Argentina at a Crossroads of History

Art by Sierra Randel

On November 19, 2023, Argentina held a historic general election that will likely redefine its existing center-left to center-right party system. Javier Milei, an economist and deputy in the Argentine Congress won election to the Presidency with 56 percent of the vote. In recent decades, Argentina has reeled from a series of economic crises, including debt defaults, depressions and currency crises; the inflation rate topped 120 percent as of October. These woes have greatly impacted the standard of living of ordinary people, as the depreciation of Argentina’s currency induces unpredictability and effectively erases private savings by forcing up the real cost of goods. 

Argentina's election took place at a critical inflection point, as Javier Milei has seemingly created a new paradigm that defies the country’s two prevailing ideologies: neoliberalism and laborist populism. Most commentary on Mr. Milei focuses on his bombastic personality, as his unkempt hair and eccentric statements invoke political leaders like Donald Trump and Jair Bolsonaro. Furthermore, Milei’s economic and social ideology is controversial, notably his wishes to adopt the U.S. dollar as Argentina’s currency, disband the central bank, legalize the sale of human organs, and outlaw abortion. 

Considering no Argentina presidential candidate has won as large a mandate as Mr. Milei with an agenda as polarizing, it is crucial to examine his rise to high office in a historical context.

Education systems across the world, particularly in the West, tend to place importance on the events that resulted in Hitler’s rise to power: a crippling depression, sky-high unemployment, and a disenchanted populace eager for radical change–no matter how destructive. Even further below these explanations of Hitler's rise lie additional undercurrents such as government austerity. Simply put, economic history is like an onion with layers that peel back to reveal more insights about a political process. Without this invaluable information, policymakers would be hopelessly blind in determining crisis solutions. Furthermore, the media also plays a tremendous role in the dissemination of information surrounding the rise of certain controversial political figures. In the modern environment of the "24-hour news cycle," more emphasis is placed on eye-catching and sensationalized stories that point to rhetoric rather than policy or history. A notable example is that of the discourse surrounding the rise of Donald Trump, which placed disproportionate reporting on the man himself–somewhat like beachgoers lending more attention to a surfer atop a massive wave, rather than the wave itself. In a perverse twist, this undeserved attention can serve to enable individuals who are more adept at stirring up discord rather than governing competently. Viewing politics as a "team sport" is thus entertaining in the short term, but damaging to the fragile fabric of democracy in the long term. Therefore, this article will seek to explain the twists and turns in Argentina's history that can better explain the potency of a political personality like Mr. Javier Milei. 

A Powerhouse of Old

“Even the Nobel prize winning economist Simon Kuznets once said that there were four types of countries: the developed, the underdeveloped, Japan and Argentina.”

-Sebastian M. Saiegh in The Rise of Argentina’s Economic Prosperity: An Institutional Analysis

Throughout the late 19th and early 20th centuries, Argentina was one of the world’s top ten wealthiest countries, with a per capita income 96 percent of the United Kingdom in the first decade of the 1900s. The country’s economy boomed due to its vast tracts of arable land and relatively small population. A favorable land-labor equation meant that the country became a major agricultural producer and received an influx of more than six million immigrants from Europe and the Middle East–a figure second only to the United States. During this time, Argentina depended heavily on foreign investment and the worldwide flow of capital. This boom period ended in the First World War, as imports from Europe reduced due to the conflict. The following decades saw the predominantly rural population become an urban one, as the populations of major cities like Córdoba, Rosario, and Buenos Aires rose. Such a process caused the urban poor and working class to demand better working conditions and higher wages. 

In 1946, General Juan Perón of the Argentine Labour Party won the Presidency, marking the first time a center-left and labor-oriented party formed a government in the country’s history. Peron engineered a sweeping set of reforms to improve Argentine workers' standard of living and oversaw an expansion of trade union power. The traditionally open Argentina economy became increasingly protectionist and prioritized a process known as import-substitution to spur industrialization, with high tariffs to support domestic industrial growth. Import substitution industrialization (ISI) creates a “protected market,” in which domestic goods do not need to compete with higher-quality goods manufactured overseas.  Some economists posit that a major factor in Argentina's failure to develop as rapidly as other settler-colonial societies lay in its lax immigration policies and emphasis on protectionism, which constricted labor and capital intensity. Today, Peron looms large in Argentina. Mr. Milei’s defeated opponent, Minister of Economy, Sergio Massa had campaigned on the platform of the center-left Justicialist Party, a modern standard-bearer of “Peronism."

While the Justicialist Party is widely popular among the Argentine working classes and unionized labor, much of the country blames the country’s corruption and persistent economic mismanagement on Peronism and the bloated influence of the state. In particular, there is a notion that an elite cabal of politicians within the Justicialist Party governs the country with impunity. The current President, Alberto Fernandez receives criticism due to his highly “delegative” form of governance, which grants his Vice President, Cristina Fernandez de Kirchner, tremendous influence within the administration. Ms. Kirchner, a former President of Argentina, is frequently in the spotlight for scandals related to futures-related corruption schemes and notably, a coverup of the 1994 Bombing of a Jewish community center in Buenos Aires. Nevertheless, the Justicialists remain a potent force in Argentina's political system as they paint themselves as the heirs to the legacy of Juan Peron and his highly popular wife, Eva. Consequently, laborism remains highly influential in Argentina–two out of three unionized workers belong to a single trade union, the powerful "General Confederation of Labor" or CGT.

