? Ideas of the Korean Unification: Can They LearnFrom Germany’s Experience?IntroductionThe idea of this paper is to compare and contrast German Unification process with theoutlook for possible scenarios in Korea.
By looking at the similarities and differences betweenthe situation in Germany and Korea. To do this I look at the state of the economies,recommendations toward policy, the need for international support as well as possibilities onhow to organize the transition. If the Republic of Korea and the Democratic People’s Republicof Korea are to merge as one united country, several factors will need to be taken into question. I hope to bring light on what it might take in order for this to happen. With the end of the Cold War and the disappearance of the East-West confrontation, newchallenges demand political management in order that the emergence of new aggravations andtensions be avoided.
Divided countries such as Germany and Korea were the epitome of thecold war era with its acute ideological divisions. German unification in 1989 was one of thecentral events of the process sealing the end of the cold war. Since then, Germany hasundergone a process characterized by positive, but especially also an array of negativeexperiences. A series of mistakes was committed during and after the German unificationprocess that caused avoidable pain and has lasting consequences which may not be overcome fordecades. The German experience may hold some lessons for other countries. The Koreanpeninsula, for one, is still mired in a conflict which reflects the harsh ideological divide, uneveneconomic development and the build-up of menacing military forces, including nuclearcapabilities.
Can Korean standoff and confrontation continue? Will the break-up of the Soviet Union, thedisappearance of its Communist Party, the ensuing policies towards the market economy, theeconomic reforms in China and new diplomatic alignments in the region trigger Koreanunification? What are the lessons from the German experience? I will attempt to shed light onthe these and numerous other issues associated with the Korean unification process. Germany and Korea Similarities and Differences for UnificationWhile the unification of Germany was treated as a national issue, it actually has and willcontinue to have considerable international implications. Germany grew overnight from acountry of some sixty million people to a nation of eighty million. Germany today is one andhalf times the size of Britain, France or Italy.
(Dept. Of State and Foreign Affairs) Although todayGermany has enormous economic problems which will remain for at least the next 10 years, allof Germany’s neighbors believe that in the end Germany will come out on top economically. German unification has demonstrated that the re-establishment of the unity of a country evenafter a long period of division and difficulties is possible and that unification can be achieved ina democratic, peaceful way. But despite similarities between the two cases, there may also bemany differences regarding internal and external aspects.
Germany and Korea were both divided in the wake of World War II against thebackground of rivalry between capitalist West and the communist East. In both countries, thehope for reunification was slim during the Cold War period. Unlike Germany, North and SouthKorea had fought a ferocious war. The two Germanys, unlike the two Koreas, concluded asystem of treaties to regularize relations at the official level and to secure a modicum of civilcontacts and communications among the people.
On the Korean peninsula, North Korearemains to this very day a hermetically closed society. No information flows uncontrolled intothe country, access to foreign radio and television broadcasts is non-existent and no contact ispermitted with the outside world, not even the exchange of letters. Travel both inside thecountry and abroad is subject to approval and regulation. Apart from the country’s leaders andnomenklatura, all other North Koreans are unaware of developments in the world in general andthe social and economic conditions in South Korea in particular.
This constellation is likely tomake any unification process in Korea fraught with the risks of political and social instability. There are also significant differences in the economic constellation between Germanyand Korea. The population ratio between East and West Germany was 1:4, while for North andSouth Korea this ratio stands at 1:2. In 1997, North Korea is believed to have experienced aneconomic decline of 3. 7% and in 1998 of 5.
2%. South Korea has continued to achieve rapideconomic growth in the past couple of decades. This has brought about an ever-wideningincome gap. Today, the per capita income of the South is at least five times the size of theNorth. This alone will make economic integration between North and South an exceedinglytough and complex task.
North Korean GDP per capita corresponds to some 16% of that ofSouth Korean, while East German GDP per capita stood at 25% of West Germany’s at the timeof unification. North Korea’s trade volume stood at $ 4. 7 billion US dollars in 1990 and $ 2. 7billion in 1991. The decrease resulted from a slump in imports.
South Korea’s trade volumereached $ 153 billion US dollars in 1991. China and the former Soviet Union accounted forsome 70% of North Korea’s trade. Instead of barter or compensation trade arrangements of thepast, they now demand payment in hard currencies which North Korea lacks. North Korea usedto import millions of barrels of oil yearly from the former Soviet Union against coal and otherraw materials, but currently it receives only 40,000 barrels producing an energy crunch withserious repercussions for industrial production and living standards. The utilization of industrialcapacities has actually fallen 40%. North Korean leaders seem to be beginning to open up theircountry to Western capital and technology.
Most investments so far have come in the form ofjoint venture projects with pro-North Korean residents living in Japan. (Flassbeck, Horn, 1996Chap. 4) Unlike East Germany, a unification of the two Koreas will not entail ready-made accessto new foreign markets for either of the two given the absence of an Asian common market. Protectionism in the United States and Europe-Korea’s main export markets-threatens to erodeKorea’s export base and places South Korea in a vulnerable economic position. To assist anyunification process in the future, the international community ideally would have to be moreaccommodating to Korea in the future. But given the present climate in global tradenegotiations, it is unlikely that a unified Korea would be granted assured access to the EuropeanCommon Market or the United States.
