KEY POINTS:
Chat to businesspeople and policy makers in Seoul and the conversation inevitably turns to how South Korea's economy is becoming "normal".
The reference is to the steady rise in living standards, an impressive rebound from the 1997 Asian crisis and the nation's huge potential. Yet Korea's economy is anything but normal, and it won't be for many years.
The reason is Kim Jong Il. When Standard & Poor's rates Singapore's credit or comments on Canada's fiscal situation, the words "nuclear capabilities" don't typically come up.
South Korea is constantly reminded that no matter what's happening in its economy, North Korea's nuclear weapons - well within range of Seoul - weigh among the variables.
How many developed economies border a nation with which they are still technically at war? South Korea may be the world's 12th-biggest economy, yet its challenges are anything but conventional.
A pledge last week by Kim and President Roh Moo Hyun to start talks on a formal end to the Korean War is just that - a deal to begin talks that could break down at any second for any number of reasons.
Kim's health is just one wildcard. His appearance and absence from key events with Roh in Pyongyang had analysts buzzing about the Dear Leader's well-being.
Roh was only the second South Korean leader to visit Pyongyang and he shared more face time with the reclusive Kim than any democratic leader in recent years. Roh badly needed some positive headlines; he's desperate to get his approval ratings up before leaving office in February. Kim, meanwhile, needs all the aid he can get to feed his 23 million people.
The summit was mostly useful because it offered the tantalising possibility that a thaw in relations will lead to a reunification of the two Koreas.
That's a pipe dream to many. Indeed, the US may get its troops out of Iraq before the demilitarised zone is dismantled, as the Berlin Wall was in 1989. Imagine, though, just for a moment, how the process might play out - in other words, what it might cost and who is going to pay for it.
While estimates are all over the place, they tend to range between US$300 billion ($393 billion) and US$670 billion. At the higher end, rejoining the Koreas would cost more than the US shelled out for the Vietnam War and more than it has paid for its invasion of Iraq.
The US had spent US$291 billion on the war in Iraq through July of last year, a Congressional Budget Office report said.
"My central estimate is that it would take about US$600 billion over 10 years to raise North Korean per-capita income to 60 per cent of the South's, a target which is conventionally thought to choke off the incentives for mass migration," says Marcus Noland of Washington's Peterson Institute for International Economics, and co-author of the 2007 book Famine in North Korea: Markets, Aid and Reform.
Even if the costs are higher, helping North Korea to come out of its shell is the right thing to do. Yet that gets at an inconvenient truth: a huge amount of political will is required here, especially considering how great the costs will be in the short run and how long it might take to reap benefits.
How much is the US willing to spend to rid the world of the last hard-line communist regime? How much will South Korea pay for a process that could hurt its economy for years to come? Growth in the South may be slower for some time relative to what it would be without reunification, Noland says. There would be major shifts in the distribution of income from the South to the North, with its ample cheap labour.
The bottom line, though, is that a united Korea is in the best interest of the global economy. More than making the South's a normal economy, it would remove one of the biggest wildcards hovering over Asia. A stable Korea really would be priceless.
-Bloomberg
