Argentina, the land stretching down the east side of South America and conjuring images of cosmopolitan cities, grass fed beef, Malbecs, the flat Pampas, and the mountainous Andes. It is a country full of abundant resources yet for the last century Argentina has been an interesting case economically because it could be argued that they have lost their way. We want to learn from history here at the C Thomas Printer Cooperative and therefore on this series, we will look to the past to try and find lessons and parallels for us to apply to our lives today.
Good morning, I’m Austerity Jones and I am back with C Thomas Printer for the first instalment of our historical series Lessons from Argentina.
C Thomas: Argentina is one of the few cases where a country that was among the very wealthy has actually seen a declining standard of living in the last 100 years when the country was poised for such greatness as recently as before the first world war. We will look at possible reasons for their decline, what we can learn from it, and possible red flags that we see in our current situations around the world.
Before we can look at how Argentina fell, we must first present how truly vibrant their economy was at the turn of the 20th century. Edward Glaeser, Rafaeel Tella, and Lucas Llach wrote an exceptional paper called the Introduction to Argentine exceptionalism which we will link on our blog at cthomasprinter.com. Argentina was welcoming to immigrants for the last half of the 1800s and their natural resources provided a great area for raising beef and with the advent of the ability to export beef and grains the country flourished. The French called their foolishly rich “riche comme un Argentin.” Argentina had a GDP per capita above Spain and Italy and almost equal with Switzerland during the early 1900s.
They were the recipient of capital investment from Europe and it was rewarded by a brisk business exporting their various natural resources. The dawning of World War I was a major inflection point as European capital was diverted to the war effort and later to paying back the Americans for war debts. In addition to having their capital lifeline dry up during the war and its aftermath, the Argentines saw their primary export markets dry up as well and this worsened during the Great Depression that followed the decade after. These memories would stick with the Argentines and we will revisit this later as Argentina embarked on a policy of import substitution industrialization, in an effort to be more self-sufficient. Prices fell as monetary liquidity dried up globally, and as a country of natural resources and abundant food stocks Argentina was able to weather the depression comparatively well, but the isolation of their export markets seeped into the very marrow of its people and its policies moving forward. Glaesar, Tella, and Llach put forward four main reasons for the decline of Argentina: they weren’t that rich then but a beneficiary of temporary high natural resource prices, bad institutions, bad international shocks, and bad policies. Now doesn’t that sound familiar? Was this our authors writing about Argentina in 1910 or the US and Europe and Australia and China and Turkey yesterday? We will investigate.
If we look at the Labour Gazette of the Dominion of Canada newspaper from February 1910, I know, I did some digging, Austerity, and no, it wasn’t sitting in my magazine rack… There was an article that caught my attention where they are writing about the abnormal high cost of living “This became particularly marked with the increasing industrial activity and trade prosperity of 1909 in the closing months of which the high cost of living had become the subject of very widespread discussion, affecting as it did the immediate personal well-being of nearly every class in the community, and especially those dependent upon a fixed rate of income… the chief topic…has been the high price of meats.” It was in fact referred to as an unprecedented phenomenon. So, it seems that the authors could very well be correct that Argentina with its strong export trade of beef could have been propped up artificially by the high prices for one of its best exports. In the same article I found the price of Rosario wheat had risen from $2.12 in 1900 to $3.77. It seems that much like the middle east was well situated for the sharp increase in the demand for oil in the 70s that Argentina was well situated and capitalized to take advantage of farm and ranch prices in the first decade of the 1900s. Now, one of the biggest reasons why the authors might suggest that Argentina wasn’t truly that wealthy is because of the concentration of the landowners in Argentina especially vis a vis a country like America. Argentina had large land barons and while America surely did as well, the American government gifted the railroads land along the track but there were homestead programs that allowed small entrepreneurs to go out and claim tracts of 40 and 80 acres as their own if they worked and settled the land. This program was a wonderful incentive for opportunity and would pave the way for America to be viewed as a land of opportunity. This word “incentive” will continue to be a theme for our discussion as it was prevalent in the US but in Argentina it seemed to be lacking in comparison probably due to the lack of opportunity for as many citizens to experience upward mobility. This incentive to move up could be considered the fuel for invention and technological invention that was appearing in the US and Europe. Farm implements like threshers and tractors, trains and locomotives, and even the car industry spawned by Henry Ford all were technologies that were growing and becoming industries and were exported for use in Argentina, but the technology seemed to flow one way. The rich gentry weren’t spurred by the hope of upward mobility to invent or make technological improvements that would create the industries of tomorrow. The authors also add that Argentina had a lower level of education in comparison to the nations of Europe and this could have also contributed to the lack of technological improvements. So while Argentina was a wealthy country in 1910, there were structural concerns that might hinder it from continuing to remain in its position as one of the burgeoning nations. A stifled upward mobility structure, limited incentives to develop technology, and education standards that were behind the most productive nations were all possible headwinds to Argentina’s prosperity during their heyday, but many countries don’t get a heyday.
It seems like Argentina got caught up in a bubble- it wasn’t real estate prices, bitcoin, or stock prices of companies without revenues like today, but beef and grain prices. They were uniquely well qualified to take advantage of the time and they did. But like bitcoin millionaires that are now having to trade in their Lamborghinis, Argentina would soon be faced with trying times and were they prepared to handle them? As a country, did their government set its citizens up for success? Did they have the correct structure to allow the entrepreneurs to pull the country to great heights with their own earned prosperity? We shall soon see… Next week we will investigate bad institutions as a possible reason for Argentina’s lost century of prosperity. Bad institutions are a subject I can sink my teeth into like a grass-fed Argentina steak Austerity.
Austerity: Why, Why C Thomas? You were doing so well. I’m a very disappointed Austerity Jones…
And we will see you next week with the next instalment of Lessons from Argentina.
Link to the paper mentioned in the episode – Introduction to Argentine exceptionalism by Edward Glaeser, Rafaeel Tella, and Lucas Llach.