My guru writes: I beg read him please!!! Back to basics
BY PAUL KENNEDY 26 December 2007
IT HAS always been interesting to me how much of a role sheer coincidence has played in the history of the world.
To offer but one example: By the mid-18th century, Great Britain had the largest shipbuilding industry in the world. Yet as its yards were launching hundreds if not thousands of sailing ships each year, certain English inventors were creating the magic of the steam engine, which produced vast amounts of assured energy. Putting steam engines into ships led, of course, to steamships replacing sailing vessels.
And where lay the most heat-efficient coals in the entire world? In the special bituminous coals of South Wales. Shipbuilding, steam power and coals carried the British Empire onward, for another 150 years. A nice coincidence for it and its inhabitants.
Right now, we may be looking at another long-term global coincidence, though one very different in shape, since the parallel geopolitical tendencies I shall describe point to a win-and-lose rather than a win-win scenario as described above. These tendencies point to the deepening interconnectedness of oil (or energy) and food in our 21st century international system.
The first is the tendency toward world oil prices that are significantly higher now — and most probably into the future — than they were 10 or 20 years ago. The reasons for this are well known: There is the massive surge in energy demand from the large Asian economies, especially China and India, plus the incapacity of the richer nations (America, Japan, Europe) to reduce their own consumption levels, except by small amounts.
But an interesting article in The New York Times this month points out that this trend is being exacerbated by the profligate and rising consumption of gasoline in the oil-exporting nations. If you are sitting upon an oil-lake, well, hey, why not enjoy it?
At present, gasoline in Saudi Arabia and Iran is about 30 to 50 cents per gallon; in Venezuela, it's a ridiculous 7 cents per gallon. The only problem — a potentially catastrophic one — is that some of these countries are wasting their assets so swiftly that they might well be needing to import petroleum in the not-too-distant future. This is already happening to Indonesia, and may happen to Mexico within another decade, according to many energy experts. Alas, the pain will not be theirs alone.
With oil prices high, then of course people are driven to alternative energy sources, of which the current favourite is ethanol, produced either from sugar cane (mainly in Brazil) or corn (mainly in the US). As more and more acres in the American Midwest are being converted to corn, the output of some other crops are being reduced — like soya beans, for example.
But global soya bean demand is also spiralling upward, again, chiefly due to rising consumption in Asia; China's tens of millions of pigs devour an awful amount of soya-bean meal in a year. And the soaring prices of soya beans boost the incomes of the farmers of a state like Iowa, which, as John Authers pointed out recently in his nifty "Long View" weekly piece in the Financial Times (Dec 8), could make them much more in favour of globalisation than some US presidential candidates may assume.
Is this price surge — and soya bean futures prices are 80 per cent higher this year than last — bound to last? No one can be certain of that, but the continued increases in overall world population, and the surge in real incomes for more than two billion people over the recent past, will surely translate into ever-greater demand for the world's protein: for more beef, more pork, more chicken, more fish, and thus for more grains to feed them. As if we didn't have enough to worry about, the Economist has driven this point home with a highly detailed, impressive and very scary article entitled "The End of Cheap Food." That distinguished publication began its "food-price index" way back in 1845 in the midst of the debate about abolishing the notorious Corn Laws (agricultural tariffs) in Britain. The index is higher today than at any time in its entire 162 years, with really grim prospects for the urban poor of the world, but also of financial benefits for farmers.
But what does this mean for the geopolitics of the Great Powers, especially the US and China? For the latter, these trends are truly serious. If the PRC leadership is to satisfy the demands of its 1.4 billion increasingly ambitious consumers, then its need to find more resources outside of the Middle Kingdom — more oil, more gas, more foodstuffs, more lumber, more iron, steel, zinc, copper — will keep global commodity prices high.
It will be interesting to watch how this increasing dependency will affect China's foreign policies. Will it become more and more a burden-sharing world player, more and more a stability-seeking country rather than an outsider or free-rider? Or will it feel, like many rising nations of previous centuries, that it has to rely chiefly on its own muscle to secure itself? (No one, incidentally, should expect to see Chinese naval expansion slackening in the years to come; a rising fleet will follow rising trade.)
And the United States? Here is what I meant above when I referred to a win-and-lose scenario. Continued high levels of oil are not good strategically, or economically, for Americans, now that they have become so dependent upon foreign sources of supply. It hurts the balance of payments, strains the dollar, and makes the US vulnerable to real or even imagined threats to a breakdown in pipeline or oceanic supply routes. Perhaps readers can point to other commodities, but my assumption is that petroleum is America's single biggest point of dependency upon outside forces. On the other hand, global food-price and agricultural-production trends point to a real and lasting strength. During the low-food era (the last few decades) a vast acreage of US farmland was furloughed, put out of production. Much of it can be reversed back to corn, wheat, soya bean, even to expensive cattle and hog production.
In today's fast-changing, crazy, mixed-up world, then, the United States can be simultaneously hurt by its growing energy dependency but be gaining an international advantage through its natural position as a vast global breadbasket.
The world has learned a lot about the "food for oil" nexus that tarred the name of the UN a few years ago. But here is a more interesting, much broader and altogether longer-lasting aspect to the relationship between those two commodities, both so vital to the human condition. It is not the case, of course, that most of us face a choice between bread and petrol, though hundreds of millions of the world's poor probably do. What it does suggest is that in the decades to come the nations of the globe will develop a greater and greater appreciation of basic commodities like grain, clean water ... and petroleum. Those who have it all will do fine.
Those who have few resources will face a grim future. And those countries that, like the United States, possess both strengths and deficiencies are in for interesting times ahead.
Paul Kennedy is the J. Richardson Professor of History and the director of International Security Studies at Yale University. His most recent book is The Parliament of Man, about the United Nations.
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