Unification Is an Opportunity to Build a Better Foundation for the State and Individuals

Unification led by the Republic of Korea’s immense strength should maximize the benefits

If Korea is unified, capital productivity will rise, generating mutual gains for both the Republic of Korea and North Korea

Many people say, “From an economic standpoint, unification is not desirable.” To state the conclusion first, unification is necessary, and it is good not only for the country but also for individuals. If the two Koreas are integrated economically, capital will move, creating mutual gains between them. That is because the productivity of capital will increase.

At present, even when capital is invested in our country, returns are not especially high. That is because in most sectors, capital has already been invested and is already generating returns.

North Korea, by contrast, has almost no capital, so its residents are reduced to doing mostly manual labor. There are extremely many fields in North Korea where even a small capital investment could generate returns. If the two Koreas are integrated, our capital can be invested in North Korea and earn substantial returns. Those with capital will earn investment income, while North Korean residents will receive wages and see their living standards improve. Economic benefits arise from capital movement alone. Since this creates a better economic outcome, unification is naturally a good thing.

There is also no need to worry that North Korean wages would immediately rise after unification. Wages are determined in the market. They may legally demand a minimum wage, but contracts are more likely to be concluded within the range permitted by productivity.

It is clear that in the early stage of unification, North Korean residents will not be able to produce at a level equal to the minimum wage. Naturally, employment of North Koreans would not increase much. Once their skill levels rise enough for their productivity to match the minimum wage, employment is likely to grow rapidly.

In the early stage of unification, the minimum wage could hinder employment for North Korean residents. What employer would hire workers whose productivity falls short of the wage level? If wage rules are applied rigidly, people could instead end up being disadvantaged.

Wages at the Kaesong Industrial Complex were far below the minimum wage. Even so, the domestic left did not attack the wage level. Had they insisted that North Korean workers be paid the minimum wage, no one would have invested in the Kaesong Industrial Complex. That is because the productivity simply was not there.

World history has steadily expanded its scope by integrating markets, and it has progressed into the very large global market. As capital moves freely and large markets are formed, the economic benefits grow ever greater.

What would happen if the world’s poorest North Korea and our economy were integrated? Most people worry that our economy would collapse, but the Republic of Korea would improve further, and North Korea would achieve rapid growth.

What matters is that unification must be led by us, with our immense strength. If unification took place under the North Korean system, much of South Korea would disappear and shrink down like North Korea. What strength could possibly come from combining two entities the size of a miserable North Korea? If the system does not provide the foundation, the effects of unification will be cut in half.

Whenever the topic of inter-Korean unification comes up, many people express negative views, saying, “If our companies go abroad and build factories, doesn’t that hurt us? Won’t I lose my job? If we unify, won’t we have to support all 20 million North Koreans with our taxes?”

It can differ depending on how unification is carried out.

First, is it bad if capital is invested in North Korean regions? No, it is not. When investment was made in China during President Roh Moo-hyun’s administration, our country recorded high growth rates. Although companies are now struggling as they withdraw from China, looking at how our economy grew through overseas investment, it was by no means the wrong choice.

There is no reason to view overseas investment as inherently bad. On the contrary, the losses caused by remaining complacently at home are greater. A company like Nike does only design, advertising, and sales in the United States, while producing in other countries. Its domestic workforce handles the higher value-added activities, while lower value-added activities are sent overseas.

Samsung’s Suwon plant used to be a manufacturing line, but now an R&D center stands there. As R&D personnel work there, it has become a company with higher wages. Overseas investment changes the nature of jobs and raises wages. It does not take away my job; it creates better jobs.

Second, there is no need to be anxious that we will have to feed 20 million North Korean residents. North Korean residents are not welfare recipients but producers. They are currently doing dreadful work and living with difficulty on low wages. As capital is invested and productivity rises in the future, their incomes will increase in line with the value they create. As their incomes rise, they will consume, and that means there will be goods for us to sell.

In the early stage of entering China, there was little to sell there. We used China as a production base and exported through China. North Korea too can first serve as a production base, and then the time will come when the market itself expands. That is the process of market creation and capital expansion.

People recall that unified Germany had a very difficult time in the beginning and say that we therefore should not unify. That is because they assume that after unification, North Korea must be raised to South Korea’s level all at once. Instead, by linking hubs such as Kaesong and Pyongyang, creating new jobs, and then building further step by step as value is created there, the process can proceed gradually. If it is done efficiently without being overly expansive, no major problem will arise.

Unification is an opportunity. It opens new investment destinations, new jobs, and new markets. It creates a better foundation not only for the country but also for individuals. In the broader market created by unification, jobs will emerge that generate income while increasing returns on capital for individuals as well. For the state, for businesses, and for individuals alike, unification is clearly a new opportunity.

Sung-no Choi

Ph.D. in Economics, Korea University Graduate School; President of the Center for Free Enterprise (CFE); President of the Korean Christian Economic Association. Grand Prize winner in the publishing category of the 25th Market Economy Awards. Author of Reborn as an Entrepreneur, Becoming Rich with Financial Knowledge, What Is the Market Economy?, and many other works.

---

Original title: 통일은 기회, 국가와 개인에 더 나은 발판 마련된다

Author: Sung-no Choi

Date: 2024-05-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=2&idx=26684