Archive for the ‘Economics’ Category

Prospecting on Greenland: Speculations on Economics and Sovereignty

13 September 2012 1 comment

The island of Greenland has a long and storied past. It has been inhabited continuously, though sparsely, for over 800 years, and intermittently since 2500BC. Long falling under the Kingdom of Denmark, in 1979, Greenland was granted Home Rule allowing it to exercise semi-autonomy on some political, economic, and social issues. In 2008, Greenland passed a referendum reaffirming home rule and acceding to Self-Rule, moving one step closer to sovereignty.

Greenland is a fascinating island in that it has a huge but mostly uninhabitable landmass. It’s 25% bigger than Alaska, but with 1/6th the population. It’s not only a very small country by population (~55,000 inhabitants) it’s also a very young country, only having semi-autonomy for 33 years. This politically young, environmentally dynamic country will face unique and complex problems brought on by climate change. Not only will they face enormous challenges in managing their own systems and resources, they are also likely to face an influx of outside pressures as to how they should proceed.

From what’s known about Greenland’s coastal geology, it is likely that the island contains significant amounts of precious metals and minerals (in addition to the substantial known hydrocarbon reservoirs). Climate change, through receding glaciers, is likely to expose large tracts of land bearing these coveted reserves. This is already piquing global interests from Europe to Australia, within both governments and mining companies alike.

The economic potential for Greenland is huge. Currently, Greenland is economically dependent on its fishery. Opening of its frontier to mineral exploration will present an economic boom. Revenue from increased mining will bolster Greenland’s government, giving them a much firmer hand in political discussions with Denmark. One foreseeable path is that this will lead to further self-governance and ultimately independence from Denmark.  There will reach a point when Denmark has little left to offer that the Greenland can’t secure for itself either through trade or collaboration with other Arctic nations. This path requires strong leadership and firm negotiations with mineral companies to make sure that Greenland receives an appropriate amount of mining revenue and that regulations are followed. It may also be preferable that the mining be conducted by domestic companies thereby forcing the development of manufacturing and support industries which may help diversify the economic base. This will require great foresight and adept policy making; the kind forged through years of hard fought progress. This path may provide an equitable and environmentally balanced approach to the future of Greenland as it continues to grow into a major player on the world stage.

A second, more problematic path feeds on the weakness of burgeoning political institutions. Though they have strong political models to follow, it is always tempting for new governments to slip into the curse-of-natural-resources. With great economic wealth on the horizon, it may be easy for Greenland’s leaders to open up bidding to the highest company, outsource the manufacturing, development, and planning jobs; get paid for their resources; and have nothing else to show for it. Nascent governments may have undeveloped or underdeveloped regulations and/or enforcement mechanisms that allow for excessive contamination and recklessness that may result in environmental impacts, and squandered opportunities.

The third, and most likely approach is that Greenland will take advantage of both its mineral assets and its political relationship with Denmark to develop a hybrid, balanced approach building off established regulation models. Greenland does have a Bureau of Minerals and Petroleum and has already established a progressive exploration block licensing program. Legislation has been passed in 1965, and updated in 1978, as well as 1991 (a nice, though dated summary of Greenland Mining Policy see here). Current legislation focuses more on rent recovery and taxation with less emphasis on environmental protection and enforcement measures.

There are many complex questions associated with mining development.  Mines require technical, intellectual, and physical workers; more than a small population can support. Managing boom-towns is always a difficult proposition.  Mines also require support and service industries, possibly furthering the rapid, short-term, short-lived growth. Finally, there is always an environmental legacy of mining.  Whether it be accidents, pollution, contamination, or just landscape reshaping, Greenland will be forever shaped by the next chapter in its history.

Managing natural resource wealth is immensely difficult. There are few examples of safe, effective, and equitable resource nations, and with the size of Greenland’s economy, it will undoubtedly become dominated by the resource industries. Greenland is being presented a great opportunity to become economically advanced and diversified. Attaining that economic development in balance with its unique cultural and physical environment is monumental challenge. The rest of the Arctic is looking to Greenland, for how Greenland proceeds will set a precedent for the rest of Arctic development.

Categories: Economics, Politics Tags: ,

Polar Bear Protest Ends in Arrest

8 September 2012 Leave a comment

In a symbolic protest Greenpeace activists  dressed as polar bears were arrested by Russian police. The protesters were blocking access to the Gazprom headquarters in Moscow with blocks of melting ice. 10 people were arrested, 4 of whom were dressed as polar bears. The protest was staged in objection to drilling projects in the Barents Sea, and comes just days after the European Commission launched an anti-trust investigation into a 2009 event when the Russian state-owned Gazprom cut supply to Ukraine over pricing disputes.

This appears to be an opportunistic protest with Greenpeace seizing a moment when Gazprom is already in the spotlight for dubious monopolistic/politically-motivated actions, unrelated to environmental concerns. Greenpeace is calling for an Arctic nature preserve that would prohibit natural resource exploitation and industrial fishing, and is largely absent from economic debates.

