The tantalizing riches of North Korea

In a somewhat garbled story in today’s Financial Times, Christian Oliver speculates that one key motive for Chinese premier Wen Jiabao’s recent visit to Pyongyang might be to get his paws on North Korea’s vast mineral wealth.

Oliver cites a recent Goldman Sachs report (pdf) by analyst Goohoon Kwon, which values North Korea’s mineral resources at 140 times its anemic 2008 GDP (about $20 billion), and projects that the economy of a unified Korea could rival Japan’s in three to four decades.

Kwon predicts a “gradual integration between the North and South, rather than an instant German-style unification.” Obviously, there are a lot of ifs involved, but it’s an interesting finding nonetheless (leaving aside some ridiculous assertions in the report, such as the idea that perennially starving North Korea has “high human capital” — a “well-educated labor force” that possesses a “sound work ethic and Confucian values”).

As the report details, North Korea is particularly blessed with deposits of magnesite, used in various industrial applications, as well as coal, uranium, and iron ore. South Korea, in contrast, is extremely resource poor (though it does seem to have ample reserves of asbestos and kaolinite, a kind of clay).

What Kwon doesn’t really address head-on are the problems that would be created by the vast gulf between North and South Korean economic cultures, incomes, and lifestyles. Think back to your high school chemistry class. Remember that chapter on stoichiometry? Well, we can’t be certain that a chemical reaction between North and South Korea would create a balanced equation. It might just lead to an explosion.

And let’s not forget the resource curse. Just because North Korean leaders are sitting on top of a gold mine doesn’t mean they’d do the smart thing and gradually integrate their economy with South Korea. More likely, they’d hoard it and corruption in Pyongyang would reach new heights — especially if they fear that unification would mean sharing their stuff with the South.

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