Saturday, April 27, 2013

What would a Unified Korea look like?: The Costs, Benefits, and Global Ramifications following a reunited Korean State

It would be understandable if the idea of a unified Korean state in the foreseeable future was to be dismissed as an idea of pure fantasy. The leadership of  The Democratic People's Republic of Korea (North Korea) often speaks about a unified Korean state, albeit one that  would be on their terms.  Although the vast majority of the DPRK citizenry only has the most basic understanding of the world around it, its leadership understands that the idea of a unified Korea under DPRK leadership is one that lost all possibility decades ago, as its economy and military capabilities fell behind its Southern counterpart to a point where it where it no longer could reasonably expect to ever reach a point near-parity with it again.

As for the Republic of Korea (South Korea), its transition from a military dictatorship to democratic rule has coincided with a economic transformation in which it is now home to some of the most widely recognized corporations and manufacturers in the world.  While the ROK government periodically pays lip service to the idea of unification, many of its citizens fear that the costs of doing so will threaten the economic prosperity within South Korea that they have worked so hard to attain.

Yet unlike the current scenario that involves China and Taiwan, the vast majority of Koreans living on the peninsula both desire unification in some form, and for this factor alone raises the possibility of such an event taking place within our lifetime.  Assuming that Korean unification takes place in a relatively peaceful manner, what would it look like? And perhaps more importantly: What would it cost?

Potential Costs of Korean Unification 

One of the difficulties of compiling an accurate cost analysis of such an event is the lack of transparency from Pyongyang regarding its current economic state.  In January, South Korea's Finance Minister stated that the South expected initial costs of unification to be 7% of its current annual gross domestic product (GDP)  every year, for a minimum of ten years.  In 2012, 7% of South Korea's GDP would amount to $1,237 trillion won (1.15T), which amounts to $80.62 billion USD.  This figure tends to be a more conservative estimate on unification costs, as other think tanks and economic analysts tend to place the figure as high as $1.5 trillion over the first ten years.   Although there often is the comparison of Korean unification to the East-West German unification that took place at the end of the Cold War, the lack of infrastructure, industrial capability, and malnourishment within the North Korean state will make reunification in any form an expensive and daunting task. One example of this is the estimated cost that will be necessary simply to "stabilize" vast tracts of the North Korean population initially upon reunification.  Regarding the area of basic food supplies, one South Korean government estimate states the following cost:

In order provide 23 million North Koreans the recommended minimum of 1,600 calories per day for two months, it would require 13,000 tons of grain per day.  In addition, basic medial assistance would be necessary for large portions of the former DPRK population. This cost alone is estimated to be nearly $500 million USD

A Korean Unification would face a significantly higher number of obstacles than the East-West German unification following the Cold War. 

Another hurdle facing a new Korean nation is the fact that economic demographics are not on its side.  Where as West Germany had a 5-1 population ratio advantage upon unification with the less developed East Germany, South Korea merely has a 2-1 ratio, which means that it will have to absorb a much larger portion of North Koreans into its demographics, which will place its social services, educational systems, and job retraining services under significant strain.  There is also the issue of "severe division" between both Koreas.  Throughout its separation, East and West Germany minimized repercussions of political division by maintaining trade links, as well as signing over 30 treaties.  One estimate  states an estimate of $1.5 trillion USD over thirty years to simply bring North Korea's GDP to a comparable level to East Germany's GDP gap with West Germany prior to German unification. It will likely take generations before the economic gap is evened between the two Koreas:  The North-South economic gap remains in the United States since the end of its Civil War in 1865, in Italy, residents of Sicily today only have 1/3 the GDP of their counterparts in Milan, and even with its remarkable economic transformation, inland provinces continue to be left behind economically by the coastal provinces, a gap that is expanding annually, not decreasing.

There are also a number of additional areas in which investment must be made in order to successfully integrate Korea into a unified nation that would resemble some level of parity.

 Basic Housing and Living Standards

Medical Services

Massive agricultural investment: Decades of poor agricultural farming methods have left the North Korean countryside littered with soil unsuitable to sustain crops.

Poor economic planning will force any unified Korean government to begin industrial reform within North Korea from nearly ground level.

Integration of the Korean Won: The cost of integrating the North Korean Won into South Korea's economy will be unparalleled in scope.

Benefits of Korean Unification 

Although the costs associated with Korean unification will be unmatched in modern times, the potential benefits that could be achieved by a unified Korean state would almost surely outweigh the costs over time. In a 2009 analysis by Goldman Sachs, its authors stated that a unified Korea had the potential to overtake Japan and Germany's GDP's within 30-40 years.  This statement is plausible due to certain benefits that North Korea would bring to a unified Korea, although it would be decades before the benefits would be fully realized.

Even though South Korea would be integrating nearly 23 million North Koreans who would need large amounts of medical and economic assistance, it would be inheriting a relatively young population, something that would aid in offsetting the South aging population, as well having one of the lowest reproductive rates in the world.  The North Korean population is also relatively well-educated for a country of its current condition, and many of its citizens could contribute relatively quickly within an integrated economy. In terms of size, the territory of a unified Korea would nearly double, and within this land lays a windfall of mineral wealth that could indeed vault Korea past Japan and Germany within 40 years.

There have been estimated of mineral wealth inside North Korea to be of an estimated $6 trillion USD.  Much of this wealth is in the form of rare earth goods that are used in the production of hi-tech goods: a South Korean specialty. The ability for Korea to have these minerals within their borders, as well as potentially moving production factories from China into former North Korean territory where abundant reliable and cheap labor could be found, would accelerate the Korean economy.

A unified Korea would also become less hindered by geographic restraints.  The development of a gas pipeline from Russia to Korea could finally become a reality for further development in Southern Korea.  Land shipments could also begin to China and Russia, significantly cutting transportation costs.  Additionally, the beautiful North Korean landscape could be developed by South Korean tourism industries, allowing for employment opportunities to be had by those living in the North.

With the absence of hostilities between a North and South Korea, large amounts of  economic investment could be diverted from military platforms, and towards domestic investment.  Mandatory military service could likely cease, allowing for millions of Koreans to begin employment years sooner than is allowed currently. 

The costs that a unified Korea will likely have to endure to have such a final outcome, however, will be high.  The RAND Corporation conducted a study in 2009 that recommended that an investment of $62 billion USD be made in order to just double the North Korean GDP within 5-6 years following reunification.  It also gave an estimate of $1.7 trillion USD to have overall parity that would take place decades later.  The costs will be high.  Yet the benefits of a unified Korean state should eventually allow such an event to occur.

Perhaps someday such images as the ones below will become a relic of the past on the Korean Peninsula


  1. This is ridiculous- north korea, iran, cuba, Syria- these nations have their people stuck, oppressed, and us can't do anything about it- this is not like east west Germany scenario. if korea can be unified then so democracy can be attained in iran as well, but there's slim chances of good happening. Russia china seem to have better influence over world situations

  2. Your response was full of grammatical errors, and I'm not sure I understand your point. But I believe this article is simply informative, but has underlying ideas promoting change that will allow the reunification of Korea.