North Korea resolves to be less hostile in new year, the world’s accountants immediately dig up cost of reunification

Encouraged by Kim Jong-Il’s overtures during North Korea’s new year greetings that carried a reconciliatory tone, WSJ whips out some estimates of possible re-unification costs should the two sides of the peninsula puts down their arms and call it a day.

Whichever way you slice it, the Korean version of re-unification is going to make Germany’s still ongoing ordeal look like a stroll in the park.

Despite the $2 trillion West Germany has paid over two decades, Bonn had it relatively easy in the beginning. East Germany’s population was only one-quarter of West Germany’s, and in 1989 East German per capita income was one-third of the West’s. The two Germanies also had extensive trade ties.

North Korea’s per capita income is less than 5% of the South’s. Each year the dollar value of South Korea’s GDP expansion equals the entire North Korean economy. The North’s population is half the South’s and rising thanks to a high birth rate. North and South also barely trade with each other. …

At the low end, the Rand Corporation estimates $50 billion. But that assumes only a doubling of Northern incomes from current levels, which would leave incomes in the North at less than 10% of the South.

At the high end, Credit Suisse estimated last year that unification would cost $1.5 trillion, but with North Korean incomes rising to only 60% of those in the South. I estimate that raising Northern incomes to 80% of Southern levels—which would likely be a political necessity—would cost anywhere from $2 trillion to $5 trillion, spread out over 30 years. That would work out to at least $40,000 per capita if distributed solely among South Koreans.

Or maybe we are all getting ahead of ourselves. Maybe we are focusing on the wrong part of the very long speech, which may well be a cautiously strategic move to ensure the stability of the regime, in face of currency collapse and the resulting food shortage.

Back in November, North Korean government’s decision drop two zeros in its currency, and the strong public upheaval had surprised the regime. For people that depend heavily on the black market for their daily food needs, this threatened their very survival.

So it’s interesting that the new year speech has a new stress on food and agricultural security.

“Bring about a decisive change in the people’s lives by accelerating once again light industry and agriculture this year, as we look to the 65th anniversary of the founding of the Party!”

The key phrase is “by accelerating once again light industry and agriculture;” “once again” just means a continuation of the policies which led to the 150- and 100-Day Battles of 2009.

In any case, as the title shows clearly, the core concern of the North Korean regime is food security. Although the regime has been worried about food for a long time, this is the first time it has appeared in the title of a New Year’s Statement.

Reblog this post [with Zemanta]

Comments on this entry are closed.