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Northeast Asia Peace Initiative
M. Hayashi: The Unification of the Two Koreas and an East Asian Union
Written by Masahisa Hayashi, Professor of Public Economics, Waseda University, Japan
Tuesday, July 27, 2004
The European Union and the Northeast Asian Union
Members of what is now the European Union fought brutal wars against each other many times in history, including the last two World Wars. While studying at the London School of Economics, serving as a visiting professor at the Ecole Superieur Commerce de Lyon in France, I made many extensive trips to countries in western and eastern Europe. Through such experiences, I observed emotional strains among the people of former enemy countries such as Germany and France, Germany and Britain, and Britain and France. Poland and Germany had a very sad history in the past. Yet it is indeed impressive that they are making strenuous efforts to forget the past and live together peacefully and prosperously in the same European Union.
In fact, the model of the European Union is the United States of America, composed of 50 states. Not only is it a gigantic advanced union but also it intends to expand the free trade zone still further. The North American Free Trade Agreement (NAFTA) came into effect in 1994 among the United States, Canada and Mexico. The United States plans to expand the free trade zone to Central America and South America.
East Asia is far behind the European Union and NAFTA in the development of such a union. Although it was aborted in the last war, the concept and the design of such an East Asian Union was advocated by Japanese thinkers and strategists. Tenshin Okakura authored The Awakening of Japan and The Book of Tea, and his phrase “Asia is one” is well known. At that time, most Asian countries were still in a state of colonization by Western powers, and solidarity and cooperation among the Asian countries were considered essential to achieve political independence and economic prosperity as well as to preserve their common cultural heritages. The Greater East Asia Co-prosperity Sphere was advocated by Japanese leaders during the last war to realize this design. Although the objective itself was lofty and desirable, it was abused for the sake of military ambition and for the cause of promoting national interests of Japan. It was aborted with the defeat of Japan in the last war. Those unfortunate incidents are the most recent ones in the course of human history, and the memories are still fresh in the minds of the people living today. Japan has been extremely timid in taking initiatives and promoting such a grand design after the war. But the time has come to overcome such traumas and embark upon a new grand design of establishing the East Asian Union, the counterpart of the European Union.
Development of the European Union
Although the development of the European Union may seem to be smooth and successful, in fact it took more than half a century since its inception. It suggests that the road has not been so smooth. There were many difficult barriers to overcome. The idea of a European Federal State was promoted by Winston Churchill as early as in 1946. The European Coal and Steel Community was established in 1951 by France, West Germany, Italy, Belgium, Luxembourg and the Netherlands to use the coal and steel industries along the Rhine River and link the economies of the six member countries for their common benefit. The European Economic Community and the European Atomic Energy Community were established in 1958. Those three separate communities were integrated into the European Community in 1967. In 1969, it was agreed to promote the establishment of one market, integrate and expand the European Community, and introduce a European Monetary System.
In 1973, the European Community was expanded to include the United Kingdom, Ireland and Denmark. In 1977, tariffs were removed among the nine member countries. In 1981, Greece was admitted as the tenth member country, and in 1986 Spain and Portugal became members. In 1993 the European Union was established by the Maastricht Treaty. In 1995 Austria, Finland and Sweden became new members. In 2002, the euro came to be in circulation among 11 EU members. On May 1, 2004, the Czech Republic, Estonia, Latvia, Lithuania, Cyprus, Hungary, Malta, Poland, Slovenia and Slovakia were admitted as new European Union members.
Even though the European Union looks as if it has been developing steadily and smoothly, we must remember that the road has been rough and it has taken a long time to reach the present stage. From the very inception, Great Britain did not join the European Coal and Steel Community, since she rejected the supranational nature of the community. Seven countries who did not join the European Economic Community established the European Free Trade Association and competed against the European Economic Community. When Great Britain intended to join the successful European Economic Community, she was rejected by the French president Charles de Gaulle, since he intended to establish a union that could rival the United States, and Great Britain seemed to be too close to the United States. Norway was to join the European Community but could not because of the result of the referendum. Although Great Britain became a member of the European Community in 1973, there were difficulties in negotiating how to share the burden of supporting the European Community.
The road to the adoption of the common currency, the euro, was not smooth either. The European Monetary System was established in 1979 as the first step to achieve economic and monetary unity. In 1999, the common currency, the euro, began to circulate in most European Union countries, but Great Britain and Denmark exercised their privileges to stand apart from monetary union. Sweden failed to meet the exchange rate criterion.
Since fiscal equalization is very important for achieving the so-called "national minimum standard," some degree of equalization or redistribution will be essential within the European Union. Wealthy members must support poor members. And inevitably, conflicts of interest will arise in redistribution.
The Pareto improvement (optimum) and equity in distribution
Economists ask whether a certain policy should be taken or not. If that policy enhances the welfare of some members of the society while other members of the society remain as well off as before, then they conclude that such a policy makes a Pareto improvement and it should be implemented. If the welfare of some members is raised to the limit and the welfare of the other members would have to be decreased in order to improve their welfare further, they conclude that the Pareto optimum is reached.
