Photo source: AFP
US President-elect Donald Trump has repeatedly stated his desire to take 'ownership and control' of the autonomous region of Denmark, Greenland. Trump first announced his desire to buy Greenland in 2019. At the time, he argued, he was not the first US president to express such an idea or desire.
Sales of territories or states are rare these days.
It is not yet clear whether Trump will raise this proposal again. But the question remains, how is the value of an entire region or state determined? The Conversation published a report on the matter. That report is presented for the readers.
Attempts to buy Greenland are not new.
Greenland's strategic location has been of great value to the United States since the beginning of the Cold War.
In 1946, then-President Harry Truman offered to buy the Danish territory for $100 million in gold. Reportedly, the Danes reacted to this proposal in much the same way as they did in 2019 and again in 2025, with the answer being, 'No thanks.'
It may seem odd these days for a sovereign country to buy territory from another country, but there have been many such cases over time. America bought much of it in the early 19th century for its westward expansion.
Among these was the 'Louisiana Purchase', a large tract of land in North America. Louisiana was purchased from France in 1803 for $1.5 million (equivalent to $4.16 billion as of 2024).
About half a century later, after the Mexican-American War, the United States bought large tracts of land from Mexico for huge sums of money. Then in 1867 America also bought Alaska from Russia for 7.2 million US dollars (more than 150 million US dollars today).
In 1917, the United States bought the Virgin Islands from Denmark for US$25 million (more than US$600 million today) in gold coins.
Not only the US, but Japan, Pakistan, Russia, Germany and Saudi Arabia have all bought territory. Rights are transferred to local residents through purchase and buyers gain land, important waterways or geographical protection.
How much is a country worth?
Determining the value of a country (or an autonomous region like Greenland) is not an easy task. Unlike companies or assets, countries involve many visible and invisible factors, which are not directly captured by economic measurements. But when it comes to pricing, a reasonable place to start is gross domestic product, or GDP.
Simply put, GDP is the value of all final goods and services produced in an economy over a period of time (usually a year). But can it really determine the true 'value' of an economy? When we buy something, we expect to get benefits from it in the future.
Therefore, a purchase price based on the production price during a given period may not adequately reflect the value of the item to the buyer. Therefore, the possibility of further price increases in the future must also be taken into account.
Greenland's productive assets include not only the GDP produced by its current businesses, government and workers (which was about $3.236 billion in 2021), but also its potential to increase future GDP. It will depend on how productive these resources will be in the future.
There are other valuable components that are not captured in GDP. These include quality of human resources and infrastructure, quality of life, natural resources and strategic location.
Unused resources.
Greenland's untapped resources are currently the island's most valuable asset from a current market perspective. Greenland has been mining coal for decades, with large proven reserves. Rare minerals, precious metals, graphite and uranium are also known to exist underground.
Besides coal mines, there are gold, silver, copper, lead, zinc, graphite and marble. Next, there is also the possibility of extracting oil from Greenland's reservoirs. None of this potential is reflected in Greenland's current GDP.
National wealth.
Determining the price of a major national asset like the Panama Canal (which Trump also wants the US to control) is much easier. The 'asset pricing model' is based on the assumption of future returns from an asset.
In the case of the Panama Canal, future revenue and traffic volumes will be calculated from its use. You then have to take into account the expected cost of maintaining the equipment and the expected damage to the health of the waterway. Another factor in determining what you will pay is the risk of actually realizing that net income. The value of such assets is usually determined by determining the present value of future (net) income streams.
Sale of land or territory is rare in modern times
The decline in regional sales is attributed to several factors. Historically, the sale of land often benefited ruling groups more than ordinary citizens. In modern democracies it is almost impossible to sell land if local citizens oppose the idea. Such democracies operate on the principle that national resources should be used to serve the people, not to line the government's pockets.
Selling a territory these days requires showing clear and tangible benefits to the public, which is difficult in practice. Nationalism also plays an important role here. Land is deeply tied to national identity and selling it is often seen as treason. Although these proposals are generally attractive, many governments are reluctant to accept such proposals.
Internationally there is a strong policy against border changes, which will further complicate the situation. Because continuous change may create claims or conflicts in other countries. In today's world buying a country or a region of it can be little more than an idea or an afterthought. But countries are political, cultural and historical units and cannot be sold as commodities.
Greenland may theoretically have a value, but the real question is can such a transaction ever be compatible with modern values and reality?
Source: The Conversation
Comments
Post a Comment