The new article by Frank-Jurgen Richter co-authored with John Barry details and presents a comprehensive study on the futures of North and South Korea both, as an economic and political entity. The article analyzes the factors surrounding the possible unification of the Korean Peninsula, the degree to which this might be achieved and the impact that it is likely to have not only, in the Northeast Asian region but, its bearing on international economy, security and politics.
- Will there be one Korea or two? Will North and South come closer together, evolving toward a conferral form of government, progressing toward institutionalization on a peninsula plane or drift further apart?
- What is a realistic rate of economic growth? Will Korea (North/South combined) or the South alone reach the threshold of a trillion dollar economy and a $20,000 GDP?
- Will Kim Jong Il retain power in the North or will he be replaced? If so, when and how?
- Will South Korea continue to evolve along democratic lines? Will the current presidential system be replaced by a parliamentary-style democracy with greater power devolving on a prime minister and the national assembly? What role will civil society and NGO’s play in this political transition if it occurs?
- To what extent will economics drive change in political relationships both on the peninsula and in the region?
- How will South Korea's new relationships with old rivals China, Russia and Japan impact the peninsula and region’s political, economic and security landscape i.e. Will burgeoning economic relations with China also bring the two countries closer together in political and security terms?
- Will South Korea and the U.S. continue to share the same perspective on regional and peninsula security? Will the Cold War structure centered on the South Korean–American alliance remain the linchpin of Korea’s security or will the two Koreas be able to create an alternative framework for maintaining security? If so, will the U.S. still have a major role to play?
Although there are, at present, no good answers to most—if not all of these questions—they nevertheless, need to be asked and it is not too soon to start thinking about them.
Over the next five to fifteen years, Korean unification could become a reality. Paradoxically, however, it is no longer the course favored by the more powerful South and is clearly beyond the capacity of the weaker North. Further, the European precedent of German unification oversimplifies the Korean analogue.
Although both Germany and Korea were divided by the victorious powers at the end of WW II, for the latter division was perpetuated by political conflict between the Left and Right as much as by the Cold War rivalry between the two superpowers. It intensified as Koreans poured back into the peninsula from the Soviet Union, China and the U.S. at the end of World War II resulting in a witch's brew of ideological extremism and political polarization, subsequently boiling over into subversion, insurgency and civil war.
Now, however, if the June 2000 Pyongyang summit is to have any lasting meaning and North and South have, indeed, turned away from war, the task of constructing a Korean political entity will again have to be addressed. Yet, the historical narratives of the two Koreas are too far apart to contemplate a unification scenario. A more realistic approach would be an amalgamation of the two systems economically and co-existence politically. Such an outcome might include annual summits and parliamentary exchanges, regularized ministerial and cabinet meetings as well as the possibility of joint delegations in selected international fora such as APEC, ASEAN plus 3 and the UN along the lines of the Olympic model (The two Koreas will be competing as a unified team for the first time at the 2008 Beijing Olympics).
The recently inaugurated Kaesong economic complex is a perfect metaphor for the kind of economic co-operation benefiting both Koreas, while avoiding a jarring inter-penetration of each other’s political space.
If the Kaesong project and others succeed in generating economic momentum, it is likely that North Korean growth rates will exceed those of the South given the relative size of the two economies and the growth potential of each. The North would be making up for lost ground during the 'no-growth' decade of the 1990's and in the new millennium. And while the South's growth rates during this same period have been in the 4%-5% range (down from 7%-8% during the 1980’s to mid-90’s), overall GDP has changed little over the last decade, still hovering around $10,000 per capita before adjusting of the 20% appreciation of the Korean won relative to the US dollar between 2004 and 2006.
Even assuming a growth rate of 5%, it will be difficult to reach the $20,000 mark within a decade and South Korea will have done little to reduce the GNP gap that exists relative to other advanced countries, which currently enjoy roughly a three to one advantage. And based on growth rates for recent years, the rate is likely to be closer to 3-4% than 5%. By comparison, North Korea could experience growth rates as high as 7-8% if reform kicks in but, on the downside, 2% or less if it doesn't. While the North Korean economy suffers from a plethora of systemic defects too numerous to mention, the South suffers from low domestic consumption and demand, high inflation and an over-reliance on exports that account for more than 80% of GNP and are concentrated in a narrow range of high-tech items purveyed by a small number of conglomerates.
Moreover, in today’s globalized world, the factors that have underpinned double-digit growth year after year, decade after decade are unlikely to be duplicated in the future. What is different today from the pre-1997 financial crisis is that South Korea has been pried open by the IMF and its own ambitious economic reform and financial restructuring efforts, rendering the economic outlook more precarious.
