The Unique and Tragic Case of Argentina

As an American, I find myself continually fascinated by Argentina.  As Simon Kuznets, the winner of the 1971 Nobel Prize in Economics, once said, "[t]here are four kinds of countries in the world: developed countries, undeveloped countries, Japan and Argentina."

Argentina confounds historians and merits a unique category in the history of economics.  No other country has a potential to be so rich yet fails so abysmally — and not just once, but regularly and often.

Since most Americans are probably unaware of Argentina's potential, lets recap some of its pluses:

1. The Pampas: Arguably the largest and best grain-growing region on the planet, running from the temperate to the tropical regions of the country.  Unlike in America's grain regions, which can ice up, the winters are mild in most regions of the Pampas, with a concomitant extended growing season.

2. Beef: Argentina was at one time the world's largest exporter of cattle products, and that potential remains.

3. Lithium: Lithium powers the batteries in our electronics, and Argentina is a major supplier.

4. A relatively small population (only 44 million) on a relatively large land mass (about one third the size of the United States).

5. Rich in natural resources including oil, zinc, iron, and copper.

6. Lots of biodiversity and climates, the latter ranging from polar in the south to tropical in the north.

7. A high development index, with an educated population, largely of European extraction.

In 1895, according to Visual Politik, Argentina was even outperforming the United States in per capita GDP (1m52s).  Sounded like a recipe for success.  In the first decade of the 20th century, Argentina was competing successfully against the USA for high-quality European immigrants — Germans, Italians, French, and Spanish (heavily Galician and Basque from the north).

After WWII, even Britain was in debt to Argentina.

But time and time again, Argentina found itself in bankruptcy.  And the world stands in utter amazement.  On paper, Argentina should be performing on a level equal to the United States or Western Europe, or even better, given its resources to population ratios.

The blame is usually placed on the socialistic excesses of Peronism, which no doubt is a major cause.  But Peronism did not spring out of thin air.  Perón was a response to a corrupt right-wing government that had sold Argentina out, and to right-wing oligarchs who abused the poor with serf-like conditions.

During the Great Depression, Argentina's landed beef-producers found themselves shut out of British markets, as Britain — in an austerity measure — gave preference to Canadian products.  In order to regain some of that income, the beef-producers had Argentina's right-wing government negotiate a horrendous trade deal, which allowed the British to dump cheap manufactured goods in Argentina, in return for Britain opening up a piddling share of its market to Argentina.

Roca-Runciman Agreement, a three-year trade pact between Argentina and Great Britain, signed in May 1933, that guaranteed Argentina a fixed share in the British meat market and eliminated tariffs on Argentine cereals.  In return, Argentina agreed to restrictions with regard to trade and currency exchange, and it preserved Britain's commercial interests in the country. ...

Roca promised the British that Argentina would not construct highways to compete with the railways.  But when British companies failed to replace obsolete equipment and improve service, Pres. Agustín Pedro Justo (served 1932–38) launched a program that increased the number of highways in Argentina by 100 percent.  In the late 1940s and early '50s, Pres. Juan Perón's program to free Argentina from foreign debts and foreign ownership and to promote industrialization achieved some initial success but eventually led to economic retrogression.

Worse yet, Argentina's national accounts were required to be kept in British banks.  The Argentine on the-street was furious.  Argentina's nascent industrialization and economic independence were tossed away to the British just to retain the privileges of the beef-producers.  It was this frustration that contributed to the rise of Perón.

After WWII, when Peron tried to get Argentina's trade surplus out of British banks (a result of the Roca-Runciman Treaty), the British refused — and America and Britain worked to cripple Argentina's economy.

The chief problem today is that Argentine government spending is so heavy that to cut it off immediately would imperil the lives of much of the population, which is dependent on government handouts.  So President Mauricio Macri has preferred a gradualist approach rather than biting the bullet, which is not working.

The [problem] was the pursuit of an economic policy of gradualism to correct the major economic imbalances that Macri inherited from years of gross economic mismanagement under the Kirchners.  This was especially the case with respect to restoring budget balance and reducing the country's external current account deficit.

It is not that the government has not made some austerity cuts; it has.  It is that such cuts are not sufficient, and strongly resisted.

Tens of thousands of Argentines protested against President Mauricio Macri's austerity drive on Tuesday after labor unions began a 24-hour partial strike that brought airports, banks and schools across the country to a standstill.

There is a growing demand, among the poor, for a return of Kirchnerismo.

For decades, Argentina has been locked in a situation where any necessary reforms would be prevented by social instability bordering on revolution.  So Argentina keeps chugging along with the same old, same old.

Nor is this malaise easily defined as one of merely capitalism versus socialism.  Were it so, capitalism would easily have prevailed.  Argentina has enough potential that everyone could prosper.

Endemic corruption on olympian levels exists in Argentina.  Macri himself is constantly charged with crony capitalism.

This is what makes Argentina so unstable. Yes, socialism is a problem, but corruption is so severe in Argentina that even a right-wing government cannot wring it out.  When corrupt leaders become popular, then democracies fail.

This is what happened to Argentina.  Perón was popular.  They even invited Perón back to power in 1973.

What is clear is that Argentina is what results when any society becomes so corrupt that no amount of governance can clean it up, apart from a ruthless administration.  In too many instances from history, the only solution is blood in the streets.

The whole system needs to be reworked, with a new constitution.  But the working poor have been abused so much that they will probably not tolerate the reforms that are necessary, as it will hurt them initially.

I hope Argentina cleans up its act.  It would be nice to see it prosper.  I doubt it will happen.  Unfortunately, the recurring dictators who have tried to clean up Argentina's mess have historically been just as corrupt as the politicians they overthrew.

Mike Konrad is the pen name of an American who wishes he had availed himself more fully of the opportunity to learn Spanish better in high school, lo those many decades ago.  He runs a website, Latin Arabia, about the Christian Arab community in South America.