean cooperations will naturally increase. We should be wary of promoting large-scale cooperation initiated by the government and public agencies.
Second, cooperation should integrate the strengths of the South and North Korean economies to benefit both. South Korea has written a chapter in the history of economic development with its fast growth. With the South’s experience, capital and technology combined with the North’s natural resources and cheap labor, North Korea’s economy can grow rapidly. It could also help the South Korean economy, which seems to be stuck in a low growth phase.
Cooperation projects should also be promoted by stages to nurture export manufacturing industries in North Korea and enhance the living standards of the North Korean people. It is an illusion that large investments can allow North Korea to skip the stages of development that other countries went through. If money flows in suddenly to a country in transition, it could result in an unprecedented economic crisis. Imbalanced development could also aggravate distortions in the economy.
Third, international cooperation should also be promoted. Inter-Korean cooperation should help North Korea recover international trade and investment relationships and join the Northeast Asian production and trade systems as a normal state. To raise the funding needed to develop North Korea, we should persuade it to join international organizations like the International Monetary Fund, the World Bank, the Asia Development Bank and the World Trade Organization. The international community must help North Korea collect accurate economic statistics and data, which are prerequisites for entry into the international community. To do that, North Korea must establish diplomatic relations with the United States, which has influence on international organizations.
To succeed in completing the long and troubled journey to peace and prosperity on the Korean Peninsula, we should be bold and yet not rush. As the experiences of Vietnam and China show, the reform and international development of North Korea will take more than 20 years.
Inter-Korean cooperation should help North Korea pursue reform and join the international community.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Oct. 25, Page 31