Worlds Apart: The Two Koreas After Seven Decades of Separation
(Bloomberg) -- While hopes for an easing of tensions on the Korean peninsula have jumped after conciliatory gestures from U.S. President Donald Trump, the North’s Kim Jong Un and the South’s Moon Jae-in, the notion of unifying the Asian nation looks as distant as ever.
Since being divided at the end of World War II and ravaged by conflict in the 1950s, North and South Korea have taken radically different political and economic paths. The South is now a robust democracy that plays a key role in the world economy, while the North is a globally isolated dictatorship that presents an outsize military threat.
The Kim dynasty in Pyongyang also has a history of coming to the bargaining table dangling the prospect of concessions, only to walk away after extracting economic concessions. This time its turn to diplomacy coincides with the dwindling of currency reserves.
Yet at times like these the question of reunifying Korea looms large. And as these graphics show, along with huge challenges, bringing the two sides back together would also bring enormous benefits.
A united Korea of 76 million people could become more powerful and prosperous, at least in the long term. The South’s aging population is one of its greatest economic challenges, and North’s lower median age and higher fertility rate would greatly improve the demographic picture. It would also bring a host of problems, given the malnourished state of many of North Korea’s people and its poor health system.
The gap between the two Koreas today is far greater than that between East and West Germany when the Berlin Wall came down, and it will probably get wider as the international community presses sanctions. A 2015 report from the National Assembly Budget Office estimated that even under a peaceful scenario in which Seoul expanded humanitarian support ahead of a hypothetical reunification in 2026, it could cost about $2.8 trillion to help bring the North’s gross domestic product to two-thirds that of the South’s. That’s almost 8 times South Korea’s 2017 annual budget.
North Korea is more endowed with natural resources, ranging from coal to rare earths, which would complement South Korea’s industrial output.
Military costs could be cut substantially on both sides of the 38th parallel, allowing the money to be funneled to other areas that lack sufficient investment, like social welfare. According to a U.S. State Department report in 2017, military expenditure accounted for between 13 percent and 23 percent of North Korea’s GDP during the years 2005 to 2015. For South Korea, it was only 2.6 percent of GDP during the same period.
The challenge of rebuilding North Korea’s infrastructure would be huge. Its rail lines are old and in disrepair and highways are scant. Yet it would be an enormous opportunity for the South’s world-class engineering and construction firms, and provide employment for many of the masses of soldiers from the North who would need to be redeployed.
For now a unified peninsula seems a remote prospect, even if Moon favors a softer line. There’s no agreement between the two Koreas or the other major players in the region: China, Japan, Russia and the U.S. And despite his current enthusiasm for talks, Trump warned of in the past of a "major conflict" with North Korea if diplomatic solutions fail.
©2018 Bloomberg L.P.