North and South Korean Reunification: Is It Possible? Comparative Politics 281 Julie Ritz

North and South Korean Reunification: Is It Possible? Comparative Politics 281 Julie Ritz Ritz 1

ABSTRACT: This paper addresses the question: is North and South Korean reunification possible? This question is very broad, but allows us to ask a subset of questions such as: is the quality of life between the two countries too different for reunification? How would a unified Korea survive in the world economically? These questions allow us to compare Korean reunification to those of Germany and Vietnam, to compare and contrast what strategies may work in this situation. This issue is extremely prevalent in Northeast Asia today, and is important to study and analyze so that the area may be relieved of the tension that is caused by these countries being separate. Through research of various scholarly articles, I have concluded that the main component of reunification is economic benefit and cost. One side argues that the fiscal burden would be too much, while the other states that with proper planning and international migration, there would be no problem with unification. My conclusion agrees with the latter, that combined economic planning and migration would lead to a stable, unified Korea over a certain number of years. INTRODUCTION: Japan s 35 year colonization of Korea ended with the conclusion of World War II. Although unwanted by Korean citizens, the United States and the Soviet Union split Korea in two at the 38 th parallel, the Soviets getting the North and the United States the South. Although the Soviet s had promised to hold general elections in the North, they did not keep their promise and let it become a communist state. The Korean War, which ended in 1953, has left the two Koreas separated by the Demilitarized Zone (38 th parallel) Ritz 2

until today. Although an armistice was signed in 1953 to end the hostilities of the Korean War, it also led to a permanent division. This division has led to the two Koreas becoming separate entities in the world today. Because they have been split for nearly 60 years, they have developed at alarmingly different rates. Communism led to dictatorship in the North where famine and poverty are high. The people endure harsh rule and if they try to escape are met with imprisonment or death. Kim Jong-Il, the country s leader, often tries to paint pictures of the country being a strong, self-efficient place- but vast amounts of videos, photos, and accounts of visitors have revealed the human rights violations that affect the country each day. That being said, Stuart Fox (2010) says that the North has potential to grow if the dictatorship is abolished and unification occurs. On the other hand, democracy and key planning have led the South from poverty to being one of the most technologically advanced countries in the world. The country has flourished economically that ranks 13 th in terms of GDP, while the North ranks 99 th, nearly 14 times the South s. (CIA, 2011) (Huang, 2010). The split has only been aggravated in recent years by aggression from the North. In 2010, the Cheonan and Yeonpyeong island incidents created a major setback for reunification. On the 26 th of March 2010, a South Korean navy vessel, the Cheonan, was sunk in the Yellow sea, killing almost half of the people on board. Studies done by the United States, the United Kingdom, Canada, and other countries concluded that the ship had sunk from a North Korean torpedo, but the North vehemently denied the attack. Then later in the year on the 23 rd of November, the North fired artillery on an island belonging to the South after they had conducted a military drill. The attack killed 4 people and Ritz 3

wounded dozens of others, but the North claimed their actions were a reaction to the South s military drill. These two incidents damaged the hope that unification could happen in the near future, as the South has sought for apologies for each incident and has been met with hostility. Positive steps have also been taken over recent years to suggest reunification could be plausible in the relatively near future. The June 15 th North-South joint declaration was an occasion on which the North and South agreed on the first steps towards peace in decades. They agreed to work towards development of the national economy, resolution of humanitarian issues, and allowed for families separated since the Korean War to re-connect through organized trips to North Korea. The six party talks, which consist of North Korea, South Korea, Russia, China, Japan, and the US, were held from 2003 to 2007, were held in effort to get North Korea to abolish its nuclear ambitions. Although they agreed to cease their nuclear programs in exchange for aid, they re-launched the program and pulled out of the six party talks in 2009 in response to the UN condemnation of the North s failed satellite launch, and there have been no talks since. The conclusion reached is: yes, reunification is possible. But there are many factors that either stand in the way or will have to change before it can happen. Each country wants reunification on their own terms (North Korea wants to become a nuclear power and the South clearly does not want them to). If reunification does occur, a large number of North Korean s to migrate to the South, leaving the North devoid of people to rebuild it (similar to Germany after the destruction of the Berlin wall). Major cultural differences may lead to potential prejudices, and events of last year such as the Cheonan Ritz 4