There seems to be much room for attaining the Pareto improvement by expanding economic cooperation, opening up borders for freer flow of goods through lower tariffs and removal of quotas. The European Union started with the attempt to manage the coal and steel industries in order to improve efficiency for all the member countries. All countries can benefit from improved efficiency even without redistribution.
In technical terms, there are an infinite number of Pareto optimums, since there is one Pareto optimum for each initial state of distribution. The equity of distribution is a matter of value judgment, and in a modern welfare state some degree of redistribution of income and wealth is essential among individuals; a very extensive fiscal equalization grant is allocated to poor local authorities in Japan. Regional aid among European Union member countries is one of the important agendas for the EU. If equity of distribution is achieved along with efficiency in the allocation of resources, that ideal state is called the “bliss point.” The first fundamental theorem of welfare economics is that the competitive market achieves the Pareto optimum. The second fundamental theorem of welfare economics is that with the initial equitable distribution achieved by the redistribution by the government, the competitive market achieves the bliss point that satisfies the criteria of both efficiency and equity.
In the long run, regional aid or redistribution among the member countries in the East Asian Union will be necessary as the degree of integration rises. But at the initial stage, there is much room to achieve the Pareto improvement by increasing economic cooperation and achieving a freer flow of goods by lowering or abolishing tariff barriers and quotas. The free flow of capital should also be promoted. Should labor flow freely among the member countries? This is a long-run goal, and it will be achieved with more equal development of the economies of member countries. The likely flood of immigrants from east European countries is a source of headache to the early European Union member countries. These are not just economic matters; they require more comprehensive integration of politics, culture and mentality.
National interests and their synthesis
No individuals or nations are perfectly altruistic. Even though they intend to be so, they are not infinitely powerful in terms of resources they can command. Before they become burdens upon others, they should make the best efforts to be at least self-reliant and guard their self-interest. During my university days, I was much impressed by the Hegelian dialectic as the mechanism of social dynamics. Every nation is expected to identify and assert its national interest as their thesis. Since the national interests of different nations are often in conflict with each other, other nations will present their own national interests as anti-theses. Observing Japan from overseas, I have a very strong impression that Japan is very unclear in identifying and timid in asserting her national interests. As Adam Smith teaches, there is nothing wrong with the pursuit of self-interest. The self-interests of different economic entities will be coordinated by the interplay of supply and demand in the market, and in the end the public interest is maximized. For nation-states, there is nothing wrong with identifying and asserting their national interests. Of course, the naked pursuit of national interest by force should be avoided. The function of politics is the dissolution of conflicts of interests; without resorting to force, conflicts of national interests can be dissolved by sophisticated diplomacy and international political mechanisms. Thus, the clash of theses and antitheses will be resolved as a synthesis.
The nations involved should analyze the costs and benefits of different scenarios of the East Asian Union and identify the common interests. The relationship should be that of free exchange which benefits both parties of the exchange. This is similar to the attainment of the Pareto improvement. No participant becomes worse off, while some participants enjoy improved welfare. As the process of the Pareto improvement is further promoted, we can reach the Pareto optimum, in which there is no room for further improvement of some members without aggravating the welfare of others.
It is common knowledge to economists that the Pareto optimum exists in an infinite number, as there is a different Pareto optimum for each initial state of distribution. The initial state of distribution can be changed by the redistribution policy to meet the criterion of equity. Considering the very significant inequality of distribution of income and wealth among potential members of an East Asian Union, economic aid from rich countries to poor countries may be essential. But redistribution is typically up to the judgment of the donor and is accompanied by sacrifice on the part of the donor. Thus, there must be very clear reasons and criteria for such redistribution.
Economic interests and political values
One serious concern I have over an East Asian Union is the coexistence of very different political values among the potential member nations. The European Union started with western democracies such as France, West Germany, Italy, Belgium, Luxembourg and the Netherlands, joined later by Great Britain, Ireland, Denmark, Greece, Spain, Portugal, Austria, Finland and Sweden. The east European countries of Poland, the Czech Republic, Hungary, Slovakia, Slovenia, Estonia, Latvia and Lithuania joined the European Union in 2004 after considerable experience as democracies. Negotiations with Bulgaria, Romania and Turkey are continuing. These new members from eastern Europe have become western-type democracies with the same political values.
However, the People’s Republic of China still upholds communism as a political value, although it is developing increasingly as a market-oriented economy. The Democratic People’s Republic of Korea is still a communist dictatorship. One serious question is whether nations with such differing political values can get together and form a union similar to the European Union.
It is my view that we should start with economic cooperation and integration, even though our long-run goal is not only economic but also political and cultural integration as the East Asian Union. Economic matters are more neutral and impersonal, and rational calculation is their essential feature. Free exchange is the most typical economic act, and it brings benefits to both parties. Economic exchange is more independent of political values and human emotions. In fact, the European Union started with economic cooperation, and the adjective “economic” was dropped in 1967 in order to embrace a more comprehensive integration.
