Denmark turned down 100m USD from the USA; I discuss how this was a bad idea
After WWII, the Cold War motivated the USA to offer $1233.26989746$1001946 million for ownership of Greenland, which was declined. The USA got the benefit of using Greenland anyway. I discuss how the island otherwise remained a drain since, the dim prospect it will ever be useful to Denmark, and the forgone benefits of that offer. I speculate on the real reasons for the refusal.
Following World War II, the United States developed a geopolitical interest in Greenland, and in 1946 the United States offered to buy Greenland from Denmark for $1233269888$1000000001946, but Denmark refused to sell.
The reason why the US would want to buy Greenland is clear: being able to install anti-Russian military installations such as early-warning radar and nuclear bomber bases (Greenland being fairly close, on a great circle, to Russia)1. The US has famously often bought large chunks of land (Louisiana Territory & Alaska being the biggest & most profitable), so it was nothing new—this was, in fact, the second time the US expressed interest in buying Greenland, after an abortive attempt in the 1860s. It would not even have been the first sale of Danish land to the USA, as there was at least one other, the United States Virgin Islands in the Treaty of the Danish West Indies. (As should be no surprise: transfers of land are an important way that geopolitics can be improved without requiring war.)
This appears to have been a large offer: 1946 (inflation-adjusted to 2011) US GDP was $200–228b, making an offer of $0.1b a nontrivial percentage of US productivity, and Denmark’s GDP appears to have been >50x smaller, ~$23b, as it recovered from WWII.
The reason why Denmark would want to not sell Greenland is… less clear. At first glance, it’s not clear. Nor the second.
By the economics, holding on to Greenland is a bad idea.
$100m in 1946 dollars is somewhere around $1b in 2011 dollars. Then one should consider the opportunity cost; $100m invested in 1946 until 2011 at a 5% return is around 24x () or $2.4b. Denmark could have realized such a return just by leaving the money in the American stock market; the Dow Jones varied between 160 and 200 in 1946–1950, and over the past few years trades at 10–12,000 for a return of 60–63x, and this is an underestimate: stock market returns have been hurt badly by the late 2000s—if one took the old rule of thumb that stock markets return 8% over the long term, Denmark’s hypothetical return would have been 149x, not 63x (). With a few more decades, the forgone returns may take off and return to the trendline; Denmark does not have a sovereign wealth fund as gigantic as Norway’s Statens Pensjonsfond (it could’ve started one with Greenland or all the Greenland subsidies since then, though…), but the government or the pension funds certainly can take a long view on investing, so that’s not an issue.
We can deal with the economy of Greenland in one fell swoop: Greenland’s entire GDP is around $2b. The overall trade deficit is a few hundred million and has been in place for 21 years, since 1990. The official Danish subsidy was $512m in 2005. Greenland is not a going concern and would collapse within years. It’s hard to estimate the total subsidy sine 1946, but if we make the assumption that the subsidy is a constant percentage of Danish GDP then the subsidy totals (ignoring opportunity cost) somewhere upwards of $3–16b2.
Americans may find $3 billion or even $16 billion a pretty piddling sum given the colossal sums it spends (>$3t on Iraq and Afghanistan, $2.5b for B-2 Bombers, etc.); but remember the USA is the largest economy in the world with 300 million people. Denmark is closer to the 30th largest economy, and has just 5.6 million people. To get a better understanding, convert to per capita (multiplying by 60), to get a range from $180b to $960b—at which point it becomes clear that this is no laughing matter for a small country like Denmark. This money could have funded major projects like the Øresund Bridge.
So what can we put on the positive side of the balance-sheet? Before evaluating something we need to ask ourselves whether Danish sovereignty over Greenland matters - sovereignty is what Denmark was asked to sell, nothing else. If something would benefit Denmark regardless of whether it sold Greenland or not, then it cannot count as a benefit. We are also interested in the changes on the margin based on Denmark not selling.