and Yeonpyeong incidents have only caused more tension. As Patrick Cronin (2011) states, The problem is that Korea would be unified but not united, and there could well be a resurgence of long-dormant, historical inter-korean turmoil. The most prevalent issue, the extreme economic and political instability between the two countries, will be explored in this paper. LITERATURE REVIEW: Hypothesis (literature) one- The first research article analyzed in this essay was written by Marcus Noland, Sherman Robinson, and Li-Gang Liu of the Peterson Institute. Titled The Costs and Benefits of Korean Unification, their ultimate conclusion was that no necessary conflict between the economic interests of North and South Koreans after unification. They use a method called a dynamic computable general equilibrium model to calculate the total peninsular income under different theories of potential unification. The study concludes that each scenario has a different outcome, and South Korea is actually better off with unification than without it. We find that there is a scenario in which the present discounted value of South Korean income is higher with unification than without it. Although lower income groups in South Korea experience reduced incomes under this scenario, with redistribution of the gains, everyone can be made better off. Hypothesis (literature) two- The second research article studied in this essay was written by Alan J. Auerbach, Young Jun Chun, and Ilho Yoo of the National Bureau of economic research. They suggest that the fiscal burden, particularly on the South, would be too much for Ritz 5

unification to effectively work. They stress that economic cooperation between the two Koreas will speed the growth of productivity in North Korea, and that may ease some of the potential troubles they both face. This study also compares Korea s situation to Germany unification, and why it would not work as easily for Korea as it did for them. The overall magnitude of this added fiscal burden is much larger than that of German reunification, because (i) the productivity gap between South and North Korea is much larger than that between East and West Germany before reunification and (ii) North Korea s population is much larger, relative to the South, than was the case for East Germany relative to West Germany. (2) Is North and South Korean reunification possible? This proposed research question fits within the context of these two studies because ultimately they each conclude whether or not reunification can and is likely to occur in terms of cost. They both find that it will take a number of years to achieve unification, but the first study is more optimistic about it than the second. RESEARCH DESIGN: Because the variables related to the research question cannot be exactly quantified, this paper must be based on opinions and theoretical data about how the two countries interact with each other today, and their own singular issues with reunification. The studies I chose to analyze use extremely complicated mathematical formulas to propose future projections of the economy for each country, and how long it would take them to finance reunification. In order to come up with these formulas, however, the members of these studies had to assume certain things would stay constant to attain the outcomes they achieved. Ritz 6

The cases that I have chosen to study are clearly defined as North & South Korea. I have looked at them since the end of colonial Japanese rule in 1945 through the present. The studies that I chose to analyze look at Korea from 1990-2007, and 2004-2010. They used recent years because unification, if it will occurs, will happen closer to today than it would have in the 1950 s. My dependent variable, reunification, depends on the independent variables of economic (monetary) policy, political, generational, and prejudicial differences. I focus primarily on the economic difference because the research done on this variable provides the most definite and reliable answer to my research questions. To study these research questions, I made a few decisions on how to analyze them. First, I specifically examined economic imbalance as the primary unit of analysis. Some studies of reunification focused on political differences as the cause of reunification. Other studies of reunification focused on generational and cultural differences. I chose to look at the economic differences between the two countries as the main basis for analyzing reunification because the most research was done using it as the main factor of reunification. I wanted to make sure that my case was strong, and the two studies focus on in this paper presented strong facts and clear data that allow me to provide a definitive hypothesis. My choice of sources was quite limited, as I had trouble finding research done on all of the aspects I had originally thought would help or hinder unification. Almost all scholarly research I could find focused solely on the economic aspect of reunification, and not social aspects. Because of this, I had to reorganize my paper to focus on the economic standpoint of reunification. I found two separate studies done which I thought Ritz 7

