Given the stark economic disparity between the two Koreas, it is difficult to estimate how many North Korean companies can survive and remain competitive after unification.
As we saw in the last article ( ▶ Which North Korean companies can compete with South Korean companies? [Walking with Ahn Jung-shik and Pyongyang together]), North Korean companies may not have any competitiveness other than producing primary products or using low-wage labor. .
Therefore, you may think that it is necessary to organize all but South Korean companies except for some competitive companies.
However, doing so creates a bigger problem.
Let's take a look at the desirable direction of North Korean corporate reorganization through the example of Germany.
East German corporate reorganization in Germany: business normalization after sale
The reorganization of East German companies in Germany was carried out by an institution called the 'Trust Office'.
The Trust Office was originally established to convert East German state-owned enterprises into limited liability companies and joint stock companies according to the principle of market economy while managing state-owned properties in East Germany. This has been altered.
The nature of the trust agency has changed to an institution that prioritizes privatization through sale to West German companies, rather than seeking self-sustaining transformation of East German companies.
The Trust Service has made the basic principle of 'management normalization after pre-sale'.
Rather than trying to revive East German companies that are not competitive on their own, they saw it as efficient to sell them to West German companies as soon as possible and to normalize the West German companies that took over them.
However, this policy has led to massive unemployment.
This is because many East Germans lost their jobs as restructuring and layoffs occurred in the process of selling East German companies to West German companies.
As of 1990, 4.1 million people were working for companies under the Trust Service, and just two years later, 65% of them, or 2.6 million, lost their jobs in 1992, showing the seriousness of unemployment.
For one and a half years after unification, unemployment due to the privatization of companies under the Trust Service accounted for more than 75% of the total unemployment in East Germany.
[Note: As of July 1, 1990, all companies in East Germany were converted to joint stock companies, and stocks of all people-owned companies were held by the Trust.
This brings the Trustee to own 7,894 people-owned enterprises with 45,000 factories, employing 4.1 million people.
At that time, more than 40% of all jobs in East Germany belonged to trust-owned companies.]
The problem is that as the number of unemployed people increased, social security expenses in East Germany increased rapidly.
In order to maintain a basic livelihood for those who cannot earn money because of lack of work, the unified German government had to pay huge social welfare costs.
In the sense that, if the complaints of East Germans accumulate in a chaotic situation due to unification, it may lead to unexpected accidents, so securing the livelihood of East Germans through social welfare expenses was an essential task.
As the money provided by West Germany was spent more on social welfare than on economic construction in the East German region, the cost of German unification increased like pouring water on a drained poison.
In general, the best welfare in underdeveloped countries is to earn and live on their own through job creation. As the mass production of the unemployed made the state responsible for all basic welfare, it brought about an inefficient allocation of economic development resources and a huge increase in unification costs.
It would have been nice if the reunification cost was to develop the economy of the East German region first, and the resulting increase in tax revenue could be used for the unification cost. It is argued that this has been done.
East German industrial base collapses as East German companies focus on selling West Germany
There is another problem.
As the Trust Service focused on selling East German companies to West Germany, East Germany's autonomous industrial base completely collapsed.
The Trust Service pursued the rapid privatization of East German companies and divided large corporate groups (kombinats) into smaller units and sold them.
In the end, the remaining companies went through the process of being sold or liquidated at a low price as they became idiots, and the local economy collapsed at the same time.
The companies sold to West Germany did not maintain their own competitiveness, but rather became a branch of the sales and sales department of a West German company, so East Germany's self-sustaining industrial base was totally destroyed.
This is the point where critics say that the privatization policy of the Trust Office was not made according to the macroscopic view of solidifying the economic base of the entire East Germany region, but only pursued micro-efficiency of individual companies' management rationalization and ruining the economic structure of the East Germany region.
The Trust Office did not actively accept the voluntary corporate will of East Germans while obsessed with the sale within the set time.
