Michael Wolraich's picture

    Korea, Madagascar, and Nouveau Colonialism

    Dagster Donal recently posted the news that a South Korea company is pursuing a deal with Madagascar to lease arable land equivalent to almost half of its currently farmed land for 99 years in order to grow crops for feed and biofuel. Chinese companies have been doing similar deals with a number of African countries but at much smaller scales. Trade deals between multinational corporations and third-world countries have been sources of controversy since the 70's, but the history of such arrangements stretches back to the Dutch East and West Indies Companies, established in the 17th century. New York City itself was founded as New Amsterdam by the Dutch West Indies Company in order to facilitate the purchase of natural resources, including fur and tobacco, from an as yet undeveloped America.

    Controversial MNC deals tend to elicit knee-jerk reactions from both sides, with globalization supporters arguing that such trade deals help third world countries to grow economically and anti-globalization activists arguing that they undermine local economies and further impoverish the poor within such countries. Both sides generally base their arguments on broad assumptions which fail to account for the complex role that international trade plays in global development. Globalization supporters place naive faith in the positive effects of free markets and benign interests of MNC's. Detractors naively assume that freed from the influence of international power, third world countries would prosper on their own.

    If we want to positively influence global trade policy, we need to abandon utopic dreams of happy, harmonious global markets as well idealized notions of plucky, bootstrapping third world nations. If we set realistic goals based on historical precedents, we can better evaluate the advantages and disadvantages of specific trade deals by determining whether they help or hinder the achievement of such goals. Fortunately, there are plenty of historical precedents, starting with our own country, which began as an agrarian exporter of natural resources and suffered through class conflict, political corruption, and labor exploitation before becoming a rich nation with a (formerly) healthy middle class. But more useful precedents are the contemporary ones, former third world countries like South Korea, China, Brazil, Chile, India, Malaysia, and Thailand, the so-called newly industrialized countries (NIC's), whose citizens have moved from subsistence to relative wealth and which have now reached the point of establishing their own multinational corporations. These are not perfect nations. They suffer from political repression, class differences, corruption, and environmental deprivation. Except for South Korea, none of them can yet be considered first world nations. But they are in a different world entirely from places like Madagascar, Congo, Afghanistan, Zimbabwe, Somalia, North Korea, Burma/Myanmar, and Bangladesh. Third world countries will not leap suddenly into the first world. It has never happened; there is no precedent. But we have seen countries move from third world, to NIC, to first world, often over centuries, occasionally over decades. So as a first step, let's focus on helping third world countries become NIC's.

    No country has ever become an NIC on its own. Particularly in the last century, the NIC's growth has come almost exclusively from international trade. Is there no other way? There are other ideas but no other precedents, and those who base their ideas on theories without precedents run a dangerous gambit. While it's not impossible that some new strategy could accomplish something entirely new, we have seen many unproven economic theories leave nations in ruins. China's "Great Leap Forward," based on unproven Communist principles, caused an estimated 20 to 43 million deaths by starvation. So let us base our ideas on proven models. Third world countries must trade.

    But that doesn't mean that every trade deal is inherently good. African nations have been "selling" their natural resources to Europe for centuries, but few if any can be called NIC's. It's not that African nations have been ripped off. Trade does not work on the charity principle. Corporations seek the best deals that they can. While some nations may negotiate poorly, and corrupt leaders may offer deals that help them personally while robbing the nation, these differences are always relative to going the rate. Nor is the problem that the proceeds do not go directly to the poor. The NIC's suffer from massive class imbalances with the bulk of benefits going to elites. But these countries are gradually developing middle classes, and standards of living for the poor of such nations have been gradually improving. The difference between productive deals and unproductive deals is that in the former case, the profit is put to work through investment in local companies. Those companies may be owned by elites who live relatively lavish lifestyles, but they grow. As they grow, they hire more people, both laborers and managers. They send taxes to their governments which invest in infrastructure that benefits the poor and, more importantly for the long run, encourage more growth. The growth thus builds on itself, encouraging yet more investment, and suddenly a once poor nation becomes an international dynamo, and its companies become multinational corporations in their own right. By contrast, in unproductive deals, the profits are wasted on lavish palaces and luxury cars for corrupt leaders and their supporters. Much of the money immediately leaves the country through purchases of expensive imports.

    In light of these considerations, let's turn to the deal between Korea and Madagascar. First, this is a massive deal for Madagascar, which has a GDP of only $17B. It's expected to cost Daewoo Logistics $6B over 20 years for the lease plus infrastructure investments, including port, roads, irrigation, power plants, schools, and hospitals. Madagascar's GDP is only $17B. Second, Madagascar has been a relatively stable democracy since independence in 1960. It's smack in the middle of international democracy, press freedom, and corruption rankings, above Thailand, Georgia, and Egypt, though the corruption is slightly worse than the last two. However, the deal appears to be with four regional governments, about which we have little information, not the national government. There are of course questions about what will happen to those who currently farm the land. There are apparently plans to bring in laborers from South Africa, which would shut out local and send most of the wages out of the country. If all the crops are exported, the cost of food will surely go up for Malagasies, negating any benefits to the poor from the capital influx. The deal seems to be for "currently farmed" land although some reports list "arable" land. Even if it is the former, the increased scarcity will likely cause new farmland to be developed, which would cause deforestation, as Donal has noted. [Update: Clarified by acanuck below - new farmland equivalent to half of its currently farmland. That means that food prices won't necessarily go up, but there will be deforestation.]

