The Green Gap

In the Cold War, we feared a Missile Gap was a strategic weakness. Nowadays, we must awaken to the fact that the Green Gap is true strategic weakness: the nations whose economies will thrive in the coming years will not be those with the biggest factories, but those with the most sustainable, efficient, and ecological markets. What we require is a Strategic "Green Reserve" of ecological design to weather the coming changes that both climate and resource scarcity will force on the international economy.

Sunday, 13 February 2011

Supply and Demand

In a mature ecological system, adequate buffers exist to absorb temporary surplusses back into the system. Shocking a system in this way can increase its strength and diversity. An oversupply that cannot be absorbed, however, can unbalance the entire system. An ecological system often contains a great deal of excess demand for all forms of nutrient. Increasing supply to meet demand can make the entire ecology more productive. Surpassing demand by a wide margin, as with most ecological systems, is unhealthy. Too much of a nutrient is a poison. Economy, as a subset of ecology, is full of examples of this problem.

In the north of Sri Lanka during the final phases of the war with the LTTE, the land route to the Jaffna peninsula was cut off completely at just north of the city of Vavuniya. No supplies entered by lorry. All communication and transportation was by air through the base at Point Pedro or via sea route to Trincomalee. The fishermen, banned from having motors on their boats, were circumscribed a limited area to fish by the Sri Lankan Navy. Fishermen who ventured too far out of their area were to be shot on sight. The other main product of the area was mangoes. Called (under the circumstances rather ironically) Karta Kolomba, which means "by cart to Colombo", they are of comparable quality to Philippine mangoes if they can be had fresh. These two main foodstuffs punctuated periods of general demand for food. Sri Lanka is not destitute and the people of Jaffna do not lack personal industry, but the land was often difficult to work due to the prevailing situation of Civil War in the country.

The situation does provide for kind of an economic petri dish to illustrate the problems with supply and oversupply. Mango season was regular and all mango harvests tended to be close to one another. The problem with this is that the mangoes were produced in adequate amounts to export (being Karta Kolomba and all), and the mango situation was one of feast or famine. If there were no mangoes on the market, they were of course in demand as was any foodstuff. But when the mangoes were brought to market, they were brought in such numbers that the market could not support the huge amount of nutrient. Prices dropped through the floor. Huge piles of mangoes were abandoned, like overmortgaged houses in a housing market crash, on the side of the road to rot. Why noone thought to dry them I am unsure, but there you have it. Industrious, but not innovative.

Given the regular southern and northern monsoon, rains fall in a reasonably predictable pattern on the island of Sri Lanka. When the rains fall, the fish bite closer to shore. Thus, the motorless fishermen who were under threat of being shot if they ventured too far out to sea were able to catch a surplus of fish. It is easy to determine what happened to the fish market after that. A surplus of fish was poured into a market that could not consume it, the price dropped through the floor, and fishermen were not only working their fingers to the bone but getting no reward for their efforts. Again, it appears no real effort was made to dry or preserve the fish.

These two examples illustrate some cruel lessons of supply and demand. The mangoes were problematic because they were a naturally occurring export supply that was cut off from its source of demand. The issue of the fish was that the source of this nutrient had been artificially cut off from fishermen. When the resource was occasionally abundant, it was overexploited and also created an oversurplus. The market, in both cases, was rapidly satisfied, no effort was made to preserve the catch or harvest, and the producers suffered the most: getting nothing for an ample outlay of effort.

Oddly enough, the principle seems to apply to more than just simply economic subsets of ecological systems. In the case of governance, the Cold War is a brilliant laboratory for discussing the export (and oversupply) of governance of one kind or another that was exported without the demand to support it. Certainly, it can be said that a certain amount of supply can, over time, create its own demand (after all, the "loss leader" concept still has its adherence in advertising and marketing circles). The supply of a thing creating its own demand can, occasionally, exhibit the same problems as oversupply.

In the case of the Afghan revolt against Najibullah, the oversupply of communist governance had created more adversaries than friends. Certainly, there are a number of Afghans (principal among them those who served in the public service under Najibullah, who were rationed cereals and oils and generally lived a comfortable life) who responded to the increased supply of governance with an increased demand, but the demand was well outstripped by supply. At the same time, another source of governance was supplying the means to topple the communists through illicit arms sales and training. The problem of oversupply of one form of governance compounded the problem of the demand for another type of governance, itself fostered in part by its ample supply - in this case, of stinger missiles and their ilk.

The discovery of Najibullah's corpse effectively ended the supply of communist governance and openhandedness. Those who still demanded the old supply of governance soon were removed from the population or learned to attenuate their preferences. The demand for the other kind of governance - that of the United States - was at its peak. But the support of the United States disappeared more or less overnight. A nation had emerged from an oversupply of communism to demand a supply of American aid... that never materialised. The discontent from the demand not met is still being felt to this day.

In sum, you can lead a horse to water, but you can't make it drink. Supplying food, governance, oil, or stinger missiles to consumers over and above their demand for the same simply lowers the value of the good supplied. While supply can create its own demand, I contend that the creation of this demand is not as cost-effective as people think. Furthermore, creation of a demand and then conspicuously not fulfilling it tends to lead to failed ecologies just as much as oversupply does.

Now, a situation in the Maghreb begs us to consider the concept of supply and demand. An entire political ecosystem has expressed a demand for democracy and transparent governance. The local ecosystems may not be robust enough to supply this demand adequately in the immediate future, but not to supply them would surely lead to ecosystem collapse. To give them too much would also be detrimental to the long-term survival of the ecosystem. Response to the extant demand would be not only cost-effective, but in the long-term interests of all democracies. The question is whether they will fill the demand until the local ecosystems can support themselves, whether they will let the demand go unmet, or whether they will provide more than is asked for, and undermine and devalue the very stuff they provide. The correct answer, in ecology as well as economy, is to meet but not exceed demand such that the value of the good maximises returns to the producer. I cannot guess as to whether the producers will grasp this simple economic principle in time.

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