The crisis clearly demonstrated the fragility of the South Korean economy to outside shocks and while much of the damage has been repaired and financial restructuring and economic reform have firmly taken hold, future shocks, albeit of a lesser magnitude, cannot be ruled out. Overall, the economy suffers from weak consumer demand in the wake of a consumer credit card bubble, a flagging service sector, unfinished financial restructuring and economic reform eight years after 1997 financial crisis, high inflation relative to other Asian economies and persistently low growth rates.
Finally, South Korea’s trade heavy economy is dangerously dependent on a narrow range of high-tech products, such as computer chips, IT products i.e. cell phones, HDTV’s, along with big ticket items, such as autos and ships. While state-of-the-art, they are also acutely sensitive to price competition and cost competition form China as well as vulnerable to foreign exchange fluctuation and technological change. Further, production is concentrated in the hands of four giant chaebol, or family-owned conglomerates (Samsung, LG, SK and Hyundai Motors), accounting for half the export volume, with as yet little trickle down effect on the economy as a whole. Still, there is no denying that the chaebol are currently on a roll with Samsung and LG setting revenue records in HDTV TV’s, computer chips, cell phones and other electronic devices and Hyundai coming up smartly as a world-class player in automotive world. They, rather than small and middle size technologically limber enterprises, continue to be the economy’s primary engine of growth.
South Korea has been searching for a new economic paradigm for at least a decade to replace the current export-led model that is at risk in the age of globalization, increasingly open to challenge based on cost competition from China, India and the smaller ASEAN countries on the one hand, and product innovation from the more economically advanced European countries, Japan and the United States, on the other. Therefore, it must continually upgrade competitive industries, such as shipbuilding, automobiles and semiconductors, create new cutting-edge technologies and R & D centers in such fields as biotechnology and nanotechnology as well as overcome structural impediments, including high taxes, low transparency and a rigid regulatory regime.
KOTRA’s (Korea Overseas Trade Agency) new Foreign Direct Investment (FDI) program that targets key growth sectors and companies with the emphasis on value-added production and components that serve multiple markets i.e. production in Korea for export to China is a step in the right direction but only a step. In sum, to compete effectively with advanced countries, Korea needs to: (1) seek additional, targeted foreign investment; (2) accelerate, with renewed vigor, its economic reform and financial restructuring toward greater transparency, accountability and less corruption); (3) seek out joint ventures with Western multinationals to increase profitability while benefiting from the transfer of advanced technology. Its ability to broaden the product base as well as transform the system from an export driven to a truly globally interactive and open economy has major implications for North-South relations as well as Korea's regional neighbors in its quest to become a Northeast Asian regional hub.
In this regard, the Roh Moo Hyun administration is banking on peace and prosperity through trade and investment to achieve its vision Korea a regional business hub in Northeast Asia. The strategy involves actively encouraging foreign multinationals to set up regional headquarters in Seoul, the creation of Special Economic Zones (SEZ) providing foreign companies with virtual carte blanche in carrying out business activities, the construction of high capacity mega-ports, such as Incheon and Pusan as well as upgrading infrastructure for a logistics hub.
Finally, Korea aspires to be a financial and business hub when it completes the arduous task of economic and financial reform over the coming decade, playing a role comparable in Northeast Asia to that of Hong Kong and Singapore in Southeast Asia. However, this will require a partnership of like-minded states working together with the private sector to deepen regional integration for which Korea’s neighbours and potential rivals have yet to commit themselves, in part, because South Korea has yet to make a convincing case for regional economic integration and an accompanying strategy for cross-border synergies and business sector clusters and, in part, because the political atmospherics, especially between China and Japan are not currently conducive to such an undertaking. Nevertheless, Seoul’s successful hosting of the recent APEC summit infused the process with a new sense of momentum via the Pusan road map, demonstrating both political sensitivity and an ability to make the whole greater than the sum of its participants.
Political succession and system change in the two Koreas are also major factors that will help define Korea’s future. This time around, things are likely to be different in the North with no clearly ordained successor-in-waiting to replace Kim Jong Il, who will be nearly 80 years old in 2020. Nor has he groomed one as did his father, Kim Il Sung, although two of his sons remain in the running. It is not unrealistic to assume that the most powerful group in North Korea today, the military, will have a strong voice in or veto over his selection. There is even a possibility that the future leader may come from its ranks. This, in turn, could augur a major shift in the political system from one based on the all-powerful charismatic leader to a more pragmatic and possibly collective leadership prepared to put the emphasis on economic reform for national survival, more in the mould of a North Korean Park Chung Hee.
