Reunification

While Kim Jong Il clings to power in a nation that's increasingly isolated and impoverished, Park Jong Chul plans for the day when North Korea is no longer around. Park is a senior research fellow at the Korea Institute for National Unification, a South Korean think tank devoted to bringing about the reunification of the two Koreas. In book-crammed offices on the outskirts of Seoul, 35 political scientists, economists and sociologists draft strategies by studying other cases of unification (such as Germany and Vietnam) and try to divine what shape the Koreas might take in a post-Kim world. The result of the work may come as a surprise. "We don't want to achieve unification in a quick period of time," says Park, primarily because "the economic costs of unification are huge."

Predicting the future of a country as enigmatic and erratic as North Korea is a treacherously speculative pursuit. But experts like Park have good reason to be nervous about the economic ramifications if Kim were to fall and the two Koreas were to move toward reunification. North Korea's gross national product is less than 4% the size of the South's. The North needs basic roads and power plants, new technology and factories, and food and jobs for an estimated 23 million starving citizens. Marcus Noland, a senior fellow at the Institute for International Economics in Washington, says $600 billion will be needed over 10 years to raise incomes in the North to 60% of those in the South, a level at which social stability can be maintained. Today, the North's estimated average per-capita income of $735 is less than 10% of the South's. The key to keeping the costs of unification down is to turn North Korea into a business-friendly environment where private companies want to invest.

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Due to fear of the fallout, Seoul's favored unification formula is a glacial process of investment and economic exchanges that slowly develop the North's economy, leading to peace, then a common constitution and parliament, and ultimately formal unification. Even if the Kim regime suddenly collapses, the think tankers favor installing an interim government in Pyongyang until the North can catch up economically.

Still, the South would clearly take an economic hit if North Korea were to collapse. Refugees might stream across the Demilitarized Zone, and Seoul would have to quickly provide aid to the Northerners in order to stem the tide while converting public buildings like schools into temporary shelters. Foreign investors might get spooked by the chaos and yank money from South Korea. Then there are the long-term problems of integrating the high-tech South Korean economy and the more primitive North Korean one. The new flood of cheap North Korean labor and land would potentially depress wages and property prices in the South. Plus, South Korean industry might stamp out the North's own, less efficient businesses—a plight experienced by many East German companies.

Still, says Noland, unification "doesn't have to be a catastrophe." The South would probably see some benefits from the start of a unification process, such as a "peace dividend" from reduced military expenditure. And all that cheap North Korean labor could make the South's companies more competitive. But, worries Thae Khwarg, chief executive of SEI Asset Korea, a fund-management firm in Seoul, South Koreans are terrified about unification because they haven't prepared for it by setting aside financial resources.

"A big opportunity is being missed," he says. Of course, Kim Jong Il might not see it the same way.