USA and Argentina – Alan Beattie’s Response II

In response to Eugenio Diaz-Bonilla’s post:

It’s slightly surreal to keep debating someone who chooses to restrict his reading to a version of my argument that had to be truncated by the demands of journalism rather than looking at the full one. But here goes anyway:

– Your points 1, 2 and 5: The Argentine population is indeed a lot smaller than that of the US, and hence it would have difficulty being a superpower with the population it has. But part of the reason it is so small is that it didn’t attract enough permanent immigration. Since its current farmland is about a third the size of that of the US, let us (crudely) say it could have three times its current population if its economic growth had been sufficient to attract migration. In fact, it could probably have a lot more, in the same way that the US could have a lot more if it opened its borders with Mexico, and wikipedia informs me that Argentina is the 29th most sparsely populated country on the planet. It’s not just having remote areas like Patagonia that stops Argentina being filled up.

Could you be a superpower with 120m people? Probably. And once again (I am going to get weary saying this), one of the reasons the Argentine market was smaller than the US’s was that it followed policies that restricted industrialisation, growth and migration. Yes (your point 5), real wages were lower in Argentina than in the US, a point I also make in the book. But why? You seem to think it is purely the initial endowment of land and people. I argue that as time went on, policy contributed significantly as well, by ensuring that farming remained low-productivity and by discouraging manufacturing.

– On your point 3:  “he says that the US suffered less and recovered faster from the 1930’s Great Depression”. No I don’t. Where do I say that? (I don’t even say it in the book.) I said that the policy response was better, which it was, but not that GDP growth fell less or recovered quicker. One of the main impacts of the New Deal, as I say both in the article and in the book, was political – it was important for the continuation of democracy and the market economy that everything was being done that could be done. On the trade shares of GDP: my notes are currently sitting across the Atlantic from where I am so I can’t check where I got that from, but if it’s wrong, it’s wrong, and I’ll change it in future editions. There is no doubt, though, that the effect of Peronist policies was to discourage both exports and imports.

– More on point 3, the Australia/Argentina comparison. Five points: 1. Just eyeballing the numbers, your postwar comparison looks highly sensitive to the choice of starting point because of the volatility at the beginning of the series. Taking the relative paths instead from the early 1950s once the big wartime and post-war production swings in GDP had settled down, Australia looks to be on a somewhat upward trend and Argentina on a somewhat downward one relative to the US. Post-1976 the divergence may have accelerated, but it was already in train. 2. Given Australia’s higher initial per capita income, you might generally expect equivalent policies in the two countries to produce catch-up in Argentina, not relative stagnation (depending on savings rates and capital-labour ratios), and so the lines should be converging rather than parallel. 3. Since you mention it, while not following “exactly the same” policies as Argentina, Australia did also follow a strategy of import substitution after the war, which meant that its manufacturing productivity growth was pretty feeble compared to most western European countries. The average of Western European nations’ per capita GDP, about 0.7 of Australia’s in 1950, had caught up with it by the 1980s. Australian macro and structural policy was considerably improved after 1976 following the shambles of the Whitlam government, with the Hawke administration implementing trade and domestic liberalisation. Meanwhile in Argentina policy continued on the same misguided route – possibly getting worse, I grant you, but not making an abrupt shift in direction. 5. When making Argentina-Australia comparisons during the 20th century, it’s worth remembering that while Australia had started off from a higher base of per capita income, largely thanks to the gold discoveries of the 19th century, it had certain disadvantages compared with Argentina when it came to industrialising, including a much greater distance from any but its domestic market. Argentina’s population was a quarter higher than Australia’s in 1900, and it had fairly close access to a subcontinent of 50m people, as well as better proximity to the US and European markets. Australia often had to subsidise immigration considerably. (If you are about to give me the natural resource argument about industrialising, I pre-emptively draw your attention to Japan.)

Points 4 & 5: Yes, I am fully aware that the US Civil War was one of the most important decisions in US history. There’s a whole section on it in the book, if you care to read it, including a comparison between the Argentine elite and the southern US landowners. But the point is: the US had that battle, and the industrialisers won. Argentina did not. As for my apparent naivety in assuming that large landowners will always do nothing except sit there milking their rents, I would draw your attention – in fact there’s a whole section on it in the book – to the behaviour of the English aristocracy in the 18th and 19th centuries. One of the reasons that the UK managed to liberalise agriculture through the repeal of the Corn Laws so early (1846) was that a good chunk of the British landowners had also invested in export-oriented manufacturing and (particularly) railways, and so had gains to offset their losses from the shift to free trade. Their Argentine equivalents did not. That was a choice that they made. Given their cultural Anglophilia, the Argentine landowners had an obvious model to follow, but they ignored it.

Point 4: “The breakdown of a restrictive agrarian structure took longer and followed a different path in Argentina.  Certainly this is not (or should not be) an issue now and I believe the conditions for a strengthened democracy and a buoyant domestic market are present now (if we decide to make it work).” Finally, something we agree on.

Though I’m afraid I’m pessimistic that it will be made to work, judging by Argentina’s continued defiance of economic reality in recent years (doctoring inflation data, appropriating the nation’s pensions, causing a food crisis in the middle of a commodity boom by demonising a now non-existent landowner plutocracy, etc, etc.) The latifundia have gone, but the Peronist ideology that replaced them is also profoundly damaging. All of this is discussed, needless to say, in my excellent book.

In summary, I stand by my conclusions. Explaining Argentina’s underperformance relative to the US entirely in terms of initial 19th century endowments and the inevitable consequences that followed therefrom is dangerously close to economic determinism.