Proceeding through possible benefits in descending order:
Obviously very valuable. But it is worthless to Denmark if it does not use the location for anything valuable—which it does not. Compare to, say, Gibraltar. Denmark is a liberal Scandinavian state which has been neutral since the 1864 Second Schleswig War; it is not going to launch its piratical navy out from hidden Greenland ports to raid Atlantic shipping. Denmark has, does, and will make no real military use of Greenland. (This possible benefit also cuts the other way: a strategically vital location you cannot defend or use effectively is not a benefit, but doomed3, and one reason that territory purchases like the Louisiana or Alaskan or Virgin Island transfers happened. The fact that a small, obscure, distant country like Denmark has been permitted by the much larger or much more closely located powers like the USA, UK, USSR, France, Germany etc to retain Greenland for so long implies that it is either not that valuable or Denmark is not gaining its value.) Likewise, Denmark has failed to capture the indirect geostrategic value of Greenland: not only did it refuse the US offer, it then—as a founding member of NATO, joining 1949-04-04—proceeded to let the US use Greenland as much as it pleased, expanding the US WWII installations into the gigantic Thule Air Base (linchpin of the Strategic Air Command nuclear bombers aimed at Russia) and agreeing to govern Thule under a 1951 treaty which specifically says (emphasis added):
Without prejudice to the sovereignty of the Kingdom of Denmark over such defense area and the natural right of the competent Danish authorities to free movement everywhere in Greenland, the Government of the United States of America, without compensation to the Government of the Kingdom of Denmark, shall be entitled within such defense area and the air spaces and waters adjacent thereto: …
The USA had plans to exploit Greenland’s location even more thoroughly with Project Iceworm (“a network of mobile nuclear missile launch sites under the Greenland ice sheet”); it was canceled not due to Danish objections but technical problems with the ice tunnels. When Denmark’s military is active in the 20th/21st century, it is in roles where Greenland is of no possible value to it (eg. serving as peacekeepers & advisors in Afghanistan). What is the Danish Navy supposed to do with a Greenland base, intervene in the Cod Wars? With the ending of the Cold War, Greenland’s value is likewise diminished. Yes, the US would still like it for use with the anti-ballistic missile shield and for shortening air routes, but that’s a preference and not an existential necessity (the need for bombers is now largely moot given subsequent developments like aerial refueling and missiles).
Economics: the Northwest Passage
Perhaps, like how Spain refuses to let Catalonia secede, Greenland represents a large chunk of national GDP and cannot be allowed to? But no, the GDP contribution is negative. Perhaps the location is economically rather than strategically valuable, particularly for the North-West Passage? But Greenland’s territorial waters extend out only 12 nautical miles. Even the Greenland EEZ does not cut off the Passage. The only obvious way to monetize the Passage is military, which as already noted, is politically impossible for Denmark. Nor was the North-West Passage important in the 1940s and still is not important despite global warming.
Fishing is one of the few viable Greenland industries; Wikipedia says it’s 72% of the 2008 exports of $485m or $350m, from a fishery of around 5 million square miles. This is total export value, not profit. If we assume profits of 10%/$30m or whatever, that’s nowhere near enough to repay the subsidy or the cost of not selling, and so it does not help. (But it is definitely a brighter spot in the tally when compared with the oil/Passage/geostrategic values of 0.)
Hydrocarbons: oil/natural gas/methane
An old hypothetical, raised by almost everyone, but one that totally fails. Proof of the farsightedness of predictions that Greenland will turn into another Alaska and gush oil or minerals can be seen in the fact that after a century, there remains not a trace of this in sight—future exploitation of natural resources has always been a justification for Greenland, and, one suspects, always will be. Being covered by kilometer-thick ice is unhelpful.
The Greenland state oil company, NUNAOIL, is small; and if I read their 2010 report correctly, they lose money some years and the profitable years yield only a few million dollars. There may be ton of oil there, but there will always be vast oil deposits somewhere which are uneconomical to extract, and Greenland seem to hold a lot of them. (When oil companies prefer working with tar sands to your oil, you either have very little or very expensive oil!) Given that Greenland oils & minerals have been so expensive to extract that they haven’t been over the past centuries, any technology making Greenland exploitation feasible will benefit many more viable competitors and also implies that the marginal costs of extraction will be so high that even if at some point meaningful levels of resource extraction happen, the profit of each unit will be near zero—Saudi Arabia, Greenland is not!