There were also complaints from East Germans that they tried to normalize the company by recruiting an outside manager, but the trust agency did not accept it, or that the trust agency just ordered the business to close.
As the privatization of East German companies proceeded in such a way that the regional foundation was undermined, East Germans became deeply embarrassed and dissatisfied.
They came to realize that they were being deprived of everything they had achieved by the West Germans, and they were psychologically wounded and lethargic amid increasing unemployment.
The murder of Robeder, the head of the trust office in April 1991, symbolically represents the antipathy that East German residents have toward the trust office.
How to reorganize North Korean companies
Germany's case is an important contrasting teacher regarding how to reorganize North Korean businesses after unification.
If North Korean companies are forced to liquidate and sell to South Korean companies because their competitiveness is low, the number of unemployed people in North Korea may skyrocket and the industrial structure may collapse.
If the number of unemployed increases in North Korea, huge social welfare expenses must be incurred to ensure basic living, which may lead to an endless increase in the cost of unification.
After unification, the reorganization and privatization of North Korean companies should focus on creating a foundation for the economic independence of the North Korean region.
In order for North Korean companies to seek survival in line with the new capitalist system, the state should initially protect them, give them time to normalize their operations, and provide human and material support including management consulting.
In this process, corporate privatization must also be carried out, so the privatization of businesses and normalization of business by North Koreans must be carried out at the same time.
If it is judged that it is difficult to survive on its own despite the government's support, the sale or liquidation of a South Korean company should be pursued. .
If some of the businesses that the government has supported don't get back to normal, the government-backed funds can be blown into the air.
In the first place, there may be criticisms of whether it was just wasting national taxes to support low-competitive companies.
However, it is clear which option will be more effective if we compare the cost of the normalization of North Korean businesses with the cost of social welfare, which must be heavily invested due to the explosion of unemployment and the collapse of the industrial structure in North Korea due to German-style privatization.
Even if there are some sunk costs in the process of supporting North Korean companies, it is necessary to set the correct direction to reduce the long-term cost of unification.
It should also be taken into account that if the number of unemployed rises rapidly in North Korea, the social aftereffects, such as the spread of skepticism about unification, are not formidable.
In addition, it must be taken into account that if the industrial structure in North Korea collapses, it will take decades to recover.
When the North Korean region lays the foundation for economic self-reliance and the North Korean people can work hard in a new society with dynamism, the gap between the North and the South can be narrowed over time and the cost of unification can be reduced.
We need to create an environment in which unification costs can be prioritized for economic development, such as infrastructure construction, rather than social welfare costs.
There should be an institution in charge of overall corporate reorganization in North Korea, but it is necessary to consider whether to entrust this task to the Korea Asset Management Corporation (Kamco), which supports the restructuring and rehabilitation of vulnerable companies in South Korea, or to establish a new institution. I see it.
As mentioned earlier, North Korean corporate reorganization should focus on 'preemptive management normalization', including capitalist management consulting.
Even if 'Kamco' or a new institution is responsible for the overall reorganization of North Korean companies, this is equivalent to small and medium-sized enterprises (SMEs).
Also, small businesses such as restaurants and hair salons may be considered for sale or lease to operators.
Double pricing is inevitable at the beginning to protect North Korean companies
In order to protect North Korean companies until they are established, when South Korean products are imported into North Korea, tariffs should be imposed to increase prices.
It is because North Korean companies cannot survive if high-quality South Korean products are sold cheaply in North Korea.
In North Korea, South Korean products must be sold at high prices and North Korean products at low prices so that North Korean products of slightly inferior quality can be sold and North Korean companies that produce those products can survive.
This double price structure is based on the premise that the two Koreas will be temporarily separated even after unification, and a separate tax will be levied on South Korean products that cross the border between the two Koreas. do.
Ultimately, North and South Korean products will have to go to a situation in which they compete perfectly in the market, but if North Korean companies in the early stages of unification have enough conditions to adapt to the new capitalist society, there will be enough North Korean companies to adapt to the changing situation.