Re: Canada, Australia, Argentina

[Brad DeLong <delong@xxxxxxxxxxxxxxxxx>]

> En relación a [PEN-L:1549] Re: Re: Re: Canada, Australia, Argen,
> el 10 Sep 00, a las 3:37, Rob Schaap dijo:
>
> >  Australia, too, consciously nourished its (relative) independence,
> >  largely through mutually constitutive ties between Australia's
> >  government and bourgeoisie - ensuring that the latter would not serve
> >  as a compradorial local elite for foreign interests.
>
> This is EXACTLY what Peronism attempted to do here, and failed.
>
> Funny to see again how different are things in an imperialist country
> and in a colony. In more senses than one, Peronism, which is widely
> known outside Argentina (and particularly in the United States) as a
> Fascist South American overgrowth that remained alive for a decade
> after Nazism was swept away from Europe was in fact a domestic
> version of a Labour government in Australia...

Any Labor government--hell, *any* democratic government or *any*
left-of-center non-democratic government--would have been eager to
join the war against Hitler. Peron was not--hence the classification
of his regime as "fascist South American overgrowth" seems not
unfair...

As for Peron's social and economic policies, I have always been
fascinated with the extraordinary economic success of post-WWII
western Europe relative to Argentina.

At the end of the Second World War, both regions were predisposed
toward some strict regime of economic planning. Everyone remembered
the disastrous outcome of the laissez-faire policies that had been in
effect at the start of the 1930s. Politicians were predisposed toward
intervention and regulation: no matter how
damaging "government failure" might be to the economy, it had to be
better than the "market failure" of the Depression.

Had European political economy taken a different turn, post-World War
II European recovery might have been stagnant, as in Argentina.
Governments might have been slow to dismantle wartime allocation
controls, and so have severely constrained the market mechanism. In
fact the Marshall Plan era saw a rapid dismantling of controls over
product and factor markets in Western Europe, and the restoration of
price and exchange rate stability.

An alternative scenario would have seen the maintenance and expansion
of wartime controls in order to guard against substantial shifts in
income distribution. The late 1940's and early 1950's might have seen
the creation in Western Europe of allocative bureaucracies to ration
scarce foreign exchange, and the imposition of price controls on
exportables in order to protect the living standards of urban working
classes.

The consequences of such policies can be seen by looking in the
Argentine mirror, for they were broadly the policies adopted by
semi-fascist dictator Juan Peron. In response to the social and
economic upheavals of the Depression, Argentina adopted demand
stimulation and income redistribution. These policies were coupled
with a distrust of foreign trade and capital, and an attraction to
the use of controls instead of prices as allocative mechanisms. In
the post-World War II era Argentina's growth performance under these
policies was very poor.

Carlos Díaz Alejandro's (1970) _Essays on the Economic History of the
Argentine Republic_ provides what has become the standard analysis of
Argentina's post-World War II relative economic stagnation. According
to his interpretation the collapse of world trade in the Great
Depression was a disaster of the first magnitude for an Argentina
tightly integrated into the world division of labor. While Argentina
continued to service its foreign debt, its trade partners took
unilateral steps to shut it out of markets. The experience of the
Depression justifiably undermined the nation's commitment to
international economic integration.

In this environment Juan Perón gained enthusiastic mass political
support. Taxes were increased, agricultural marketing boards created,
unions supported, urban real wages boosted, international trade
regulated. Perón sought to generate rapid growth and to twist terms
of trade against rural agriculture and redistribute wealth to urban
workers who did not receive their fair share. The redistribution to
urban workers and to firms that had to pay their newly increased
wages required a redistribution away from exporters, agricultural
oligarchs, foreigners, and entrepreneurs.

Moreover, conservative dictatorships in Argentina during the Great
Depression had sharpened lines of political cleavage. Landowner and
exporter elites had always appropriated the lion's share of the
benefits of free trade. They had in the 1930's shown a willingness to
sacrifice political democracy in order to stunt the growth of the
domestic welfare state. The Perónist program seemed prima facie
reasonable given the memory of the Great Depression, and it produced
almost half a decade of very rapid growth toward the end of the 1940s.

Then exports fell sharply as a result of the international business
cycle. And exports fell further as the consequences of the enforced
reduction in real prices of rural exportables made themselves felt.
Agricultural production fell because of low prices offered by
government marketing agencies--the equivalent of the "scissors
crisis" found in Russia at the end of the NEP. Domestic consumption
rose. The rural sector found itself short of fertilizer and tractors.
Squeezed between declining production and rising domestic
consumption, Argentinian exports fell. By the first half of the
1950's the real value of Argentine exports was only 60 percent of the
depressed levels of the late 1930's, and only 40 percent of 1920's
levels. Because the Peronist government twisted the terms of trade
against agriculture and exportables, when the network of world trade
was put back together Argentina was largely excluded.

