A sign of conflicts to come?

Remember last spring? It seems an age ago now. The fear then was of resource scarcity: of rising oil prices, and of rising food prices, as biofuels crowded out food production and population continued to grow. Environmental worries also reflect resource scarcity, albeit of another type. Once this crisis is over, whenever that is, all these concerns will inevitably come back on the agenda, and could easily dominate it for the rest of the century.

In that context, one of the most alarming news stories, to me, of last year, was that involving Korea’s Daewoo Logistics leasing almost half of Madagascar’s arable land on a 99 year basis. Here is a pretty positive account of the deal in Time magazine. Why my alarm? Because the deal reflected the fact that

“[Food-importing countries] have lost trust in trade because of the price crisis this year,” says Joachim von Braun, director of the International Policy Food Research Institute in Washington.

Thus, from a Korean point of view,

“We want to plant corn there to ensure our food security. Food can be a weapon in this world,” said Hong Jong-wan, a manager at Daewoo. “We can either export the harvests to other countries or ship them back to Korea in case of a food crisis.”

The latter quote, taken from this FT piece, should send shivers down the spine of anyone with a sense of history. (The article also makes it clear that the agreement was far less positive for Madagascar than had at first been reported.) Markets are a political institution. The deal they represent is straightforward: if you are willing to pay the going price, then you can buy what you need. When countries start to doubt whether that deal will remain valid going forward, and in consequence act to carve out sources of supply for their own exclusive use, the geopolitical consequences can be catastrophic.

As I contemplated this story, I idly wondered what would happen if, in a decade or two, some African or Latin American country decided that it wanted to renege on such a deal which had been struck by a previous government with, say, China or India. And so it was with considerable interest that I read this from the BBC. I don’t suppose the Koreans will invade Madagascar! But one can predict that this will not be the only occasion on which such a domestic backlash occurs. Why on earth would anyone assume otherwise?

The moral is straightforward. In addition to tackling the underlying problems of resource scarcity, we need to credibly commit to keeping international markets open over the decades to come. And in order to be able to do that, governments need to get the macroeconomics right, now. Otherwise, as the example of the Great Depression shows, this will just be a taste of things to come. And that won’t just be bad news for the economy.

7 thoughts on “A sign of conflicts to come?”

  1. Globalization, welcome!
    Madagascar just changed jockey too. Korea will have to pay higher prices or lose access as the local population vie for “justice” at the behest of their media. But media can be bought as can public servants.

    England had famines in India in the 18th Century but thankfully they did not stop wheat exports to Blighty. Millions died then and in the 1840’s too. Peasants were no match for muskets. What match will they be for machine guns? But such is the price of progress. Ireland will be OK as it has all those wonderful banks to fall back on….

  2. I like the TIME reporter/pundit saying that he foresaw a “tricky ethical” situation when exports would occur while the locals were starving, but he did not use such an emotive term. Tricky eh? Accuse ’em of being communists and set US special forces on them. Who will do the security for Daewoo? Blackwater? Lucrative contracts while collective bargaining will be banned as communism….
    Ah, I love the smell of globalization in the morning!

  3. Seems silly of the Madagascan government – I’d have waited until daewoo had plowed loads of money into irrigation, infrastructure etc…. THEN kick them out!

  4. Marcus,

    The thing is they can always be kicked out yet. Look at the oil industry.

    Kevin,

    great post thanks.

  5. I believe that following large revenues in the last couple of years, a number of the Middle Eastern States (in particular Saudi) have taken to buying large tracts of land in Pakistan and the Horn of Africa, having given up on the idea of “greening the desert”.

  6. Globalization is the dependence on other countries for food, energy and commodities. It was always there but it is again rampant. It depends on cheap shipping and comparative advantage, which can always be tweaked with use of arms. As in the 1840’s….
    I do not blame ideas or concepts. Nor even those who promote them. But those who execute them badly: now there is fodder for my mill. I hope Madagascar gets something out of it and that the Koreans do also. The Koreans are tough and have been trained by Americans so I lean towards protecting the interests of the land “owners”, the landlords. How they jointly exploit this resource is not only a matter for them, perhaps the UNESCO and FAO should take overt interest?
    The Germans were also rumoured to have bought up large chunks of Congo etc as testing grounds for weapons, in the 60’s.
    Which brings us neatly to the idea of “failed states” but that is for other posts!

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