Worse, Denmark has agreed that future oil profits will go to Greenland, left-overs will only go to reduce the annual Danish subsidy, and anything past that goes back to Greenland to foster further autonomy/independence, a trend which seems likely to repeat itself if there turn out to be any exploitable resources in or near Greenland such as by the North Pole4. (A point rendered even further moot when Greenland banned all oil exploration.) So under no scenario will Denmark ever turn an actual profit. And finally, Denmark could profit from any oil discovered regardless of whether it or the US owned Greenland—if its oil companies are competitive. So, oil is completely useless as a reason to hold onto Greenland.
Mining: Zinc, lead, and rare earths
Those mines were closed in 1990, but may re-open in the future. I didn’t find any data on the profitability of the mines between 1946 and 1990; it is possible they were so lucrative as to justify holding onto Greenland. This seems a little unlikely, but I can’t immediately dismiss it. (It wouldn’t justify the subsidies past 1990, of course, but it might justify the original 1946 decision to hold onto Greenland.) The warming of Greenland and melting of glacial ice has prompted renewed exploration5 of Greenland’s mineral reserves and fresh discoveries of deposits6, suggesting that profits were minimal before due to difficult conditions.
The difficulty here is that many of the economic benefits will be internalized by the companies doing the exploitation, their (foreign) employees, and the externalized environmental waste & health fallout from mining is notorious. In particular, the discovery of rare earths may not matter because rare earth deposits are not rare and not found solely in China (as coverage of China’s 2009–2010 rare earth embargo might lead one to believe) but found all over including large deposits in the USA; the reason the American deposits at the Mountain Pass rare earth mine stopped being mined is because the environmental contamination was too severe and China permitted that while America did not—hence Mountain Pass is only starting up with a heavy investment in cleaner mining techniques. Will the rare earths be profitable enough to compete with American or Australian or Canadian or Chinese deposits, under Greenland’s conditions, at acceptable levels of pollution and especially the taboo radioactivity?7
As global warming melts the ice, it exposes much sand in Greenland. Is that profitable and will make Greenland the ‘Saudi Arabia of Sand’? No. Sand is extremely heavy, used in bulk in construction for concrete (and being so bulky, especially environmentally destructive to extract), and used primarily on the opposite side of the world. It is a low-value product used in low-value ways in poor places, which may not even pay for shipping outside of Iceland.8
Greenland has been principally self-governing since 1979. This may not have been foreseeable in 1946, but suppose it hadn’t; how exactly is the control worth hundreds of millions and billions?
Capturing Greenland’s import business
If Denmark’s exports (and future benefits from postulated resource wealth) are driven by its sovereignty over Greenland, then their current moves in devolving even more power and control to the Greenland government (eg. the aforementioned oil deal) are shooting themselves in the economic foot. And if Denmark’s export success isn’t because of its sovereignty, all the less reason to have sovereignty! But given the fact that the direct Danish subsidy is almost the size of Greenland’s entire annual imports and Greenland only imports 60% from Denmark (60% of $867m being $520m vs $500m subsidy), it is hard to see how this could ever result in a profit for Denmark.
Wikipedia does list ‘handicrafts’ as a major export. But just like oil and the other resources, benefiting from Greenland’s craftsmen and artists do not require any kind of sovereignty or subsidization. The US doesn’t own China or Canada, yet we still profit plenty and get lots of artists and craftsmen from them. Given free flow of people, the question becomes can Denmark justify its subsidies and opportunity cost by the marginal increase of artists and craftsmen? Justifying by Greenland’s total art output is dubious; by the marginal increase even more dubious.
Much of the Greenland population is Danish, unsurprisingly. One wonders if some successful colonization (the population is only 57,000 people) is a real benefit to Denmark; regardless, given that 2010 birthrate of 1.88 children per woman is below replacement rate, any nationalists ought to focus their colonizing efforts at home.
Greenland is a poor country. Perhaps Denmark simply wants to help out the many Inuit & Danes & descendants of both. This is ethically reprehensible. Greenland is poor, but compared to many African countries it is fabulously wealthy regardless of whether you take the $20k per capita at face value or discount subsidies etc to get a smaller number like $10k per capita. Investigations of African intervention estimate the cost of saving African lives at >$1000 a life but let’s be conservative and increase the cost by an order of magnitude to $10,000 a life; is helping a bit the 57,000 Greenlanders ethically preferable to instead saving 50,000 African lives ()? I do not think they are even close, and if that is Denmark’s true reason, shame on them for letting distance or ethnicity warp their ethical judgement to such a freakish extreme. (It is not as if European countries sending foreign aid to Africa is some hugely novel and experimental concept. It is well-understood how to do good in Africa and the Danish would be more competent than most at the job.)