The consequent foreign exchange shortage presented Perón with only
unattractive options. First, he could attempt to balance foreign
payments by devaluing to bring imports and exports back into balance
in the long run and in the short run by borrowing from abroad. But
effective devaluation would have entailed raising the real price of
imported goods and therefore cutting living standards of the urban
workers who made up his political base. Foreign borrowing would have
meant a betrayal of his strong nationalist position. (And foreign
borrowing appeared even less attractive to Argentines who recalled
the extraordinarily high real effective interest rates that their
foreign debt had carried during the deflation of the 1930's.)

Second, he could contract the economy, raising unemployment and
reducing consumption, and expand incentives to produce for export by
decontrolling agricultural prices. But this too would have required a
reversal of the distributional shifts that had been the central aim
of his administration.

The remaining third option was one of controlling and rationing imports.

Not surprisingly, Perón and his advisors chose this third
alternative, believing that a dash for growth and a reduction in
dependence on the world economy was good for Argentina. As Díaz
Alejandro writes:

"First priority was given to raw materials and intermediate goods
imports needed to maintain existing capacity in operation. Machinery
and equipment for new capacity could neither be imported nor produced
domestically. A sharp
decrease in the rate of real capital formation in new machinery and
equipment followed. Hostility toward foreign capital, which could
have provided a way out of this difficulty, aggravated the crisis..."

After the coup that deposed Peron, subsequent governments did not
fully reverse his policies, for the political forces that Perón had
mobilized still had to be appeased. Thus post-World War II Argentina
saw foreign exchange allocated by the central government in order to,
first, keep existing factories running and, second, keep home
consumption high. Third and last priority under the controlled
exchange régime went to imports of capital goods for investment and
capacity expansion.

As a result, the early 1950's saw a huge rise in the price of capital
goods. Each percentage point of total product saved led to less than
half a percentage point's worth of investment. Díaz Alejandro found:

"[r]emarkably, the capital?in electricity and communications
increased by a larger percentage during the depression years 1929-39
than? 1945- 55," although the 1945-55 government boasted of
encouraging industrialization. Given low and fixed agriculture
prices, hence low exports, it was very expensive to sacrifice
materials imports needed to keep industry running in order to import
capital goods. Unable to invest, the Argentine economy stagnated.

In 1929 Argentina had been as rich as any large country in
continental Europe. In 1913 Buenos Aires was among the top 20 cities
of the world in telephones per capita. In 1929 Argentina had been
perhaps fourth in density of motor vehicles per capita, with
approximately the same number of vehicles per person as France or
Germany. Argentina from 1870-1950 was a country routinely classified
as similar to Canada or Australia. Argentina was still as rich as any
continental European country in 1950 (by which date Western Europe
had reattained pre-World War II levels of national product per
capita).

But by 1960 Argentina was poorer than Italy and had less than
two-thirds of the GDP per capita of France or West Germany.

One way to think about post-World War II Argentina is that its mixed economy
was poorly oriented: the government allocated goods, especially
imports, among alternative uses; the controlled market redistributed
income. Thus neither the private nor the public sector was used to
its comparative advantage: in post-World War II Western Europe market
forces allocated resources--even, to a large extent, for nationalized
industries--the government redistributed income, and the outcome was
much more favorable because private and public sectors were allocated
tasks that they were better equipped to perform.

In the absence of the Marshall Plan and the other aspects of U.S.
economic intervention in post-World War II Western Europe, might
Western Europe have followed a similar trajectory to Argentina? In
Díaz Alejandro's estimation, it was four factors that set the stage
for Argentina's relative decline: a politically-active and militant
urban industrial working class, strong economic nationalism, sharp
divisions between traditional elites used to having their own way and
poorer strata without even shirts to lose, and a government used to
exercising control over goods allocation that viewed the price system
as a tool for redistributing wealth rather than for determining the
pattern of economic activity.

> From the perspective of 1947, the political economy of Western Europe
would lead one to think that it was at least as vulnerable as
Argentina to the Peronist form of economic stagnation. The war had
given Europe more experience than Argentina with economic planning
and rationing. Militant urban working classes calling for wealth
redistribution voted in such numbers as to make Communists
plausibly part of a permanent ruling political coalition in France
and Italy. Economic nationalism had been nurtured by a decade and a
half of Depression, autarky and war. European political parties had
been divided substantially along economic class lines for two
generations.

Yet Europe avoided this trap. After World War II Western Europe's
mixed economies built substantial redistributional systems, but they
were built on top of and not as replacements for market allocations
of goods and factors.