Shortly after North Korean dictator Kim Jong Il took over from his father, the country was wracked by a famine that killed somewhere between 5 and 15 percent of the population. He became best known for a near-monomaniacal obsession with obtaining nuclear weapons to aim at nearby Seoul. He was also notorious for kidnapping South Korea’s most famous movie director in order to force him to make movies for North Korea’s captive audience. (The director eventually escaped.) Most of the rest of Kim Jong Il’s victims remain trapped within their borders, dependent on continuing food aid from abroad to keep from starving.
Naturally, when word came yesterday that this man had died, the South Korean stock market ... plunged nearly 5 percent.
This is not nearly as odd as it initially sounds. As one expert told Bloomberg News, “If you asked experts what would be the most likely scenario for North Korea to collapse, the answer everyone would give you is, ‘If Kim Jong Il died today.’ We’re in that scenario.”
Very little is known about Kim Jong Un, the likely successor. What is known is mostly that he’s young and inexperienced. Moreover, his succession is far from assured — it reportedly took Kim Jong Il three years to consolidate his lock on the job. No one likes the idea of some unknown persons, possibly even crazier than Kim Jong Il was, getting their hands on North Korea’s substantial arsenal.
But war may not be the scenario that’s scaring South Korea’s stock markets. Even a “peaceful” collapse — something like the slow-motion implosion of the Soviet Union in 1990-91 — would be economically devastating for South Korea.
Consider another, not wholly dissimilar case. In the late 1980s, just before reunification, it is estimated that per-capita gross domestic product in East Germany was approximately 30 percent lower than it was in West Germany. Joining the two countries together temporarily multiplied their disparities. Many of East Germany’s inefficient and pollution-heavy factories were shut down, creating high levels of structural unemployment that were eased only by massive transfers and substantial migration from east to west. The problem was greatly helped by the fact that East Germany’s five states contained only 20 percent of the population of the unified Germany. Nonetheless, by one estimate, the reunification of Germany cost about 1.6 trillion euros — about $2.08 trillion.
But that project looks comparatively simple when you consider the problems that will face South Korea if its North Korean brethren start hankering for a family reunion. North Korea’s per-capita income is among the lowest in the world. South Korea’s is at least 15 times higher. Economically speaking, this is like the United States trying to adopt Haiti — if Haiti were the size of Mexico. North Korea is a country in which the vast majority of people have no access to cars, cell phones, computers, antibiotics or an adequate food supply. How do you integrate 20 million new citizens who basically missed out on the 20th century?
The brutal efficiency of North Korea’s totalitarian regime will make it even harder. Though one hesitates to praise the late-era Soviet Union, it had at least grown beyond the worst excesses of Stalinist control. By all accounts, North Korea has perfected one of the creepiest propaganda states in history. The faith in the superiority of the system — and especially the “Dear Leader” — is so high that a government website actually thought it could get away with claiming that Kim Jong Il did not defecate. It’s tempting to dismiss this as so much propaganda, but many defectors say they genuinely believed what they were told ... and were shocked and heartbroken when they started foraging for food in China, and realized that even on the remote farms of Jilin province, dogs were given food like white rice and meat that ordinary Koreans hadn’t seen for years.
If reunification happens, all the people who have been left behind will have to go through the same shock. It will be terrifying, and humiliating. North Korea doesn’t have the infrastructure to support a modern economy — and its workers don’t have the skills. A 21st-century economy doesn’t just require workers who can use technology; it requires workers with initiative, autonomy and flexibility. In other words, all the things that totalitarian regimes spend decades stamping out.
By some estimates, it would cost South Korea $1 trillion to reunite with its long-lost brother. Which is to say about a whole year’s GDP. Though this would stretch over a period of years, it’s still something akin to asking every single person in South Korea to give up 10 percent of their income for a decade or so. And it would be years more before North Korea actually caught up. Before World War II, eastern Germany’s per-capita income was actually slightly higher than that of the west. Even today, more than 20 years after reunification, the region remains economically weak, with substantially higher unemployment than the rest of the country.
One can understand why South Koreans would be leery of taking on the job. On the other hand, the longer the North Korean regime survives, the wider the gap will be between North and South. Integrating North Korea may be scary for the South — but probably not as scary as another 50 years of watching mass starvation and military exercises across the DMZ.