Friday, March 29, 2013

Reunification of Korea

Almost exactly 10 years ago, in March 2003, the U.S. invaded Iraq. I had mixed feelings about that decision and I still have mixed feelings. At any rate, Iraq (#2) used to belong to the Axis of Evil, as defined by George W. Bush, along with Iran (#1) and North Korea (#3). Quite certainly, one original member of this axis is no longer a member.

Note that John Bolton has defined the "Beyond the Axis of Evil Group" composed of Cuba, Libya, and Syria. Cuba has softened somewhat and Raul Castro is planning to retire; the Libyan regime has been overthrown so a re-evaluation would be appropriate; and Syria is in the state of a Civil War, we will see what comes out of it. (Condi Rice has talked about the "Outposts of Tyranny": Belarus, Burma, Zimbabwe. Not much has changed about those, AFAIK.)

You see that the Axis of Evil, both the core group and the extended one, has gotten weaker or less scary or nicer, if I exaggerate a bit. At least some good news. This evolution may continue.

For quite some time, I would think that Iran would be the most likely new place where dramatic developments – such as a war with the West and Israel – could take place. That's because of Iran's work on nuclear technology that may be violently abused as soon as the mullahs give new orders. But Iran has convinced us – or fooled us – that not much is happening. They even plan to stop the enrichment (perhaps because they already have enough?).

So quite surprisingly, North Korea is the new epicenter of tensions of possible looming wars.

The last military hotline between North Korea and South Korea has been cut off by Kim III, the ruler of North Korea. They systematically expose their seemingly childish propaganda plans to destroy the United States and some centers in South Korea – a country they primarily blame for being puppets of the U.S. We don't know whether anything should be taken too seriously. But Kim III is an untested young ruler and he may be willing to establish himself with dramatic actions.

Meanwhile, South Korea is full of love and compassion. The asymmetry of the situation is kind of amusing to me.

At any rate, it's somewhat plausible that a conflict could lead to a rearrangement of the order on the peninsula. South Korea has had a reunification ministry for quite some time and it works on the assumption of a peaceful evolution. I am not sure whether it's the right expectation for Korea but fine.

The possible democratization of North Korea would be an interesting event for the regional and even global economy. Note that South Korea has about 50 million citizens and $20,000-$30,000 GDP per capita (nominal/PPP). North Korea has 25 million citizens and below $2,000 GDP per capita.

Despite the much more bloody and war-like relationships between the two Korean states, it seems sensible to compare the situation with the reunification of Germany. For West Germany, it was a doable task to "invite" all the East Germans and artificially bring them to the West German level. After all, the East German population was 4 times lower than the West German one.

For South Korea, it may be a bit harder task because the population ratio is 2 and not 4. However, perhaps with some help from the West, a shock therapy meant to incorporate North Korea into the democratic Korean state as soon as possible could be a feasible plan. The North Korean savers could get some money for their savings, using a generous exchange rate, some extra welfare payments per person to make the transition smoother, but the rest of the economy could be instantly liberalized.

Alternatively, the nine top-level provinces of North Korea could be merged with the democratic Korean state one-by-one, e.g. in one-month intervals. The order of incorporation of the provinces could depend on "how ready they are", "how eager they are according to polls", and "how many of them want to emigrate to South Korea".

At this level, the plans sound straightforward and easy but I am afraid it could be much harder in Germany because it's very likely that a huge fraction of the North Korean citizens really believe the propaganda so the non-communist side could face many more enemies than just the leaders. They're much more detached from the external reality, I think. On the other hand, I think it's partly due to the lack of leadership in the West. The West should try to provide the North Korean citizens with much more information in some way and actually outline the alternatives. It seems painful that these things aren't really happening much.

Intuitively, I feel that the North Koreans would turn out to be at least as hard-working as the South Koreans and the addition of this territory and population to the global free economy would be an improvement for importers as well as exporters across the globe.


  1. Lubos, can I first of all say that I very much enjoy reading your blog. This post is no exception. As for my analysis…

    In all fairness, North Korea’s recent overtures of attacking US mainland are pretty tame in comparison to the US flying nuclear-capable stealth bombers over South Korea.

