South Korea is at a crossroads. From a range of corporate, political and international issues, the country faces severe headwinds. There are signs of a turn-around, but the major issue on the horizon is the implosion of North Korea, an event that will happen at some point. How could that play out?
Observations
- In an article in the FT, Trump said that containing North Korea was key for his first meeting with Chinese President Xi Jinping. This week President Trump ordered an aircraft carrier group he dubbed an ‘armada’ to head for the Korean peninsula.
- South Korean President Park Geung Hee was first impeached and subsequently detained over corruption scandals and abuse of power.
- Corporate Korea is facing several challenges: flagship company Samsung has suffered from malfunctioning phones and is involved in the government corruption scandal. Korea’s large maritime sector is also under pressure. Last year Hanjin filed for bankruptcy and currently Daewoo, world’s largest shipbuilder, faces restructuring.
- South Korea’s decision to host the U.S. missile defense system THAAD has angered China, which is putting economic and diplomatic pressure on the country.
Analysis
In the 1960s, the ‘miracle of the Han river’ started. From low-cost production, South Korea has since the 2000s evolved into a producer of high-end goods and lifestyle (smartphones, cars, K-pop, and cosmetics). Momentum has recently turned, however, and the country seems to be at a crossroads. Where is it going?
South Korea has since the 2000s evolved into a producer of high-end goods and lifestyle (smartphones, cars, K-pop, and cosmetics). Momentum has recently turned, however, and the country seems to be at a crossroads
The biggest danger would be the onset of stagnation comparable with Japan in the early 1990s, but a turn-around scenario could also be imagined. First, the Korean economy (comparable to the Japanese) is run by business conglomerates called chaebols (in Japan keiretsu). These chaebols include Samsung, LG, Hyundai and Hynix. Breaking the power of the business groups has been attempted in Japan, but failed. The arrest of Samsung’s president shows that Korea might succeed.
Secondly, South Korea’s last two governments implemented a conservative hardline foreign policy. After this crisis, a more progressive party will likely come to power. In the 90s, these parties pursued closer ties with China, more distance from the U.S. and Japan and a soft policy against the North, which is called its ‘sunshine policy’. The return of such a policy could improve regional relations.
Speculating further about the future raises the question of the implosion of the North Korean state. As the last Stalinist regime in the world, North Korea exists because of a strongly organized regime and patronage from China. Predicated on total isolation from the world (a doctrine it calls juche), a partial opening is practically impossible and a complete unraveling will have to be considered. What would then happen?
Neither China nor the U.S. would allow the other to take control of North Korea, but its nuclear arsenal makes outside involvement necessary and South Korea would take the initiative towards reunification. But many oppose this: South Koreans grow up with strong antipathy towards the north and younger generations have no memory of family across the border. Such an operation will be also be very expensive (comparable to the reintegration of East Germany). Finally, China would object to unification as long as the U.S. army is stationed in South Korea.
Still, something of a grand bargain can be imagined. South Korea might be allowed to absorb the north if it realigns itself regionally. North Korea’s 25+ million population, its cheap labor and its nuclear weapons would provide Seoul with the assurance that it can take care of itself, even without a U.S. military presence. South Korea often likens itself to ‘a shrimp between whales’ (China and Japan). A grand bargain on unification could tip the scales more in its direction and make it an important player in the new balance of power in Asia.
