Argentina's Golden Age
Shortly before World War I, Argentina was considered one of the most prosperous and wealthy countries in the world. In the famous work of economist Angus Maddison, "The World Economy: Historical Statistics," it is indicated that by 1913 only seven countries in the world had a higher per capita income. Suffice it to say that Argentina by that indicator was on par with France and Germany and significantly ahead of such countries as Italy and Spain. Neighboring Brazil lagged behind Argentina by five times, and Japan, one of the world leaders at the end of the 20th century, by almost three times.
To understand how significant Argentina's economic achievements were, suffice it to say that the Buenos Aires subway was launched as early as 1913, and experts compared the city itself to Chicago.
The reasons for Argentina's success at that time are simple. First, it had virtually unlimited expanses of fertile free land (in the Pampas alone, the area suitable for plowing was about 500 thousand sq. km). Second, the relatively high level of education among the population opened up opportunities for applying the leading technologies of the time in agriculture. As a result, the migrants who populated the Latin American country quickly made it an exporter of grain, wine, and meat to virtually all regions of the world.
Since the mid-19th century, Argentina's prospects attracted millions of immigrants who felt cramped in rapidly industrializing Europe. Spaniards, Italians, Irish, Germans, French, Scots, and even Christian Arabs – all made a contribution to the development of Argentina. The influx of cheap but relatively skilled labor, coupled with high demand for it, gave an additional boost to the economy, which grew by about 6% per year in the 1890s-1910s, three times the global average.
Decades of Crisis
Changes for the worse began in Argentina during the global crisis of 1929. The collapse of the American stock exchanges and the subsequent Great Depression in the US and Europe hit primarily the producers of raw materials, including agricultural ones. However, Argentina was initially not as affected as neighboring countries: by the mid-1930s it briefly managed to return to sustainable economic growth.
Accustomed to a certain standard of living (and, most importantly, its steady growth), Argentines were not ready for several years of belt-tightening. As a result, a military junta seized power in the country, which primarily protected the interests of big capital, especially British. The change of power was accompanied by mass unrest, exacerbated contradictions in society, and did nothing to help economic growth.
In 1943, a new military coup took place in Argentina. It played a key role in the country's history because it opened the door to big politics for one of the most controversial figures in 20th-century Latin America: Juan Perón, an officer who became minister of labor in the new government. Perón contributed to the adoption of new legislation in the interests of the working class, and it became one of the most progressive in the world at that time. After Perón's victory in the presidential election of 1946, Argentina embarked on a social democratic path of development.
Despite the fact that Perón's activities helped overcome stratification and restore social peace in society, in the long run the economy suffered considerable damage. At the slightest difficulty, his government repeatedly resorted to the printing press, increasingly fueling inflation. Moreover, Perón failed to find a replacement for British capital, which had dominated the country in the first half of the 20th century. The project to develop import-substituting industry also failed, and the huge state investments in it meant that the traditional agricultural sector was left to its own devices and its development stalled.
After Perón (his party was overthrown in a military coup in 1955), things got even worse: lacking the personal charisma and immense political influence of the general, the authorities were forced to use force to resolve contradictions. Political confrontation escalated to the limit, and an urban guerrilla war erupted in the country. The economy virtually stopped growing, and a situation arose that was called 'socialism without a plan, capitalism without a market' – that is, the worst features of both socio-economic systems were combined in one country.
The final collapse of this policy occurred in 1982, when Argentina suffered a painful defeat in the Falkland Islands War. It turned out that the military junta did not even know how to do what it had been learning all its life: fight. The generals were forced to hand over power and hold elections, which were won by the Peronist Raúl Alfonsín. But the victory of democracy in the country changed nothing in economic practices: the elite remained extremely corrupt, only now it did not intimidate but bribed the population, without thinking about tomorrow.
A new attempt to drastically reverse course occurred in the early 1990s. It was driven by President Carlos Menem and economist Domingo Cavallo. Menem, who came to power under ultra-populist slogans, unexpectedly turned into a staunch advocate of the free market and a 'friend of business' after his victory. The ideologist of the reforms initiated by the government was Cavallo, who saw the root of evil in Peronist socialism and believed that Argentina could only develop through strict financial policies and a program favorable to foreign capital.
Cavallo introduced a so-called currency board in the country – a rigid peg of the peso to the US dollar, thereby curbing inflation (in 1989, prices in Argentina rose by more than 2000%) and ensuring financial stability. As a result, the economy began to grow intensively again, and the world began to talk about the 'Argentine economic miracle' – the incomes of the population continuously increased for almost 10 years.
The financial crisis of 1998 in Asia, which once again hit commodity prices, became a new "Great Depression" for Argentina. Capital fled the unstable economy, and banking activity virtually froze. A little later, the entire national economy was affected, experiencing roughly the same problems that Greece faces now. Cavallo instantly turned from a hero into a pariah. He was immediately reminded of the buildup of public debt, which was called the main recipe of the "miracle" that naturally led to the collapse. Mass unemployment gave rise to "empty pot marches" and a return to violent confrontation between the government and citizens. Eventually, the country's government was forced to declare default, at that time the largest in world history.
Since then, the Argentine economy has been developing in fits and starts. In the mid-2000s, however, it managed to return to growth due to another upswing in commodity prices, but the new global crisis interrupted that movement again. The government, which now no one wants to lend to, resorted to "unorthodox" practices such as nationalizing the oil industry and effectively seizing private pension savings, but the left-wing policies of President Cristina Fernández de Kirchner prove to be just as controversial as the right-wing policies of Carlos Menem.
As a result, by 2013 Argentina's GDP per capita was two and a half times lower than that of Italy and Japan. The gap with such developed commodity-exporting countries as Australia and Canada is widening every decade. Even compared to its neighbors (which have also been battered considerably since then), Argentina looks weak. In 1913, its GDP per capita was $3,800 (in 1990 dollars), while Chile's was less than $3,000 and Brazil's was barely $800. A hundred years later, Argentina and Brazil are at the same level ($11,500 and $11,300), but Chile is far ahead: per capita income in the country on the other side of the Andes exceeds $15,000.
Argentina's economy still remains largely agrarian. Agriculture accounts for about 10%, which is several times higher than in most European countries. 60% comes from services and about 30% from industry. Last year, the country's economic growth slowed to 1.9%. The budget deficit is about $12 billion, or almost 3% of GDP. It is worth noting that budget revenues in the country amount to only 25% of GDP, while in neighboring Brazil they are about 35%.
Why did Argentina's modernization in the 20th century prove to be a failure? It seems that the mistakes were not in the choice of specific economic recipes. Yes, the social democratic orientation of Perón and the Peronists seems like the wrong decision half a century later, but at the same time most Western European states were following the same course, and nothing like Argentina's upheavals occurred there. The same can be said about the reforms of the 1990s: neoliberalism significantly helped the US or Asian countries, but in Argentina it collapsed.
Most likely, Argentina's degradation is linked not to economics but to politics. The absence of democracy and the prevalence of oligarchic interests, on the one hand, and mindless populism, on the other, lurching from one extreme to another, management of the economy by incompetent military men – all this together produced a sad result. In Europe, states could afford socialist practices because they had strong traditions of local self-government behind them. In Argentina, on the other hand, power was too centralized, with insufficient checks and balances. As a result, there is now no reason to say that Argentina will ever regain the economic might of the early 20th century and once again become at least a regional, if not global, leader.
Dmitry MIGUNOV,
«Lenta.Ru».