    But most importantly, while the infrastructure investment is good for Madagascar, it's not clear that the deal will do much of anything to fertilize local companies. The reports hint that the operation will be very top down. Daewoo will not be hiring local contractors or managers. They will run the show from top to bottom much as multinational oil and mineral companies do and as colonials have done in the past. The leases will be paid directly to regional Malagasy governments and most likely be squandered through corruption. Finally, should Madagascar manage to break into NIC ranks in the next century, the 99-year lease will become an increasing drag, depriving the nation of the resources and land that it will need to develop.

    Thus, despite some benefits for a nation that may be less corrupt than its neighbors, this deal truly appears to be an example of 21st century nouveau colonialism and likely to hinder rather than help Madagascar's development. Moreover, it's a disturbing trend, made worse in the case of similar deals between less accountable Chinese corporations and more corrupt African nations.

    Late update: Just want to credit Hugh Bartling who posted the story that Donal saw. Up at TPM, Hugh notes that the Financial Times claims that the Daewoo would pay nothing for the lease. The Bloomberg quote of $5 per hectare came from a Daewoo manager. Also, Acanuck clarifies below that the deal appears to include not current farms but unfarmed land equivalent to half of Madagascar's currently farmed land. There is also some debate about what Daewoo is paying for the lease, if anything.

    Comments

    I would add that while becoming a rich nation we had to prosecute a series of wars and lesser conflicts against various native populations, the Spanish, the French, the Mexicans, and of course the British.


    This is a really fascinating topic. I have a pretty unsophisticated knowledge of economics and also history, but I lived in South Korea in the early 90's, maybe a little bit before they would have been classified as "1st world." And I have some thoughts. First, it was fascinating to watch S. Korea try to reconcile thousands of years of traditional culture with the drive to modernize and industrialize. It led to all sorts of strange contradictions. Also, in watching S. Korea's drive to industrialize quickly, I found myself horrified at the level of pollution, but then chastised when I remembered driving through Gary in the 70s, with my nose plugged and my eyes closed, crying from the sting. Is it fair for us to condemn S. Korea as a neo-colonialist when we might never have achieved our own economic development if not for the exploitation of countries that were less developed than we were and also our own neglect of the environment?

    Living in Korea - sounds like a good subject for a blog post.


    Second


    I gather that the project does not target half of Madagascar's currently farmed land, but the opening up of an equivalent amount of land that is now inaccessible and unexploited. Hence the talk of building roads, ports, etc.

    It's still a terrible idea for a country that already suffers from soil erosion, pollution, deforestation and "food insecurity."

    I get that South Korea already imports most of its food and would like to lock in secure supplies for the long term. But Daewoo is also looking at Madagascar as a source of cheap animal feed and biofuels. We're talking about the agricultural equivalent of strip-mining.

    Politically, this 99-year deal is a time-bomb. See the history of the United Fruit Company. See the current agony of one-company towns in Michigan. See the Boxer Rebellion, the Mau-Mau uprising, the Cuban Revolution. This will not end well.


    Acanuck has nailed it with "the agricultural equivalent of strip mining". Labor imported from South Africa to a country full of people desperate for jobs? Naked exploitation is the opposite of development. It was hard to imagine how things could get worse in Madagascar. This is how.


    Thanks. That interpretation makes more sense and jives with other reports that say "arable land."

    I made the same United Fruit comparison up at TPM (I think that I may stop cross-posting these post in order to focus the discussion). I agree that the consequences of these deals could range from bad to really bad.


    Maybe you could post a teaser in one and a full post in the other.


    It's an idea. I would prefer to have the discussion at dag, both because I'd like to drive traffic here and because I enjoy the discussions more. But I think that I might annoy the folks at TPM if I post teasers up there all the time. I suppose that I could switch off.


    An absolutely fab post, Genghis.  I'm with acanuck.  This is not only not good, but is ugly.  There are so many people who have such amazing executive skills, people who run the local NGO organizations, locally nurtured talents and really stunning ones too, that for Daewoo to bring in exploitable labor from SA (South Africa) is itself a claxon for bloody encounters with the locals.  This is worse than simple exploitation, this is exploitation with added toxicity which will only destroy whatever is local and precious and good.  I lived and travelled throughout Africa in 2000 and 2001.  I spent a month in Madagascar and worked tangentially with a local conservation NGO and I absolutely loved the island and its people.  Its flora and fauna are unique.  And the people are, like, totally marvelous as they are in every country I went to in Africa.  I have a visceral hatred of colonialism and its ever recurring brands and many faces, I hate even more its many repurcussions.  I lived and worked in Antananarivo-Renivohitra [generally known as Tana] and travelled around to places like Taolagnaro [Fort Dauphin] and Andapa where the majority of the population consists of farmers.  This story makes me livid.  However, what makes me sick and crazy are stories like this one.


    Zimbabwe's story is one of the saddest in the world. Congo frustrates me, Darfur upsets me, but like you, Zimbabwe enrages me. The people of Congo and Darfur probably suffer more, but Zimbabwe was, less than a decade ago, the pride of Africa. Mugabe and his cronies have diabolically destroyed their nation and the lives of their people so that they might prosper. Somehow, this seems even worse to me, at least in one way, than ethnic cleansing. It's driven not by tribalism but by pure amoral self-regard.


    Food crisis leading to an unsustainable land grab

    Furthermore, many local communities will be evicted to make way for the foreign takeover. The governments and investors will argue that jobs will be created and some of the food produced will be made available for local communities, but this does not disguise what is essentially a process of dispossession. Lands will be taken away from smallholders or forest dwellers and converted into large industrial estates connected to distant markets.


    Laos: The resentment rises as villagers are stripped of holdings and livelihood.

    The sabotage is a testament to growing local resentment at the way land is being sold off to big foreign investors with deep pockets. At face value, leasing agricultural concessions looks like a godsend for Laos, a poor country eager to shed its stigmatic designation of "least developed country."


    Wow. The second article is particularly chilling.


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