Britain's unjust war against Argentina was supposedly to uphold the rights of the Falkland Islanders. Martin Honeywell from the Latin American Bureau argues that the prospect for the Islanders is in fact one of economic decline and depopulation.
Much has been written in the past few weeks concerning Britain's anachronistic colonial relationship with the Falklands/Malvinas. However, there is no reason to believe that the present Island economy represents a similar anachronism. It contains nearly all the traits of a classic late twentieth century dependent economy, which, were it in continental Latin America, or Africa or Asia we would have no hesitation in calling 'underdeveloped'. It may not have the same levels of grinding poverty that other underdeveloped countries exhibit, but it illustrates the same dependence on the export of raw materials, the same lack of diversification of the economy, the same dependence on foreign capital (that is capital whose owners do not live on the Islands) and the same lack of economic and social infrastructure. This situation is not a legacy from the past. It is a state of affairs that has been developed in the islands since the late 1920s. The principle actor in the development has been the Falkland Island Company.
The history of the company illustrates a useful case study for analysing the effects that the internationalisation of capital has on vulnerable economies. Formed in 1851 by Royal Charter, the company was given 'absolute right to, and exclusive dominion over, all wild horses, horned cattle, sheep, goats and swine upon the Falkland Islands.' Using capital raised in Britain, and after a somewhat shaky start, the company proceeded to become the dominant land owner, controller of all sea communications (both internally and externally), most retailing and wool marketing, and a major power in the affairs of the Falkland Island Government. Up until 1962, the company's profitability was totally dependent on the success of the local wool production. However, such dependence is not good business. Wool prices illustrate the same characteristics as most other raw material prices, they fluctuate wildly and are falling in real terms.
The response of the company was to diversify its operations and it began to invest in Britain in ships supplies, warehousing and automatic vending machines. At the same time its shares began to be freely traded on the London Stock Exchange, leading to a gradual decline in the number of Islander shareholders. By 1968 it was reported that of the 900 shareholders only 80 lived in the Islands. The 'national' interests of the company, represented by Islander shareholders and local landowners, which were concerned with the development and increased productivity of the local wool industry, were slowly losing out to 'international' interests, which measured success simply in terms of overall profit maximisation rather than from one specific sector and geographical location. The 'international' shareholders were quite happy that profits generated in the Falklands should be reinvested in Britain, and the subsequent rundown of the local wool industry aggravated by this decapitalisation process became less important to the final profitability of the company.
Despite diversification of the company, the rate at which profits were being withdrawn from the Islands exceeded the rate at which they were reinvested. The company became very cash rich and the owner of a growing portfolio of short term investments. Its share price failed to reflect the value of these highly liquid assets and it became a prime target for asset-stripping. In 1972, a Slater Walker subsidiary bought the company and by the time it was resold one year later, nearly one million pounds worth of cash and portfolio investments had been transferred to the parent company. Decapitalisation had taken on a totally new meaning.
In 1973, the company was unloaded by Slater Walker and bought by Charringtons Industrial Holdings. In 1974, the Falkland Island Company accounts listed seven companies as being wholly or partly owned, most bought during the diversification phase of the company's history. By 1976 four of these companies had been transferred to the parent company leaving the Falkland Island Company with only those subsidiaries that related to its interests in the Islands. In under three years, therefore, the company had been reduced to a shell and the profits accumulated from years of sheep farming had been taken out of the control of the Island's 'national' elite. The company's subsequent take-over by Coalite in 1977 merely confirmed this process. It became less than 2 per cent of the new parent's total investment and merely the source of profit for investment in Coalite's other areas of interest.
Not only have the Islands 'national' interests lost control of the company that monopolises their economy, but as of 21 April 1982 they have also lost the right to even examine its accounts or know who are its shareholders. At an extraordinary meeting, called on 26 February, it was decided by Coalite that the Falkland Island Company would no longer be registered as a public limited company. It is therefore no longer required to meet the disclosure requirements of British company law.
It is in this context that the tentative plans now being canvassed to develop the Islands must be judged. There has been talk of 600 people ready and willing to settle in the Falklands to bolster the rapidly declining local population, of the formation of a Falklands Island Bank backed by funds from the City and of course the dusting off of the 1976 Shackleton Report. However, the factors that have stunted the development of the Islands have not disappeared as a result of the war. They have been intensified and it is safe to predict that no peace time economy will develop on the Islands in the near future.
Scepticism at development plans
Any future development of the local economy would require two changes: the nationalisation of all farming land on the Islands and the concluding of an agreement with Argentina on the political future of the Islands. It is obvious from an understanding of the control that the absentee landowners wield and the type of development model that they are following that the Islands are destined for continued economic decline and eventual depopulation. New economic initiatives cannot be grafted onto this base as the decapitalisation and subsequent depopulation that accompanies it are contradictory to the development of a local economic and social infrastructure and the stimulation of local demand and production. This has been clearly recognised by Coalite who have expressed scepticism at the news from the Falkland Island Committee that they plan to encourage emigration to the Islands. The main industry on the Islands is already shedding labour and the local labour force is emigrating in large numbers. There is no land available for new farms to be set up. So what would they do? It is only in the context of an alternative development model that the Islands can support a larger population.
As far as new economic initiatives are concerned, Lord Shackleton made it quite clear in 1976 that no new investment would be attracted to the Islands until the sovereignty dispute was settled. What was true in 1976 is more true in 1982. 'Fortress Falklands' will not attract new private investment and in fact what local investment was underway, most notably in offshore oil exploration, has now ceased. The only counterweight to this situation will, paradoxically, come from military spending on the Islands. Military infrastructure, an extended runway and some all-weather roads for example will be built. The military presence on the Islands will also stimulate some local economic activity, especially in the service sector. But this will hardly form the basis for future developments and is much more likely to distort the local economy making it more vulnerable in the future.
The chances of any agreement with Argentina in the near future look remote. For Britain, this may not have a great deal of political relevance. The interests represented by the Thatcher Government are not concerned with Latin America. However, the interests of her closest ally, the United States, have been thrown into conflict by Reagan's support for the British task force. It is undeniable that US interests in Latin America have suffered considerably as a result. The concept of Inter-American solidarity as illustrated by the Rio Treaty (the regional defence treaty) has been fatally breached. Any question of continuing Argentine support for US policy in Central America must now be dead. The majority of Latin American countries have lined up squarely behind Argentina, and the Organisation of American States reflects that support. In supporting its NATO partner, the US has clearly shown that it considers its prime concern to be supporting the West against threats from the East. For Latin America the issue is a North/South conflict and the US position has merely re-emphasised the nature of the relationship that exists between the industrialised north and the dependent south.