"The Long Road Back From Reunification"
Had some conversations early today with a minister in the government of Saxony that touched on some of the economic difficulties inherent in the transition from being a province of East Germany to being part of the united Germany state. Viewed from one direction, the transition has been quite successful. The West Germans ponied up a huge amount of money to help do adjustments, and the Saxony government quite smartly spent the bulk of it on infrastructure investments—and you can really see very high-quality roads, transit, etc. in the parts of the province I’ve seen. Everything looks quite spic-and-span, even moreso in many ways than in richer parts of the country. And as a consequence, average incomes in Saxony are now around 70 percent of what’s found in the West compared to less than 40 percent at unification. And an unemployment rate of 16 percent (compared to 12 in the West) is way lower than the 25 percent or so that immediately followed reunification.
Another way of looking at it, of course, is that West Germany invested a ton of money, East Germany was fortunate to be integrated into a big capital-rich country with access to all the markets of the EU, and 20 years later there’s still much higher unemployment and much lower incomes.
What this makes me think of most of all is the dilemmas that will be facing the government of South Korea if the DPRK ever collapses. The DPRK is much poorer and more backwards than the GDR ever was. They’ve been separated for longer. South Korea is smaller relative to North Korea than West Germany was to East Germany. And South Korea is also poorer than West Germany. All told, I think there’s ample reason to believe that the South couldn’t really manage a reunification process. Which is something their government seems to realize without quite admitting—their official policy is reunification, but in practice they fear a DPRK collapse. And they’re right to fear it. But political debates about North Korea policy aside, the fact of the matter is that that horrible regime can’t last forever. And I think it would make sense for a broader international community to start thinking about what we can do to support a transition process that’s going to be too big a task for South Korea to shoulder on its own.