B00BY4HXME EBOK (37 page)
Authors: Andrei Lankov
T
HE
C
OSTS OF
U
NIFICATION
The last 15 years have seen the emergence of a small cottage industry—people have begun to speculate on how much unification of the Koreas will cost.
This is a highly speculative undertaking to be sure, since nobody knows when (or more precisely—if) unification will happen. Furthermore, reliable statistical information about the North Korean economy is absent. Moreover, comparisons with other unifications like Germany and usually the forgotten Yemen are so different in demographic and economic terms that they are not very useful.
Much depends also on how one defines “costs.” Does the “cost of unification” mean the cost of raising the per capita GDP of North Korea to that of contemporary South Korea? Or is it merely the cost of raising it to a respectable but lower level, like half that of current South Korea? Or rather, is it the cost of kick-starting the North Korean economy? All of these assumptions have been used and predictably, depending on which one was used, different studies have produced wildly different cost estimates.
Another problematic issue is the question of the unification benefits. Few would doubt that the costs would be partially upset by, say, decrease in military spending, increase of market size, and other similar factors. However, these factors are difficult to predict. Some researchers try to factor the unification benefit into the calculations, while others ignore them.
Nonetheless, everyone agrees on one thing: unification is going to be very expensive. Estimates range from $0.2 trillion to $5 trillion. Even the lowest amount is roughly quarter of South Korea’s annual GDP. The upper figure is, of course, five times that of South Korea’s annual GDP.
In 2010 the Federation of Korean Industries conducted a survey of 20 leading South Korean experts who expressed their estimates
of the unification cost. The estimate averaged at the impressive level of US$3 trillion. The figure includes the initial costs of stabilizing the situation after unification, as well as of bridging the gap between the two Koreas.
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It is remarkable that experts were not asked how much it will cost to raise the income of the North to the level of the South, but merely to the level that will ensure that Korea will have a “unified and stable society.” This wording is very nebulous and imprecise, but it clearly implies that even with such astronomical investment the North will lag behind the South.
The FKI-selected expert panel was not optimistic about timing, either. One third (35 percent) believed that it would take more than 30 years to close the gap (partially), and an additional 25 percent believed that task would require 20 to 30 years.
A few months later, in early 2011, Nam Sung-wook, director of the Institute for National Security Strategy, an influential government think tank, presented the South Korean Parliament with a report that estimated the costs at a comparable but somewhat lesser level of US$2.1 trillion.
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There are more optimistic opinions, of course. For example, in early 2012 the influential Korea Economic Institute, a private think tank, published a report that said the unification—assuming that unification would happen immediately—would cost merely US$0.2 trillion. This seems to be the most sanguine of the recent estimates.
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This optimism is not widely shared. In 2009 Credit Suisse estimated the unification cost at US$1.5 trillion. This amount was thought to be necessary to raise North Korea’s per capita GDP to 60 percent of that of the South’s within 10 years.
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In 2010 Peter Beck, at Stanford University at the time, estimated that it would cost US$2 trillion to US$5 trillion to raise the average income in the North to 80 percent of that of the South.
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This might be the highest of all estimates—but, alas, may be proven accurate.
The figures thus seem to fluctuate greatly and hardly should be taken too seriously. One should not be that surprised about this when taking into consideration the paltry nature of the available data, great level of uncertainty, and lack of historic precedents. Nonetheless, it seems that
most estimates—or rather guestimates—are between US$1.5 trillion and US$2.5 trillion. This is significantly larger than the entire GDP of South Korea, which is currently around US$1 trillion.
Bearing in mind the scale of the expenses, one should not be too judgmental about the increasingly cautious attitude toward the unification project among the South Korean public. At the end of the day, this project will have to be supported by the South Koran taxpayers, and they are predictably wary of this.
