‘Unification costs will depend on NK wages’

South Koreans just can’t decide whether they want their country to unify with the North or not. One moment they get starry eyed imagining a bigger country with more political and economic clout but the next they worry about the enormous price tag attached to the combined country and social reshaping.

A former German policymaker says that unification will be financially manageable if the wages of North Korean workers are kept low enough to enable labor-intensive economic growth.

Talking to reporters on the sidelines of the “Unification and Korean Economy’’ conference in Seoul, Monday, Manfred Carstens stressed that the German experience doubles as a role model and cautionary tale for Korean efforts at unification. Carstens was the deputy finance minister of West Germany at the time of German reunification.

“I understand that there are great worries here that unification will be expensive and it really will be, considering the money spent on building roads and infrastructure. However, it would be important to reduce these costs through the labor of North Korean people. More jobs for North Koreans means less spending of taxpayers’ money and other financial sources because the larger part of the process becomes self-sufficient,’’ Carstens said through a translator.

“The important thing is that the level of wages for North Korean workers shouldn’t be set at a level too high from the start. High labor costs will eat into companies’ profit levels and dissuade them from investing in North Korea. This is the mistake we made in Germany.

“Of course, North Koreans’ incomes should be higher than what they were getting before but if their wages can be controlled at a manageable level, the cost for unification won’t be that high.’’

The seminar was organized jointly by the Export-Import Bank of Korea (Kexim Bank), the Korea Development Institution (KDI), Konrad Adenauer Foundation of Germany and Peterson Institute for International Economics (PIIE) of the United States.

The participants, including scholars and former and incumbent policymakers, discussed the current state of inter-Korean relations, the challenges of South Korea’s next government in its approach to North Korea, and how the South can find the financial muscle room to support potential unification with the North.

Brad Babson, head of the North Korea economic forum at Johns Hopkins University, said there were both strengths and flaws from the South Korean government’s polarizing approaches to the North over the past 15 years.

The governments of Kim Dae-jung and Roh Moo-hyun were committed to an engaging Sunshine Policy, an effort betrayed by Pyongyang’s pursuit of North Korean weaponry. However, the Lee Myung-bak administration’s stance on North Korea over the past five years could be summarized as disengagement and economic sanctions.

Babson’s dual criticism of both approaches doubled as a confession that the international community remains at a loss over how to influence North Korea’s actions.

“The most important task for South Korea’s next government is to try and reestablish the multi-dimensional relationships between the two Koreas, which was the most important accomplishment of the Sunshine Policy,’’ said Babson.

“I think that the problem with the policy in the last five years is that disengagement and sanctions have not produced a North Korea that has been willing to denuclearize. They are deepening their economic and political relations with China, as their relationship with South Korea has become narrower.’’

Marcus Noland, deputy director of PIIE, defended the principle of reciprocity with regard to North Korea but also stressed humanitarian aid should be separated with politics.

“There is no reason to punish school children in Wonsan or workers in Cheongjin for the behavior of a government they absolutely have no control over,’’ he said. <The Korea Times/Kim Tong-hyung>