By Kang Hyun-kyung, Kim Se-jeong
Staff Reporters
On the night of Nov. 9, 1989, a crowd breached the Berlin Wall, suddenly leading to the reunification of East and West Germany.
On the 20th anniversary of its fall, experts say there is a lesson South Korea can learn from the German reunification model to cut unification costs: Invest in infrastructure and education in North Korea.
Bernhard Seliger, resident representative of the Hans Seidel Foundation in Seoul, told The Korea Times that people living in the former East Germany who are heavily reliant on social benefits from West Germany is a snapshot of the 20 year-old reunification.
Following the collapse of the wall, West Germany saw about 600,000 people migrate from East Germany within six months.
"West Germany did not want mass migration to occur further and for that reason it massively subsidized consumption in East Germany through social payments," Seliger said.
The economist said East German industries were not competitive and the high wages decreased their competitiveness, raising the jobless rate and increasing social welfare payments.
The generous payments led to budget deficits in Germany 17 consecutive years following reunification.
Only 20 percent of total transfers were used for investment, with the remaining 80 percent used for consumption.
Seliger proposed the German government spend more on incentives for those seeking jobs, saying social benefits-oriented spending didn't lead to sustainable growth.
Jeong Hyun-gon, a research fellow at the Korea Institute for International Economic Policy (KIEP), concurred, saying wise spending is the key thing for South Korea to learn from Germany.
According to Jeong, approximately $2 billion per year ― in both public and private level assistance ― flowed from West to East Germany from 1972 to 1989.
"At the time, there was heated debate in West Germany as to if the transferred money was spent wisely because East Germany spent most money on repaying debts or other one-off consumption," he said.
To cut unification costs, Jeong said South Korea should help North Korea improve its economic situation through technical assistance.
"We should think about specific programs that can improve North Korea's economic infrastructure," he said.
The KIEP expert added the North should change its ways first.
"If this is done, it will be a lot easier for the North to get technical and economic assistance from international financial institutions as there are grounds for those institutions to assist the North, even though it is not a member state," Jeong said.
Meanwhile, Seliger pointed out that lack of market-oriented education in communist countries, like East Germany and North Korea, tends to increase unification costs.
"There were few jobs available for people living in East Germany as their skills and qualifications didn't fit the job requirements. I think this problem will also occur in Korea if the two Koreas are unified and little can be done about this," he said.
A Goldman Sachs report released in September projected that a unified Korea could overtake France, Germany and possibly Japan in 30 to 40 years in dollar-based gross domestic product.
The report said South Korea can reduce the unification cost if it has appropriate policies and follows the China/Hong Kong reunification model, which allows separate political and economic systems to coexist.
President Lee Myung-bak has repeatedly said the South is ready to provide massive economic assistance to the North on the condition that North Korean leader Kim Jong-il scraps nuclear weapons. But few believe that Pyongyang will ever dismantle them.
A variety of books have been published on Korean unification. Many experts have said that Korea needs a gradual, step-by-step approach because the sudden unification of Germany put an enormous financial burden on Germans.
A Seoul professor argued that German unification should not been viewed as "sudden and unprepared" as West Germany had long provided financial assistance to the East - long before the "sudden" crumbling of the Berlin Wall.
The collapse of the Berlin Wall paved the way to end the Cold War, a near half-century-long political confrontation between the former Soviet Union and the Western world, chiefly the United States.
German Ambassador to Korea Hans-Ulrich Seidt was living in Nairobi, Kenya, at the time.
"When we saw people on CNN dancing on the wall, we were full of joy, and couldn't believe our eyes," Seidt said.
Based on the German experience, the ambassador advised Korea, as it grapples with the prospect of reunification, to be mindful of three things.
First, "collect your information as carefully as possible and try to get a very realistic picture of the situation in the North."
West Germany relied solely on statistics from East Germany, which led to "overestimates (of) the economic capacity of the East."
Second, the envoy advised South Koreans to be prepared for "reunification shock, which will likely be far greater than what the unified Germany had to go through."
"East and West Germany were very close in comparison to North and South Korea," he said. People in Germany were allowed to visit their family members across the border and had access to mass media on the other side.
His last advice was patience. For Germany, it took almost 15 years for the national economy to create a surplus. West Germany used to have the second-largest economy in the world.
Seidt mentioned that two decades doesn't seem to have been long enough, as he still sees challenges in the course of social integration. However, his overall evaluation is: "It, German unity, was a success story. People were ready for it."