    North Korea has now declared a “state of war” with South Korea. Although they’ve done the same thing before, it shouldn’t be taken lightly. Escalations can force parties to act in ways that aren’t strictly rational.

    It’s a predictable response to the recent joint South
    Korea-US military exercises, which apparently happen annually. You can see how these war games could be construed as military mobilisation, which is the first sign of imminent war. South Korea and the US also recently signed a new joint military pact. This is not to pass moral judgement on S.K. and US; it’s just a reflection of the unstable nature of the situation. It’s a complete powderkeg.

    I don’t know how the stand-off will end. There’s a place for brinkmanship, but maybe there’s also a place for diplomacy. North Korea is quarrelsome but they’re still interested in self-preservation, which means their decisions should be rational to some degree. In this case a sufficiently advanced game theory algorithm could guide your decision-making; the outcome with the lowest pay-off would be a nuclear-capable North Korea.

    I think there are three end states:
    1) North Korea is annihilated at a heavy cost.
    2) North Korea implodes due to external pressure and Korea is united.
    3) North Korea is coerced or “shepherded” into a long term stable peaceful co-existence.

    Note that a nuclear-capable North Korea would precede scenario 1 or 2, but not scenario 3. The M.A.D. doctrine isn't long-term stable.

    I think scenario 3 is unrealistic as I don’t recall anything similar happening in the history of international relations. Someone prove me wrong? Therefore the best possible outcome would be scenario 2, which was what happened to the Soviet Union. I suppose this means the brinkmanship must continue. This of course will require some diplomatic manoeuvring with China, which has a vested interested in checking US power.

  2. Thanks for your kind words and interesting analysis, Dan... The situation got clearly more tense than it was yesterday when I wrote the blog entry...

  3. Although it's much less likely, I am still more concerned about the possibility that despite the humiliation, they will actually succeed to strike DC and then LA - as the plans we read in the Czech media suggest.

  4. Well, that's what I meant.

  5. Dear Lubos, How do you see China in this regard? Are they part of the global free economy?

  6. The level of brainwashing and intimidation must be pretty high. The whole system is completely dependent on free labor of its citizens. Men have to either work for such a low salary that they can't even afford to eat or pay 20x more to opt-out. They are completely dependent on women.

  7. My theory of the Iraq invasion is the W. was being blackmailed by the Saudis to go after Sadam instead of them in the aftermath of 9/11. They probably had some career-ending video or other hard documentary evidence relating to homosexuality or serious financial improprieties committed by Bush the oilman in the 1980's relating to Bahrain's lifesaving investment in his otherwise bankrupt oil company.

  8. Yes, sure, Luke, I view China as a part of the global "free" economy - many people have stocks over there etc.

    It's a communist system as well but one should view it as an internal matter of China. Internally, you may view China as a giant corporation with its branches allowing limited independent business. But even if it didn't host separate companies, you could still view China as a part of the global free economy as long as it allows you to buy from them, sell to them, and buy parts of the assets in China.

    The internal paternalistic system in China is something that sounds alien to the Western ears but it's not just an artifact of the communism since the mid 20th century: the Chinese have had some excessive - from our viewpoint - respect towards the governments and their authorities for centuries and probablly whole millenniums.

    One may try to change this thing but such efforts are political activities, not economic ones. From an economic viewpoint, one may view the Chinese nation as a free subject in the global economy whose pro-paternalistic utility functions just lead them to organize their political life in the communist way.

  9. The people in North Korea are physically shorter from the ravages of communism. The South Koreans probably don't want them.

  10. So if the war in Iraq was for oil, where is the oil?

    Has it's oil production even reached pre-war levels?

    After claiming it was all about getting the oil, liberals when faced with facts had to resort to the war was to keep Iraq's oil in the ground so that oil companies could build up big profits. In which case, Obama has done far more to keep oil in the ground.

  11. "By the way, your views on Iran reflect European ostrich delusions. No one in the US doubts that Iran's nuclear weapons program is going full bore, or that they will have a device in a year or so."

    And of course based on past experience we know that no one is ever wrong in the US, when WMDs are concerned ;)