Contents
Ideas of the Korean Unification: Can They Learn
From Germany’s Experience?
The idea of this paper is to compare and contrast German Unification process with the
outlook for possible scenarios in Korea. By looking at the similarities and differences between
the situation in Germany and Korea. To do this I look at the state of the economies,
recommendations toward policy, the need for international support as well as possibilities on
how to organize the transition. If the Republic of Korea and the Democratic People’s Republic
of Korea are to merge as one united country, several factors will need to be taken into question.
I hope to bring light on what it might take in order for this to happen.
With the end of the Cold War and the disappearance of the East-West confrontation, new
challenges demand political management in order that the emergence of new aggravations and
tensions be avoided. Divided countries such as Germany and Korea were the epitome of the
cold war era with its acute ideological divisions. German unification in 1989 was one of the
central events of the process sealing the end of the cold war. Since then, Germany has
undergone a process characterized by positive, but especially also an array of negative
experiences.
A series of mistakes was committed during and after the German unification
process that caused avoidable pain and has lasting consequences which may not be overcome for
decades. The German experience may hold some lessons for other countries. The Korean
peninsula, for one, is still mired in a conflict which reflects the harsh ideological divide, uneven
economic development and the build-up of menacing military forces, including nuclear
Can Korean standoff and confrontation continue? Will the break-up of the Soviet Union, the
disappearance of its Communist Party, the ensuing policies towards the market economy, the
economic reforms in China and new diplomatic alignments in the region trigger Korean
unification? What are the lessons from the German experience? I will attempt to shed light on
the these and numerous other issues associated with the Korean unification process.
Germany and Korea Similarities and Differences for Unification
While the unification of Germany was treated as a national issue, it actually has and will
continue to have considerable international implications. Germany grew overnight from a
country of some sixty million people to a nation of eighty million. Germany today is one and
half times the size of Britain, France or Italy.(Dept. Of State and Foreign Affairs) Although today
Germany has enormous economic problems which will remain for at least the next 10 years, all
of Germany’s neighbors believe that in the end Germany will come out on top economically.
German unification has demonstrated that the re-establishment of the unity of a country even
after a long period of division and difficulties is possible and that unification can be achieved in
a democratic, peaceful way. But despite similarities between the two cases, there may also be
many differences regarding internal and external aspects.
Germany and Korea were both divided in the wake of World War II against the
background of rivalry between capitalist West and the communist East. In both countries, the
hope for reunification was slim during the Cold War period. Unlike Germany, North and South
Korea had fought a ferocious war. The two Germanys, unlike the two Koreas, concluded a
system of treaties to regularize relations at the official level and to secure a modicum of civil
contacts and communications among the people. On the Korean peninsula, North Korea
remains to this very day a hermetically closed society. No information flows uncontrolled into
the country, access to foreign radio and television broadcasts is non-existent and no contact is
permitted with the outside world, not even the exchange of letters. Travel both inside the
country and abroad is subject to approval and regulation.
Apart from the country’s leaders and
nomenklatura, all other North Koreans are unaware of developments in the world in general and
the social and economic conditions in South Korea in particular. This constellation is likely to
make any unification process in Korea fraught with the risks of political and social instability.
There are also significant differences in the economic constellation between Germany
and Korea. The population ratio between East and West Germany was 1:4, while for North and
South Korea this ratio stands at 1:2. In 1997, North Korea is believed to have experienced an
economic decline of 3.7% and in 1998 of 5.2%. South Korea has continued to achieve rapid
economic growth in the past couple of decades. This has brought about an ever-widening
income gap. Today, the per capita income of the South is at least five times the size of the
North. This alone will make economic integration between North and South an exceedingly
tough and complex task.
North Korean GDP per capita corresponds to some 16% of that of
South Korean, while East German GDP per capita stood at 25% of West Germany’s at the time
of unification. North Korea’s trade volume stood at $ 4.7 billion US dollars in 1990 and $ 2.7
billion in 1991. The decrease resulted from a slump in imports. South Korea’s trade volume
reached $ 153 billion US dollars in 1991. China and the former Soviet Union accounted for
some 70% of North Korea’s trade. Instead of barter or compensation trade arrangements of the
past, they now demand payment in hard currencies which North Korea lacks. North Korea used
to import millions of barrels of oil yearly from the former Soviet Union against coal and other
raw materials, but currently it receives only 40,000 barrels producing an energy crunch with
serious repercussions for industrial production and living standards. The utilization of industrial
capacities has actually fallen 40%. North Korean leaders seem to be beginning to open up their
country to Western capital and technology.
Most investments so far have come in the form of
joint venture projects with pro-North Korean residents living in Japan. (Flassbeck, Horn, 1996
Unlike East Germany, a unification of the two Koreas will not entail ready-made access
to new foreign markets for either of the two given the absence of an Asian common market.