Union Power and a Broken Economy

“Inflation is a historical phenomenon in Argentina. It has been a dead end that seems impossible to get out of.”

-Alberto Fernandez, President of Argentina

It is important to note that union power is perceived differently in Argentina as compared to the United States, for example. President Joe Biden has placed unions at the forefront of his domestic policy with his support for striking UAW workers along with a National Labor Relations Board (NLRB) rule change that would ease a path to unionization. Unions are widely regarded as a positive influence on the growth of a robust American middle class and receive credit for improved socioeconomic equality in the decades following the Second World War. Correspondingly, the historical decline in private-sector unionization in the United States has created a burgeoning gap between unionized and non-unionized labor since the 1980s. As a result, unions are sometimes regarded as a "one-stop shop" for prosperity according to many Americans on the left, a notion that is solidified by the fact that developed nations with stronger collective bargaining coverage tend to possess a higher standard of living, life expectancy and lower income inequality than the United States. The very premise of organized labor is redistributive, as workers can collectively bargain for higher wages and benefits. 

Argentina, however, seems to be a paradox within this framework, as high unionization exists in step with macroeconomic instability that hurts the standard of living of ordinary Argentine citizens. The country is plagued by rocketing inflation, a correspondingly weak national currency, and a high rate of sovereign debt default. Some economists point out that Argentina's wages are highly inelastic and are mismatched with labor supply and demand. In the nominal sense, this benefits workers since they will receive higher wages. However, an abnormally high money supply can create lingering inflationary pressure and a rise in black marketeering. Furthermore, the Argentine central bank has a poor track record of maintaining the stability of the Peso and frequently engages in devaluation to enable wage increases. Many Argentine workers have subsequently assembled “funerals” to signify the “death” of their wages.

Javier Milei has frequently cited his ire for unions and claims that the Central Bank has "stolen" from ordinary Argentine citizens. As President, Milei wishes to rescind Article 14 of the Constitution, which protects labor rights and pensions. He has invoked the classical liberal ideology of the “generation of 80,” referring to the cohort of politicians that governed Argentina from the 1880s until the ratification of universal suffrage in 1912. Within this epoch, Argentina amassed wealth due to a national reliance on free trade and foreign investment, and only needed to specialize in land or labor to establish a globally competitive economy. Unfortunately, Argentina's later shift to protectionism and import substitution smothered any opportunities to take part in the burgeoning "global value chain" that allowed previously impoverished countries like South Korea to rocket to "high-income" status. The fact of the matter is that one of the world's erstwhile wealthiest countries is now hopelessly stuck in a condition known as the "middle-income trap," when a nation with increasing wages is unable to enter the market of "high-value added" goods like smartphones, computers and other electronic goods. 

The Pitfalls of Rapid Privatization 

One of the core aspects of Javier Milei’s economic agenda is to privatize numerous Argentina state enterprises as well as roads, healthcare and education. He also wishes to shut down the Health, Education, and Social Development ministries, reducing the total number of executive agencies from 18 to eight. Privatization of national assets at such a rapid pace, Milei believes–would improve the country’s plight, since according to him, “the state is not the solution, it is the problem.” Such rapid liberalization has precedents in past transitions initiated by Chile under Augusto Pinochet and the "Shock Therapy" enacted by the Russian Federation and the Polish Third Republic. In the case of both Poland and Chile, the aggressive removal of price controls, market liberalization, reduction of tariffs, and privatization of state enterprises were successful in propelling future growth. Under Pinochet, Chile also experienced the suppression of labor union power and the rise in prominence of a handful of family dynasties. Today, Chile is the wealthiest country in Latin America by GDP per capita. Unfortunately, although it is held up by liberal economists as a poster child of macroeconomic stability due to low rates of inflation and unemployment, high cost of living, a privatized pension system, and high-income inequality have proven burdensome for ordinary Chilean citizens. As of 2021, multi-millionaires controlled 16.1 percent of Chile's gross domestic product, compared to just 3.7 percent in Argentina. 

Conclusion

Mr. Milei’s policy vision certainly appeals to a portion of the electorate that is highly dissatisfied with the economic future of their country. It is, however, unlikely that Milei will ameliorate Argentina’s macroeconomic woes. The loss of a central bank could be disastrous in future recessions, as the government's ability to issue a comprehensive emergency stimulus may be hindered. Dollarization would also place Argentina's economy at the mercy of financial measures taken in a distant country, an uncertain predicament for a country of nearly 50 million people. Milei's efforts to rapidly downsize the power of the Argentine state may also prove counterproductive, as it may adversely affect the country's strong education system and worsen the presently moderate-to-low income inequality, thus stripping away features that clearly distinguish Argentina from its neighbors. In the case of Chile, history shows us how economic liberalization can intensify the gulf between the haves and have-nots. The road ahead for what was once one of the world's wealthiest countries is uncertain, but ideally should not be entrusted to a demagogue.