Victor Cha Paper at GPLC 2014 Seoul

Global Peace Foundation
September 29, 2014
Global Peace Leadership Conference
September 29-30, 2014
Seoul, Republic of Korea
Theme: “Vision, Principles and Values for the Unified Korea”

Panel shot at Global Peace Leadership Conference.

A few months ago, the Financial Times had an article talking about two new reunification equity funds created in Korea. These were basically funds where the asset managers target investment in 70 companies and sectors that might do well in a reunification scenario – -such as the construction, utility, agriculture, and medical sectors.

This might seem like a boutique-type investment. Indeed, it seemed like a boutique-type story for the FT…except that these funds were performing well. One such fund showed an investment return of nearly 7% in the second quarter, compared with an average return of 3.5 percent for comparable funds. Moreover, over $35 million flowed into these funds in the few months after they were launched.

So, it seems as though the interest in reunification – a perennial topic of discussion among political scientists – has now become an interest of investors. Undeniably this phenomenon is a reflection or outgrowth of the Park Geun-hye government’s talk about the “unification bonanza” or grand opportunity or jackpot. As Huh Nam-kwon, chief investment officer at Shinyoung Asset Management Company – which runs a 33 billion won equity fund called Marathon Unification Korea Stock Fund – said, “the president’s speech has certainly affected investor sentiment, increasing people’s interest in reunification.”

But what has emerged in my opinion is an important sea-change in thinking about reunification on the Korean peninsula. And I would like to spend my limited time with you to think about the concept of reunification and the many forms it has taken in Korea.

I count five. Over the years, thinking on the concept of reunification has taken five forms. Each one is distinct, and has been motivated by a combination of ideology and real-world events. They are all important to remember. Without one, the others could have never emerged.

1) Pukchin Tongil

The first concept of reunification emerged after the division of Korea and throughout the Cold War. This was essentially the notion of “unification by force.” In Korean pukchin tongil or songong tongil. This was essentially the idea that the only legitimate definition of reunification was the crushing victory of one Korea over the other. This view was held equally on both sides of the peninsula. It was the ultimate zero-sum game. Winner-take-all.  There was no room for compromise in this view.   This was the view held by Syngman Rhee, Park Chung-hee, Kim Il-sung and other South Korean leaders. And it pretty much shaped not only the tortured inter-Korean dialogue, but also the domestic system in South Korea. In other words, if pukchin tongil was the only definition of reunification, then there was no political room for engagement or even acknowledging the legitimacy of the other side.  One could not even imagine not making a negative statement about North Korea (how is that for a lot of double negatives). The National Security Law (NSL) and the dictatorships in the South that administered and prosecuted this law were essentially an outgrowth of pukchin tongil.

The Lesson of Germany

But then the Cold War ended. The Soviet Union collapsed and, perhaps most importantly for the Korean experience, the two Germanies were unified. Koreans watched this with deep envy. They were mystified by it and sought to live their own fate vicariously through watching the Germans.

But in watching the Germans, the Koreans realized a few things.

A. First, after the initial euphoria, the realities of how difficult reunification is start to set in;

B. As cathartic as reunification might seem, it is also very expensive…perhaps even prohibitively expensive; and

C. As hard as Germany was, the two Koreas would be harder – across almost any metric, the burden of absorption on South Korea will be higher than that on West Germany.

D. They were not ready for such a Herculean task.

The ROK Ministry of Unification, think tanks like Korea Development Institute (KDI) and Korea Institute for National Unification (KINU), and private sector institutions like Goldman Sachs all started to calculate the cost of reunification – i.e., how much it would cost over ten years to bring the North Korean economy to 40 percent of South Korean productivity levels.

2) “Hard landing”

The numbers were large and frightening to most South Koreans. This gave rise to the SECOND view on reunification – that it was too difficult and too dangerous. Reunification became something that was not desired, but something to be avoided because of its staggering costs and the terrible uncertainties. It was during this period that the term “hard” and “soft” landing emerged. South Korea wanted to avoid a hard landing.

