Will unification galvanize Korea Inc.?

President Park Geun-hye, right, talks about the significance of Korean unification in a discussion with World Economic Forum (WEF) Executive Chairman Klaus Schwab after delivering a keynote speech at the WEF's annual conference in Davos, Switzerland, Jan. 22. / Yonhap

President Park Geun-hye's new agenda generates pro-and-con debate

By Kim Tae-gyu

A new debate has surfaced on the unification of the two Koreas after President Park Geun-hye put the issue on the front burner despite rising uncertainty in North Korea.

Her repeated remarks on bringing together the two Koreas, which were separated by the 1950-53 Korean War, generate as much hope as concern, mostly because of the expected high cost of unification.

"In the past, most Koreans regarded unification as one of their ultimate goals, which they should achieve as soon as possible, but things have changed of late," said Prof. Yoo Ho-yeol of Korea University.

"A lot of people are disillusioned with the idea because more and more worry about the prohibitively high expenses projected in modernizing the impoverished North to the level of the developed South."

The Institute of Peace and Unification Studies (IPUS) affiliated with Seoul National University found that a decreasing number of respondents wish for unification in its annual survey, which started in 2007.

In that year, 64 percent said that unification was necessary but the proportion continued to head south to 59 percent in 2010 and 54 percent last year. The figure is feared to dip to below 50 percent in the not-so-distant future if the downward march is not reversed.

In particular, the trend accelerated over financial woes — only 48.9 percent said that unification would benefit the South last year down from 51.6 percent a year before.

South Korean soldiers on guard duty at the Demilitarized Zone (DMZ) that divides the two Koreas. The DMZ is one of the world's most heavily fortified areas. / Yonhap

Giving priority to unification

Against this backdrop, President Park stressed the significance of ending the 61-year-old division.

"Due to prohibitively high costs, some seem to be satisfied with the status quo of separation," Park said at a New Year press conference early last month.

"But unification can be a jackpot for us as shown by the fact that famous investors have vowed to invest their wealth in Korea after unification. Our economy will be able to rack up a quantum leap."

Jim Rogers, an American businessman, investor and author, recently promised to invest all of his assets in North Korea after unification. He is the chairman of Rogers Holdings and Beeland Interests.

After making a keynote speech at the World Economic Forum in Davos, Switzerland, late last month, Park also said that unification would benefit the whole Northeast Asia region.

"I recently said that we can hit a jackpot with unification because we will have big investment opportunities in the North in areas such as social overhead capital (SOC)," she said.

"It can also include investments not just in the North but China's three northeastern province and Russia's maritime province of Siberia. Hence, unification would offer jackpots to all Northeast Asian nations."

The provinces of China and Russia adjoin North Korea.

Her unexpected focus on unification revived optimism on the long-overdue national mission, which was raised not merely by domestic institutions but also by international big names such as Goldman Sachs.

The investment bank predicted in 2009 that a united Korea would become one of the world's five foremost economies by gross domestic product (GDP) within decades.

"One of the most striking findings of our study is the potential size of a united Korea in the long term. We project that a united Korea could overtake France, Germany and possibly Japan in 30 to 40 years in terms of GDP in U.S. dollar terms, should the growth potential of North Korea be realized," it said in a report.

"This projection would put the size of a united Korea in 2050 firmly on a par with, or in excess of, that of most G7 countries, except for the U.S. We also believe that the cost of the integration of South and North Korea could be reduced to an affordable level, if backed by appropriate policies. This would hold even under the unlikely scenario of a sudden collapse of the North Korea economy."

Benefit-cost analysis

The viewpoints of both President Park and Goldman Sachs are based on the belief that the benefit of unification will outweigh its cost — hence, there is no reason to be against it.

Most other proponents have come up with similar views with the latest being provided by the Korea Institute for National Unification (KINU).

Under the condition that the two Koreas start integration in 2015 to eventually reach unification between 2025 and 2030, the state-run think tank forecast that Korea will enjoy benefits amounting to between 4.91 quadrillion won and 6.79 quadrillion won.

By contrast, the costs were predicted to be somewhere between 831 trillion won and 4.75 quadrillion won.

Simply put, even under the worst-case scenario, the overall benefits will outstrip the total costs by hundreds of trillion won.

The Seoul-based KINU said that not much taxpayers' money would be spent because the private sector would channel a big chunk of funds in pursuit of massive business opportunities in an area newly open to capitalism.

A dedicated research institute of Korea University came up with almost an identical forecast of late.

Both claim that experts tended to inflate the costs associated with unification, which prompted former President Lee Myung-bak to once ask the nation to pay a so-called "unification tax" in preparation.

Prof. Cho Dong-ho at Ewha Womans University concurs.

He contended that instead of thinking about benefits to be generated by unification, people typically fix their eyes on expenses, and so they turn negative toward the grand task.

"It's like merchants, who exaggerate their costs without talking about their large incomes. We have to see both sides of the coin," Cho said.

Concerns linger

If the above-mentioned experts and entities are right, Park's remarks make perfect sense that unification would be the jackpot — and there is no reason for Seoul not to briskly seek after it.

However, it is not difficult to find critics who take Germany as examples.

After its unification in 1990, the German government funneled more than 1.3 trillion euros to develop and modernize former socialist East Germany.

Yet, the results were not so great.

"East Germany was much richer and its economy was much more advanced in comparison to today's North Korea. Still, Germany had to shell out big bucks after unification," said a Seoul analyst who asked not to be named.

"It would take a massive budget to develop the impoverished North. Plus, the population of West Germany was four times bigger than that of East Germany. But the gap between the two Koreas is just two fold."

Some cast suspicious eyes on Park's New Year campaign on the fresh issue.

"As Park preemptively presents the topic of unification ahead of the July 4 local elections, the opposition parties are struggling to find their own agendas since unification has been one of the latter's strongholds," said Jang Yong-seok, a senior researcher at IPUS.

"The situation can be likened to Park's presidential election campaign last year of stressing economic democratization. She stole the opposition party's traditional issue to score a victory in the closely-fought election."

Also of concern is the potential opposition of neighboring countries.

"Although the situation has improved with the advent of the Park administration, which built a rapport with China, the country traditionally doesn't like the idea of adjoining a capitalist state after unification of the two Koreas," said Prof. Yoo of Korea University.

"Worse, Japan's stance seems to have changed after Prime Minister Shinzo Abe returned to power in late 2012. The country was in favor of unification on the Korea Peninsula, but it has seemingly tilted toward the opposite side because of its fears of a stronger neighbor."