January 12, 2014

Park Extols Korea Bonanza With a Unified North-South Economy (1)

Featuring Patrick M. Cronin

President Park Geun Hye, who became South Korea’s first woman leader by promising a more “creative economy,” begins her second year vowing to pursue the unprecedented prosperity she said will result from unification with North Korea amid flagging interest from many citizens more than six decades after the peninsula’s war.

To persuade voters captivated by Samsung Electronics (005930) Co.’s electronic gadgets and the latest “K-pop” music stars as the aging workforce threatens the nation’s productivity, Park plans a public campaign extolling the business opportunities from the combination of capital and technology in Asia’s fourth-largest economy with the North’s human and natural resources.

“People would even sing, ‘we dream of unification even in our dreams,’” Park said in an interview at the presidential Blue House office in Seoul. “As the state of division continued to persist and drag on, it’s true the recognition of importance of unification has admittedly declined and fallen.”

“Unification will allow the Korean economy to take a fresh leap forward and inject great vitality and energy,” said Park, 61, daughter of Park Chung Hee, who ruled South Korea during the 1960s and ’70s and rose to colonel at the height of the 1950-1953 Korean War, a conflict that left millions dead. He was assassinated by his intelligence chief in 1979, five years after her mother also was killed by an assassin’s bullet meant for her father at an independence-day commemoration.

Immediate Turmoil

President Park was immediately immersed in the turmoil of relations with North Korean leader Kim Jong Un’s regime, which mounted a third nuclear-device detonation two weeks before she took office and last month executed an uncle of the dictator. She set the assignment of raising public awareness of the value of unification months after her government negotiated the re-opening of Gaeseong Industrial Complex, a district in the North where Southern businesses operate.

Selling the unification story builds on a presidential agenda that began with an initiative to strengthen productivity and growth in South Korea’s economy through fostering innovation, entrepreneurship and capital investment. Park hosted Bill Gates and Mark Zuckerberg in two separate meetings at the Blue House, seeking ideas from the founders of Microsoft Corp. (MSFT:US) and Facebook Inc. (FB:US) to help energize an economic model designed to catch up with advanced economies and which she said last year had “lost steam.”

Economy Transformed

Park’s father presided over a transformation of the South from an agrarian society to one dominated by chaebols -- conglomerates including Samsung and Hyundai Motor (005380) Co. To build on that, Park’s government set up an online “ecosystem” to promote the fusion of new ideas with information communications and other technology.

The president, who heads to Davos, Switzerland for the World Economic Forum next week, said in the Jan. 10 interview that this year the government will establish “creative economy centers” that provide assistance to small and medium companies. She said the goal is to help people with fresh ideas get financial aid without collateral. At the same time, she said it’s important not to yield to “populism” as part of a drive for stronger legislative steps to rein in the influence of the chaebols.

The government is studying whether the economy is too dependent on a handful of companies, including Samsung and Hyundai, Finance Minister Hyun Oh Seok told reporters today in Seoul.

‘Quite Exciting’

“The big story in Korea is the move from the chaebols to the small and medium enterprises that are going to be more and more creative, very fast growing,” Mark Mobius, chairman of Templeton Emerging Markets Group, said in an interview last week in Hong Kong. “Government policy has been to try to encourage this more and more and now it’s coming to fruition. It’s going to be quite exciting.”

Park last week released a three-year economic plan targeting an acceleration in potential growth to 4 percent. The finance ministry projects gross domestic product will rise 3.9 percent this year, after a 2.8 percent gain in 2013. Among the risks to the forecast is a strengthening won, which gained 23 percent against the yen in 2013.

The president said South Korea will seek to join the Trans-Pacific Partnership trade talks and wants progress toward a commercial deal with China this year, offering fresh opportunities for the nation’s exporters. She also plans policies to address the underrepresentation of women in the economy, to help ensure females don’t suffer interruption in their careers due to childbirth and bringing up children.

Unification Cost

With the South’s finance ministry in February calculating the cost of uniting the Korean peninsula at as much as $591 billion over a decade if it occurred in 2020, surveys show younger voters aren’t enthused at the prospect.

The share of South Koreans who view unification as necessary fell to 54.8 percent last year from 57 percent a year earlier, according to a study released in November by the Institute for Peace and Unification Studies at Seoul National University. The ratio slumps to 40.4 percent among those aged between 19 and 29.

“We’d have to bear the burden of the North Koreans’ poverty,” said Go Chul Wo, a 25-year-old private security guard. “I’d be happy to see one Korea, but I absolutely oppose unification that raises my taxes too high.”

