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Why buying Greenland wouldn’t really help the U.S. economy (even if it were for sale)

Unlike Russia, the United States no longer depends on resource extraction.

- August 28, 2019

President Trump has reluctantly abandoned his dream of buying Greenland from Denmark. But why was he so interested in the first place?

An op-ed Monday by Sen. Tom Cotton (R-Ark.) argues that the move would block China’s Arctic ambitions. Global warming and retreating Arctic ice has made the Arctic a site of great power competition — and it potentially opens up new resource-rich zones.

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In addition to oil, Greenland possesses large deposits of gold, diamonds and rare-earth metals. On closer inspection, what Greenland has to offer might align more closely with the Russian economy — not the U.S. economy. Here’s why.

The U.S. economy no longer depends on resource extraction.

The United States and Russia both could benefit from owning Greenland. Either nation could use that land to pump oil and mine gold. However, the money spent acquiring land is money a nation cannot invest elsewhere.

The U.S. economy has matured past a focus on oil, mining and agriculture — U.S. profits now come from other sectors, such as technology. That’s not necessarily an option for Russia, a petro-state with a less-diversified economy. Russia’s economy is land-based, optimized to pump oil and gas. After decades of underinvestment in manufacturing and technology, Russia cannot simply turn a key and become globally competitive in those sectors.

In contrast, the U.S. economy is optimized to produce services and high-end manufactured goods. The United States might benefit from owning more land — but it can earn even larger profits through investments that pair American capital and expertise with cheap labor and foreign markets. U.S. companies can earn more by building factories in Bangladesh and selling Netflix subscriptions in Europe than by buying Greenland or conquering oil fields.

Buying land was a 19th-century strategy.

Although buying Greenland may seem strange today, the United States used to acquire wealth by buying and conquering new land. During the 19th century, the Louisiana Purchase, the Alaska Purchase and the Mexican-American War (1846-1848) more than tripled the size of the United States. At the time, the U.S. economy was optimized to produce income from land — farming and mining. More land was an efficient path to more wealth.

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That’s no longer the case. As Stacie Goddard explained here in the Monkey Cage, the rise of nationalism had a lot to do with the decline in territorial purchases.

There were also economic reasons to get out of the business of buying territory. Today, agriculture makes up less than 1 percent of the U.S. economy. Oil, natural gas and mining make up less than 2 percent of U.S. output, even after the fracking boom. The U.S. economy depends primarily on services, and growth in the tech sector far outpaces the rest of the economy.

Meanwhile, Russia has remained highly dependent on oil and natural gas, which accounts for more than 60 percent of its exports. Russia is more diversified than the petro-states of the Middle East, but its next-best investment opportunities haven’t panned out. After oil prices collapsed in late 2008, Russia spent billions of dollars trying to develop its own Silicon Valley. The project failed miserably — without the human capital, the property rights and the infrastructure, Russia finds it difficult to reap high-tech profits.

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Russia is scrambling hard in the Arctic.

For the past decade, the quest for new resources in the Arctic was focused on the ocean floor. When climate change caused a sudden drop in Arctic ice in 2007, it exposed a Saudi Arabia’s worth of oil and gas. Countries scrambled to lay claim to these potential resources, filing legal claims and building new Arctic military capabilities to back them up.

As Jonathan Markowitz shows in his forthcoming book, “Perils of Plenty,” after 2007, it was Russia, with its land-based economy, that invested most heavily in Arctic bases and ice-hardened warships. Russia has expanded its Arctic military patrols, conducted mock bombing runs on Norwegian Arctic airfields and declared the Arctic its strategic resource base for the future.

Despite being much more powerful than Russia, the United States did much less to boost its Arctic military presence. Instead, it has pivoted to Asia and used its military to ensure open markets and safe sea lanes around the world. Because the U.S. economy is specialized in producing goods and services, not extracting oil, the priority for Washington is access to foreign markets — not extra land.

The key U.S. interests in the Arctic focus on maintaining regional stability and access to markets and sea lanes. Russia’s increasing efforts to coerce U.S. allies in NATO and to control access to the Northern Sea Route potentially threaten these objectives. However, deterring Russia and defending U.S. regional interests does not require Washington to buy a giant island. The United States has maintained an Air Force base in Greenland since 1951, without owning territory there.

When Trump suggests purchasing Greenland or argues that we should have “kept the oil” after the Iraq War, these are statements more in line with U.S. interests from the 19th century, not the 21st century. A foreign policy based on acquiring land might resonate with Moscow, but it would seem less of a priority for the United States.

Jonathan N. Markowitz is an assistant professor in the Dornsife College of Letters, Arts, and Sciences at the University of Southern California. His book, “Perils of Plenty: Arctic Resource Competition and the Return of the Great Game?” is due out from Oxford University Press in March 2020.

Benjamin A.T. Graham is an associate professor in the Dornsife College of Letters, Arts, and Sciences at the University of Southern California. Graham and Markowitz are the co-founders of the Security and Political Economy (SPEC) Lab.