On a recent visit to Seoul, German Nobel laureate Gunter Grass cautiously suggested that unification may follow a long period of engagement. He hoped, he said, that Korea will not repeat the mistakes that his country committed -- the exorbitant taxes and the human dislocation. He bemoaned the lack of cultural and artistic exchanges between the Koreas.
But Korean unification may pose more than belletristic predicaments.
Another German, Otto Graf Lambsdorff, former leader of the liberal Free Democrats, compared the Korean experience with the German one in a guest column in the Korea Herald: "The (economic) conditions in Korea ... (are) more difficult than those in Germany around the time of its reunification ... In relation to the West German population, the East German population was much smaller than the respective proportions of North to South Koreans ...
"The discrepancy regarding the level of economic development is much larger between South and North Korea than it was between West and East Germany ... It is sometimes overlooked that in the case of East Germany about one-third of the economic production was delivered by a private and cooperative sector ...
"Furthermore, in contrast to the ... isolation (of North Korea), (East Germany) participated actively and with a certain degree of success in international economic exchanges."
He noted that it took Germany 20 years to unite after the first East-West summit in 1970. But the parallels end there. By being absorbed in West Germany, the East gained immediate access to the European Union. There is no Asian equivalent of a common market.
Moreover, the North Korean economy is geared to support a bloated military and produce weapons, especially missiles. Demobilization may prove to be a thorny issue economically as well as politically.
In Korea's case, the very term "unification" may be misleading. According to a Korea Times commentary by Dr. Park Eung-kyuk of Hanyang University, the South aims at a European Union-like confederation while the North counters with a loose federation.
Is there anything these two disparate polities can learn from the German experience?
The first serious effort to answer this question was made in 1993 by an expert group chaired by former German Chancellor Helmut Schmidt. Its conclusions and policy recommendations reverberate through subsequent scholarship and commentary.
Two weeks ago, the Frankfurter Allgemeine Zeitung summed up the error-ridden unification process thus: "At unification, many Western companies viewed the East as a new export market, a consumer land. Instead of investing in production sites there, they funneled goods and services to a consumption-starved public armed with a cash windfall from the currency exchange."
The Helmut Kohl-mandated exchange rate of 1 ostmark to 1 deutschemark rather than the previous and more realistic rate of 4:1 had grave repercussions. To avoid inflation, the Bundesbank was forced to raise interest rates and induce a recession.
The paper continues: "Eastern goods were priced out of the market as manufacturing cost quadrupled overnight. The country's chief export market, the former Soviet bloc, also went bankrupt. Local consumers bought Western goods. No revenue flowed back to the East, touching off a mass exodus of labor that reduced the workforce by one-third in three years."
In a book titled "Avoiding the Apocalypse," published last year by the Institute for International Economics, Marcus Noland disputes this scenario. The culprit was wage policy, he contends, not the exchange rate. On the contrary, the transfer of wealth to the East through the exchange-rate mechanism eased its problem of lack of competitiveness and did not result in inflation. He even goes as far as floating an idea of dollarizing inter-Korean trade.
Driving East German wages beyond productivity -- in response to labor union pressure -- depressed output and may have encouraged Westward migration. The sluggish rate of privatization served to perpetuate mismanagement. The practice of property restitution impeded the assignment of clear property rights and, as a result, hampered investment. Privatization was further hobbled by the refusal to write off enterprise debt outright.
The Schmidt commission strongly differs: "In transferring to a market economy, it is not possible to leave everything to market forces. The deficiencies of the infrastructure in the former GDR were grossly underestimated as was the environmental contamination, the lack of modern technology.
"The political, legal, economic, educational, and social security systems changed, including traffic rules. It is an enormous achievement for the East German population to have coped with the stress created by this veritable revolution. But it also created distrust, lack of initiative, confusion and fear -- all of which should have been more effectively addressed."
The recipe that seems to enjoy a consensus among scholars and politicians alike calls for a gradual unification. Trading and investments should be followed by a currency union at a realistic exchange rate, land reform in the North, and the institution and restitution of property rights. Tourism and services establishments should be privatized first, agriculture later.
The state would have to design and implement industrial policies to prevent market failures and provide public goods. Its top priorities should be infrastructure and institution building.
Human capital must be augmented by the transfer of qualified personnel from the South while Northerners are trained or retrained. It may be necessary to restrict immigration during a transition period.
Help and support from the international community -- Korea's neighbors, the Asian Development Bank, the IMF, the World Bank, the West -- would be indispensable. It is here that unification may blunder.
Many Asian countries -- not least, China -- may be unhappy with the idea of a united, independent and economically prosperous Korea under Western influence. Lending to emerging economies -- not to mention unification projects -- has dried up and is likely to remain limited for years to come. The West has its own agenda regarding the "axis of evil."
Ultimately, Koreans trying to unite may be faced with an insurmountable common adversary -- geopolitics.
Send your comments to: [email protected]
