Korean Reunification: Challenges and Opportunities

The potential for eruption on the Korean peninsula escalates daily as the North Korean regime continues to flex its military muscles. De-escalation seems unlikely while Kim Jong Un remains in power, suggesting the only long-term solution may be a regime change, peaceful or otherwise. While the international community might hope for a scenario in which the current regime falls, what would come after such an event? A peaceful transition to a new form of leadership in North Korea seems unrealistic. In the absence of the current regime, North Korea would likely descend into chaos as warring elites and generals scramble for power and the general populace continue to suffer from the burden of limited basic resources and infrastructure. Rather than hope for an independent fix within North Korea, one solution is the reunification of North and South Korea.

The idea of reunification has been debated on both sides of the 38th parallel since Korea split in 1945, but the logistics of such a move carry major complications. Political, monetary, fiscal, and cultural barriers would obstruct every step of reunification. There are historical examples from which to draw inspiration, such as the reunification of East and West Germany and North and South Vietnam, but the two Koreas present their own unique challenges. So what are the challenges inherent in Korean reunification?

The Money Issue

In the event of reunification, there would be a number of monetary challenges to address, starting with currency integration. To better understand the implications of such an exchange, we can use the example of East and West Germany. East German Ostmarks were officially set at a 1 to 1 exchange rate with West German Deutschmarks, but that exchange rate was closer to 5 to 1 on the black market. During reunification, Ostmarks were traded for Deutschmarks at the official 1 to 1 rate, and while this exchange rate slightly benefited East Germans who had adjusted to black market exchange rates, the difference was neutralized by the disparity in income between East and West.

This undated picture shows the front of a new North Korean 50 won note. | The Chosun Sinbo/Yonhap/REUTERS

This undated picture shows the front of a new North Korean 50 won note. | The Chosun Sinbo/Yonhap/REUTERS

Like East Germany, North Korea would face its own unique challenges during such a monetary shift, driven in part by a major currency revaluation in 2009 that caused an economic crisis and severely weakened the North Korean won. As in the case of East and West Germany, the North Korean and South Korean won are officially set at a 1 to 1 rate, but the 2009 revaluation drove the black market currency exchange to an 8 to 1 rate, with the South Korean won valued above North Korean. If South Korea applied the official 1 to 1 rate, North Koreans would benefit relative to the black market standards on an individual level, but the forces of globalization would likely crush North Korean businesses.

The Disparity Issue

Reunification and conversion of North Korean currency would also highlight the divide in living standards between the North and South Korean populations, and both South Korea and the international community would have to commit to significant investment in infrastructure and welfare. In this case, the reunification of North and South Vietnam provides a more appropriate example. While there were ~16 million people in East Germany at the time of reunification, the ~15 million in North Vietnam in 1975 more closely reflects the circumstances of North Korea. During the Vietnam War, North Vietnam was propped up by ~$1B USD in foreign aid per year, and after the war large swaths of the population moved south into larger, more industrialized cities. Similarly, the North Korean population is largely dependent on foreign aid (although the US has limited humanitarian aid since 2011), and in the event of reunification it is likely that a significant portion of the North Korean population would migrate to urban and industrialized areas in South Korea. South Korea would have to run up a significant deficit during the reunification for new infrastructure projects, ranging from new highways to an expanded power grid, as well as subsidies for North Korean businesses and individuals. The disparity between the South Korean and North Korean economies is also significant. In 2015, the income per capita ratio was nearly 20 to 1, with South Korea at $36,700 USD and North Korea at $1,800 USD. South Korea would likely experience a temporary economic boom from the influx of North Korean consumers (West Germany experienced this phenomenon in the early stages of reunification), but would increasingly be burdened by the required deficit spending to enable the reunification.

The Industry Issue

North Korea would also undergo a significant privatization of previously state-owned businesses and property. In the case of German reunification, East German businesses were rapidly bought up and restructured as subsidiaries of West German businesses. In the case of the Koreas, it is likely South Korean industries would similarly buy up North Korean businesses, while the South Korean government would inherit non-business related public property with the option to sell it or use it for infrastructure projects.

An equally pressing issue would be the training and education of the North Korean population to make them more competitive in the South Korean job market. Given that the North Korean economy largely revolves around more antiquated industries like coal, the majority of North Korean workers likely lack the skills to succeed in the more modern South Korean industries. This process would take time, and the interim would be filled with frustration and potential resentment between the North and South Korean populations.

There is a stark contrast between the two countries’ main industries, with coal making up 35% of North Korean exports and South Korea exporting a range of technology-focused offerings. Modernizing North Korea’s economy and bringing its population up to speed under the purview of one of the most modern economies in the world would be a painful and lengthy process, and the culture shock would inevitably cause friction between the two.

The Culture Issue

The cultural challenges for the Koreas are unique. North and South Korean populations have been separated for over 70 years, enough time for multiple generations to be born with no memory of a unified Korea, and for those who do remember, the memory of a brutal civil war in which thousands on either side were killed may dominate. Furthermore, the North Korean population has lived in a state of cultural isolation, while South Korea has made leaps and bounds in modernization, with Seoul serving as a global hub for everything from tech industry to fashion to food.

The inevitable influx of North Koreans into South Korean cities would throw those differences into stark relief and increase tension on all sides. While many North Koreans undoubtedly resent the current regime and wish for its overthrow, many are devoted to their leader and have no access to information that would inform them otherwise. As a result, while some friction may come from basic differences in North and South Korean culture, South Korea might also face outright resistance from North Koreans who maintain loyalty to their leaders and ideals, even if the regime falls.

The Security Issue

North Korea’s nuclear, biological and chemical programs could employ more than 20,000 people across a wide range of concealed facilities, according to a U.S. analyst. File Photo by How Hwee Young/EPA

North Korea’s nuclear, biological and chemical programs could employ more than 20,000 people across a wide range of concealed facilities, according to a U.S. analyst. File Photo by How Hwee Young/EPA

Security issues are the final and potentially most pressing challenge for Korean reunification. In the event of reunification, North Korea’s nuclear program would need to be dismantled and its materials safely secured, requiring international collaboration and cooperation from the North Korean military. Additionally, North Korea’s inventory of chemical and biological weapons will need to be located, and disposed of by the international community. North Korea has developed a robust black market for everything ranging from foreign currency to South Korean movies to weapons over the past few decades, and any unsecured nuclear, chemical, or biological materials could rapidly fall into the wrong hands.

The Potential

There is no clear path to regime change in North Korea, and any potential ensuing Korean reunification would be a massive undertaking. However, after the initial growing pains of integration and readjustment, a unified Korea could have the potential to become an economic global powerhouse by leveraging the modern economy of the south and the influx of manpower and resources from the north. If South Korea and North Korea managed the flow of people and capital between the two regions and mitigated the cost of reunification, in combination they could surpass major Western powers within a matter of decades. The road to a unified Korea is challenging, but not impossible, and it is worth considering the logistics of reunification given that it is one of the few viable paths for North and South Korea going forward.

Schuyler Moore is a senior analyst at an aerospace & defense-consulting firm based in Arlington, VA. She previously studied international relations at Harvard University and worked with the National Defense University in Washington, D.C. The views expressed in this article do not reflect the policy or position of any official organization.

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Header Image: Arch of Reunification | Wikimedia Commons