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Last month the Korea Development Institute released in English a paper, “Path to Inter-Korean Economic Integration: Gradual Merger Within Temporary Separation,” by the former head of its North Korea unit, and the now retired Dean of the KDI School for Public Policy and Management, Chun Hongtack. (The paper originally appeared in Korean in 2013.) A couple of weeks later I was on a panel with Park Hyeong-Jung of the Korea Institute for National Unification who did a presentation on major economic issues after unification. The two papers share a similar conceptual framework: there are two broad scenarios for unification, sudden and gradual. The former can then be divided into two alternatives: rapid political unification with rapid economic integration (in essence the German model), and rapid political unification with gradual economic integration. In the latter alternative, for some specified temporary period, measured in years, probably a decade, in Chun’s words “the North Korean economy would be managed as a special economic zone and two different economic systems would continue to coexist on the peninsula.” Both Chun's paper and Park's presentation imply that outcome—fast political integration, slow economic integration--is the preferable one.
Chun focuses on the labor market. (In a 2012 report in Korean he addresses a broader range of issues including health care, monetary conversion, etc.) In his vision, the North Korean guaranteed employment model would be replaced by a labor market defined by South Korean regulatory practices in which wages were determined by supply and demand, but with a safety net added. (Freedom of residency within would accompany this shift so as to allow North Koreans to freely seek employment. North-South migration would be controlled.) North Korea would adopt South Korean pension and public assistance systems, but actual pay-outs would be benchmarked to reflect the lower levels of productivity and income prevailing in the North.
Given that North-South migration would be constrained for a decade, Chun argues that a variety of ancillary policies such as privatization and job training would need to be adopted to stimulate employment in the North Korea Zone. And in light of the German experience, Chun recognizes that “measures will be needed to prevent South Korean labor unions from colluding with North Korean counterparts for exorbitant wage increases.”
Park argues that the actual process of unification might not fall neatly into the three variants, but that a key issue is the degree of North Korean economic reform prior to unification. This is surely correct. And while I am not sure I would characterize North Korea as a “stagnant market economy” I get where Park is coming from. But where I part company with Park is his claim that institutionally the North Korean economy today is equivalent to China 1984-1992 and Vietnam 1986-1991. In both of those cases the leadership had clearly embraced reforms, had clear transitional plans, and had real public propaganda campaigns to sell these changes politically. By comparison in North Korea policy changes have been hesitant and subject to reversal.
Park makes an insightful observation about how the dynamics of policy change in a “stagnant market economy” run by communist party apparatchiks could play out: “One of the main drivers of introducing (politically controlled) market mechanisms in North Korea is the fact that under current conditions they contribute, better than the command economy, to the private enrichment of the individual communist political elites especially through misuse or theft of state property and shadow privatization. The introduction of apparently free-market institutions and formal privatization of state property would be accelerated in the future and especially with the advent of the prospect for economic unification of the two Koreas, because, before too late, North Korea’s corrupt political elites would like to seize the last opportunity for shadow privatization and private enrichment.” Just as food aid was an emollient for the development of markets in the 1990s, the prospect of unification could drive a re-shuffling of property rights in the North.
The title of this blog post is perhaps excessively provocative. Some years ago I participated in a track 1.5 discussion of these issues with American and South Korean peers. The proximity of some North Korean population centers (like Kaesong) to the border suggested that temporary- and day- migration might be a stopgap measure in case of sudden unification. Some of the South Korean participants were discussing the prospective logistical difficulties of keeping North Korean temporary workers confined to their dorms, and I pointed out that in South Africa this problem had been addressed through the issuance of passbooks, presentable to the police upon demand. Indeed the passbook solution might be even more necessary in the Korean case, since it in comparison to apartheid-era South African would be much more difficult to ascertain on sight who was allowed in urban areas after dark and who was not. I was chastened when the South Koreans responded enthusiastically to my Swiftian proposal.
It’s pretty easy to poke fun at South Korean proposals to run North Korea like a Bantustan especially when they don’t address the fundamental, indeed constitutional, issues of North Korean political voice in a unified Korea. Presumably North Koreans (or their elected representatives) are not going to vote for some Korean equivalent of the Group Areas Act. So the North Korea Zone approach implicitly carries with it the denial of North Korean political rights (probably in contravention of the South Korean constitution) even as it posits “rapid political unification.”
Perhaps the South Koreans are just realists and when the crunch comes they will be perfectly comfortable scrapping the constitution and denying their cousins their rights on the altar of a brighter economic future. And perhaps the North Koreans, with no democratic traditions to speak of, will be happy with the deal. But to be clear: Helmut Kohl offered Lothar de Maiziere a real deal. I am not so sure the East German parliament would have voted itself out of existence if the West German offer had been second-class citizenship for a decade and then us Westies will decide whether to hold up our end of the bargain and grant you your full citizenship rights. Or not.
And to be clear I don’t have any obvious alternative to offer other than try to integrate newly enfranchised North Koreans into democratic parties as quickly as possible as was done in Germany. So even if one is not persuaded by Chun and Park’s arguments, at a minimum they do remind us of the complexity and magnitude of the prospects at stake.
OK, so given the apartheid sub-theme of this post the obvious video is Mannenberg (Cape Town Fringe) by Abdullah Ibrahim (Dollar Brand). In the first video he gives the back story. The second is the original recording with the tack piano and a faster tempo than in the live performance in the BBC segment.
