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.

Originally published at The Irish Economy blog and reproduced here with the author’s permission.

4 Responses to "A sign of conflicts to come?"

  1. Anonymous   March 24, 2009 at 10:56 am

    No doubt that such aggreement will be reneged in the years to come. As a Madagascar citizen would you allow such a deal? How many billions of dollars were used to corrupt the Madagascar government? Have you any doubt about that?

  2. K Ackermann   March 26, 2009 at 1:45 am

    99 years? Who is anybody kidding. Korea probably has 7 years baked in, and they would probably be the most surprised if it went longer.

  3. WvE   March 27, 2009 at 4:32 am

    Keeping the international markets open is at best a necessary insurance policy in case of calamities. Production close to the consumption is the only real solution.

    • Anonymous   March 27, 2009 at 11:14 am

      I didn´t get your point.