best addressed the economic problem regarding unification, and analyzed them based on their findings. They ach argued similar points, but one concluded that the fiscal burden on the South would be too large, while the other said its fiscal burden would not be a problem. CASE PRESENTATION, ANALYSIS: Research study 1 uses a dynamic computable general equilibrium model to determine the best economical option for reunification. In Table 1.1, the total South Korean income and peninsular income are shown from base year 1990, chosen because it was the last year in which the conductors of the study felt there was enough accurate information on the economy of North Korea. Table 1.1: PDV OF SOUTH KOREAN INCOME (1990 PPP$ billions) PDV OF TOTAL PENINSULAR INCOME (1990 PPP$ billions) RATIO OF NORTH TO SOUTH KOREAN PER CAPITA INCOME 2007 BASE SCENARIO 5,660 -- -- SCENARIO 1A 5,519 6,201 55 SCENARIO 1B 5,695 6,201 38 SCENARIO 2A 5,338 6,113 64 SCENARIO 2B 5,524 6,113 46 SCENARIO 3A 5,119 6,116 91 SCENARIO 3B 5,503 6,116 52 SCENARIO 4A 5,293 6,173 79 SCENARIO 4B 5,659 6,173 41 From the standpoint of the peninsula as a whole, the PDV of peninsular income is maximized under Scenario 1. This result is critical, since it implies that a social welfare function that ignored the interests of North Koreans, and Ritz 8

one that treated all Koreans equally, would select the same set of policies relatively low levels of private investment flows combined with substantial migration. In Scenario 1A, labor migration is high, capital and technology transfers are low, and capital transfers are grants. Scenario 1B is the same as Scenario 1A except that capital transfers are private investment. This shows us that not only would the South benefit from unification, but also the peninsula as a whole would be better off to unify. Research study 2 uses general accounting to determine the fiscal impacts of reunification. Their findings suggest that generations of future South Koreans will have to finance the social welfare expenditure of the North rather than the reconstruction cost of the North s infrastructure. This study was written in 2004 and based their calculations off of reunification occurring in 2010. The study determined that ultimately, the rise in taxes for the South to take care of their Northern brethren would be what caused a fiscal imbalance. The labor income tax burden of North Koreans is 37.1 percent of that of South Koreans, the capital income tax 56.6 percent, the consumption take 32.3 percent, asset holding tax 52.2 percent, and the asset transactions tax 35.7 percent. (21) To calculate the reconstruction cost, they use a Cobb-Douglas function: They take in to consideration the wage gap, North Korea s capital accumulation, and assume the annual economic depreciation rate to be 5%. We assume that the rate of Ritz 9

investment by North Korea itself is the same as that of South Korea, and that the residual investment must be financed by South Korean residents for a period of 20 years after reunification. (29) So, is North and South Korean reunification possible? Yes, reunification is possible if it is financed over a number of years. The first study analyzed in this paper gives a clear situation where the North and South can work together to benefit the peninsular economy. If labor migration is high, capital and technology transfers are low, and capital transfers are grants or private investment, the peninsular economy would benefit economically. Unification would drive up aggregate income in the South more than if the south did not consider unifying. Is the quality of life between the two countries too different for reunification? The short answer is no, it is possible for the two countries to reunite, but it will take years place a huge financial burden on the South until whole country will be economically, structurally, and socially equal. Infrastructure in the North is similar to before it was cut off from the world in the 1950 s. The buildings, clothes, tools, and propaganda seem to come from another era when looked upon by someone of the world today. According to Andrei Lankov (2007), The population, with the exception of a tiny elite, has very vague and distorted ideas about the outside world. The second study analyzed in this paper concluded that Korea would not unify as cohesively as Germany because the gap in the economies has become too large. This does not make it impossible for Korea to become economically stable in the North and South, but it does mean it will take a long time for them to reach equilibrium. Ritz 10

