Looking across the Yalu River from shiny new Chinese
buildings at the secret, dour world of poverty and oppression on the
other side in North Korea, I am reminded of what it was like to look
across the Shenzhen River from open, prosperous Hong Kong to Maoist
China 30 years ago.
So with the latest small
step forward in the six-party Korean talks, it is worth speculating
on whether and how Sinuiju, on the North Korean side of the river,
may be transformed over the next two decades in the same way as
Shenzhen, now a city of four million people, of high-rise buildings
and vast shopping malls.
This is not to suggest
any rapid progress in negotiations that at best are one inch
forward, three-quarters back. But the talks, combined with
Pyongyang's slightly more pragmatic economic policies and the shift
in South Korean sentiment toward the North from fear to pity for
their blood brethren, make this the best time since Mikhail
Gorbachev visited Seoul in 1990 to think beyond nukes and food aid
to the possibility of dramatic change and, perhaps, peaceful
The received wisdom in
the outside world, and among many South Koreans, is that
reunification would impose impossible demands on the South, with
millions flooding southward to enjoy a standard of living
inconceivable in the North. It would require Seoul to pump untold
billions to bring the North up toward equality of income and
lifestyle, in the process causing sharp cuts in income levels or
employment in the South.
Germany is the usual
example given for what would be likely to happen. Its economy is
still suffering from the manner of its reunification, with the
one-for-one currency exchange and the expectation of income equality
of East and West. In Korea, the population ratio (2 to 1) and income
ratios (20 to 1) are vastly greater.
But maybe Shenzhen is a
more appropriate comparison for Korea than Germany. It shows how
quickly investment and trade can combine with a large, disciplined
work force to achieve a remarkable transformation in a surprisingly
short time. There are several reasons to believe that reunification
would not be as difficult for the South as is often assumed.
North Korean workers are
literate and highly disciplined and would respond instantly to cash
motivations. South Korean firms employ huge numbers of Chinese in
low-income, labor-intensive garment-, shoe- and toy-making
enterprises, particularly in nearby Shandong. It would be relatively
easy to kick start the North by transferring many of these
industries to Korea.
Even assuming that there
were no controls on movement of people after reunification, there
are reasons to believe that there would be no flood of millions to
the South. Expectations in the North are so low that easily achieved
improvements like better food, the availability of fuel and power,
and access to such novelties as condoms would keep most Northerners
from migrating. Giving them ownership of the property they occupy
would also be a major incentive to staying put.
The North has a road and
rail infrastructure linking its main cities that is badly decayed
but is capable of rapid rehabilitation. Heavy industry may need
billions of dollars worth of new investment, but infrastructure
support for light industry could be achieved speedily and at
relatively low cost.
Agriculture in the North
will always face climatic challenges, but access to fertilizer, fuel
and machinery to replace draught animals would bring quick gains.
In the immediate
aftermath of reunification, the capacity of the North to absorb
investment would anyway be limited, and, say, $30 billion a year -
not a huge amount for a South with an almost balanced budget and
$200 billion in foreign reserves - would go a very long way.
Looking a decade or so
ahead, Korea also needs the North's demographics - a replacement
fertility rate that contrasts with the abnormally low rate in the
As China shows,
fast-growing states can tolerate huge regional income inequalities.
And Italy continues to demonstrate, 150 years after its unification,
that big income differentials can persist almost indefinitely even
in liberal democracies prone to redistributive policies.
Korea has a history of
fierce regional rivalries and North/South fissures that predate
1945. But even stronger is the ethnic identity that burns furiously
on both sides of the demilitarized zone and that ultimately will
make reunification inevitable. It will be driven by a sense of
common identity, not by an expectation of income equality.
That is not to suggest
that it is imminent, or that there will not be huge social and
political problems, given that two generations have grown up under
such completely different systems. But by avoiding Germany's
mistakes, the North is a business opportunity more than an economic
threat for the South. By 2020 Sinuiju may look just like Dandong, or