Note that I did not include as a benefit “makes Denmark bigger”. Owning the “largest island in the world” is about as meaningful as owning the world’s largest ball of twine. Land is not intrinsically valuable; only what is in it, or on it, or near it is of value. One acre of Tokyo or Manhattan skyscrapers will yield enormous rents or their sale will buy you many acres indeed of the frozen wastes of Russia or the baked wastes of the Sahara. (The Sahara, incidentally, used to be a really nice place: the Green Sahara; something similar happened to Mesopotamia as it went from bread basket of civilization to salinated dusty Iraq.) If we think about deserts, we see land can be an outright liability if it leads to desertification and destructive sandstorm devastating the good bits of one’s country, active insurgencies, physical separation of productive regions, contains Superfund sites, or represents an indefensible military vulnerability. Russia is fairly wealthy (in aggregate, not per capita), but that is due to what its frozen wastes contain, not the wastes; and as discussed above, it appears Greenland did not receive the dubious blessing of “the devil’s excrement” (see resource curse).
Being an outside unfamiliar with Denmark, it is hard for me to speculate. One person tells me:
If the national budget have to be cut, I think Greenland would rate as one of the last things Danes would like to see cut.
That’s very strange. As an American, would I say Puerto Rico is one of the very last things that ought to ever be cut in the federal budget? Heck no! Puerto Rico has repeatedly decided it’d rather not be a state, but at least it’s still genuinely ruled by the USA; if Puerto Rico decided to switch to full home rule, I think I and the average American would care even less about them.
So why are the Danish so keen on Greenland? It spurns them politically, it costs them a fortune, and has no apparent advantage. Given the above quote, it may be time to abandon realpolitik, especially when we read in the 1947 Time:
There was always the objection that Denmark’s national pride would stand in the way of a sale. But U.S. military men thought they had an answer: Denmark owes U.S. investors $70 million. That is less than the cost of an 850-ft. carrier for the Navy, but more dollar exchange than Copenhagen can easily raise.
One wonders why Denmark didn’t, say, offer the US a 99-year lease for $70 million, especially if they were struggling (like post-war England, one notes) to raise dollars for imports and debt-service; long-term leasing from allies has long been an acceptable option for the USA (or even leasing from enemies, such as Guantanamo Bay), so there was no obstacle on that end.
What would explain the Danish placing Greenland above other sacred cows in their budget and permit the US to establish huge military bases for free? “Sacred cow” seems to be as useful a phrase here as Time’s “national pride”; the last time the US bought land from Denmark was the United States Virgin Islands with the Treaty of the Danish West Indies, under difficult Danish circumstances in WWI. It would not be too surprising if there were some bitter feelings about this among some Danish, regardless of what happened.
Commenter Haukur points out additional Danish context: “the Icelandic republican referendum of 1944 and the Faroese referendum on independence in 1946 as well as the Danish post-war efforts to regain Schleswig. The Danish empire definitely was shrinking, which the Danes couldn’t help but be annoyed about. Selling your White Elephant may be the smart thing to do but it’s understandable when people don’t.” It’s no surprise when we read remarks by prime minister Hedtoft on January 23, 1948:
Why not sell Greenland? Because it would not be in accordance with our honor and conscience to sell Greenland. The Greenlanders are and feel they are our countrymen and we feel tightly bound to them. It cannot be our generation’s task to make the Danish state smaller, and it is not in accordance with the policy of the Danish government or the wishes of the Danish people.
Perhaps this is the explanation: Greenland has become symbolic. Possession of Greenland has become a symbol of Denmark’s status as a modern independent developed nation. The symbolism of sovereignty and the shared history is not threatened by US bases, nor home rule, nor economic failure, and apparently is sufficient repayment for all the money poured down that hole.
“National Affairs: Deepfreeze Defense”, Time, 1947-01-27
This week, as U.S. strategists studied the azimuthal map of the Arctic (see cut), it looked as though Seward had been right about Greenland; and Lansing wrong. The U.S. frontier is now on the shore of the Arctic Ocean. Thanks to “Seward’s Folly”, the fortress of North America has a castellated outpost at the northwest angle in Alaska. But at the northeast angle it has only tenuous base rights, to expire with the peace.