Park’s predecessor, President Lee Myung Bak, started a public campaign to raise some of the billions needed for unification. The effort collected about $700,000 from the public, less than the amount the government spent on marketing the fund.

Timing Unknown

“We will also work to make more widespread the shared recognition on the need for unification,” Park said, speaking in a Blue House room that featured at its entrance a painting of Mount Paektu, a mountain located on the North’s border with China that’s considered a sacred site having given rise to the Korean people. “There’s no knowing when unification will actually take place, but we will do our best to hasten the day.”

A single Korea also would allow for a decline in the military spending currently needed to defend against the North’s 1.2 million troops and nuclear arms program, she said.

“Benefits will outweigh costs, considering that costs are temporary while benefits last as long as one Korea remains,” said Jo Dong Ho, a professor of North Korean economic studies at Seoul’s Ewha Womans University. “The worry over costs has long dominated debate on unification. Now that’s changing.”

Foreign Policy

Park’s handling of North Korea and other foreign-policy challenges has helped sustain her approval rating since taking office. Her support level is currently at 53 percent, according to a Gallup Korea poll released Jan. 10. Gallup surveyed 1,219 people between Jan. 6 and 9 and the poll had a margin-of-error of 2.8 percentage points.

Backing for Park peaked at 67 percent in September after her government successfully negotiated the reopening of the jointly run Gaeseong complex with North Korea.

The North in April pulled its 53,000 workers out of the zone as tensions escalated in the aftermath of its nuclear test. Park in response ordered the removal of South Korea’s own workers. Talks on reopening the site at one point deteriorated into a shoving match between negotiators. Park refused to surrender to ultimatums from North Korea and secured an accord in August to reopen the site with the North agreeing never to shutter it again for political reasons.

“She has offered Kim Jong Un a path toward reducing tensions, but she has been resolute at all the right moments,” Patrick Cronin, senior director of the Asia-Pacific Security Program at the Center for a New American Security in Washington, said in an e-mail.

Economic Aid

Park urged North Korea in a Jan. 6 new year press conference to resume reunions of families separated by the Korean War. The North, which ties the reunions to the renewal of cross-border tourism that supplied millions of dollars in annual revenue, rejected the approach. Park says any resumption of large-scale economic aid would hinge on the North’s willingness to drop its nuclear ambitions.

Park also has stood up to China as it sought to expand its muscle in the region. China announced in November that it had established an air defense identification zone covering much of the East China Sea, overlapping with South Korean and Japanese zones. Within weeks of the Chinese move, Park ordered the expansion of South Korea’s own area and joined the U.S. and Japan in running military flights through the disputed airspace to test China’s resolve.

China Ties

“She was tough without being provocative,” said Robert Kelly, an international relations professor at Pusan National University in South Korea. “Her much-rumored Sinophilia is not blinding her to China’s growing bullying in East Asia.”

While China’s implementation of the air zone “raised the temperature in northeast Asia somewhat, we were able to deal with this prudently by taking advantage of the trust we have built up with the Chinese,” Park said in the interview.

The Chinese move, while angering both the Japanese and Koreans, did little to nudge Park toward Japan.

Park has dismissed Japanese Prime Minister Shinzo Abe’s calls for a summit, refusing to meet until his government does more to atone for its wartime past and particularly address the issue of “comfort women,” the name given to those forced to serve in Japanese military brothels during World War II.

While the two leaders both will be in Davos next week, Park played down the chance they will discuss their differences.

“This isn’t simply a matter of whether we would engage in a hand-shake,” she said. “But rather, if you put yourself in Korea’s shoes, I would in fact ask the question of whether you can actually pretend nothing has happened and just move forward.”

First Lady

Park, who served five terms in the legislature before her December 2012 election, came of age in the public eye, growing up in the Blue House. She served as the First Lady after her mother’s killing in 1974, abandoning her studies in Paris to return to Korea. She herself was a victim of political violence when a man slashed her face at a rally in 2006.

The resolve Park showed toward North Korea also is apparent on the domestic front, with the president facing down a three-week rail workers’ strike last month. The toughness offers a contrast from a softer image presented in the campaign, when she pledged to “govern like a mother” attuned to the needs of her children.

“She has veered away from that image of a delicate, feminine leader,” said Choi Chang Ryul, a professor of liberal arts at Yong In University and a political commentator. “She has refused to give in to whining.”


  • Patrick M. Cronin

    Former Senior Advisor and Senior Director, Asia-Pacific Security Program

    Patrick M. Cronin is a former Senior Advisor and Senior Director of the Asia-Pacific Security Program at the Center for a New American Security (CNAS). Previously, he was the ...