This second view of reunification or hard landing predominated Korean thinking on reunification from the end of the Cold War in Europe until the Asian financial crisis in 1997. Because it was from 1997 that a new view of reunification emerged tied to the ascension of Kim Dae-jung (KDJ) to the presidency.

3) Sunshine Era

Kim Dae-jung put forward the idea of the sunshine policy. A strategy of unconditional engagement with North Korea designed to open the North to the forces of reform. The policy got its name from Aesop’s Fables “The North Wind and the Sun.” The fable tells of a competition between The Wind and the Sun over who was stronger, a competition that was settled by seeing who can make a traveler take off his cloak. The Wind blew hard upon the traveler, which only made the traveler wrap his cloak, but when the Sun shone on the traveler, he took off his cloak because of the warmness.

This was a policy tied to a more liberal political ideology of KDJ, and then carried forth by his successor Roh Moo-hyun for an entire decade. But it was not just about ideology.  This third view of reunification – call it SUNSHINE – was motivated by hard economic realities. You see, KDJ came into power at the time of Seoul’s liquidity crisis. This made reunification an impossibility because of its cost. So in KDJ’s mind, the best thing to do was to engage the North Korean regime over the long-term, try to spur reform in the North, and then slowly narrow the economic gaps between the two countries, which could eventually pave the way for a gradual transition or “soft landing.”

Sunshine policy had the effect of democratizing the narrative on North Korea in the South Korean political spectrum. Unlike the days of the NSL, you could talk about North Korea in non-negative terms, you could blame the ROK, and this was now deemed a politically legitimate viewpoint, not punishable by imprisonment. So sunshine policy democratized South Korean politics in a sense.

But, in retrospect, what was so distinct about the Sunshine policy was not engagement (for which KDJ won a Nobel peace prize), but the notion that reunification should be pushed generations into the distant future. It socialized an entire generation of South Koreans and the world into seeing reunification as a “bad thing.” Too expensive, too impractical, and too inconvenient – and so this would not be a concern or goal of the current generation or even its children or grandchildren, but something much more distant.

4) MB Lee – Pragmatic

The sunshine era ended with the re-election of conservative Lee Myung-bak (MB Lee) into the Blue House. And with this shift, there was also a shift in conceptions of reunification.  MB Lee was a businessman, not an ideologue. He was pragmatic and saw reunification in pragmatic terms.

What emerged during this period was a push back against a decade of views on reunification that preceded it. To put it in a nutshell, this fourth view of reunification was the PRAGMATIC one – that is, reunification may be expensive, it may be difficult, and it may be dangerous. But we cannot be ostriches and stick our head in the sand hoping it will go away.

Instead, as traumatic as reunification may be, it could very well come not in two generations, or in one generation. Instead it could very well come tomorrow or next month or next year. And so South Koreans must start to prepare now for it, not simply wish it would go away forever.

Some said that you could not prepare for reunification. It was just too overwhelming and would require some luck. MB Lee’s response was that you cannot be lucky if you are not prepared.  The prepared get lucky. The unprepared do not.

And so the reunification ministry started to spend some of its budget not on inter-Korean relations but on preparing its own public for the idea of reunification. Major conferences inviting foreign policy luminaries took place in the halls of the Shilla Hotel in Seoul where the likes of Colin Powell, Richard Haas and others would talk about reunification. While all mentioned the difficulties, citing the German example, they all also noted that reunification was inevitable in Korea’s future – i.e., the future history of Korea was that of a reunified nation, not a divided one. In the audience of these conferences were young Korean university students who were able to receive a free ticket online to attend. I recall a large white board standing outside the conference hall with a multitude of colored sticky notes for the students to record their views on reunification. A rainbow of notes talked about how the conference made them think about reunification as something that could happen in their lifetime.

