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M. Cho: Address to International Leadership Conference 2019
Written by Prof. Cho Myung-chul, Professor, Sun Moon University, Korea; Former Professor at Kim Il Sung University, DPRK
Thursday, May 16, 2019
Address to International Leadership Conference 2019, Seoul, Korea, May 15-17, 2019
The late Rev. Sun Myung Moon said the following:
“Communism is doomed.”
History has borne this out.
“The Juche Idiology is ill-conceived.”
The reality in North Korea bears testimony to that.
“North Korea and South Korea should seek a breakthrough through a multi-faceted cooperation.”
No better way than this, as long as it is based on peace.
The message is clear: The future of our country and its opportunities lies in cooperation between the two Koreas on diverse fronts; therefore, communism and the Juche ideology characterized by repression, isolation and inefficiency should give way to opportunities instead of causing threats to each other. This message, although laconic, is profound. Reverend Moon’s audacity and insight merit our praise; no one else made such a bold statement to the North Korean leadership.
South Korea’s economy is at a crossroads. No doubt it is experiencing a crisis in terms of both economic cycle and structure. All indicators, including of production, investment, consumption trend and business sentiment, have been worsening. Under the current administration, which has championed the cause of job creation, economic downturn has become the order of the day, taking a toll on distribution of wealth, contrary to expectations, and increasing the unemployment rate sharply among the low-income class.
The reality is such that it seems to be gnawing at the fundamentals of the economy, which remained resilient enough to give hope during the nation’s financial crisis in 1997. Major macroeconomic indicators, such as the economic growth rate, prices, the unemployment rate and the current account balance, are giving us warning signals. The nation’s potential growth rate for 2019 has been on a steady decline at 2.8–2.9%, while its expected real growth rate for 2019 stands at 2.3%, well below its potential growth rate. Investment and employment are in the worst shape since the financial crisis in 1997. The economy is experiencing a stagflation, in which prices are increasing amid the dwindling growth rate. Just as deplorable is the performance of the nation’s external trade, which has been supporting its economy. Exports have begun to take a sharp decline in 18 months. Sales of large corporations leading the nation’s exports, such as Samsung and Hyundai, have plummeted.
The problem is that tomorrow may be worse than today. The Index of Leading Economic Indicators give us a clear message. The number is lower than the Organization for Economic Cooperation and Development (OECD) average of 99.31 in terms of employment, consumption, investment, finance, construction, and machinery inventory. (Any number larger than 100 bodes well for the economy, whereas the lesser bodes ill for the economy.) The figure shows a slim chance of the economy to rebound. The gloomy prospect may cause businesses to resort to belt-tightening by reducing investment and recruiting, prompting a social unrest with a high unemployment rate.
That is just part of the problem, though. The nation’s major industries, boastful of being at the world’s top, are facing a challenge of grave proportions. Our industries with a traditional competitive edge, including semiconductors, electronics, shipbuilding, chemicals, steel and iron, have been losing their global market share owing to competition from China and South Asian countries, with some even losing their top position.
What is worse is that our external economic situation is unfavorable; Sino–U.S. trade disputes made our exports of intermediary goods to China drop sharply, contributing to the nation’s overall export downturn. South Korea is facing an ever-intensifying trade pressure from the United States.
As if that were not enough, Korea’s low birth rate and aging population have long been serious economic and social problems by any measure. Our proportion of economically active population is 63.2%, lower than that of Japan. Administrative units facing extinction among the cities and counties number as many as four. Our birth rate is the lowest among OECD members, eclipsing Japan’s, known previously for the lowest rate (1.3 for Japan; 1.25 for South Korea) In the meantime, our population is aging fastest in the world. Our low birth rate and aging are expanding the cost of social and economic welfare programs dramatically, unleashing the inefficiency of the nation’s overall economic system. It is a stark reminder of a collapsing growth engine.
Korea is the only nation that succeeded in transforming itself from a basket case to a donor country in the 20th and 21st centuries. Many developing countries have been trying to emulate Korea for their economic success. Now the nation is encountering a moment of truth. Will the nation be able to counter the challenge by expanding our fiscal spending (increasing tax rate) to create jobs directly, increasing welfare benefits to halt low birth rate, with our financial authorities lowering her interest rate, rediscount rate, and reserve requirement, and so forth? Will the quantitative easing, which is invariably employed in crisis, do the job this time? Will the innovative growth championed by the government fit the bill? The measures are common in other countries as well. Is there not an extraordinary way out? There is, indeed, upon deep reflection: North Korea and reunification. These variables are unique to us, but never have they been put to use properly.
Imagine this. What if North Korea were free of nuclear weapons and had a free economic environment? This would, as all would agree, have economic consequences of unimaginable consequences. It would become an instant magnet for huge investment in infrastructure, industries, service, and development of natural resources. On its part, South Korea would take advantage of its proximity to expand investment sharply in infrastructure, including railroads, land roads, ports, and airlines, that would help her connect to Pyeongyang, Sineuju, China, Russia, and all the way to Southeast Asia and Europe. Abundant energy, industrial raw materials, and goods from China and Russia would be transported through this infrastructure to South Korea, drastically reducing costs of logistics and production.
Suffering a setback, South Korea’s leading industries, such as shipbuilding, machinery, electronics, steel and iron, and chemicals, would see their competitiveness soar through the combination of South Korea’s capital, technology, and management know-how and North Korea’s resources and labor. The surge in consumer population from 50 million to 80 million on the peninsula would create a much larger market, touching off a production-inducing effect by a large margin. Market liberalization of North Korea would attract global investors and businesses for investment and exchanges. The economic effect of such a scenario would be overarching. A new Northern policy and new Southern policy spearheaded by the government would materialize within the framework. The North Korean variable certainly appears to be a panacea for all South Korea’s economic ills. Will it be? The expected certainty presupposes North Korea’s renouncement of its nuclear ambition and its shift to an open economy to draw attention from its southern brother and global community. The North Korean variable, to become a real opportunity, must be preceded by elimination of threats as follows.