So long as U.S. servicemen—even radio beacon operators and weathermen—remain at Greenland outposts, the U.S. is exposed to verbal sniping from Moscow for “keeping troops on foreign soil.” But with the Soviets trying to muscle in on Norway’s Spitsbergen (TIME, Jan. 20), Washington military men thought this might be as good a time as any to buy Greenland, if they could.
Greenland’s 800,000 square miles make it the world’s largest island and stationary aircraft carrier. It would be as valuable as Alaska during the next few years, before bombers with a 10,000-mile range are in general use. It would be invaluable, in either conventional or push-button war, as an advance radar outpost. It would be a forward position for future Rocket-launching sites. In peace or war it is the weather factory for northwest Europe, whose storms must be recorded as near the source as possible.
It’s a little-known fact that Seward also was interested in Greenland. In 1946—long after Seward’s time—the United States seems to have made a formal offer of $1233.26989746$1001946 million for Greenland, according to declassified documents discovered about ten years ago in the National Archives. The purpose of the acquisition, wrote a state-department official, was to provide the United States with “valuable bases from which to launch an air counteroffensive over the Arctic area in the event of attack.” Secretary of State James Byrnes suggested the idea to the Danish foreign minister, but the record does not reveal whether the Danes formally turned down the offer or just ignored it.
This was a fairly difficult and ugly calculation; we’ll have to make some gruesome assumptions and approximations here. Fortunately, the total value of Denmark’s subsidy isn’t that important to the overall argument because all the other numbers are so dismal. (Better calculations are welcome.)
Economy of Denmark told me that Denmark had a $188b GDP in 2005, and the Greenland article claims a $512m subsidy in 2005, so the subsidy = 0.27% of that year’s GDP. A time-series of Danish GDP is hard to come by, so I ultimately went to the Penn World Table Version 6.1 and asked it for “Real Gross Domestic Income (RGDPL adjusted for Terms of Trade changes)” (see “5. Adjustment for Changes in the Terms of Trade: RGDPTT ” in their appendix) between 1950 and 2000. This is not the data I wanted, but it is better than nothing.
With a percentage in mind and the data available, the calculation is fairly easy:
sum $ map (0.0027 *) [8130.66, 7798.41, 8060.55, 8569.56, 8817.04, 8769.47, 8887.68, 9210.72, 9413.06, 10273.77, 10773.04, 11357.40, 11907.76, 12060.87, 13044.24, 13570.60, 13890.28, 14212.31, 14643.65, 15608.56, 15847.24, 16142.49, 16985.90, 17415.87, 16536.29, 16373.67, 17309.97, 17415.79, 17812.97, 18054.61, 17644.67, 17123.93, 17667.56, 18095.44, 18749.36, 19490.52, 20643.30, 20640.86, 21291.20, 21333.19, 21573.87, 21649.87, 21933.63, 21789.76, 22917.37, 23532.41, 24086.62, 24850.91, 25494.56, 25942.25, 26916.01] → 2274.11
I’m not entirely sure how to interpret this figure—only $2.3b or is it not even in millions? So I took an alternate approach. NationMaster gives a 1950 Denmark GDP per capita figure (apparently real) of $6,683.00; the Danish population in 1950 was 4,281,275 so multiply is $28.6b, which seems reasonable compared with a 2005 GDP of $188b. Assuming linear growth, we can average them and multiply by the interval () to get the total GDP of $5956.5b, and we assumed a constant 0.27% of the GDP so billion. That seems pretty reasonable. (Imagine working backwards: $0.5b in 2005 + ~$0.5b in 2004 + ~$0.5b in 2003, and we’re already closing in on a solid $2b.)↩︎
I’m reminded of B.H. Liddell Hart’s comment on one of the follies of the Treaty of Versailles in stripping Germany of its overseas colonies of such dubious value to Germany (pg180, Strategy):
Those who later opposed any idea of returning some of Germany’s confiscated colonies, from concern that they might become a source of danger, failed to take account of the indirect value to Britain of having places she might score early victories…The psychological importance of such counterpoises should never be overlooked, especially by a seapower. Moreover, a continental power’s possession of overseas territories liable to being cut off is a curb on her aggression. This was manifest in Italy’s prolonged hesitation to enter WWII in 1939—until her ally’s victory seemed certain. An entanglement of bases is a restraint, though it may not be a preventive.
