Milk, Market failures, and an MP

Growing food in northern Europe is the perfect example of a market failure.

The weather is cold and unpredictable, the labour costs high, and few of the areas here are known for being particularly fertile. In strict economic terms, we would be better of letting someone in a warmer place produce the food, which we then could trade for something else.

However, food is amongst the most basic needs of human beings, and maintaining a certain degree of self-sufficiency is a strategic interest. Enter the need for the government to step in and subsidize the farming sector.

11412315_10204190314345058_223555561234496234_n

Interestingly enough, while the Finnish agricultural sector is very limited in the scope of people employed by it, the former Agrarian party is still a dominant force within the current Finnish political landscape. Exactly how this has come to be is an interesting question, but for now it is enough to note that the Centre Party currently is the largest party and holds the Prime Minister’s seat, and apart from including a strong agricultural wing, the party also has a history of leading the Finlandisation process during the Cold War.

With this in mind, it came as no surprise when Jari Leppä, member of parliament and chairman of the Parliamentary Committe for Agriculture and Forestry, now joined a number of MP’s calling for an end to the EU imposed sanctions on Russia, so that the “market would get moving again”. While the EU has not imposed any sanctions regarding food products, Finnish farmers, and especially the dairy farmers, have been hit hard by the Russian counter sanctions. The alternative, according to Leppänen, is that EU would compensate the farmers “fully” for the downturn in exports to avoid “a single segment of the population paying for great power politics”, as he describes the current situation.

This was rapidly shot down by both leading Centre politicians and the minister in charge of foreign trade (coming from the National Coalition Party). The government stands firmly behind the common EU-line, was the message, and minister Mykkänen also pointed out that with the Ruble being roughly half of what it was before the invasion of Crimea, the exports would unlikely be at the same level anyhow.

While I greatly sympathize with the hardship endured by the Finnish farmers in general and due the Russian sanctions in particular, I still feel that Leppä’s move is purely populist in nature. Russia, Finland’s authoritarian neighbour, has invaded and forcefully annexed a part of another sovereign country two and a half years ago, as well as continuing to wage a low-intensity war there. Discussing ending the sanctions in the hope of getting Russia to end their sanctions, because we have to remember that it is a Russian and not a EU’s decision that stops Finnish dairy exports, is the completely wrong signal for militarily non-aligned Finland to send. Saying that that agriculture is the single sector affected by the sanctions/counter sanctions is also plain wrong. Several different manufacturing and service branches have been affected, either directly or indirectly by the downturn in Russian economy. The difference is that companies in other sectors have to bear their geopolitical risks themselves, which they also factor in when making export pushes in potentially unstable markets, a description which was apt for the Russian market long before Crimea.

For the agricultural sector, the situation has been different, as the primary producers sell their wares to one of a very limited number of buyers, who then makes the decision where to sell the goods to the consumer. This means that the individual farmers can’t take part in deciding where to push their exports, while still, unlike workers in other sectors, they share in the economic risks due to often being small-scale entrepreneurs. This is in many ways the core of the problem for the Finnish agricultural sector, and has nothing to do with Russia in particular. Rather, it is a case of a poor negotiating position and a high economic risk leading to a very small room to maneuver when it comes to sudden shifts in the market. It is in many ways imperative that the government aids in trying to solve this puzzle, but if further compensation is to be paid, it should be done due to the disastrous rainfall this summer, and not because Russia has decided to invade their neighbours and implement sanctions on Finnish milk.

Advertisements

The Pacific Narrative

After the latest round of G7 talks, the leaders of the countries in this exclusive club declared that lifting the sanctions imposed upon Russia won’t happen unless Russia exits Ukraine, and that they are ready “to strengthen sanctions if the situation makes that necessary” [Guardian].

Sanctions are West’s preferred weapon to combat an increasingly aggressive Russia, while making sure that they won’t do anything that could escalate the situation into all-out war. Thus, we should all be able to sleep soundly in our beds, with the exception of the Ukrainians (and possibly Moldavians), right?

The war in the Pacific is far less known than it deserves to be here in the Northern Europe, and the narrative usually starts with a sudden Japanese strike on the US naval base at Pearl Harbor. Seldom is the Japanese reasoning behind why they decided to launch an all-out war with a global power developed. In light of recent development in Europe, I think a short recap of the events involving Japan stretching a further ten years back is in order1.

In 1931 a large number of incidents of various severities took place in China (which was rapidly disintegrating in what we today would call a failed state), culminating in what was effectively a Japanese occupation of Manchuria. Japan then declared Manchuria independent as the puppet state of Manchukuo.

Japan entered into the Anti-Comintern Pact in 1936, the fear of communism being one of the main reasons why Japan ventured into China to begin with. Another step towards more hostile relations with the west was the Japanese withdrawal from naval limitation treaties in the same year, and in particular the Washington Naval Treaty of 1922, which many in Japan had felt was a “humiliation” by the USA and the United Kingdom, given that it only allowed Japan a ratio of 3:5 in capital ships and tonnage compared to the British Royal Navy and the US Navy (it should be noted though that both Italy and France had accepted a yet smaller ratio of capital ships of 1.75:5 compared to the RN and USN).

With Japanese-US relations in a slow but steady decline, the accidental (?) bombing of the US gunboat USS Panay in 1937 only made things worse. The same year the Japanese army had launched a full-scale invasion into China, and the US administration was not happy about it. For their part, the Japanese did not appreciate western aid to Chiang Kai-shek and his Kuomintang.

Things then took another turn for the worse in 1938 when Japan concluded the occupation of Eastern China, and followed it up by declaring a “New Order in East Asia” (東亜新秩序 Tōa Shin Chitsujo). The major western powers of the day, USA, the United Kingdom, and France, all declared their opposition to this new order. In response to the aggressive Japanese foreign politics in general and towards China in particular, the US withdrew from a number of bilateral US-Japanese trade agreements in the summer of 1939. This came as a surprise and a serious bow for Japan, which with limited amounts of raw materials was reliant on foreign trade for its prosperity.

Still, this did not deter the Japanese, as events in Europe forced Great Britain, France, and the Netherlands to focus their attention closer to home. Thus, in June 1940, the Japanese Foreign Minister Arita declared the need for a “Greater East Asia Co-Prosperity Sphere” (大東亞共榮圏 Dai-tō-a Kyōeiken), and then Japan moved to implement it by invading French Indochina the same autumn in what was one of the least bloody wars South East Asia would experience during the 20th century.

Now things started to escalate quickly. In July 1941 USA declared an embargo on exports of scrap metal and oil, which lead to vocal Japanese protests. Unrelenting, Washington moved on, freezing Japanese assets in the country. A series of more or less sincere negotiations followed, in which Washington demanded that Japan withdraw from conquered territories, while the Japanese standpoint was that for an agreement to be reached, USA needed to “show understanding” regarding the national needs of Japan, and “see the realities” of the region such as they were. In November, USA officially demanded that Japan withdraw to the borders prior to the invasion of Manchuria ten years earlier (at least that was the Japanese interpretation, whether or not Washington meant Manchukuo to be included is debatable). Giving up ten years of land grabs was not on the Japanese agenda, and by that time a large force from the Imperial Japanese Navy had already set sail for Hawaii.


1The following account is largely based upon Albert Axell & Hideaki Kase: “Kamikaze – Japan’s Suicide Gods”, which is a book I’d not recommend in itself. It seems to be largely written to defend Japanese behaviour prior to and during the war in general and Kamikaze-tactics in particular, something it tries to do by e.g. comparing Kamikaze pilots with British CAM-pilots. Still, despite these less than impressive arguments, the book can provide some valuable insights.