I have grave doubts about embracing entirely different political values and systems in the East Asian Union, particularly if the union is ambitious enough to embrace political and cultural integration. Will it be better to start with the free market economies and political democracies of ASEAN countries and add North Korea and China as they become more mature as democracies? After all, the present European Union started small and expanded gradually to include former socialist countries. On the other hand, if we start with purely economic cooperation, perhaps the first step can be to accept the coexistence of drastically different political values and systems in this region. Political freedom will follow economic freedom.
Unification of the two Koreas and lessons from former socialist countries
It is said that if North Korea makes a "hard landing," it may affect its neighbors and the whole world. The 20th century was the century of refugees, and perhaps the 21st century will be as well. A hard landing will produce an enormous number of refugees as well as smuggling of drugs, weapons and other undesirable materials. It is in the interest of every country to avoid the sudden collapse of North Korea, which would be accompanied by chaos and desperation. It will be in the interest of the neighboring countries and the international community including Japan to extend necessary aid to North Korea so that she may avoid a hard landing. But I believe that neither Japan nor the international community is willing to aid North Korea only to prolong the dictatorship of Kim Jong-il. North Korea has been engaged in various criminal acts including terrorist activities, smuggling of drugs and weapons, and even kidnapping of nationals of other sovereign nations. There were reasons why President Bush called North Korea a rogue nation and part of the axis of evil.
The former socialist countries in East Europe are joining the European Union one after another. The former East Germany was unified with West Germany in 1990. I am sure that we can learn many valuable lessons from their experiences. They are now warmly accepted as members of the international community and continue to develop economically and politically as democratic free market economies.
Did these former socialist countries land hard? There were repeated attempts at democratic reforms rising from the people in these countries, although the military force of the Soviet Union crushed them. These former socialist countries were not liberated by military force from the outside but by the eruption of dissatisfaction from their people, who drove the former dictators from power with the aid of changes in the international situation, including the collapse of the Soviet Union. The Soviet Union was comprised of 15 independent republics, and Russia is struggling to transform successfully its economy into a market-oriented economy and its politics into democracy. The east European countries seem to be even more successful in transforming their economies into market-oriented economies and their politics into democratic systems. Looking at North Korea in comparison with these countries, the question is whether the people of North Korea will succeed in replacing their dictatorship with a democratic government.
But in the meantime, should other countries stand and watch the inevitable collapse of the Kim Jong-il regime, or should they accelerate its collapse by economic and political sanctions comparable to the strong cold North wind? Japan has passed a law authorizing the government to resort to economic sanctions to punish criminal acts of North Korea such as the kidnapping of Japanese nationals and smuggling of weapons and drugs into Japan. Although Japan is quite willing to help the North Korean people, she does not want her good will to be taken advantage of. Both the carrot and stick approaches are essential for international politics. Although we hope that we do not have to resort to the use of a stick, we should be always be ready to use such a stick if necessary. I do not know any cases of dictators yielding their power voluntarily.
On the other hand, some degree of order even under authoritarianism is often better than chaos and anarchy. Unlike idealistic Americans who seem to believe naively that authoritarian regimes can be changed into western-style democracies overnight, many present democracies in Asia including South Korea and Taiwan have gone through the stage of an authoritarian political system until their countries matured sufficiently to adopt a full-fledged western-style democracy. The Kim Jong-il regime might be a necessary evil in the process of a soft landing. We hear that he is a flexible and pragmatic man, and with proper guidance and aid from outside he may become a valuable instrument for the soft landing of North Korea.
Source: Excerpted from paper presented at the Interreligious and International Federation for World Peace Assembly 2004 "Establishing a World Culture of Heart: Innovative Approaches to Peace in a Changing World," held in Seoul, Korea, July 23-27, 2004.
REFERENCE: EVOLUTION OF EUROPEAN UNION
1951 The European Coal and Steel Community is established by France, West Germany, Italy, Belgium, Luxembourg and the Netherlands.
1958 The European Economic Community and the European Atomic Energy Community are established.
1967 Those three separate communities are integrated into the European Community.
1969 Agreement to promote the establishment of one market, integrate and expand the European Community, and introduce a European Monetary System.
1973 United Kingdom, Ireland and Denmark join the European Community.
1977 Tariffs are removed among the nine member countries.
1981 Greece joins the European Community.
1986 Spain and Portugal join European Community.
1993 The European Union is established by the Maastricht Treaty.
1995 Austria, Finland and Sweden join the European Union.
2002 The euro currency goes into circulation in 11 EU nations
2004 The Czech Republic, Estonia, Latvia, Lithuania, Cyprus, Hungary, Malta, Poland, Slovenia and Slovakia join the European Union. A Treaty is proposed, establishing a Constitution for Europe
2005 Romania and Bulgaria are approved for membership in the European Union
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