Protectionism in the United States and Europe-Korea’s main export markets-threatens to erode
Korea’s export base and places South Korea in a vulnerable economic position. To assist any
unification process in the future, the international community ideally would have to be more
accommodating to Korea in the future. But given the present climate in global trade
negotiations, it is unlikely that a unified Korea would be granted assured access to the European
The differences between North and South Korea with respect to their industrial base are
much different from those between East ands West Germany. Unlike East Germany, North
Korea relies essentially on large supplies of various raw materials most of which were traded on
a barter basis with the Soviet Union before its demise. Korean unification may mean that
additional markets could be tapped for their export. Given North Korea’s limited trade
exposure, any reduction in demand for its products following unification would therefore not
pose a problem comparable to that experienced in East Germany. Currently, North and South
Korea engage only in some indirect trade through Hong Kong, Singapore and Japan. Between
1988 and 1992 there were only some $ 450 million worth of exports and imports between the
two countries.(Sung Yeung Kwack, 1994). In Germany’s case, trade had steadily been growing
between the two countries prior to unification, facilitated by a generous financial facility
extended by the West German government.
North Korea is suffering from severe shortages of goods. In 1991, it produced 4.4
million tons of grains but consumed 6.5 million tons. Part of the short fall was made up by a
donation from South Korea. Following a possible unification, South Korea as the stronger
economy will have to take care of 22 million North Koreans, requiring substantial funds. (Sung
Yeung Kwack, 1994). The North Korean economy is far more distorted than the East Germany
economy was at the time of unification. It is also much more geared towards meeting military
requirements than East Germany ever was. This may also complicate the eventual
demobilisation of military personnel following unification.
Regarding labor costs, the gap between East and West Germany was probably higher
than is the case for Korea. In Germany, gross labor costs increased following unification due
both to the assimilation of wage levels towards levels prevailing in the West and to the
introduction of the costlier social security system of the West. The Korean social security
system is not very costly compared to German. In general, South Korea has not the capacity to
bear the full cost of unification and might need to resort to higher domestic taxation and external
borrowing on a large scale. Furthermore, South Korea is not in a position to offer generous aid
programs to other countries in support for reunification.
Possible Re-Unification Scenarios for Korea
Several possible developments should be considered in any discussion of Korean
unification. In particular, there is a need to study the internal developments in North Korea. For
one new leadership may change policies drastically or he may not do so. Either way, this could
prolong the process, but could also yield benefits for the economic and social situation. Another
scenario might be that of a revolt against the system and leadership by part of the North Korean
party elites.
The consequences of such an event are entirely unpredictable. Another scenario
would be the collapse of the North Korean economy leading to the absorption by the South. It is
hoped that such an option can be averted in favor of a step-by-step approach to reunification. A
further possibility would be the Chinese-style reform by opening up the country. The absence of
any private ownership would complicate such an option, although the recent promotion of joint
ventures might be a signal in the direction of such a reform. South Korea appears to be prepared
to extend economic and social cooperation should such a course materialize.
Ultimately, both Koreas must have some kind of vision on the kind of country they
would like to have after reunification. Gradualism has to be balanced against the risk of
reversal. A gradual approach should only be pursued if it is certain that the process cannot be
reversed. If there is too much gradualism, the process may equally falter unless there is a critical
mass of institutional change, which by itself is difficult to determine. The main task would be to
prevent military complications during a transitional period that would precede unification.
Thereafter would come a period during which both countries would be integrated. All above,
care should be taken that the international competitiveness of the South Korean economy be
The German reunification had a specific, favorable external environment: the Soviet
leadership pursued perestroika, dramatic changes took place in Poland.
Czechoslovakia and
Hungary, the Berlin Wall fell and relations between the Soviet Union and the West improved
drastically. In Korea, such conditions are non-existent. It will be important for Korea to develop
good diplomatic relations with its neighbors, especially China, Japan, the United States and the
ASEAN countries. It is incumbent upon Korea to foster an international climate conductive to
its reunification process, for which it needs the assistance and content of the world community.
One particular issue of concern to the world community at large is the nuclear status of North
Korea and how it will affect the status of a reunified Korea.
Generally, Korea should avoid rushing or getting pressurized into unification. It should
preferably be a gradual process under controlled conditions. To that end, it is of utmost
importance to prepare and to be prepared in case a political opportunity arises to unite in
whatever steps and phases. Once the process has started, political decisions must be throughly
interfaced and coordinated with economic policies and requirements. The transformation of a
command economy calls for a most detailed planning in all areas. One factor of resistance to a
transition may be the huge North Korean army, certain to be demobilized and fearful of large-
It is estimated by some economists that South Korea will have to transfer annually 8% of
its GDP to the North for a 10-year period.
Under more gradual conditions, some 3% of GDP
may be required. To achieve parity in living standards might take more than 30 years some
estimate. (Mosher, 1992). The unification of a country cannot be accomplished in the short and
medium term without weakening the growth base of the economy. South Korean savings will
need to be utilized as it will be a resort to foreign capital. South Koreans must be aware that
during the transition period their general economic conditions will change. As a result of
unification, there will be an excess demand for capital and an excess supply of labor. In
response, government expenditures need to be reallocated and switched from the South to the
Land reform in North Korea will be one of the first tasks during a transition. The
experience gained by Korea in the post-World War II period may serve as a guide in this venture.
