[Market Economy Guide] North Korea’s Development Strategy

West Germany also paid a high price to absorb and unify with East Germany

Only if the North first accepts a market economy can unification bring freedom and prosperity

It was in October 1990 that capitalist West Germany absorbed communist East Germany, creating a unified Germany. At the time of unification, West Germany was not overly concerned about the cost. That was understandable: West Germany had excellent fiscal soundness, enough to maintain one of the world’s strongest economies, and it expected to make active use of support from European countries to help cover unification costs. It assumed that West German citizens would bear little actual burden.

The Costs and Effects of a Unified Germany

Helmut Kohl, who was West Germany’s chancellor at the time, even confidently declared that there would be no tax increases. But this was complacent. Once unification actually took place, the financial burden soared far beyond what West Germany had imagined.

In Korea as well, many people worry that if unification occurs, we may end up following the same path as West and East Germany. Although East Germany was still a relatively well-off country within the communist bloc, North Korea is one of the poorest countries in the world, leading many to believe that the economic shock we would face from unification would be incomparable to what West Germany experienced. As a result, a growing number of people think it would be better not to unify at all than to destabilize the national economy under the weight of enormous unification costs.

Given the economic time bomb we may face after unification, do we really still have to unify with North Korea? Would it not be more beneficial to our economy for the two Koreas to remain divided and continue developing separately as independent states?

There is a Korean proverb: “Would you stop making soybean paste because you fear maggots?” It means that even if there are obstacles, what must be done should still be done. It teaches that one should not give up before even starting simply because there may be minor side effects.

We Must Unify and Develop Together

Our attitude toward unification should be no different. We must not let concerns over the cost of unification obscure its true value. Unification would not only reduce the enormous costs of division, such as defense spending and the suffering of separated families, but also restore the human rights and freedom of North Korean residents. These are humanitarian values that cannot possibly be measured in money.

That is why inter-Korean unification must improve the quality of life for people in both Koreas. To achieve that, it must be a form of free unification carried out after North Korea has accepted the superior capitalist system; it must not be a compromised form of unification that mixes and blends the North Korean and South Korean systems. In other words, success requires abandoning outdated methods and pursuing unification in line with capitalist principles.

North Korea’s socialist planned economy is, in effect, in a state of collapse. Although North Korea still officially maintains a socialist centrally planned economy both domestically and externally, that system alone can no longer sustain the real economy. As a result, capitalism has gradually seeped into North Korea, and signs of change markedly different from the past are now visible.

Though still limited, more North Korean residents are accumulating private wealth through black-market transactions. Even though black markets are not officially recognized by the North Korean government, a growing number of people are quietly relying on them to solve personal economic problems. In effect, North Korea’s socialist principle of denying private property is breaking down.

Although still weak, the gradual expansion of capitalist elements inside North Korea suggests that its system could eventually shift from a socialist planned economy to a capitalist market economy.

Socialist States Being Integrated into the Market Economy

China, Vietnam, Eastern Europe, and Russia have already accepted the market economy through system transformation. In the cases of China and Vietnam, the economic system was transformed by introducing a market economy while preserving the Communist Party’s ruling structure. In Eastern Europe and Russia, economic transformation took place after Communist Party rule had collapsed. East Germany, meanwhile, was completely incorporated into the Western capitalist world by being absorbed into West Germany and adopting West German democracy and capitalism.

It is desirable for North Korea’s system transformation to take place in the same way East Germany was absorbed into West Germany—by accepting South Korea’s democracy and capitalism.

Cooperation that preserves North Korea’s current system has clear limits in meaningfully improving the lives of North Korean residents. If the impoverished North Korean economy, one of the world’s poorest, is to grow to the level of South Korea, it will require guaranteed economic freedom through the full opening of the North Korean region.

◆ Please remember

It is desirable for North Korea’s system transformation to take place in the same way East Germany was absorbed into West Germany—by accepting South Korea’s democracy and capitalism. Cooperation that preserves North Korea’s current system has clear limits in meaningfully improving the lives of North Korean residents.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

---

Original title: [시장경제 길라잡이] 북한의 발전전략

Author: Sung-no Choi

Date: 2019-07-08

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=13&idx=20309