Saturday, June 30, 2012

A Critique of "Falklands Oil Revenue Must Help Develop Argentina"

I have been attempting to follow the rhetoric thrown around about the future of the Falkland Islands for the past 6 months. What I've generally seen are (1) statements from the Falkland Islanders stating that they want to determine their destiny, (2) statements from the British government that the Falklands are entitled to determine their destiny, (3) threats and coercion from Argentina and other Latin countries, and (4) statements from liberals that the Falklands should be handed over to Argentina (with the implication that it matters not one whit what the Islanders want)--i.e., the standard liberal hypocrisy.

This op-ed, which I somehow missed when it was published on April 30, falls into the fourth category. Its author, Jonathan Glennie writes
The Falklands question became a development issue in 1998 when oil was discovered. Until then it had little relevance to the material wellbeing of poor people in developing countries. The Argentinian government did not invade the Falklands in 1982 for any economic reason (the main economic motor of the islands at the time was sheep products) but for internal political reasons; to provoke nationalist fervour to shore up a tottering dictatorship.

The outcome of the invasion has always piqued Argentina, but the discovery of oil has added fuel to the fire.

Brazil's former president Luiz InĂ¡cio Lula da Silva called the oil reserves found in Brazilian seas in the past decade a "gift from God" – that is pretty much how most Argentinians would like to think of the oil around the Falklands.

With an estimated 60bn barrels of oil to be found around the islands, and the oil price hovering around $100 per barrel, you can do the maths. If Argentina was able to take 25% of any oil sales, it could add up to $1.5 trillion to its coffers over the next few years.

There are two reasons why it is important from a development perspective for Argentina to benefit from this money. First, poverty reduction. Although Argentina is by no means one of the world's poorest countries, and has fairly good human development statistics, its GDP per capita ($9,000) is still only a quarter of the UK's. And it has some worrying social statistics: 13% of Argentinian children (aged 7-14) are economically active, according to the latest figures (for 2004), while 8% are malnourished. Moreover, the multiplier effect of Argentina's wealth would mean benefits for its regional neighbours as well, most of which are poorer.

The case is even clearer if we substitute a much poorer country, such as Haiti, Sierra Leone or Cambodia, for Argentina. It is hard to imagine anyone arguing that oil fields that might have fallen in the marine jurisdiction of these countries should come under a rich country's colonial jurisdiction in similar circumstances. It would be considered grotesque. The difference between this hypothetical situation and the actual one is of scale, not principle. Argentina and its neighbours still require development support.

Second, anti-colonialism. Development is not just about money; it is also about shaking off the past and engaging in new and equal relations between countries. Speaking at the Summit of the Americas in Cartagena, Colombia, in mid-April, the Argentinian foreign minister, Hector Timerman, said: "colonial aggression against one country is colonial aggression against all" and asked for solidarity with "the Argentinian decision to negotiate the return of the islands with the UK". All the 30 or so presidents at the hemispheric conference favour the Argentinian position, except the US and Canada.

The reason the Malvinas issue is felt so keenly across Latin America is that it is a reminder of Britain's history of economic imperialism in the region. The role Britain played in extracting resources and wealth from Latin America over the past two centuries, with little benefit to the local population, is well known, even if it is the Spanish who are most associated with colonialism. As Timerman puts it: "We have 21st-century challenges, and Argentina is still fighting against a 19th-century power." Of course, British people have next to no knowledge of this, just as they know little of their imperial history in general.
There are a few problems with this typical Liberal plan to assuage "white guilt." First, the author essentially argues that by turning the Islands over to the Argentina it will help eliminate poverty in Argentina. However, he never explains how.

Frankly, this reminds me of an early episode of South Park where the characters discover "underpants gnomes" with a three-part business plan: (1) steal underpants, (2) ?, (3) profit. The  gnomes had no idea of the intermediary step between collecting the underpants and realizing a profit.

So too with this plan, which can be summarized as: (1) give the Falklands to Argentina, (2) ?, (3) relieve poverty. Does Mr. Glennie think that money will magically flow into the pockets of the poor Argentineans?

Even if the Islands were handed over to the Argentineans, would they be able to develop the oil resources? Probably not. They would have to bring in outside help to develop it. Of course, building and operating oil rigs requires special industry and people with special skills. So, probably no jobs for the Argentineans there. The oil rigs will probably be built in South Korea or China or some other industrialized nation, towed to their location, and use labor from the U.S. or Europe to run the whole thing.

How about shipping the oil and processing the oil? Well, oil isn't pumped and then run through a bunch of countries so they can tack an excise tax onto it. Rather, in the real world, of which Liberals have so little experience, it has to be shipped to a refinery via the least expensive method and route, to be turned into various petroleum products, which are in turn distributed to the relevant markets. I don't pretend to know who the customers would be, but the odds are the oil would be loaded onto tankers headed to Europe or China.

Well, what about the money collected by the Argentinean government? I don't know the corruption index for Argentina, but assuming that it is like the U.S. (and every other industrialized country out there), the money will not be used to provide jobs but to benefit political cronies (Solyndra, anyone?) and otherwise be wasted in an inefficient bureaucracy. In other words, the money will benefit the politically connected. In a worse case scenario, the money will simply be skimmed off the top and into Swiss bank accounts.

Now for the "white guilt" portion of Mr. Glennie essay. "Anti-colonialism" is a red-herring. The Islands were never inhabited prior to the British settling there. No people were exploited when the Islands became a coaling station for ships and a place to raise sheep. Where the colonialism comes in is with people like Mr. Glennie that believe that the wishes of the Islanders--the natives--mean nothing, but the Islands and their inhabitants are only pawns for some greater Geo-political purpose. So, in the end, Mr. Glennie reveals the true face of liberalism/socialism: tyranny with a smiley face.

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