First, unless North Korea renounces its weapons of mass destruction, such as nuclear weapons and missiles, its variable will turn out to be a threat greater than an opportunity; no country or business would invest in or pursue economic cooperation with a tinderbox. Given that North Korea is experiencing sanctions from international community, including the United Nations, on account of its nuclear arsenal, its intransigent position on the nuclear issue would deter other countries, including Russia and China, and even the current South Korean government (more friendly than its predecessors) from expanding economic cooperation with the north. North Korea’s nuclear issue, in other words, poses the biggest political threat to South Korea’s economic rebound.
Second, the North Korean variable could prove to be a risk rather than an opportunity if the country does not reform and open up, following in the footsteps of China or Vietnam. Creation of economic efficiency calls for a free, timely, and efficient combination of capital, management know-how, and labor. Lack of reforms and opening by North Korea may invite humanitarian aid or friendly investment, but not large-scale investments. Friendly investments, if at all, are not likely to translate into profit. One has to look, for assurance, nowhere else than to failures of business investment in North Korea in the past. From the economic perspective, North Korea’s anti-reform and anti-market policies are the greatest of economic threats.
Third, North Korea’s investment attraction practices are far from being favorable to South Korean businesses. Countries around the world are willing to go an extra mile to offer a variety of incentives to prospective investors, not just on the government level, but also on the corporate level in addition to favorable regulations on foreign investment. North Korea, however, does not seem much inclined to encourage foreign investment apart from the relevant law. If anything, the North has not been doing justice to southern businesses. Investors complain that the entry ticket to North Korea costs more than the amount of investment itself. North Korea’s propensity to equate an investment opportunity with favoritism is another threat to potential investors.
Fourth, North Korea’s human rights issue is one of the big threats to investment or aid from the international community. Despite the attractiveness of the North Korean variable, its reprehensible human rights abuses negates the cause of South Korea’s engagement with its northern brethren. Any initiatives, be they in economy, cooperation, or reunification, are about the dignity and welfare of people of the two Koreas. Economic engagement with North Korea, if its economic fruits enrich North Korea’s elite at the expense of most of the people, would not last in the face of international censure and resistance.
Fifth, ideological confrontation between Left and Right in South Korea stands in the way of its engagement with the North. The democratic forces for peace and the forces for liberal democracy are locking horns over a whole gamut of issues, including North Korea’s nuclear ambition, its human rights, the U.S.–ROK alliance, inter-Korean matters, and economic ideology (balance between growth and distribution). Confrontation and conflict between the two groups are all too obvious in inter-Korean issues and engagement policy. The democratic forces for peace believe that peace can take root by building mutual trust through economic cooperation and, on the basis of the trust, gradually eliminate threats such as nuclear weapons and weapons of mass destruction. This attitude is underpinned by two propositions: One is the belief that Kim Jung-un is a man to be reckoned with in accomplishing a feat, and the other is the disposition to approach the inter-Korean issue from the perspective of Koreans. Naturally, they are bent on an autonomous solution to the inter-Korean issues.
The forces for liberal democracy, on the other hand, view all inter-Korean cooperation not supported by a fundamental change of course of the Kim regime as propping up the dictatorship at the risk of South Korea’s security. This attitude is buttressed by two ideas: One is the belief that Kim regime’s dictatorial gene would not give way, and the other is the inclination to bring international rule to bear on North Korea in addressing the issue of improving inter-Korean relations. Naturally, the U.S.–ROK alliance, human rights, and UN sanctions are their main concerns.
The former group argues that now is an unprecedented “national opportunity” to push ahead with improving inter-Korean relations and extensive cooperation; the latter group argues that now is an unprecedented “international opportunity” to turn the Kim regime on its head. The former stresses cooperation with rather than criticism against North Korea, believing that peace tomorrow is forged by peace today, and no value is greater than peace. They are preoccupied with cooperation of today, leaving behind for the future the issues, such as human rights and hereditary succession of power.
The latter, on the other hand, stresses change in North Korea rather than immediate cooperation, believing that peace tomorrow is forged by eliminating threats today. They put on the agenda of today such issues as the nuclear arsenal, missiles, human rights, and the character of the regime. These issues constitute major items on the agenda for improving inter-Korean relations. Their diametrically opposite positions do not seem to afford any possibility for them to meet each other halfway. Failure to break the domestic deadlock itself is a threat to South Korea.
Historically, North Korea and inter-Korean relations have been international issues as wells as national issues. The nation was liberated and divided by international power politics. The Korean War was a civil war unleashed by North Korea, but to the extent that it was intervened in by China and the UN, it was an international war as well. Korea’s economic recovery and prosperity after the war are credited to a combination of its resilience and international support. The current economic challenge that the two Koreas are facing is international in nature, as a breakthrough should be found in expanding cooperation with the outside. The North Korean nuclear arsenal is a domestic and international issue as the Kim regime is resorting to it to maintain the stability of its regime and have its security guaranteed by the international community, including the United States.
All inter-Korean endeavors are geared to revive the nation as a whole, for sure. The efforts, however, have been and will be made within the framework of international cooperation. In other words, all the Korean challenges related to improvement in inter-Korean relations and work for reunification would be overcome with international approval and cooperation, more importantly, the reduction or elimination of threats from North Korea and its active engagement. Achieving local and international environments conducive to a potential success is an opportunity. From that standpoint, the current environment surrounding the Korean Peninsula affords more opportunities than before but falls short of being dispositive.
To go to the May 2019 ILC Schedule page, click here.