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Will unification be worth the price?
  • Jeong Seung-In, reporter
  • 승인 2018.05.27 21:55
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The 2018 Inter-Korean Summit, which was held last month, and the North Korea-U.S meeting, scheduled for next month, make it seem as if the unification of South Korea and North Korea is not so far away. However, when the unification is finally achieved, the majority of SouthKoreans feel that they should be responsible for the economy and pay the price for North Korea considering the present situation of the country. Therefore, the citizens have doubt whether unification of South Korea and North Korea will be economically beneficial or not. Will unification between the north and south economically benefit our nation or will it be more disadvantaged?

First of all, what would be different for us if we unite with North Korea? Last year, South Korea 's economic growth rate was 3.1%, which was the highest in recent three years, while North Korea' s economic growth rate was higher; reaching 3.9%. North Korea has not even been able to achieve 1% of its economic growth for several years, but starting last year, the graph gradually increased. Despite the strengthening of sanctions against North Korea in recent years, North Korea seems to show the potential to overcome such sanctions against them. They have done so by showing growth after a long recession. There are three factors to achieve economic growth: capital, labor and land. How will these three factors change if the military relations between South Korea and North Korea are eased? From a labor perspective, North Korea's military is fourth in the world and Korea is seventh. The average number of soldiers per 1,000 people in the world is 4.1, but South Korea has 12.4; making it three times larger than the global average. As for North Korea, their numbers are even higher. The rate of economic activity from the elderly is increasing along with the working population in South Korea. If the number of soldiers is reduced as a result of unification, the young workforce will naturally be equipped in our society. When we look from the capital perspective, South Korea's credit rating is AA-~AA which is higher than Japan and this evaluation is expected to increase if the military relationship with North Korea develops. The value of Korean stocks is evaluated low due to the uncertainty of the economic situation caused by the division of South Korea and North Korea. This is called 'Korea Risk'. Generally, the risk premium of developed countries is 80 to 100 BP while South Korea's risk premium is 110 to 130BP. If there is a fall in the rate of interest after the unification of the two countries, the cost of interest will be 30BP, reducing the interest rate by 0.3% Foreign debt in South Korea is at about 410.5 billion dollars. Therefore if the rate of interest is lowered, we will be able to save nearly 1 trillion won annually. From the land point of view, the land of North Korea is 700,000 pyeong and the nationwide total land price in our country is 6,981 trillion won. The military land occupies 350 trillion won, which is approximately 5% of the total cost. If we could reduce this military land in half, there would be land worth 175 trillion won left to for other use.

To increase GDP, productivity and production factors need to be increased. With tensions easing between the South and the North, production will be able to increase; resulting in a rise in GDP for the country. Generally, the increase of production slows down over time for developed countries. In order to increase production factors, it is mandatory to increase capital, land and labor.

In the MBC discussion program, '100 Minutes Discussion', a humanist instructor, Choi Jin-Ki, explained his thoughts on the cost of unification. Choi Jin-Ki continued the discussion expressing the cost of unification positively. Prior to starting the discussion, Choi Jin-Ki emphasized that humans can not tolerate the consequences of loss coming towards them. The lecturer said that there are two kinds of loss; loss caused by some sort of action and loss caused by no sort of action. Humans are sensitive to loss that is visible, but insensitive towards invisible. Choi explained that the cost of unification feels burdensome for most of the people because it looks like it is a loss due to a form of action. He showed the result of a survey on how citizens feel about the cost of unification. Most of them had negative thoughts about the costs of unification and were reluctant to pay for reunification. In the media, the amount to be paid for the unification by South Korea is between 800 and 1000 trillion won. When it is divided into 50 million people, it is about 2 million won per person. That is why people can not stand the cost of unification, which is a visible loss. Choi Jin-kee lamented the people who were not aware of the of division cost which is an invisible loss. In South Korea, the defense budget was 40 trillion won in 2017, and it is estimated to be 10 trillion won for military expenditure in North Korea. In other words, adding both Korea’s military expenditure, 50 trillion won is spent every year to guard its territory from each other. In order to explain how to make use of this cost spent every year, he held up East Germany and West Germany as an example. In the past, Germany was a divided country from 1945 to 1990. East and West Germany reduced military expenditure from unification by 22.5% from the previous military cost added together. If the same principle applies to South Korea and North Korea, 39 trillion won would be saved annually. Thus, South Korea and North Korea spend 39 trillion won each year just to guard against each other. According to a survey conducted by the Defense White Paper in 2016, North Korea has the largest number of soldiers per 1,000 people, followed by South Korea with the third highest. This also shows the seriousness of the cost of division and the waste of workforce of the North and South.

In addition, the numbers of troops in South Korea and North Korea is 600,000 and 1.3 million, respectively. The two troops combined would be 1.9 million, but if the troops were to be reduced to 1 million as a result of the unification, 20 trillion won of added value would be made every year if each individual can earn 20 million won annually. He emphasized that invisible opportunity costs, such as the economic benefits of reducing military power, should be considered. Finally, he said that it is better to express it as a ‘unification fund’ considering the economic effect that unification will bring to the future rather than the expression of ‘unification cost’.

Choi Jin-Ki, lectured an additional explanation about the cost of unification during his internet lecture after the program. At the time of Germany's unification, East Germany was one quarter of West Germany's income level. However, the benefits of Germany’s unification was that it brought the effect of increasing private consumption which is basically domestic spending.

Before the unification of Germany, the German domestic market was similar to that of England and France, but after the unification, Germany was able to build an overwhelming domestic market. Through this domestic market, Germany was able to lay the foundations for a European economic powerhouse. If North Korean citizens can earn up to $5,000 per year by the year 2030, it will have an effect of increasing private consumption by 66 trillion won annually.

“I have always been in favor of the unification of South Korea and North Korea, but I have always thought that to raise the economic level of North Korea, which is far behind our current level, taxation of our people would be needed for unification. But after hearing the concept of unification cost and division cost, I now have different thoughts. I thought that in order to unify, it would be inevitable to lose money from my own pocket and it would be economically ineffective. However, I was unaware that our country was already spending money to have the two countries divided. Theoretically, the effect we can achieve from unification is greater than the cost of division and it is worth more in the long term.", said Kwon Young-Ho (Material Science & Engineering student).

Citizens have doubt on whether unification of South Korea and North Korea will be economically beneficial or not.

Jeong Seung-In, reporter  samcandothat@naver.com

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