When people talk about a unification cost (and such talks are very common in South Korea nowadays), they usually mean the financial burden that will fall upon South Korean taxpayers. This burden is likely to be crushing, but Koreas’ unification will also produce a vast array of other social problems, many of which will have no attractive solutions. It makes sense to outline some of these likely problems—with the full understanding that many others will pop up as well, completely unexpectedly.
If we look at the experience of the anti-Communist revolutions in Eastern Europe, we can see that educated, urban, white-collar workers, essentially the Eastern European equivalent of the middle class, played the leading role in these movements. It was largely schoolteachers, low-level managers, nurses, engineers, and skilled industrial workers who in the late 1980s went into the streets of Moscow, Prague, and Budapest, demanding democracy and a market economy. If a popular movement plays a role in the collapse of North Korea, the same scenario is likely to be repeated in North Korea as well. However, the North Korean “middle class” are people who—in relative terms—are likely to lose the most after unification.
This does not mean that unification will bring ruin to the medical doctors and sociology teachers of North Korea. Their absolute income is almost certain to increase instantly and dramatically, in fact. However, they will also discover that their skills are of little value in post-unification society.
North Korean professionals generally tend to have a solid background in theory, so it is quite possible that the average North Korean engineer is more confident in using calculus than his or her South Korean peer. But
their practical and applied knowledge is usually archaic and/or irrelevant. If a North Korean engineer never worked in missile or nuclear design, he or she has probably never used a modern computer and doesn’t know what CAD stands for. He or she also has virtually no command of English, the major language of modern technical manuals, documentation, and reference books. A typical North Korean engineer spends his or her entire career working out how to keep in operation the rusty equipment of the 1960s Soviet vintage. From the point of view of a South Korean employer, such a person has no value as an engineer.
Everyone who worked in North Korea during the famine testifies to the remarkable skills and selflessness of medical doctors. They knew how to make workable drips out of empty beer bottles and how to conduct a complicated heart surgery with equipment straight from the 1930s. However, after unification, North Korean physicians and surgeons will immediately discover that they have never heard of perhaps 90 percent of the drugs and procedures that are now standard in modern medicine.
Even school and college teachers will find themselves in serious trouble. Those who teach theoretical and nonpolitical subjects—like geometry or organic chemistry—will probably be able to maintain professional employment, but what about the rest, especially teachers of humanities? The average North Korean teacher of history knows a lot about events that never actually happened—like, say, the alleged leading role of Kim’s family during the March 1, 1919, uprising, or Kim Jong Il’s childhood allegedly spent at a nonexistent secret camp on the slopes of Mount Paekdu. He or she has little knowledge, however, about the events that defined the course of Korea’s actual history—pretty much all that he or she knows of traditional Korean culture is that it is the “reactionary culture of a feudal ruling class.”
It might be argued that these people should be reeducated, but this is easier said than done. Reeducation will require a lot of money and time. Some people (those with exceptional gifts and good luck) will probably master new skills, but for the vast majority of North Korea’s “middle class” this will not be possible. In absolute terms, their standard of living is set to rise dramatically: they will have computers and drive cars, will eat meat
and fish every day, and will have more time to enjoy sunsets. But at the same time, their relative social standing will decline, and many of them will perceive this as humiliation.
But we should not be too elite-orientated and worry only about the fate of the relatively privileged groups. Many common North Koreans are also bound to have reasons for being disappointed by the “unification by absorption.” For a while the citizens of what is now North Korea will enjoy the newfound prosperity, since the post-unification government is likely to instantly deliver what Kim Il Sung once promised: an opportunity to enjoy a meal of meat soup with boiled rice while sitting under a tiled roof. They will appreciate a new individual freedom as well—it is nice to listen to a song you like even though it has no references to the Dear Leader and Great Family. But they will soon inevitably start comparing themselves with their southern compatriots, just to discover that a significant gap continues to exist. The North Korean people will support unification (and perhaps even fight for unification) on the assumption that it will soon deliver the living standards that approximate those of South Koreans. Needless to say, this cannot possibly happen.
