The first cost to be estimated is the cost of carrying the
war. It consists of the cost of buying weapons, curing the wounded and
restructuring. Because both countries already have their arsenal, the cost of
weapons will only be a major factor in case the war does not end early. Take
both sides’ military ability into consideration and we may all agree that the
war will not endure long and the winner is South Korea. Then, we can neglect
the cost of weapons in this war. However, if the North is able and willing to
launch a nuclear missile, the casualty and damage will be very severe, which
will lead to the dramatic increase in cost to cure and restructure.
The second cost will be the opportunity cost. South Korea is
one of the most developed countries in the world. Currently, there are some
Korean companies which dominate the world market in some areas such as
technology, car, … Moreover, South Korea stands between China and Japan, which
is also a very busy sea lane. A war will drag down the South Korea’s economy
and close the shipping lane from China to Japan which crosses Korea. The whole
world will suffer from the war, not only the Asian neighbors. We will have to
witness a rise in smartphone’s price, and a rise in price of products made in
Japan with materials from China.
Totally, the cost for the Korean, according to many experts,
will be about 0.5% world’s GDP - $350 million.
It may look small if we know that the stimulus plan of US
solely costs more than $700 billion. However, this figure may increase much if
the war happens next year due to the discount rate. Discount rate helps us to
calculate the future value of the present cost and vice versa. If the world’s
economy is expanding faster than the discount rate, then delaying the Korean
war will only make it more expensive because 0.5% GPD of the future will greater
than 0.5% GPD today. Moreover, if the North keeps threatening by carrying out
small attacks but not a massive campaign, the cost of war will add up and get
infinite, not to mention the casualty.
However, the total cost may get decreased if we take the war’s
consequences into account. What will happen after the Korean war? North Korea
is likely to be liberated from the recent regime. There is a high chance that
after many years of suffering, they will abandon the Socialism model and
purchase Capitalism model instead. In 2012, GDP of North Korea is about $40
billion. Assumingly the country, like many other emerging economies, will grow
at an average 7% over 10 years. Then, after a decade after war, GDP of North
Korea will duple and reach $80 billion. The figure does not look impressive. In
fact, if North Korea wants to compensate for the damage it caused, it needs at
least 35 years. But that is the
perspective from 100 years ago. Today, the world is getting used to the word “globalization”.
No countries, except North Korea, are now standing alone in the open market. If
there is change coming to North Korea, the whole world economy will benefit
from it. The world can export its product to the 25 million people market, and also
import low cost goods from that. It is difficult to calculate exactly how much
the benefit will be, but we can sure that it will decrease the compensation
time greatly. Moreover, recently, the world has sent billions of dollar to aid
people in North Korea. If the war breaks out, the North loses, the regime
changes, then that cash flow will turn into investment instead of aid. And that
investment will help reduce the cost of war.
Obviously, no one wants a war, especially South Korea. But
if it has to be done, then the earlier the better.
War is bad. We know that. But it is not completely bad. It
can kill thousands of people but it can also save millions of people. Sometimes,
we are biased to think something is completely bad or good. We look at
something and immediately know its nature thanks to the knowledge of other
people. We do not mind calculating again. We learn about the benefit and cost,
but we hardly apply it successfully because we sometimes cannot estimate
correctly the benefit in short-run and the cost in long-run.
The greatest trick the devil ever pulls is to convince the
world that it does not exist.
April, 2013.
Kz and Inor.