The differences between North and South Korea with respect to their industrial base aremuch different from those between East ands West Germany. Unlike East Germany, NorthKorea relies essentially on large supplies of various raw materials most of which were traded ona barter basis with the Soviet Union before its demise. Korean unification may mean thatadditional markets could be tapped for their export. Given North Korea’s limited tradeexposure, any reduction in demand for its products following unification would therefore notpose a problem comparable to that experienced in East Germany.
Currently, North and SouthKorea engage only in some indirect trade through Hong Kong, Singapore and Japan. Between1988 and 1992 there were only some $ 450 million worth of exports and imports between thetwo countries. (Sung Yeung Kwack, 1994). In Germany’s case, trade had steadily been growingbetween the two countries prior to unification, facilitated by a generous financial facilityextended by the West German government. North Korea is suffering from severe shortages of goods.
In 1991, it produced 4. 4million tons of grains but consumed 6. 5 million tons. Part of the short fall was made up by adonation from South Korea. Following a possible unification, South Korea as the strongereconomy will have to take care of 22 million North Koreans, requiring substantial funds.
(SungYeung Kwack, 1994). The North Korean economy is far more distorted than the East Germanyeconomy was at the time of unification. It is also much more geared towards meeting militaryrequirements than East Germany ever was. This may also complicate the eventualdemobilisation of military personnel following unification. Regarding labor costs, the gap between East and West Germany was probably higherthan is the case for Korea. In Germany, gross labor costs increased following unification dueboth to the assimilation of wage levels towards levels prevailing in the West and to theintroduction of the costlier social security system of the West.
The Korean social securitysystem is not very costly compared to German. In general, South Korea has not the capacity tobear the full cost of unification and might need to resort to higher domestic taxation and externalborrowing on a large scale. Furthermore, South Korea is not in a position to offer generous aidprograms to other countries in support for reunification. Possible Re-Unification Scenarios for KoreaSeveral possible developments should be considered in any discussion of Koreanunification. In particular, there is a need to study the internal developments in North Korea.
Forone new leadership may change policies drastically or he may not do so. Either way, this couldprolong the process, but could also yield benefits for the economic and social situation. Anotherscenario might be that of a revolt against the system and leadership by part of the North Koreanparty elites. The consequences of such an event are entirely unpredictable. Another scenariowould be the collapse of the North Korean economy leading to the absorption by the South.
It ishoped that such an option can be averted in favor of a step-by-step approach to reunification. Afurther possibility would be the Chinese-style reform by opening up the country. The absence ofany private ownership would complicate such an option, although the recent promotion of jointventures might be a signal in the direction of such a reform. South Korea appears to be preparedto extend economic and social cooperation should such a course materialize. Ultimately, both Koreas must have some kind of vision on the kind of country theywould like to have after reunification. Gradualism has to be balanced against the risk ofreversal.
A gradual approach should only be pursued if it is certain that the process cannot bereversed. If there is too much gradualism, the process may equally falter unless there is a criticalmass of institutional change, which by itself is difficult to determine. The main task would be toprevent military complications during a transitional period that would precede unification. Thereafter would come a period during which both countries would be integrated. All above,care should be taken that the international competitiveness of the South Korean economy bepreserved.
The German reunification had a specific, favorable external environment: the Sovietleadership pursued perestroika, dramatic changes took place in Poland. Czechoslovakia andHungary, the Berlin Wall fell and relations between the Soviet Union and the West improveddrastically. In Korea, such conditions are non-existent. It will be important for Korea to developgood diplomatic relations with its neighbors, especially China, Japan, the United States and theASEAN countries. It is incumbent upon Korea to foster an international climate conductive toits reunification process, for which it needs the assistance and content of the world community.
One particular issue of concern to the world community at large is the nuclear status of NorthKorea and how it will affect the status of a reunified Korea. RecommendationsGenerally, Korea should avoid rushing or getting pressurized into unification. It shouldpreferably be a gradual process under controlled conditions. To that end, it is of utmostimportance to prepare and to be prepared in case a political opportunity arises to unite inwhatever steps and phases. Once the process has started, political decisions must be throughlyinterfaced and coordinated with economic policies and requirements. The transformation of acommand economy calls for a most detailed planning in all areas.
One factor of resistance to atransition may be the huge North Korean army, certain to be demobilized and fearful of large-scale unemployment. It is estimated by some economists that South Korea will have to transfer annually 8% ofits GDP to the North for a 10-year period. Under more gradual conditions, some 3% of GDPmay be required. To achieve parity in living standards might take more than 30 years someestimate. (Mosher, 1992).
The unification of a country cannot be accomplished in the short andmedium term without weakening the growth base of the economy. South Korean savings willneed to be utilized as it will be a resort to foreign capital. South Koreans must be aware thatduring the transition period their general economic conditions will change. As a result ofunification, there will be an excess demand for capital and an excess supply of labor. Inresponse, government expenditures need to be reallocated and switched from the South to theNorth. Land reform in North Korea will be one of the first tasks during a transition.