Nearly all North Koreans will soon discover that they are not eligible for anything but low-skilled, low-paid work. Some of them will manage to retrain themselves, but a majority will have to spend the rest of their life sweeping floors and working in sweatshops. They will see this as the result of discrimination. Indeed, as the bitter experience of North Korean refugees in the South demonstrates, some discrimination against the Northerners is almost certain to emerge. But to a large extent most of this so-called discrimination will reflect objective disadvantages of the North Korean workers who lack many modern skills.
Some South Korean businesses will rejoice when they discover a reservoir of low-skilled but disciplined and cheap labor in the North. However, most authorities agree that cheap low-skilled labor is not what the South Korean economy needs at present.
Many North Koreans will move to the alluring bright lights of the cities of the South—after all, Seoul lays within merely one day’s walk of what is now North Korea. Labor migrants from the North will probably undercut
unskilled South Korean workers, driving wages down and further increasing mutual distrust between the former citizens of the two Korean states. Some of them will certainly take up criminal activities of all kinds, so after unification, South Korean cities, now remarkably safe at any time day or night, might become dangerous. Younger women from the North will probably contribute toward the revival of the steadily declining sex industry in South Korea—with predictable consequences for the way the two Koreas perceive each other.
The mass migration of Northerners to the South is likely to produce much social friction but on balance it is the much smaller migration of Southerners to the North that will produce greater problems. Rudiger Frank, an East German by birth and a perceptive observer of Korean events, recently put it nicely in a private conversation with the author: “When and if Korean unification comes, it will be necessary to protect Southerners from the Northerners, but it will be far more important to protect Northerners from Southerners—from predatory Southern businesses in particular.”
Indeed there are a number of potentially explosive problems, including the attitude toward the 1946 Land Reform Law, which has never been officially accepted by the South Korean government. Unlike, say, China where former landlords were either slaughtered or, if they were lucky, cowed into permanent silence, most North Korean landlords were fortunate to escape to the South between 1946 and 1953. They seldom forgot to take their land titles, so nowadays significant parts of the best arable land in North Korea theoretically have “legal owners” who are happily living somewhere in Seoul. As the present author knows from many experiences, these old land titles are carefully preserved by the second and third generation of ex-landowners.
The history of South Korea’s economic boom was also the history of obscenely profitable land speculations. In some parts of the Apgujeong ward of southern Seoul, for example, the price of land increased some thousandfold in the years 1963–1990 (this is after the adjustment to the inflation was made!). South Koreans understand the potential value of land, especially if it is located close to a future booming business or
industrial center. Unless something is done, the holders of pre-1946 land titles will descend on destitute North Korean villages, using litigation in order to take from North Korean farmers the only potentially valuable asset they have. Unfortunately (for North Korean farmers), the descendants of post-1946 migrants tend to be very successful and powerful in modern South Korea and therefore, if they decide to fight for “their” property, have a chance of succeeding.
Greedy scions of long-dead landlords are not the only people who are going to create trouble in the post-unification real estate market. Investing in North Korean real estate is likely to be tremendously profitable in the long run. At the same time, even though a shadow real estate market is now quietly developing in North Korea, the majority of North Koreans have distorted ideas about the value of real estate. One should not be surprised about this fact—when the present author bought real estate for the first time in his life, in the still (technically) Soviet Leningrad of 1991, a one-bedroom apartment in this second-largest city in the then Soviet Union would cost less than a badly made Lada subcompact car and would be just slightly more expensive than a new IBM desktop computer (IBM PC XT with hard drive of 20 Mb, if you remember such a thing). If South Korean investors are “lucky,” they might easily persuade some North Koreans to sell their derelict houses for the price of, say, a shiny new fridge or a Japanese motorbike. Needless to say, urban North Koreans will soon realize that they have been cheated, and this will not make them more enthusiastic about the realities of unification.