5) Park Geun-hye – Opportunity

So this takes us to Park Geun-hye (PGH). At a speech in Dresden, Germany, in March 2014, Park unveiled her own view on reunification. She believed that reunification could be a bonanza or jackpot for Korea and her neighbors. It could offer opportunities for growth, investment, and peace in addition to the joy of uniting the two Koreas.

This fifth view of reunification does not see it as winner-take-all (pukchin), or something to be feared and delayed indefinitely (sunshine), or even something that we must reluctantly prepare for.

Her view is that reunification is an opportunity. Sure it will be difficult – the Ministry of Strategy and Finance in January 2013 estimated the cost of reunification within the next eight years to cost about 1to 7 percent of ROK GDP each year for ten years,  or about 1.15 trillion dollars/year (7 % of GDP) for 10 years, Korean sovereign debt would increase, and growth would slow to 2% according to most calculations — but at the same time it will allow Korea to fulfill its true potential and create the opportunity for lasting peace and prosperity in the region.

In a sense, it is an attempt at social re-engineering of the discourse on reunification over the past 15 years as being something dark and negative. She rather paints it as something bright. In fact if you look at some of the pamphlets out of the Blue House on the policy, it makes reunification look like the pot of gold at the end of the rainbow or on the other side of the mountain. Indeed, these pamphlets are notably geared in their colorful pictures and non-threatening cartoon characters to a younger generation to make them think about reunification as a bright and wonderful future.

Policy Ramifications

Let me close by offering two policy observations that derive from this academic sojourn on the concept of reunification.

First, the turn to thinking about reunification in the near-term rather than in the long-term is related to ideology, it is related to politics, but it is also motivated by a sober realization that the stability of the regime in the North is far from certain.

Time is running out on the North Korean regime absent any serious reform. And there is very little evidence that the current leader has any intention to reform. One gets the sense talking to policymakers in the region these days that there is more and more concern about the viability of the regime. We can certainly discuss this more, but I think this is one of the reasons that both MB Lee and Park Guen-hye have been more vocal about reunification.

Second, there is a direct correlation between the increased interest in reunification and South Korea’s outreach to China. All of us have seen how Seoul and Beijing have grown closer under Xi Jinping and Park Geun-hye. They held their second summit in July 2014. Park speaks Chinese. Xi clearly takes a liking to President Park. Both have talked about deepening their strategic relationship.

They have created NSC-NSC dialogues and defense exchanges. Bilateral trade has gone from $6 billion in 1992 (the year of normalized relations) to well over $270 billion last year (2013), which is more than ROK-Japan and ROK-US bilateral trade combined. The leaders talk about a community of shared interests tying the two countries together (as opposed to the US-ROK alliance’s moniker of a “community of shared values.”)

At the summit the two leaders announced the intention to conclude an FTA by the end of 2014. Leaders don’t make statements like this unless they are fully confident in their ability to deliver, which is also a reflection of the confidence that each has in the relationship. Indeed, no South Korean president has enjoyed such a good relationship with China.

Contrary to most, I think that this deepening of ties is not a reaction to Seoul’s deteriorating relations with Tokyo. Instead, it is because South Koreans see a moment of weakness in China’s ties to North Korea. Xi is not Hu or Jiang. Dai Bingguo, the biggest supporter of North Korea inside the government’s elite circles is no longer playing a leading role. China is increasingly worried that the regime in Pyongyang under Kim Jong-un is headed in a spiraling downward direction.

So, South Korea is try to take advantage of this window and bring China more to its side. It wants to create greater equities for Beijing in its relations with Seoul than its relations with Pyongyang. And they believe the moment is now.

Does this mean that South Korea will be willing to collude with China to seal a deal on North Korea that excludes the U.S.? No, I don’t think so. As infatuated as the South Koreans may be with China, they know that their outreach to China is only credible if it is grounded in a strong alliance with the U.S. To put it simply, without the U.S. alliance, South Korea gets treated by China like a small province. I think leaders in this government all understand that.

Let me close by saying that I wanted to focus on reunification today because I think it is something that many of us in this room will witness. Perhaps not next week or next year, but certainly within our lifetime.

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