Costs stir Korean unification
dreamers By Andrei Lankov
It is August, so one can expect that
politicians in both Korean states will soon be
making speeches about the glories of unification
and their commitment to this great national goal.
Such statements have become a standard
feature of celebrations this month - Korean
independence day is celebrated on August 15,
though the country was liberated on August 13,
1948 from Japanese rule. However, nowadays, the
public hardly takes these remarks too seriously.
Not much is known about the public mood in
the North, but it's obvious that the average
Southerner has no particular enthusiasm towards
unification. This reluctance is seldom declared
openly, but is felt by all long-time dwellers of
Seoul, with the reasons
almost purely economic: South
Koreans correctly estimate that unification with
the impoverished North would cost a fortune.
This ambivalent approach to unification is
something relatively new. Until the early 1990s,
the average South Korean had quite optimistic
expectations about joining the two Koreas. It was
not seen as likely to happen in the immediate
future - on the contrary, most in South Korea
realized that in the Cold War-era international
system, unification would be very difficult.
However, pretty much everybody expected that
unification would somehow happen one day and this
day would be the greatest day in all of Korean
history.
It was assumed in those days that
a unified Korea, freed from the burden of
unnecessary military spending and perhaps equipped
with better social and economic structures, would
start growing with unprecedented speed, soon
overtaking Japan - its long-term rival - and
perhaps even China. More zealous nationalists even
said that unification would make Korea into a
superpower.
These dreams are long dead.
The early hopes collapsed in the early 1990s under
the weight of two almost unrelated events - the
unification of Germany and the sudden discovery of
the sorry state of the North Korean economy by the
South Korean public.
German unification
vividly demonstrated that the merger of a
centrally planned economy with a market one is not
cheap or easy. The South Korean public immediately
got the message, and soon realized that the
demographic situation in Korea was significantly
less favorable. After all, the difference between
the two Germanys population-wise was around 5:1,
but between the two Koreas it is merely 2:1.
At the same time, information about the
actual state of affairs in the North began to
spread in South Korea. Until the early 1990s, even
anti-communist observers tended to have
excessively optimistic (or in their case, should
we say "pessimistic"?) views about the industrial
might of the Stalinist North. Significant parts of
the South Korean leftist intelligentsia went even
further and saw North Korea as a shining example
of economic and social success. These illusions
died suddenly in the early 1990s, when the flood
of refugees from the North drove home the simple
truth: the North is a destitute Third World
dictatorship, the gap between the two Koreas is
huge and keeps growing.
It is widely
understood now that unification will start by
being very costly. This realization has given rise
to a new cottage industry for academia: guessing
how much it will cost.
This task is bound
to remain extremely imprecise.To start with,
nearly all economic statistics in North Korea are
either classified or do not exist. Thus data are
usually inaccessible to outside researchers. We do
not know even such basic economic indicators as
per capita gross domestic product, so existing
estimates vary widely - by a factor of three.
To complicate things further, analysts
cannot rely on any historic precedents. The
unification of Germany is often used as a
benchmark but the two Germanys were different
enough from the two Koreas to make comparisons
superficial and unreliable.
And, of
course, nobody can predict how and when (not to
mention if) unification will happen. It is not
clear whether it will be the result of successful
negotiations or a collapse of the North Korean
state - akin to the collapse of the East German
state, or some other unforeseeable crisis.
Last but not least, it is not clear how to
define the "unification cost". Everybody agrees
that it means the amount of money likely to be
necessary to reduce the gap between two Korean
states - but, as we will see, it is not clear how
much the gap has to be reduced by.
Seemingly, no researchers talk about
closing the gap completely - that is, about
raising the per capita income in the
post-unification North to the level of the South.
This task is obviously seen as unmanageable. In
most cases, researchers talk about the amount of
money required to reduce the gap partially, but
substantially - say, by raising the North's per
capita income to 80% of the southern level.
Since the mid-1990s, various research
groups, individuals and institutions have come out
with their estimates of the cost of unification.
The present author has long since lost count of
the number of estimates, but it seems that there
have been at least 30 attempts to estimate the
cost of unification to a relatively precise level.
Perhaps we should look at only the most
recent estimates - those produced in the last five
years or so. Of course we should not take these
too seriously: after all, those are merely
guesses, and not particularly educated ones. The
imprecise nature of the enterprise itself is
demonstrated in the large range of estimates: as
we will see, there is almost a 25-fold different
between the lowest to the highest estimates.
A cursory look at the recent estimates of
the costs of unification indicates that these
estimates cluster around two points. The
pessimists usually expect the cost to amount to
US$2 trillion, give or take $1 trillion, while
optimists think it could be as low as $200
billion.
The Korea Economics Institute, an
influential think tank in 2012 it predicted that
the cost of unification would less than $200
billion. Somewhat similar expectations were
expressed by the Hyundai Economics institute,
whose report was published around the same time.
Admittedly, $200 billion is not small
change for a country like South Korea, whose GDP
is equal to around $1 trillion. However, it is
peanuts compared to higher estimates - and those
estimates appear to be more prevalent.
So
far the most pessimistic observer of them all has
been Peter Beck, who back in 2010, whilst at
Stanford University, predicted that it would cost
between $2-5 trillion to bring the income of the
average northerner to 80% of South Korean levels.
Reputable research centers both in Korea
and overseas also tend to be similarly
pessimistic. In 2009, an unpublished Credit Suisse
report estimated that the price of unification
would be in the vicinity of $1.5 trillion. This
estimate was based on the assumption that such an
amount would be necessary to bring North Korea's
per capita income up to 60% of South Korea's
current level. In other words, it was implied that
even after such astronomical investment, the gap
between North and South Korea would be just
marginally less than the gap which divided East
and West Germany in the late 1980s.
In
early 2011, the government-run Institute for
National Security Strategy in Seoul broadly agreed
with such estimates. The institute, which closely
collaborates with South Korean intelligence
services, estimated that unification would cost in
the region of $2.1 trillion.
In 2010, the
Federation of Korean Industries decided to tap
into the collective wisdom of North Korean experts
and conducted a survey of 20 top North Korean
economic specialists. They were asked how much
unification would cost, predictably the answers
varied, but not as greatly as one might expect.
Most of the participants spoke in terms of $1-4
trillion, with the average estimate being $3
trillion (and, tellingly, one third of the
participants in this survey believed that it would
take upwards of 30 years to close the gap even if
money is available).
So things are
uncertain - as a matter of fact, things are nearly
always uncertain when it comes to North Korea.
Nonetheless it seems that the South will have to
deal with a heavy burden when and if unification
finally happens.
Growing fears about this
cost is one of the major reasons for the declining
interest in unification among the South Korean
public. Americans and Europeans sometimes blame
South Koreans for their insufficient enthusiasm
for unification, saying they lack national
solidarity and being blinded by selfishness.
There might be some truth in these
accusations, to be sure, but one cannot help but
wonder how Americans or Europeans behave had they
learnt that resolution of the crisis in Europe or
some massive crisis in Central America will cost
them 200-300% of their annual GDP. And this is the
choice the South Koreans face, so they are clearly
not in a hurry.
Dr Andrei Lankov
is a lecturer in the faculty of Asian Studies,
China and Korea Center, Australian National
University. He graduated from Leningrad State
University with a PhD in Far Eastern history and
China, with emphasis on Korea, and his thesis
focused on factionalism in the Yi Dynasty. He has
published books and articles on Korea and North
Asia. He is currently on leave, teaching at
Kookmin University, Seoul.
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