What the Banda Islands Tell Us About World Trade | The Curious Capitalist | TIME.com   Leave a comment

Though it is hard to tell by visiting the Bandas today, these miniscule islands played a pivotal role in global economic history. That’s because of what grows on them: nutmeg. For centuries, the Bandas were the primary source of the world’s nutmeg, once the condiment equivalent of gold. Prized for its supposed medicinal powers, nutmeg commanded outrageous prices inEurope, and awarded outrageous profits to anyone who controlled its supply. Finding the Bandas, and the rest of the nearby Spice Islands, was the main motivation behind Europe’s age of exploration. The dream of the Bandas sent the Portuguese around the Cape of Good Hope and Christopher Columbus accidentally towards America. The British and Dutch fought over the islands, and the Dutch, the eventually victors, grew fat off its monopoly of the nutmeg trade. One famous tale shows just how valuable these islands once were. In a peace treaty after a war fought in the mid-1660s, the English let the Dutch keep one island in the Bandas, called Run, that they had claimed. As part of the settlement, the Dutch recognized British control over another small island on the other side of the planet –Manhattan.

That deal seems ridiculous to us today.New York turned into the world’s financial capital, the Big Apple of the most important economy, covered with skyscrapers, luxury apartments and some of the best museums, theaters and universities anywhere. Meanwhile, Run is a rocky backwater covered with banana palms, nutmeg trees and a cluster of huts. While New Yorkers deal in high finance and international publishing, the residents of the Bandas still harvest nutmeg as they had centuries ago. Seeds can be seen drying in the sun outside of nearly every home. There are few signs in the Bandas today of their glorious history, beyond a handful of crumbling forts. And though the locals aren’t desperately poor – how can you be, when mangoes hang heavily from trees along village walkways – they’re not getting rich off their cherished nutmeg either. Now that the spice is a common ingredient, readily found in every supermarket across the U.S. and Europe, it has lost its value and could never command the lofty prices of yesteryear.

There is perhaps no better example in history of how trade rewards and punishes. When the Bandas had a clear comparative advantage over the production of a good in heavy demand – in other words, uncontested superiority over the technology, know-how and physical facilities (the trees) needed to make highly prized nutmeg – these islands could demand astronomical prices for their output and influence the course of global trade and world history. But no comparative advantage, no matter how secure it may seem or long it may last, can be perpetuated indefinitely. Though the Dutch went to great lengths to preserve their grip on the nutmeg trade, the high prices inevitably attracted competition. The British eventually figured out how to grow nutmeg in their own empire, global production increased, and the Bandas lost their unique comparative advantage. The islands descended from the pinnacle of the global economy into the isolated, anonymity of today.

The Bandas vanished from the global economy because they never changed with changing technology and consumer tastes. As the Bandas lost their dominance in the nutmeg trade, they needed to do something else – maybe capitalize on their farmers’ extensive knowledge of nutmeg to “move up the value chain” and shift into processing it into some new, more useful product. But that never really happened. To be fair to the locals, they did not possess the power to determine their own affairs. The Dutch ruled, and they were more interested in sucking what wealth they could from the islands back to Europe than developing a healthier local economy in the Bandas. Yet even since Indonesia’s independence, little effort has been made to turn the Bandas into much more than a bunch of nutmeg groves. There is talk of encouraging a tourism industry, but it remains mainly talk. That rickety propeller plane that flew us to the Bandas can never carry in enough brave tourists to make much of a difference to the local economy.

So, you ask, why is the story of the Bandas relevant to us today?

Read more: http://curiouscapitalist.blogs.time.com/2011/12/28/what-the-banda-islands-tell-us-about-world-trade/#ixzz1i60Idq00

via What the Banda Islands Tell Us About World Trade | The Curious Capitalist | TIME.com.

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Posted December 31, 2011 by arnoneumann in Economic

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