Bloomberg News

Grilled Rat for Welfare Shows Unification Hurdles for Korea

March 19, 2012

Kim Tae Hee fled North Korea at age 16 and made her way to Seoul via China. Two years after arriving she is unemployed and dependent on government welfare to pay her food and electricity bills.

“I thought life would be comfortable here, living in high- rise apartments and wearing nice clothes,” said Kim, for whom finding rats to grill was a luxury in her village back home. “Everything was supposed to work out once I got here and nothing has.”

More than 2,000 North Koreans come to South Korea every year, escaping chronic malnutrition and a regime that forbids dissent and restricts contact with the outside world. Lacking social skills attuned to the Internet age, or educational backgrounds that match employer needs, northerners face a jobless rate three times higher than native-born citizens.

Getting the integration right could yield a pool of thousands of northerners trained in the business practices of a modern economy that could smooth eventual unification. The anointing of Kim Jong Un as leader in the North three months ago intensified economists’ analysis of costs and benefits of unification after 67 years of separation, with Bank of America Merrill Lynch calculating a potential bill of $3.2 trillion.

“We need to succeed in integrating defectors into society because that will be the precursor for how unification will work,” said Kim Young Yoon, senior research fellow at the state-run Korea Institute for National Unification in Seoul.

Potential Benefit

The death of Kim Jong Il on Dec. 17 sparked speculation over whether son Kim Jong Un can maintain six decades of dynastic rule and prevent North Korea’s collapse. The regime has tried to bolster the younger Kim’s image, announcing March 16 it will launch a satellite propelled by a long-range rocket next month to mark the 100th anniversary of state founder Kim Il Sung’s birth. The move has drawn international criticism.

Any eventual opening of the North offers the South a pool of labor and natural resources that could see South Korea escape the fate of neighbor Japan, where an aging and shrinking population has eroded long-term economic growth rates, Goohoon Kwon, an economist at Goldman Sachs Group Inc. in Seoul, said in an interview last month.

North Korea has a population of 24 million, or about half of the South’s, and holds untapped mineral wealth including gold and copper that’s estimated at more than $6 trillion by the South Korean state-owned mining company Korea Resources Corp. (032860) Extracting the minerals is currently hindered by a lack of developed roads, railroads and ports.

‘Peace Dividend’

A union would also ease security concerns on the peninsula, creating a “peace dividend” with military spending reduced, Jaewoo Lee, a Bank of America Merrill Lynch economist in Seoul who also previously worked at the IMF, wrote in a report last month. Fusing the two sides’ workforces would provide a “lasting boost” to the South’s growth potential, Lee said.

At the same time, unification could cost South Korea $3.2 trillion between now and 2050, Lee estimated, based on “rough and back-of-the-envelope calculations.” North Korea’s economy has been wracked by mismanagement that has left the nation reliant on Chinese aid to feed its people. By comparison, the cost of the 1990 reunification of East and West Germany was 2 trillion euros ($2.6 trillion), according to a 2009 study by Klaus Schroeder, professor at Berlin’s Free University.

South Korea’s government plans to spend 18.6 billion won this year on employment programs for its 23,100 North Korean refugees, according to the Unification Ministry. The number of defectors from the Kim regime rose 15 percent in 2011 with flooding exacerbated a food shortage of as much as 700,000 metric tons, according to the United Nations.

Resettlement Center

Upon arrival in Seoul, defectors are taken to a resettlement center at Hanawon, south of the capital. In the three months they spend there, they are taught to use a computer and access the Internet and auto-teller machines. To help cover expenses in their first year they are given stipends that total 6 million won, and 13 million won for a down-payment on housing if they don’t get allocated a government home.

South Korea offers a higher standard of living, with per capita income around 24 million won in 2010 compared with 1.24 million won in the North, according to Bank of Korea data published in November.

Yet most of the 23,100 defectors, like Kim Tae Hee, struggle to enjoy as much as the economy has to offer. While the average monthly wage in South Korea is about $2,800, one-third of transplanted North Koreans make less than $896 a month, according to a poll by the Unification Ministry. Another 41 percent make between $905 and $1,344. The official unemployment rate for defectors was 12.1 percent in 2010, compared with 3.7 percent for all of South Korea.

Skills Gap

The disparity underscores that new arrivals, 56 percent of whom attended school in the North, according to the Unification Ministry, lack skills needed to enter a competitive job market.

While South Korean companies recognize North Korean diplomas, the credentials mean little as refugees say the communist curriculum focuses on aggrandizing the Kim dynasty. Kim Jong Un is the third generation of his family to lead the nation, after grandfather Kim Il Sung took power in the aftermath of World War II.

Park Sang Don, the director of the Unification Ministry’s resettlement support division, said the biggest challenge for defectors is that they are suddenly confronted with the freedom to choose.

“Coming from a socialist country where the state decided where you live and work and even what you eat, they get overwhelmed with liberal democracy’s concept of taking matters, life and fate, into their own hands,” he said.

Survival Instinct

Yoon Cheol Nam, who left the North in 1999 and now works as an office assistant in Seoul, adds that another hurdle is finding common ground with South Korean colleagues.

“The most difficult part is not being able to relate to South Koreans because we have no shared past or culture,” said Yoon. “It makes us unattractive job candidates.”

Lee Hae Yeon, who fled North Korea in 1998 and works as a counselor for defectors, said the deprivations in her homeland created a basic survival instinct that fostered a lack of consideration for others, making it harder for her compatriots to work in South Korean companies. Other defectors say it’s difficult to get used to having open discussions after living in a society where they were under tight surveillance.

“Constant desperation led to a perverted, individualistic sense,” said Lee. “Defectors have a hard time correcting that and learning to be a team player.”

Challenge of Freedom

Despite all the hardships of integrating, some defectors have carved out successful careers in their new homeland. Kim Yong was a singer in the National Symphony Orchestra and a member of the ruling Workers Party’s Central Committee before defecting on a visit to Switzerland in 1991.

Kim, 51, spent 10 years as an entertainer and in 1996 opened his first noodle restaurant in Seoul, eventually growing his business to 96 outlets. He now sells noodles and dumplings online and on television, and has begun a similar operation in Vietnam through a joint venture.

Kim says Unification Ministry resettlement programs don’t teach a fundamental capitalist principle: nothing comes free.

“Defectors aren’t in a place to absorb anything taught in a classroom because they’re too blinded by the glitz they think South Korea has to offer,” Kim said. “They need to wake up and be ready to work for it.”

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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