Russia, a dominant player in global hydrocarbons, is especially dominant in the European natural gas market. The investigation is focused on Gazprom’s operations in Eastern Europe. The proximity of these countries to Russia and the nature of the commodity itself  presents Gazprom with a natural monopoly. The actions of concern are whether or not Gazprom used this advantage to unjustly control prices, and/or to control supply for political advantage. Russia already has pipeline infrastructure supplying natural gas to Europe, and much of Europe is already dependent upon Russian natural gas, so it is in the interest of both parties to find an amicable solution. The economic issues in discussion are Gazprom’s real issues this week, but Arrested Polar Bears make for a much better picture than Economic Discussions.

Categories: Economics, Energy Tags: , ,

Apples & Oranges (A-holes & Boehners): The Debt Debate

In a time when the European Union is desperately trying to keep it’s own from defaulting on its debt, the US is willfully approaching a voluntary default.  This gambling with the world economy by the leaders of the free world is a  mockery of the earnest legislatures in the EU. Perhaps flaunting our wealth, then displaying ambivalence towards our most basic economic responsibility, is not the best path towards restoring America’s image.

Lets talk about misconstrued numbers that are in no one’s interest to clarifiy: The Republicans want to match debt ceiling increase with “cuts”.  However, the deficit is the long term accumulated debt consisting of the uneven remainders from the previous years’ budgets.  The republican plan to match deficit reductions with budget cut’s is mixing apples & oranges, without actually saying if all these cuts will indeed produce a balanced budget. If you’re risking putting the US into default, wouldn’t you want to discuss that your plan would keep us from getting back to this position in the future? Wouldn’t that be a big selling point? Only if it were true.

During all of these shannanigans what’s really troublesome to me, is that our leaders are so complacent to wait until we’re on the verge of a crisis to take action, so that they all have an alibi as to why they made such terrible decisions. This outward display of cowardice is undeserving of anyone’s vote.

And then, there’s the tea party. No one believes that a logical house of representives would force the US into default. But that’s the problem, the tea partiers have demonstrated an ideological emphasis over logic since the very conception of the party. In short, they’re crazy enough to do it! The tea-partiers demonstrated their sanity yesterday by not letting Speaker Boehner bring his plan to a vote, thus demonstrating that they are SO conservative that they are unwilling to vote for the most conservative fiscal reform in US history!

So where does this leave us? Well, the Debt ceiling is arbitrary. We could just absolve it, but political posturing is far more important to politicians than the economic validity of the US. So then, we’re stuck with the A-holes and Boehner saying that Obama’s very conservative deficit proposal is too liberal.  Well at least there’s always the Platinum Coin Option, which will be seen as a joke on the world economic stage, but then again, that might just befit the circus that is the US Government.

My Dear Michigan

It’s been a while since my dear Michigan has been seen as a vibrant economy.  The failing auto industry, once seen as a American Icon, has been in steady decline for some time.  This loss of industry has fueled a downward spiral for Michigan’s metropolis of Detroit, who has seen a 60% reduction in population since its heyday in the postwar 1950’s economy.  Even though sparks of revitalization, such as the building of new stadiums downtown,  have given some hope for the Motorcity, for each spark there are 100’s of haunting reminders of what once was (as documented in numerous photojournals).

Detroit illustrates (and is partially the cause of) the problems that plaque the entire state of Michigan.  The mass exodus from Detroit isn’t just leaving the city, it’s leaving the state.  In 2010, Michigan was the only state that lost population.   There have  been numerous attempts to jump start the economy with forward thinking Green Initiatives from both state and federal levels.  Even native resident Jeff Daniels has lent a hand to drum up support for the state.  There is even some entrepreneurial will to keep fighting in Michigan.  But these attempts to move Michigan forward are currently being sold for scraps, as newly elected (and potential recall candidate) Gov. Rick Snyder is playing to the tea-partiers calls for radical spending cuts even when the state is desperate for investment.  His plan includes raising taxes on the poor and elderly in order to finance a corporate tax reduction, hoping that corporations, supported by citizen sacrifice, will be the savior of the state.  If the 80 years of economic experience since the Great Depression have given us great insight into dealing with economic downturns, the last 2 years of Tea-Party “anger” (what exactly are they angry about?) has taught us emotions outweigh rational thought.

But there is hope for the once great Detroit, and Michigan in general.  Other cities and states have faced economic despair from which they rose.  One of my favorite examples, and the one I find most fitting for Detroit, is the reemergence of Pittsburgh.  The once great Pittsburgh has endured its share of hardship following the collapse of the steel industry in the 1970’s.  Though it’s not an easy road, Pittsburgh has shown that cities can be rebuilt.  And it’s the industrial backbone that these two cities have in common, that gives hope for the rebound of Detroit and the rebound of Michigan.