ed Koreas can create another economic miracle

By Lee Chang-sup

Last year, Korea became the seventh member of the 20-50 club, an unofficial group of countries with more than $20,000 per capita income and a population of more than 50 million. The group comprises Korea and the G-7 countries, excluding Canada.

After this achievement, the next question is whether Korea can join the so-called 40-80 club, which groups countries with more than $40,000 per capita income and a population of 80 million. So far, this group includes only the United States, Japan and Germany.

Korea cannot automatically realize this goal, but it can eventually do so by meeting certain preconditions. First, the economy must grow by more than 5 percent each year. Second, the country must adopt a proactive immigration policy, reform the education policy, foster the service sector and upgrade the manufacturing sector. Lastly, the country must pursue reunification with North Korea.

Of these preconditions, reunification is the most difficult. Today, inter-Korean economic cooperation sounds like a dream. The ongoing military drill between South Korea and the United States has prompted North Korea to be in an offensive mode. The Kim Jong-un regime is reportedly planning a fourth nuclear test and announced it scrapped the non-aggression pact the two Koreas signed in 1991.

Inter-Korean tension hasn’t been this bad since the Korean War ended in 1953. However, the two Koreas need to overcome ideological and military tension, and look for ways to prosper together. Under two countries and two governments, the Koreas can expand economic exchanges. The South can transfer its labor-intensive industries to the North, which in turn can sell natural resources to the South.

A prolonged confrontation would damage both South and North Korea. First, North Koreans would become even more impoverished as its government diverts the bulk of national resources to building nuclear weapons, missiles and conventional weapons, and consequently as it faces unprecedented external sanctions. Second, North Korea’s sudden collapse would be costly to the unprepared South. A 2010 report by the Federation of Korean Industries (FKI) put the unification cost at $3 trillion, equal to South Korea’s three-year GDP.

Instead of diverting an astronomical amount of money to the military, the two Koreas can move toward co-prosperity. Koreans in each nation can stop smearing each other and resume a confidence-building process.

The Koreas can benefit from economic cooperation. According to a 2009 Goldman Sachs report, North Korea’s per capita income could rise by nearly six times to $4,000 in 2020 if the two Koreas reunified. The North will enjoy a 7-8 percent annual growth over the next decade, and the South a 0.3-point increase in annual growth, the report stated. It forecast a unified Korea could overtake Japan and Germany economically in three or four decades.

In South Korea, President Park Geun-hye faces several challenges in jump-starting the economy. For the first time in 15 years, less than 60 percent of the population is economically active because of the aging society and the low birth rate. Credit card usage in January shows the lowest growth rate in 45 months. GDP growth has fallen below 3 percent. The Korea Composite Stock Price Index and the real estate market remain frozen. In short, the South has little room to maneuver its economy to a better path.

In her inauguration speech, President Park stressed her goal of achieving a second “Miracle on the Han River,” the miracle which had propelled South Korea into the world’s 15th largest economy and a role model for many developing countries.

However, she did not specify how she would achieve this goal. She might not achieve an economic miracle during her five-year term, but she could set the stage for one. She could boldly initiate a South-North economic community, which would ease tension on the Korean Peninsula.

Previous attempts for inter-Korean detente by the South have failed. For instance, former President Kim Dae-jung’s Sunshine Policy of engaging with the North backfired because aid to the North was unconditional. The South Korean government should instead tie aid, including non-cash aid, to economic cooperation.

Likewise, former conservative President Lee Myung-bak’s hardline policy has also escalated tension on the Korean Peninsula. Liberals and conservatives in South Korea should chart a practical and non-ideological North Korea policy, which would ease tension and benefit Koreas economically.

The Koreas can learn from Germany. Following Germany’s reunification in 1989, its population surpassed 80 million, and its domestic demand doubled to $1.9 trillion. Decades before the reunification, East and West Germany had expanded economic exchanges, which later catalyzed reunification.

The United States, China and other countries could encourage the two Koreas to reconcile and work toward economic cooperation.

An amicable relationship with Washington and Beijing is crucial to building inter-Korean relations. For example, the United States could sign a peace treaty with North Korea. Few believe the North would scrap its nuclear weapons program. However, a peace treaty with Washington might be the only remaining option to encourage the Kim Jong-un regime to work with South Korea. Pyongyang has repeatedly said it developed nuclear weapons as a deterrence to counter “the American imperialists’ nuclear attack.” Meanwhile, China could encourage North Korea to repeat China’s economic success in North Korea.

Whatever detours the Koreas may take, economic cooperation, not ideological confrontation, is the key to mutual prosperity. President Park Geun-hye can take the initiative. She said that once North Korea scraps its nuclear weapons program, the South will initiate economic cooperation and aid.

South Korea should attempt to achieve its 40-80 goal not on its own but through the cooperation of 50 million South Koreans, 25 million North Koreans and more than six million Koreans overseas. The Korea Times. Contact him at editorial@koreatimes.co.kr.