How would a unified Korea survive in the world economically? Once they are able to sustain their own economy and let it grow, it is quite possible that a unified Korea could fair well amongst the world s leading economies today. If the Korea s do unify, they will save a tremendous amount of money on their military costs, as most of the money spent on their militaries now goes to defending themselves against each other. Migration would reduce the labor shortage in the South, and it would give them access to each other s natural resources to develop. South Korea has already done remarkably well economically since the split, and may integrate their technologically advanced society into the North to become an even larger producer of some of the world s most exciting products to date. CONCLUSION: Is the reunification of North and South Korea possible? In the end, yes it is. It may take a long number of years to integrate the countries, and it may place a large financial burden on the countries both before and after unification, but that does not mean that it is not possible. I came to the conclusion that reunification is not a matter of if, but when. It is plausible that reunification could happen, but it is not clear if it will happen tomorrow or in twenty years. The one thing that is clear is that it will cost the South more than the North to complete reunification, and that money has to come from somewhere. To illustrate the depth of how hard it is to calculate if and when reunification is possible and how much it will cost, I have included Table 1.2 which shows different researcher s estimations of cost and the time to finance reunification. Ritz 11

Table 1.2: There were several problems I encountered while trying to find information to further my studies. Reunification is not easily measured by something quantifiable, but more by the opinions of those who study it. Almost all research I found was based on theorizing or assuming certain aspects of unification, which therefore meant that my research was based on theories and assumptions. The North Koreans also constantly Ritz 12

changes their tactics because they are led by a dictator, which means that the outcomes I found in my paper could change the day after it was written. The only definite way to find out if reunification is possible would be to sit down with Kim Jong-Il, Lee Myung- Bak, or whoever is ruling each country at the time, and ask them themselves whether or not they can and will become one nation again. One area in which I felt particularly limited was that there have not been many studies done on the social aspects of reunification. It was hard to come across an article or scholarly research that talked specifically about one factor causing or hindering reunification, and most research that I did find only focused on the economical benefit. I speculated whether or not generational differences and prejudicial circumstances may effect reunification, and while I could find articles stating people s opinions on the matter, I could not find any research on this topic. So many things such as political, economical, social, structural, and cultural factors affect the outcome of reunification that it is impossible to provide a definite answer of when it will happen, and because I could not find many articles devoted to these topics, I had to focus solely on the economical benefits. Ritz 13

REFERENCES: Auerbach, Alan. Chun, Young Jun. Yoo, Ilho. 2004. The Fiscal Burden of Korean Reunification, A General Accounting Approach. National Bureau of Economic Research. http://unpan1.un.org/intradoc/groups/public/documents/apcity/unp AN022107.pdf (December 9, 2011). Noland, Marcus. Robinson, Sherman. Liu, Li-Gang. 2007. The Costs and Benefits of Korean Unification. Peterson Institute for International Economics. http://www.iie.com/publications/wp/wp.cfm?researchid=142 (December 9, 2011). Central Intelligence Agency. The World Factbook. 2011. Country Comparison: GDP Purchasing Power Parity). https://www.cia.gov/library/publications/the-world factbook/rankorder/2001rank.html. (December 5, 2011). Huang, Kaiyang. 2010. Korean Reunification, Will Two Halves Make a Whole? Harvard Political Review. https://www.cia.gov/library/publications/the-worldfactbook/rankorder/2001rank.html. (December 5, 2011). Cronin, Patrick. 2011. The Dangers of Korean Reunification. The Diplomat. http://thediplomat.com/2011/02/10/the-dangers-of-korean-unification/. (December 7, 2011) Fox, Stuart. 2010. The Technological Hassles of a Potential Korean Reunification. Tech and Gadgets, MSNBC. http://www.msnbc.msn.com/id/40499602/ns/technol ogy_and_science-tech_and_gadgets/t/technological-hassles-potential-korean-reun ification/#.tuks4m0opld. (December 6, 2011) Lankov, Andrew. 2007. Working Through Korean Unification Blues. Asia Times Online. http://www.atimes.com/atimes/korea/ik15dg01.html. (December 9, 2011) Ritz 14