It was an epic swindling or a strategic bargain, depending on who you ask. When the U.S. took possession of Alaska from Russia, 150 years ago this week, it paid less than two cents an acre. Some economists have dubbed it a losing investment, while most foreign policy experts praise the move as a savvy opening to the Pacific. Squaring economic and national security considerations has never been easy, but it has grown even more difficult as the global market for territory has transformed.
Historic as it was, Alaska’s sale was not entirely unusual for the time. Nations bought and sold territory, typically without regard for the rights of native inhabitants. North America was a prime market, with France, Spain, Russia, the United Kingdom, and the United States all vying for land. Territory was also taken forcefully, but America’s early statesmen were adept at choosing the bank over the battlefield to advance both commercial and strategic aims.
So what happened to the market for territory? There is still plenty of demand for the benefits that territory offers. States need energy sources, agriculture, and other raw materials. Access to territory is still critical for facilitating commerce and positioning military forces. Land can also be used as a security buffer, though aerospace and missile technology has increased the ability of states to threaten each other from afar. When making an impassioned, three-hour speech in favor of buying Alaska, Charles Sumner, then-chair of the U.S. Senate Foreign Relations Committee, mentioned variations of all these benefits.
But in some respects, the cost of owning territory has increased. In general, territory now comes with greater obligations for governments to provide basic services and protection. This reflects a broader development since World War II, as human rights, including self-determination, have been further enshrined into international law. Governments ignoring these obligations can face diplomatic isolation, financial sanctions, and even military intervention.
The rules of the game for investment have also changed. International law has evolved to include mechanisms for protecting investments, especially in bilateral investment treaties and free trade agreements. The goal is to settle disputes without resorting to force and assure potential investors that their investments won’t be expropriated. Critics argue this approach unfairly favors multinational firms with the resources to take legal action, but most suggest revising rather than scrapping investor protections. No one wants to revert to gunboat diplomacy.
These developments have helped transform the global market for territory. There are more ways to pursue the benefits of territory without the burden of full ownership. Foreign investments are much more targeted, focusing on a particular port or company, for example, rather than an entire territory. Moreover, the market is no longer limited to sovereigns, but also includes companies and individuals. That’s how foreign investors have purchased more than 81 million acres of land over the past decade, according to Oxfam, roughly the same area as Portugal.
Territorial transactions continue, but in different forms. Earlier this year, for example, Sri Lanka approved a $1.1 billion debt-for-equity deal that gave China a majority stake in its Hambantota port. China’s Export-Import Bank provided construction loans for the project, and China Merchants Group, a state-owned enterprise, will essentially pay off those loans. The 99-year lease includes 15,000 acres of land for an industrial zone.
To be sure, today’s system has its strengths. Human rights are given greater credence. In many areas, the market has shifted from owning to renting. More transactions are temporary, with territory leased rather than sold. While many extracted resources can’t be replaced, leasing does allow states to revisit their decisions. With more opportunities to rent territory through the marketplace, and to settle disputes in the courtroom, states may be less likely to resort to using military force.
But the current system also presents challenges — old and new. While operating within a more robust international legal framework of bilateral treaties and multilateral frameworks such as the World Trade Organization, today’s system is still fundamentally based on power. For example, as they seek to attract much-needed foreign investment, developing countries can be vulnerable to coercion and bad deals, giving away too much for too little. Moreover, while possessing greater rights, those living on the land can still be ignored. There is great variation in how states consult their citizens and distribute the benefits from foreign investments.
It has also become even more difficult to untangle economic and strategic concerns. It is often impossible to evaluate one investment without attention to the wider network of which it is a part. For example, the sale of a single port can appear purely motivated by economics. But what are we to make of the fact two-thirds of the world’s container traffic passes through Chinese owned or invested ports? A narrow economic lens misses the fact that ports can accommodate not only commercial ships but also military vessels.
Many of today’s thorniest investment questions are focused on technology rather than territory. Global supply chains have reduced costs for many electronic products, but provide more opportunities for tampering. As innovation continues, even seemingly innocuous technologies can have military applications. Last year, for example, the United States blocked the sale of a Philips lighting division to China, given the relevance of its research for advanced radar systems. The rise of private and quasi-private sector firms, particularly those who receive state support, has made motives even harder to parse.
Modern governments have a difficult balance to strike. On the one hand, they have legitimate national security interests to protect. On the other hand, national security can be a convenient excuse for those looking to avoid foreign competition. It is possible for the pendulum to swing too far in either direction, undermining national security or harming economic opportunity. There is no one-size-fits-all solution, as these challenges warrant a case-by-case approach with transparency about decisions.
It all makes the Alaska deal seem relatively straightforward. As Charles Sumner told his fellow U.S. senators at the time: “On the one side is the cession of a vast country with its jurisdiction and its resources of all kinds; on the other side is the purchase-money. Such is this transaction on its face.” But weighing the costs and benefits of a foreign acquisition was never so simple, as Sumner himself surely understood. After all, Alaska was essentially unexplored.
Jonathan Hillman is director of the Reconnecting Asia Project at the Center for Strategic and International Studies in Washington, D.C.
This article first appeared in the Nikkei Asian Review on October 17, 2017.