The Economist editorial about Argentina A CENTURY ago, when Harrods decided to set up its first overseas emporium, it chose Buenos Aires. In 1914 Ar-gentina stood out as the country of the future. Its economy had grown faster than America’s over the previous four decades. Its GDP per head was higher than Germany’s, France’s or Ita-ly’s. It boasted wonderfully fertile agricultural land, a sunny climate, a new democracy (universal male suffrage was intro-duced in 1912), an educated population and the world’s most erotic dance. Immigrants tangoed in from everywhere. For the young and ambitious, the choice between Argentina and Cali-fornia was a hard one. There are still many things to love about Argentina, from the glorious wilds of Patagonia to the world’s best footballer, Lionel Messi. The Argentines remain perhaps the best-looking people on the planet. But their country is a wreck. Harrods closed in 1998. Argentina is once again at the centre of an emerging-market crisis. This one can be blamed on the incom-petence of the president, Cristina Fernández, but she is merely the latest in a succession of economically illiterate populists, stretching back to Juan and Eva (Evita) Perón, and before. For-get about competing with the Germans. The Chileans and Uruguayans, the locals Argentines used to look down on, are now richer. Children from both those countries—and Brazil and Mexico too—do better in international education tests. Why dwell on a single national tragedy? When people con-sider the worst that could happen to their country, they think of totalitarianism. Given communism’s failure, that fate no longer seems likely. If Indonesia were to boil over, its citizens would hardly turn to North Korea as a model; the govern-ments in Madrid or Athens are not citing Lenin as the answer to their euro travails. The real danger is inadvertently becom-ing the Argentina of the 21st century. Slipping casually into steady decline would not be hard. Extremism is not a neces-sary ingredient, at least not much of it: weak institutions, nativ-ist politicians, lazy dependence on a few assets and a persis-tent refusal to confront reality will do the trick. All through my wild days, my mad existence As in any other country, Argentina’s story is unique. It has had bad luck. Its export-fuelled economy was battered by the pro-tectionism of the interwar years. It relied too heavily on Britain as a trading partner. The Peróns were unusually seductive pop-ulists. Like most of Latin America, Argentina embraced the Washington consensus in favour of open markets and privati-sation in the 1990s and it pegged the peso to the dollar. But the crunch, when it came in 2001, was particularly savage—and left the Argentines permanently suspicious of liberal reform. Ill fortune is not the only culprit, though (see pages17-20). In its economy, its politics, and its reluctance to reform, Argenti-na’s decline has been largely self-inflicted. Commodities, Argentina’s great strength in 1914, became a curse. A century ago the country was an early adopter of new technology—refrigeration of meat exports was the killer app of its day—but it never tried to add value to its food (even today, its cooking is based on taking the world’s best meat and burning it). The Peróns built a closed economy that protected its ineff-cient industries; Chile’s generals opened up in the 1970s and pulled ahead. Argentina’s protectionism has undermined Mercosur, the local trade pact. Ms Fernández’s government does not just impose tariffs on imports; it taxes farm exports. Argentina did not build the institutions needed to protect its young democracy from its army, so the country became prone to coups. Unlike Australia, another commodity-rich country, Argentina did not develop strong political parties de-termined to build and share wealth: its politics was captured by the Peróns and focused on personalities and influence. Its Supreme Court has been repeatedly tampered with. Political interference has destroyed the credibility of its statistical offce. Graft is endemic: the country ranks a shoddy 106th in Transpa-rency International’s corruption index. Building institutions is a dull, slow business. Argentine leaders prefer the quick fix—of charismatic leaders, miracle tariffs and currency pegs, rather than, say, a thorough reform of the country’s schools. They are not the solutions they promised to be Argentina’s decline has been seductively gradual. Despite dreadful periods, such as the 1970s, it has suffered nothing as monumental as Mao or Stalin. Throughout its decline, the ca-fés of Buenos Aires have continued to serve espressos and medialunas. That makes its disease especially dangerous. The rich world is not immune. California is in one of its sta-ble phases, but it is not clear that it has quit its addiction to quick fixes through referendums, and its government still hob-bles its private sector. On Europe’s southern fringe, both gov-ernment and business have avoided reality with Argentine disdain. Italy’s petulant demand that rating agencies should take into account its “cultural wealth”, instead of looking too closely at its dodgy government finances, sounded like Ms Fer-nández. The European Union protects Spain or Greece from spiralling off into autarky. But what if the euro zone broke up? The bigger danger, however, lies in the emerging world, where uninterrupted progress to prosperity is beginning to be seen as unstoppable. Too many countries have surged forward on commodity exports, but neglected their institutions. With China less hungry for raw materials, their weaknesses could be exposed just as Argentina’s was. Populism stalks many emerging countries: constitutions are being stretched. Over-reliant on oil and gas, ruled by kleptocrats and equipped with a dangerously high self-regard, Russia ticks many boxes. But even Brazil has flirted with economic nationalism, while, in Turkey, the autocratic Recep Tayyip Erdogan is blending Evita with Islam. In too many parts of emerging Asia, including Chi-na and India, crony capitalism remains the order of the day. In-equality is feeding the same anger that produced the Peróns. The lesson from the parable of Argentina is that good gov-ernment matters. Perhaps it has been learned. But the chances are that in 100 years’ time the world will look back at another Argentina—a country of the future that got stuck in the past.
Posted on: Fri, 14 Feb 2014 16:02:04 +0000