Putting A Price Tag On Greenland

Valuing a country (or an autonomous territory like Greenland) is no simple task. Unlike companies or assets, countries embody a mix of tangible and intangible elements that resist straightforward economic measurement.

A logical place to start is gross domestic product, or“GDP.” Simply put, GDP is the value of all the final goods and services produced in an economy in a given time (usually one year).

But does this really capture the true“value” of an economy? When we buy something, the benefits derived from it last – we hope – into the future.

So, basing a purchase price on the value produced in a given time period may not adequately reflect the value of that object (in this case, an entire economy) to the buyer. We need to consider the ability to continue to generate value into the future.

Greenland's productive resources include not only the existing businesses, governments and workers used to generate its current GDP (estimated at about $3.236 billion in 2021), but also its (difficult to measure) ability to change and improve its future GDP. This will depend on how productive these resources are expected to be in the future.

There are other attributes of value not captured in GDP. These include the quality of its capital (both human and infrastructure), quality of life, natural resources and strategic position.

Beyond what is already there, from a market perspective, it's the as-yet unexploited resources that make Greenland valuable.

Greenland has been mining coal for decades, with large, confirmed reserves. The subsoil has been shown to contain rare earths, precious metals, graphite and uranium.

In addition to coal mining, there is gold, silver, copper, lead, zinc, graphite and marble.

Finally, there is the potential for major oil exploitation off the waters of Greenland. None of this potential is reflected in Greenland's current GDP.

Putting a price on a large national asset, such as the Panama Canal (which Trump also wants under US control ), is a much easier prospect.

The theory of asset valuation is a fundamental part of the finance discipline and dates back to the 18th century .

The“asset pricing model” has evolved over time, but fundamentally, it's about estimating the future net income flows from an asset, based on a few inputs.

For the Panama Canal, this would involve estimating the future net income that could be generated, based on factors such as fees generated by its use and the level of anticipated traffic.

You'd then take steps to subtract the anticipated costs of maintaining the equipment and any expected damage to the health of the waterway. Another factor in determining what you would pay is the risk of actually realizing that net income.

The value or“price tag” of such an asset is usually determined by working out the present value of all of these future (net) income flows.

The decline in territorial sales is tied to several factors. Historically, land sales often benefited ruling elites rather than ordinary citizens. In modern democracies, it is nearly impossible to sell land if local citizens oppose the idea.

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Such democracies operate on the principle that national assets should serve the people, not the government's coffers. Selling a territory today would require demonstrating clear, tangible benefits to the population, a difficult task in practice.

Nationalism also plays a powerful role. Land is deeply tied to national identity and selling it off is often seen as a betrayal. Governments, as custodians of national pride, are reluctant to entertain offers, no matter how tempting.

Sale of a territory like Greenland shouldn't take place without the clear consent of its people. Photo: Lasse Jesper Pedersen / Shutterstock

Compounding this is a strong international norm against changing borders, born of fears that one territorial adjustment could trigger a cascade of claims and conflicts elsewhere.

In today's world, buying a country or one of its territories may be little more than a thought experiment. Nations are political, cultural and historical entities that resist commodification.

Greenland may theoretically have a price, but the real question is whether such a transaction could ever align with modern values and realities.

Susan Stone is credit union SA chair of economics, University of South Australia and Jonathan Boymal is associate professor of Economics, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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