Property rights issues will therefore play a prominent role after unification. There could be
restitution of property rights to original owners still alive, the scale of state-owned properties
through public auction, a distribution of property rights to the general public through a voucher
system, distribution of properties to actual users or a compensation in state bonds.
Privatization is a means. Its objective would be to introduce some elements of a market
economy. In the process of privatization of hitherto publicly owned enterprises, priority should
be given to service and tourism establishments, such as hotels, as many visitors may be expected
from the South. In the shift from a collective to a private agricultural system, serious problems
are bound to arise. Industrial policies ought to be devised to respond to a variety of problems
and challenges: the contamination of the environment, unemployment, social justice and
concentration of economic power. Market forces are unlikely to create a productive economic
structure in the North that will match that of the South.
Public infrastructure- roads, energy, transportation, telecommunications, hospitals,
schools and so on area precondition to make the economy function. Institutions administering a
more market-oriented economy must be built and it must be decided what they will do and how
they will be financed, where and in which time span. There will also be the need for massive
human capital investment in terms of on-the-job and vocational training and retraining as well as
the temporary transfer of managers, entrepreneurs and skilled administrators. Special
adjustments will be required in the educational field, including new education curricula. Also
present social welfare programs must be expanded to accommodate North Koreans.
Management is of the utmost importance, mismanagement could bring calamity to all
Koreans and another Korean War must be avoided at all costs. The division of the country
should be managed so as not to discourage the will of the people and national consensus for
unification.
National reunification between North and South Korea is on the face of it an intra-
national issue. Yet, to create conditions conductive for unification and for stability on the
Korean peninsula and in North-East Asia entails international implications. A sudden collapse
of the North Korean regime may open up the border on the Korean peninsula overnight just as
the flood triggered by the collapse of the Berlin Wall in 1989. In the Germany case, the
influence of the four powers – especially the Soviet Union – was very important. In the case of
Korea, the relations with neighboring powers are quiet different.
Korea is a very small country
compared to its neighbors and has never threatened the security of the surrounding nations.
Korea does not need to grab a window of political opportunity as Germany did. It might
therefore prepare for a more deliberate pace to manage the process of reunification.
Korea should form an alliance with the three major powers it counts as neighbors-
Russia, China and Japan. The future of North Korea is linked to development in China. The
way in which the Chinese look at the Korean peninsula will be of great importance in the future.
The United States of America and the South-East Asian states can also be considered neighbors
vis-a-vis the seas.
The four major powers and the group of medium-sized powers in South-East
Asia should be considered as future economic partners and be approached accordingly. Korea
should also address itself to the capacity for fierce competition between a future united Korea
and advanced Japan corporations and industries. Sixty million Koreans are not an order of
magnitude to match either the 150 million Russians or the 1 billion Chinese or the 120 million
Japanese. (Young-Hwan Choi, 1996). Yet, a united Korea must be considered a major factor in
the Far East and in the world economy as a whole.
International Support Will Be Needed
A united and stable Korea is not only in the interests of North-East Asia, but the world at
large. To underpin unification, Korea would need substantial international economic and
financial support. While Japan is still recording huge annual trade until here recently, its fellow
global co-financier for many years, Germany, is no longer a surplus country following
unification. Thus, the burden falling on Japan will inevitably increase adding to its present
levels of development assistance and support for the transformation of Eastern Europe.
As North Korea is very poor in infrastructure, such as roads, harbors, railroads,
communications and power supplies, massive investments will need to be directed to these areas
following unification. Massive loans will have to be secured from the World Bank, the Asian
Development Bank and other international financial institutions. The flow of private
investments must be intensified, not only from Japan.
As a first step, South Korea should
become more closely associated with existing fora of international economic cooperation, such
as the OECD whose members account for more than 80% of international investment flows. In
the OECD framework, Korea would be asked to subscribe to mutual commitments such as rules
and principles concerning the protection of foreign investment, trade, the liberalization of
finance, and the movement of the people, which might induce further investment flows to the
Different scenarios must be kept at hand. Even from a purely political or strategic point
of view, scenarios might have to be developed. The political rulers, the military, the families
around the president would have to be urged to anticipate different possibilities. In the
economic field, if the political conditions permit, one might be lucky enough to start with and
gradual approach. Korean unification will not happen against the will of China, Russia, Japan,
and the United States.
So, what is needed, if there is something to be learned from the historical
example of Germany. Is it to build up a good relationship with Beijing. Trust must be built up
in the relationship with the neighbors which is not simply a question of establishing ordinary
diplomatic relations. The consent of Japan might be needed for the unification of the two
Koreas, but Japanese financial assistance will certainly be needed whether it be after a big bang
or after gradual process. Japan is the only country capable of producing capital exports. So,
China and Russia are needed from a strategic point of view, and Japan from the financial point
of view. The Japanese ought to be told that rendering this help to Korea will reduce the
suspicion with which she is viewed in the Far East, South Asia and the pacific.
