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Wednesday, 17 June 2009
Why no one wants regime change in North Korea
The reason is simple. No matter how much neighbouring governments might despise and fear the loathsome North Korean regime, no one wants to pick up the economic bill if it collapses, forcing an early reunification with South Korea.
With North Korean ruler Kim Jong-il in failing health and his third son, Kim Jong-un, now confirmed as heir apparent, having reportedly visited Beijing earlier this month to meet President Hu Jintao, expectations are growing that a change in North Korea’s leadership is imminent.
Little is known about the younger Mr. Kim. But although Pyongyang watchers in neighbouring capitals are no doubt hoping he will adopt a less belligerent attitude towards the rest of the world than his father, observers in Seoul, Beijing and Tokyo are all fervently praying that a change of leadership in the North Korean capital will not lead to a change of regime.
The reason is simple. No matter how much neighbouring governments might despise and fear the loathsome North Korean regime, no one wants to pick up the economic bill if it collapses, forcing an early reunification with South Korea.
The easiest way to put a price on that is to look at how much reunification cost Germany in the 1990s. The number has been endlessly debated, but it’s worth noting that the government went from running a surplus (in West Germany, at least) before reunification to running years of deficits afterwards. That pushed government debt from 44 per cent of gross domestic product in 1990 to 60 per cent a decade later, which implies reunification may have cost as much as 16 per cent of GDP.
The fear is that it would cost a lot more in Korea. North Korea is not only bigger than East Germany, it is much poorer. North Korea’s population is about half that of the South. East Germany’s was just 28 per cent of West Germany’s. And the income gap is much wider. GDP per capita in North Korea is estimated to be just 7 per cent of the level in the South. In East Germany, it was about 25 per cent of the West’s.
As a result, sudden reunification along the lines of the German model would be far more expensive to South Korea than it was to Germany, probably costing at least twice as much in relative terms, or about a third of South Korea’s GDP. That comes to about US$320 billion.
In reality, Korea is not likely to follow the German model. The political decision to unify the two Germany’s currencies at parity, coupled with wage increases in the East that far outstripped productivity gains, destroyed East Germany’s competitiveness.
That’s a mistake Korea is not going to repeat. Far more likely is that any Korean unification would be a gradual process lasting about 10 years.
Trade and investment between the two would be liberalised. But the North would operate its own currency, keeping wages low to attract inward investment in labour-intensive industries. Meanwhile, border controls would be maintained to prevent destabilising flows of economic migrants into the South.
But even so, reunification would be an expensive process. As the charts show, the gulf between the two economies is enormous.
Even though the North was far more developed at partition 61 years ago, today it has fallen way behind. According to the CIA World Factbook, life expectancy in the North is 14 years less than in the South. North Korea generates just 5 per cent as much electricity as its neighbour and boasts a mere 724 kilometres of paved roads to the South’s 81,000.
The investments required to narrow the gap would be huge. A report prepared for the South Korean parliament in 2007 estimated that to raise North Korean incomes to just half South Korean levels would cost US$858 billion over 10 years if reunification began in 2015. That’s almost 100 per cent of South Korea’s GDP for last year.
At the moment, that’s a bill no one is eager to pay, even if it is split among Korea’s neighbours. As a result, while observers will be hoping for a softening of Pyongyang’s stance under new leadership, no one wants to see the regime crumble.
1 comment:
Why no one wants regime change in North Korea
Tom Holland
17 June 2009
With North Korean ruler Kim Jong-il in failing health and his third son, Kim Jong-un, now confirmed as heir apparent, having reportedly visited Beijing earlier this month to meet President Hu Jintao, expectations are growing that a change in North Korea’s leadership is imminent.
Little is known about the younger Mr. Kim. But although Pyongyang watchers in neighbouring capitals are no doubt hoping he will adopt a less belligerent attitude towards the rest of the world than his father, observers in Seoul, Beijing and Tokyo are all fervently praying that a change of leadership in the North Korean capital will not lead to a change of regime.
The reason is simple. No matter how much neighbouring governments might despise and fear the loathsome North Korean regime, no one wants to pick up the economic bill if it collapses, forcing an early reunification with South Korea.
The easiest way to put a price on that is to look at how much reunification cost Germany in the 1990s. The number has been endlessly debated, but it’s worth noting that the government went from running a surplus (in West Germany, at least) before reunification to running years of deficits afterwards. That pushed government debt from 44 per cent of gross domestic product in 1990 to 60 per cent a decade later, which implies reunification may have cost as much as 16 per cent of GDP.
The fear is that it would cost a lot more in Korea. North Korea is not only bigger than East Germany, it is much poorer. North Korea’s population is about half that of the South. East Germany’s was just 28 per cent of West Germany’s. And the income gap is much wider. GDP per capita in North Korea is estimated to be just 7 per cent of the level in the South. In East Germany, it was about 25 per cent of the West’s.
As a result, sudden reunification along the lines of the German model would be far more expensive to South Korea than it was to Germany, probably costing at least twice as much in relative terms, or about a third of South Korea’s GDP. That comes to about US$320 billion.
In reality, Korea is not likely to follow the German model. The political decision to unify the two Germany’s currencies at parity, coupled with wage increases in the East that far outstripped productivity gains, destroyed East Germany’s competitiveness.
That’s a mistake Korea is not going to repeat. Far more likely is that any Korean unification would be a gradual process lasting about 10 years.
Trade and investment between the two would be liberalised. But the North would operate its own currency, keeping wages low to attract inward investment in labour-intensive industries. Meanwhile, border controls would be maintained to prevent destabilising flows of economic migrants into the South.
But even so, reunification would be an expensive process. As the charts show, the gulf between the two economies is enormous.
Even though the North was far more developed at partition 61 years ago, today it has fallen way behind. According to the CIA World Factbook, life expectancy in the North is 14 years less than in the South. North Korea generates just 5 per cent as much electricity as its neighbour and boasts a mere 724 kilometres of paved roads to the South’s 81,000.
The investments required to narrow the gap would be huge. A report prepared for the South Korean parliament in 2007 estimated that to raise North Korean incomes to just half South Korean levels would cost US$858 billion over 10 years if reunification began in 2015. That’s almost 100 per cent of South Korea’s GDP for last year.
At the moment, that’s a bill no one is eager to pay, even if it is split among Korea’s neighbours. As a result, while observers will be hoping for a softening of Pyongyang’s stance under new leadership, no one wants to see the regime crumble.
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