During this same time frame, South Korea is scheduled hold three presidential elections, (the first in 2007 and subsequently in 2012 and 2017), with the first female presidential contender, Park Keun Hye, (the late President Park’s daughter, strongly positioned as the current leader of the Grand National Party). And she has already held her own mini-summit in Pyongyang with Kim Jong Il (photo available on Internet).
Equally important, however, is the issue of how power is allocated in South Korea among and between the president, the prime minister and the National Assembly as well as the highly contentious and personalized nature of South Korean politics. South Korea has a tradition of strong and often isolated presidents, weak prime ministers and a largely impotent National Assembly. The challenge is to make the latter more accountable by giving the prime minister a larger role and providing the national assembly with powers equivalent to a European-style parliamentary body. The problem, however, is that Korean political parties—unlike their Western European counterparts—are undisciplined, lacking in cohesion, more inclined to follow individuals than party platforms and prone to attacking the opposition for narrow political gain as demonstrated by the ill-considered effort in 2004 to impeach President Roh—not for what he did—but merely what he said.
Here NGO’s, as the engine of civil society, have a key role to play, marrying their efforts to achieve greater transparency and accountability in the business sector while striving to reduce corruption with parallel efforts in the political sphere to strengthen Korean democracy.
Externally, growing economic ties with China—currently the leading trading partner for both Koreas—have laid the groundwork for closer political relations as well buttressing China’s active diplomatic role in resolving the pending nuclear North Koran nuclear crisis through Six Party talks. Closer economic ties with Japan—the South’s primary creditor and purveyor of advanced technology—have tended to dampen the latent hostility relative to long-standing historical grievances over the Japanese portrayal of history visits by Prime Minister Koizumi to Yasukuni Shrine and the running controversy over the status of Toko-do. Meanwhile, economic ties with Washington over issues of market access and alleged dumping have proved to be a further irritant in U.S.-South Korean relations already under strain from the challenge of crafting a common strategy toward North Korea given the Bush Administration’s hard line and Seoul’s softer approach.
However, if economic change on the peninsula and in the region has been exponential, political change has been glacial. And although American hegemony has provided stability during the last half century—the last in a long line of dominant powers—it is very much the exception that proves the rule. Japanese hegemony and centuries of Chinese domination qua isolation left Korea helpless to face the modern world as the “Hermit Kingdom,” generating regional instability and rivalry in its wake.
Moreover, this time around, South Korea is emerging as a major actor in its own right, determined to avoid the domination of the past or dependency on any single foreign power by reaching out to former adversaries to bolster its security. If successful, it should be possible over time to end the peninsula’s Cold War security architecture, broadening its security structure so that it no longer rests on an American security commitment alone.
In the place of one dominant power, the inextricable linkage between the peninsula and the region argues for a multi-polar security framework as originally envisaged following WW II. Today, the U.S. is only one of four powers whose security interests intersect on the peninsula, requiring a back-to-the-future conception of an American role in Korea–maintaining regional stability as part of a multilateral concert of powers.
However, the good news is that the rival powers of the 19th century, China, Russia and Japan have all been prime supporters of inter-Korean reconciliation, recognizing its centrality to regional security and stability. And increasingly, they view themselves less as competitors than security collaborators, aware that if the peninsula again erupts in conflict, regional conflagration is likely to follow and they will be the losers. This differs markedly from the 19th century when political instability on the peninsula was largely a foreign import, a function of rivalry among the major regional powers--the scene of multiple conflicts in the 19th century (Sino-Japanese Wars of 1885 and 1895, the Russo-Japanese War of 1905), followed by single power dominance in the 20th i.e. Japan in the first half of the 20th century after its annexation of Korea in 1910 and the United States in the aftermath of the Soviet-American Cold War confrontation (1945-1950).
In effect, the old Cold War model of deterrence and defense that Kim Dae Jung vowed to replace has been complemented—if not complicated—by engagement; opening the door—if only slightly to a new peninsula and regional security architecture based on peaceful co-existence, reconciliation and ultimately reunification of the two Koreas. The sixty year period of pax Americana on the Korean peninsula appears to be drawing to a close, although the architecture of a new shared security framework to replace it among and between the other regional players and the two Koreas is nowhere in sight, leaving a dangerous security vacuum in Northeast Asia in its wake, which multiparty diplomacy is currently attempting to fill.