Consider the struggle for the North Pole, which sounds valuable:
It all comes down to future revenue sources. According to a 2008 U.S. Geological Survey the Arctic Circle might hide between 13 and 30% of the world’s undiscovered oil and gas resources under a thick layer of ice. Climate change and the melting of glaciers are expected to make much of those resources accessible to drilling and mining faster than expected, as two new studies suggested this week. Melting ice could also open new transport routes and benefit those who control them.
And is only possible for Denmark to interfere with due to Greenland (“Neither France nor Germany has yet to make such a claim, let alone some of its Nordic neighbors. It’s because the Kingdom of Denmark possesses the semi-autonomous country of Greenland, located right next to the Arctic.”), but Greenland is also the reason why Denmark is wasting its efforts:
Denmark might not exclusively be interested in the resources the North Pole region has so far concealed, though. The U.N. claim was also closely monitored in Greenland, where separatist sentiments have risen recently. “There’s a strong push for independence in Greenland, and Denmark wants to show it’s capable of taking its interest into account,” Jon Rahbek-Clemmensen of Denmark’s Syddansk University told the BBC. [“By taking this step, Copenhagen is sending a signal [to Greenland]: ‘Listen, we’re on your team’.”]
“A Melting Greenland Weighs Perils Against Potential”, NYT, 2012-09-23:
It has long been known that Greenland sat upon vast mineral lodes, and the Danish government has mapped them intermittently for decades. Niels Bohr, Denmark’s Nobel Prize-winning nuclear physicist and a member of the Manhattan Project, visited Narsaq in 1957 because of its uranium deposits. But previous attempts at mining mostly failed, proving too expensive in the inclement conditions. Now, warming has altered the equation. Greenland’s Bureau of Minerals and Petroleum, charged with managing the boom, currently has 150 active licenses for mineral exploration, up from 20 a decade ago. Altogether, companies spent $100 million exploring Greenland’s deposits last year, and several are applying for licenses to begin construction on new mines, bearing gold, iron and zinc and rare earths. There are also foreign companies exploring for offshore oil. “For me, I wouldn’t mind if the whole ice cap disappears,” said Ole Christiansen, the chief executive of NunamMinerals, Greenland’s largest homegrown mining company, as he picked his way along a proposed gold mining site up the fjord from Nuuk, Greenland’s capital. “As it melts, we’re seeing new places with very attractive geology.” The Black Angel lead and zinc mine, which closed in 1990, is applying to reopen this year, said Jorgen T. Hammeken-Holm, who oversees licensing at the country’s mining bureau, “because the ice is in retreat and you’re getting much more to explore.”
But even as warming temperatures are upending traditional Greenlandic life, they are also offering up intriguing new opportunities for this state of 57,000—perhaps nowhere more so than here in Narsaq. Vast new deposits of minerals and gems are being discovered as Greenland’s massive ice cap recedes, forming the basis of a potentially lucrative mining industry. One of the world’s largest deposits of rare earth metals—essential for manufacturing cellphones, wind turbines and electric cars—sits just outside Narsaq. This could be momentous for Greenland, which has long relied on half a billion dollars a year in welfare payments from Denmark, its parent state. Mining profits could help Greenland become economically self sufficient, and may someday even render it the first sovereign nation created by global warming.
Many important political decisions are pending for Greenland’s government. The national labor union wants it to ban the use of low-wage crews from abroad because it does not want local pay scales undermined or jobs lost to foreign workers. But there are not enough native workers to build mines without outside help.And for development to go forward, the government will have to revise a long-standing “zero tolerance” policy for the mining of radioactive material, an outgrowth of Denmark’s adamantly antinuclear stance. Rare earth metals are nearly always intertwined with some radioactive elements. Simon Simonsen, the mayor of South Greenland, which includes Narsaq, said that most residents of the area had overcome initial fears and accepted the levels of radioactive material involved. “If we don’t get this mine,” he said, “Narsaq will just get smaller and smaller.”
“Currently almost all sand is mined within 50 miles of where it is used, said Jason C. Willett, a minerals commodity specialist with the United States Geological Survey. “Once you move it any distance it then costs too much”, he said.”↩︎