On Korean Unification, Optimism and Exploitation Come Together

4 Jan

4.0.1Former American Senator and Minority Leader, Everett Dirksen, quipped that “A billion here, a billion there, pretty soon it adds up to real money.”

South Korea’s Unification and Finance ministries are divided over the billions – indeed, trillions – of won South Korea will pay for unification. The most recent, post-election, Finance version is cheaper than the 2011 Unification numbers, but that rosier scenario includes assumptions and predictions about the economic health of both states, and how unification could alleviate structural problems, like an aging South Korean population and energy consumption.

Korean unification will increase both the economically active population and capital investment, improve productivity, and invigorate foreign economic cooperation, all of which will contribute to increasing the potential growth of the Korean economy. Corporation facilities investment and infrastructure investment, including transportation and communication, is expected to increase. There will be long-term synergy effects, such as a reduction in costs arising from separation (national defense, diplomacy, etc) and a boost to economic cooperation. Energy development projects are expected to become more efficient as underground resources in North Korea are developed, and the North and South are connected through gas pipelines and power grids. The diffusion of risk on the Korean peninsula will enhance economic cooperation and accelerate joint cooperation with regional neighbors, such as China and Japan. There are fiscal burdens associated with unification, such spending on social security, expanding social overhead capital facilities, and improving institutions. In the case that Korea reunifies by 2020, the cost of reunification will amount to 1%-7% of GDP annually for 10 years. Even though tax revenues will increase due to economic growth, the fiscal burden of unification will be considerable and it is possible for sovereign debt to increase.

In other words, what has changed in a year is not the real costs of unification, which are staggering, but electoral gain in South Korea.

Finance is taking a broader, rosier perspective than the research institutes contracted by Unification did, not because unification suddenly got cheaper, but because younger South Koreans, hardly eager to compete against cheaper North Korean workers, want better jobs after the grueling process of getting an education that is only becoming more expensive for families, and don’t want to pay for it out of the wages they hope to earn, to repay loans. A rosier scenario that that makes unification, through resource extraction, cheaper might convince younger voters to support a conservative administration.

While reunification remains South Koreans’ preferred method of ending the
peninsula’s long division, Korean youth increasingly are contemplating alternatives, such
as permanent separation. Many consider North Korea another foreign country, albeit one
whose inhabitants share language and ancestry. Numerous factors underpin their
changing attitude. Sixty years have passed since the Korean War sealed the frontier,
reducing familial ties and other linkages with the North. Rapid increases in wealth, plus
advances in communications and transportation, have brought South Korea closer to the
West in mindset. The strongest catalyst of anti-unification sentiment among ROK youth,
however, is the monetary cost of unification, which could surpass $2 trillion.
Overcoming anxieties that equate political union with impoverishment will require ROK
decision makers to portray costs as investments and highlight reunification’s economic
benefits – which will endure long after expenditures subside. Since a reunified Korea
furthers long-term U.S. interests in northeast Asia, the United States should support the
ROK effort.

It’s really wonky, manipulative, and possibly disingenuous.


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