To reach the Promised Land of economic prosperity and peninsula security, South Korea must pass through two portals. First, it must define its relationship with the region by refining the hub concept while pursuing a robust diplomacy to remove the nuclear Sword of Damocles hanging over the peninsula.
The first can best be addressed in a conference of like-minded neighbors to determine the feasibility of the concept i.e. what a regional hub should look like and where Korea fits in. It should be approached not as a zero-sum game but as a win-win for the region as a whole, not unlike North Korea’s challenge to the region, the other principal hurdle facing Korea and the regional powers today.
However, while the principal regional powers —China, Russia and Japan are formally committed to resolving the North Korea nuclear standoff at Six Party talks—the potential harbinger of an institutionalized Northeast Asia security mechanism—each brings a unique perspective to the Korean problem, shaped by a different historical legacies, geopolitical realities and proliferation concerns. Whatever the early hopes for the Six-Party Talks as a suitable successor to U.S.-North Korean attempts to resolve the nuclear issue, agreement on the goal of a nuclear free Korean peninsula has not brought the principals appreciably closer on how to get there. Indeed, it is now clear that the kind of forum –bilateral versus multilateral—is less important than the political will to achieve results.
Paradoxically, while the multiparty framework was urged on its regional partners by a U.S. administration unwilling to repeat the mistakes of the past, it was done so without a full appreciation of the difficulties and complexities inherent in a forum without a fixed political agenda and in which there is no consensus among the parties on the use and limits of persuasion or coercion as policy tools.
The difficulty of arriving at a statement of principles to guide future negotiations bears this out. It was less of a breakthrough than the avoidance of a breakdown with Washington and Pyongyang agreeing to disagree over the future construction of a nuclear reactor for peaceful purpose, with each putting a different stamp on its meaning and sequencing of steps. Implementation is bound to be a long and wrenching process.
Moreover, Washington's repudiation of the 1994 Agreed Framework and its central provision for building two light-water reactors by the KEDO consortium to replace the plutonium producing reactor at Yongbyon on the grounds of Pyongyang's pursuit of a uranium enrichment program will re-configure the KEDO format so that the North's demand for peaceful nuclear power can be met, most likely by shifting from the previous turn-key arrangement to one providing for permanent operation and monitoring by the IAEA and/or teams drawn the Six Parties themselves or joint North-South cadres.
While all four external powers must be prepared to deal effectively with change, arguably the United States is the most affected as the principal security guarantor Here, Washington needs to be both tough and flexible in the right proportion, walking a fine line in Six Party diplomacy between persuasion and coercion. There is no place for grandstanding or indulging in gratuitous denigration of the regime despite its odious qualities. Secretary Rice’s recent characterization of North Korea as “an outpost of tyranny” shortly after President Bush’s inauguration, along with an ill-considered display of “bunker diplomacy” in repairing to an underground control post on her first trip to Seoul, may well have caused Kim Jong Il to hunker down for six more months rather than back to the negotiating table at Six Party talks. And recent statements by U.S. government officials implicating North Korea in drug dealing and counterfeiting, slapping sanctions on North Korean companies as well as the recent labeling of the North a “criminal regime’ by the current U.S. ambassador to South Korea threaten to delay the talks further an de-rail the agreed statement of principles.
Paradoxically, however, to the extent that Six Party talks succeed in resolving the nuclear impasse and institutionalizing a regional security structure, American policy-making prerogatives will inevitably be trimmed back, with the other regional powers picking up at least some of the slack.
Meanwhile, the South’s sunshine policy has put Pyongyang on probation. The jury is out on whether the North (as Nicholas Eberstadt has argued in Congressional testimony), still harbors an “historical grievance” stemming from American intervention that deprived it of victory, in the Korean War, or is willing to put the past aside in exchange for concrete security guarantees and pursue peaceful co-existence and participation in an as-yet-undefined greater Korean political entity. Eberstadt’s assessment may or may not turn out to be true but it seems more likely that a regime currently engaged in counterfeiting and drug trafficking has its eye on survival, not conquest, at least in the short term.
The key question today is whether the Korean peninsula will come to be viewed by the key players i.e. the two Koreas as well as the outside powers, especially the U.S., less as a divided nation with a North-South focus and more as a single entity cooperating economically and co-existing politically, no longer a source of regional instability, but an exemplar of peace and prosperity for the peninsula and region, eventually based a North-South security framework underwritten by the major regional players. In this context, the South, with an assist from the international community, could serve as the economic locomotive for the entire peninsula, whole and at peace for the first time in more than a century.
Frank-Jürgen Richter is President of Horasis, a Geneva-based advisory firm.
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