Theexperience gained by Korea in the post-World War II period may serve as a guide in this venture. Property rights issues will therefore play a prominent role after unification. There could berestitution of property rights to original owners still alive, the scale of state-owned propertiesthrough public auction, a distribution of property rights to the general public through a vouchersystem, distribution of properties to actual users or a compensation in state bonds. Privatization is a means. Its objective would be to introduce some elements of a marketeconomy.
In the process of privatization of hitherto publicly owned enterprises, priority shouldbe given to service and tourism establishments, such as hotels, as many visitors may be expectedfrom the South. In the shift from a collective to a private agricultural system, serious problemsare bound to arise. Industrial policies ought to be devised to respond to a variety of problemsand challenges: the contamination of the environment, unemployment, social justice andconcentration of economic power. Market forces are unlikely to create a productive economicstructure in the North that will match that of the South.
Public infrastructure- roads, energy, transportation, telecommunications, hospitals,schools and so on area precondition to make the economy function. Institutions administering amore market-oriented economy must be built and it must be decided what they will do and howthey will be financed, where and in which time span. There will also be the need for massivehuman capital investment in terms of on-the-job and vocational training and retraining as well asthe temporary transfer of managers, entrepreneurs and skilled administrators. Specialadjustments will be required in the educational field, including new education curricula. Alsopresent social welfare programs must be expanded to accommodate North Koreans. Management is of the utmost importance, mismanagement could bring calamity to allKoreans and another Korean War must be avoided at all costs.
The division of the countryshould be managed so as not to discourage the will of the people and national consensus forunification. National reunification between North and South Korea is on the face of it an intra-national issue. Yet, to create conditions conductive for unification and for stability on theKorean peninsula and in North-East Asia entails international implications. A sudden collapseof the North Korean regime may open up the border on the Korean peninsula overnight just asthe flood triggered by the collapse of the Berlin Wall in 1989.
In the Germany case, theinfluence of the four powers – especially the Soviet Union – was very important. In the case ofKorea, the relations with neighboring powers are quiet different. Korea is a very small countrycompared to its neighbors and has never threatened the security of the surrounding nations. Korea does not need to grab a window of political opportunity as Germany did. It mighttherefore prepare for a more deliberate pace to manage the process of reunification. Korea should form an alliance with the three major powers it counts as neighbors-Russia, China and Japan.
The future of North Korea is linked to development in China. Theway in which the Chinese look at the Korean peninsula will be of great importance in the future. The United States of America and the South-East Asian states can also be considered neighborsvis-a-vis the seas. The four major powers and the group of medium-sized powers in South-EastAsia should be considered as future economic partners and be approached accordingly. Koreashould also address itself to the capacity for fierce competition between a future united Koreaand advanced Japan corporations and industries. Sixty million Koreans are not an order ofmagnitude to match either the 150 million Russians or the 1 billion Chinese or the 120 millionJapanese.
(Young-Hwan Choi, 1996). Yet, a united Korea must be considered a major factor inthe Far East and in the world economy as a whole. International Support Will Be Needed A united and stable Korea is not only in the interests of North-East Asia, but the world atlarge. To underpin unification, Korea would need substantial international economic andfinancial support.
While Japan is still recording huge annual trade until here recently, its fellowglobal co-financier for many years, Germany, is no longer a surplus country followingunification. Thus, the burden falling on Japan will inevitably increase adding to its presentlevels of development assistance and support for the transformation of Eastern Europe. As North Korea is very poor in infrastructure, such as roads, harbors, railroads,communications and power supplies, massive investments will need to be directed to these areasfollowing unification. Massive loans will have to be secured from the World Bank, the AsianDevelopment Bank and other international financial institutions.
The flow of privateinvestments must be intensified, not only from Japan. As a first step, South Korea shouldbecome more closely associated with existing fora of international economic cooperation, suchas the OECD whose members account for more than 80% of international investment flows. Inthe OECD framework, Korea would be asked to subscribe to mutual commitments such as rulesand principles concerning the protection of foreign investment, trade, the liberalization offinance, and the movement of the people, which might induce further investment flows to theentire country. ConclusionDifferent scenarios must be kept at hand. Even from a purely political or strategic pointof view, scenarios might have to be developed. The political rulers, the military, the familiesaround the president would have to be urged to anticipate different possibilities.
In theeconomic field, if the political conditions permit, one might be lucky enough to start with andgradual approach. Korean unification will not happen against the will of China, Russia, Japan,and the United States. So, what is needed, if there is something to be learned from the historicalexample of Germany. Is it to build up a good relationship with Beijing.
Trust must be built upin the relationship with the neighbors which is not simply a question of establishing ordinarydiplomatic relations. The consent of Japan might be needed for the unification of the twoKoreas, but Japanese financial assistance will certainly be needed whether it be after a big bangor after gradual process. Japan is the only country capable of producing capital exports. So,China and Russia are needed from a strategic point of view, and Japan from the financial pointof view.
The Japanese ought to be told that rendering this help to Korea will reduce thesuspicion with which she is viewed in the Far East, South Asia and the pacific.Government Essays
