Tuesday 21 February 2012 7:04 pm

A market solution will save money and end the dispute over Falklands sovereignty

A S SOON as The Iron Lady hit the silver screen, it brought back memories of the Falklands War — a war that officially commenced on 2 April, 1982, only three short years after Margaret Thatcher assumed the reins as Prime Minister. Since 1833, Britain has been able to maintain its colonial settlement of the Falklands against the objections of Argentina. The Falklands? Even Samuel Johnson had something to say about the Falklands. This is what he wrote in 1771: “What, but a bleak and gloomy solitude, an island thrown aside from human use, stormy in winter, and barren in summer; an island which not even southern savages have dignified with habitation; where a garrison must be kept in a state that contemplates with envy the exiles of Siberia; of which the expense will be perpetual, and the use only occasional; and which, if fortune smiles upon our labours, may become a nest of smugglers in peace, and in war the refuge of future buccaneers.” When Thatcher took over from Jim Callaghan, her government was briefed on the festering Falklands sore. But the Thatcher government did not realise that danger was lurking, as is always the case when disputed territories are in the picture. Indeed, Britain’s intelligence about what Argentina’s military government was up to was wanting. When the Galtieri government struck, Britain was caught off guard and the Falklands War ensued, resulting in more than 900 casualties. And, as they say, what goes around comes around. As preparations for the 30th anniversary of the war proceed, tensions are on the rise, yet again. Last December, Prime Minister David Cameron was angered by reports that Argentine naval vessels had intercepted Spanish fishing boats in “Falkland waters.” Argentina’s President Cristina Fernández brushed this off and ratcheted things up by claiming that the Falklands were a global issue. In addition, she obtained an agreement with countries in the Mercosur trade pact that any ships flying the Falklands flag would not be permitted to enter Mercosur ports. Before we have more nationalistic posturing, sanctions, protracted skirmishes, a new war, and only then a “solution,” let’s move the Falklands dispute out of theological territory and try to think creatively and design market-based treaties applicable to dangerous disputed territories. For the Falklands, the governments of the United Kingdom and Argentina would agree that those Falklanders who were qualified to vote would be allowed to do so in a referendum. The referendum would allow the settlers – who are English-speaking and English by custom, institutions and loyalties – to vote on whether they prefer the status quo, or whether they would agree (“yes”) to an Argentine takeover. A super-majority “yes” vote, of say 80 per cent, would be required by the Falklanders to allow Argentina to claim sovereignty. This is where markets come in. The Falklanders would have to be compensated by Argentina for accepting its claim to sovereignty. The referendum would be designed so that Argentina could offer a cash incentive. Before the referendum, Argentina would deposit an amount (let’s say $500,000) in escrow in Swiss bank accounts for every man, woman and child who had proven their Falklands residence prior to the referendum. If the referendum went in Argentina’s favour (over 80 per cent of eligible voters casting a “yes” vote), then the funds in escrow would be transferred and Argentina’s unambiguous sovereignty over the Falklands would be established. Argentina’s cost, in this hypothetical, would be about $1.6bn. A transparent market solution for the Falklands and other disputed territories would be a cost-effective way to unambiguously establish sovereignty – a way that avoids blundering into unwanted wars and spilling blood, sweat and tears. Steve H. Hanke is professor of Applied Economics at The John Hopkins University in Baltimore. He served as an adviser to former Argentine President Carlos Menem and his minister of economy Domingo Cavallo. Professor Hanke was the president of Toronto Trust Argentina in Buenos Aires – when it was the world’s best performing emerging market mutual fund.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.