Friday, March 15, 2013

The Economic Decline of a Nation: Argentina

The economic collapse of Argentina since the beginning of the new millennium gives us a glimpse of what could happen to the west in the future, thanks to warnings and illustrations by those who have lived through the crisis and its aftermath.  But Argentina also serves a useful example of how a country can stagnant economically, and slowly fall from it's perch. 
At the turn of the 20th century Argentina was one of the most dynamic and rich countries in the western hemisphere. In 1905 Argentinian wages were 80% per capita of the United States at the time, similar to nations like Germany, France and Canada.  Argentina was among the most economically affluent nations in the world, and some predicted that it would become the equivalent to the United States in South America.  This was all in spite of a major banking crisis prior to the turn of the century, which had seen Argentina default on its debt. By 1913 Argentina had over 3% of the worlds gold and produced 1% of the worlds economic output with an income per head equal to France and Germany. World War I brought the economic growth to a major halt.
A lot of this had to do with the curtailing of the global market. The major economies of Europe, which had bought Argentina's imports and invested heavily into Argentina. Britain had been a major investor around the globe, but the end of the war brought this investment to a halt. They were far too indebted to the United States.  And this was perhaps the greatest blow to Argentina.  While the US suffered no major economic set back, though they did suffer a recession, the nation showed no interest in investing or trading significantly with Argentina. It viewed the nation as a potential rival and the US did not want an economic rival in it's part of the world, so they ignored Argentina economically.  Lastly, perhaps the biggest set back of all, was the opening of the Panama canal, which decreased the economic importance of the Southern Cone.
Argentina saw a major decline in economic growth. Despite all the wealth that they had a acquired the nation had a major weakness. It wasn't as industrially developed as America or the European nations. With the decline of global purchasing of Argentinian exports, and not a large enough industrial base to support domestic production and consumption, their economy suffered.  As you can see in the chart the average income was lower from 1920 to 1930 than it had been from 1900 to 1920.
The outbreak Great Depression, which inflicted the developed economies of America and Europe, didn't hit the Argentinians that hard.  Economic expansion was halted, however, but the effects were relatively mild for the most part. But while the economy nominally looked like it was performing well the state of the average Argentinian had deteriorate d rapidly that lead to major internal political infighitng which lead to the rise of Peron. Peron, and Peronism, would dominate Argentina for the next thirty years.
Peronism was a form of economic socialism, also known as corporatism, that saw the state's roll on the economy and implementing certain policies such as halting foreign imports. In the long term Perons policies would be disastrous, but then socialist policies of any stripe always are, but with the increased demand in food, lack of war debt, and undamaged infrastructure at the end of World War II, Argentina saw a tremendous change of economic fortunes.  By 1950 Argentina saw its GPD per capita around 55% of the United States.
While the 1950s and 1960s were a golden era for America and Europe, Argentina once again saw a decline in economic growth now that the western European nations had fully recovered from the damage inflicted by war.The Argentinian, in an effort to spur growth, intervened many times during this period; all of these interventions were unsuccessful and only compounded the problems facing the nation.
As you can see, the period from the 1970s to the 1990s saw a major decline in the GDP per capita of the Argentinians relative to America.  A lot of items factor into this decline, the rise of other non-developing countries into developing countries, the inefficiencies of state supported industries finally becoming apparent, and a growing authoritarian government.  The 1980s saw the end of the military dictatorship that had run Argentina, but rather than fix their problems of government largess, the populists simply changed where the money was being funneled. Finally, in the 1990s the economic minister of Argentina implemented free market reforms, inflation was halted, unemployment decreased, and for the first time in decades the share of GDP per capita rose, however, this economic swell was short lived.
While free market policies had been tried to some degree, and to some success, the problems of extreme government largess and corruption were never adequately addressed. Also, privatisiation was being reversed during the later part of the 1990s. Coupled with a devaluation of the Brazilian Real and the American dollar were the final catalysts for Argentina. They could not pay their debt and so they defaulted which lead to the economic crisis that lasted from 1999 to 2002. and sent Argentinian GDP per capita as a percentage of US GDP per capita to the lowest point ever in a century.
While the Argentinian Economy has grown since their economic collapse, in per capita constant 2000 dollars it was around $ 6,400 whereas it is now around $ 12,000, the above chart shows how far Argentina has actuall fallen.  A hundred years ago Argetina, while not fully developed, would have been a country that was on the verge of becoming a developed nation.  The affects of their wealthy period can be seen today, since their decline has been rather drawn out, and they remain the second most developed nation in South America, having been surpassed by Chile and are considered a highly developed nation. Yet other metrics show that relatively Argentina is worse. 
Argentina's GDP per capita at the turn of the last century was a little over half that of America's but today their income per person is around a quater of America's. Moreover the economic collapse fostered in an administration that is arguably more corrupt than the one that was in power during the crisis. The dual Kirchner presidencies have not been good for the people of Argentina, and it looks like they are heading for another financial crisis.
What is most terrible about the economic history of Argentina is that there were numerous chances for this nation to break the cycle that has kept it from joining the ranks of the developed nations. But corruption and cronyism has prevented Argentina from doing so every single time. Argentina serves as a stark reminder of what can happen to the United States or any other developed crisis, not only because of their recent economic collapse, but because of their long and gradual economic decline.

1 comment:

  1. Surely Argentina is one of the most powerful countries today but like what economic specialist said, no one can escape economic crisis.


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Seattle resident whose real name is Kevin Daniels. This blog covers the following topics, libertarian philosophy, realpolitik, western culture, history and the pursuit of truth from the perspective of a libertarian traditionalist.