Paul Eckert over at Reuters cites a report by Marcus Noland of the International Institute for Economics that suggests that while their may be no going back on economic reforms in North Korea, those reforms have yielded disappointing results and may, in the end, destabilize the regime:
Economist Marcus Noland of the International Institute for Economics said wage and price increases implemented in July 2002 had boosted household economic activity but yielded “disappointing” results in the decrepit industrial sector.
“North Korea today is stuck in a netherworld where they haven’t managed to successfully reform, but they are going to have difficulty going backwards,” he told a seminar in Seoul.
Double-digit or greater increases in prices and wages had legitimised small food markets and other “coping behaviour” North Korean households had used to survive a severe economic crisis and the famine of the 1990s, Noland said.
“It’s probably hard to put that genie back into the bottle,” he said.
But the country’s industrial sector resembles the “Soviet Union or the Eastern bloc before it reformed” more than China and Vietnam, purported reform models for North Korea, he said.
“At this point, I’m not sure that that is reversible in the sense of going back to a classic centrally planned economy that may have existed in the 1960s or 1970s, but on the other hand, it’s not clear that it leads anywhere either,” he said.
Noland recently published “Korea After Kim Jong il”, a study that uses economic data to develop formal models for analysing the potential for political change in North Korea.
As I always say, those expecting China-like reforms out of North Korea shouldn’t hold their breath — it’s socioeconomic structure seems closer to the former Soviet Union than it does to pre-Deng China, and we all (including the North Koreans) know what kind of effect those Soviet reforms had on the political structure.
The study said economic reforms had unleashed social and political forces that increase the risks to North Korean leader Kim Jong-il’s government, which has tried cautiously to repair the economy while still maintaining power.
Noland calculated the likelihood of regime change in North Korea at five percent in 2002, down from 9-13 percent in 1992. If an international embargo were imposed, the likelihood of regime change would be 40 percent in the first year and Kim’s government would surely collapse within two years, he found.
He also had some advice for South Korea:
South Korea should build up fiscal reserves for the possibility of a North Korean failure during the risky reform process, Noland said. Under one of a number of scenarios, he has calculated absorbing a failed North Korea could cost South Korea $600 billion over 10 years.
Hope someone’s saving…
4 Comments
That figure, $600 billion, sounds inflated. Does it account for S. Korean companies going for cheaper nork labor, which would stem the net outflow of manufacturing in the South, or the money from routing oil pipelines and rail links through the peninsula? Oh, and tons of American taxpayer money, as usual?
Hm,$600 billion sounds not enough to me. The unification costs for Germany so far after 14 years of tranferred taxpayer’s money for East Germany amounts to ??? 1,25 trillion. And communist East Germany (GDR)had one of the highest living standard and the best infrastructure among the communist bloc. You can’t even kill German cold blooded efficiency in a commando economy under Communism. In comparison with the GDR, the DPRK is a stalinist basket case, the sickest man of Asia.
There are countless scenarios and Dr Noland mentioned just one, which assumes some 2 million North Korean laborers migrate to the South for work, but the rest stay while SK capital moves to them. He said migration/wage models suggest that raising NK living standards to 60% of SK’s would forestall mass migration. Noland tends to reject the German model because — if I remember his “Avoiding the Apocalypse” book correctly — he expects that Seoul can avoid some of the currency and wage mistakes that Bonn made, which added to the pricetag in Germany. Humanitarian concerns notwithstanding, Seoul no doubt is seized with sticker shock when it looks northward….
Another reason for the high costs of Germany’s unification is the adoption of the expensive social(security)and pension system by the East. Also the worthless East German currency was swapped 2:1 for the “Deutsche Mark”. The living costs and wages in the East are by far lower than in Germany, but not the taxes/ corporate taxes. Though the East gets infrastructure aid and subsidies from the EU, Germany as a whole is a billion ??? netto-payer into the money funds of the EU. The unempolyment rate in the East is around 20% in average and a widespread “emigration”/ brain drain to the West is also hurting the East German economy. But I think Paul Eckert is right, the unification costs of South and North Korea would be shocking. Was the German unification worthit, in light of the economic hardships? The majority of the Germans would say “Yes, it was worth every paid Cent.”
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TITLE: Do South Koreans Have $600 Billion Just To Give?
BLOG NAME: Kamelian X-Rays
Two reports on Dr. Marcus Noland about North Korea provide a stringent wake-up call for those overly sanguine about Korean unification. First, there’s this Reuters report (via Marmot), and then there’s this KT article on the same event. There’s nothing