Argentina’s Industrial History Shows the Follies of Raúl Prebisch’s Developmentalism

 

          One of the big international news stories of August 2023 was that a country usually seen as not particularly noteworthy on the global stage, Argentina, might be the first in the world to have a self-described libertarian President in the form of Javier Milei. He received a slight plurality of over 30% of the vote in a presidential primary that plays a key indicator of who is likely to win the election in October. Beyond just simple surprise at the fact that a libertarian who was not Ron Paul was getting attention, as well as the natural journalistic temptation to make a dubious comparison between Milei and Donald Trump and Jair Bolsonaro, many were even more shocked by the results because of the long history of heavy government intervention in the Argentine economy and the rapid change in policy that the winning candidate was proposing, particularly in regards to trade.

Really since the start of the Great Depression, but particularly since the election of Juan Domingo Perón in 1946, Argentina has, with the exception of the 1976-1983 military junta and the presidency of Carlos Menem from 1989 to 1999, almost always been an extremely protectionist country, bordering on autarchic in some time periods. As of 2023, the average tariff rate is 11.9%, compared to 2.3% for the United States. Milei’s pledge to throw open the country to free trade is thus a particularly welcoming proposition for a country where 40% of the population is in poverty and an 11.9% charge for foreign products cannot be doing anything to help with that. All that being said, the question that naturally comes to mind is why did a country that was once a major exporter of agricultural products suddenly turn to extreme protectionism, even long after the worldwide anti-trade streak during the Great Depression had passed. For that, we have to look to the so-called developmentalist theories of an Argentine economist named Raúl Prebisch.

            Prebisch, who had once subscribed to the principle of free trade, decided to turn his back on the policy when he noticed the effects of the Great Depression on his native Argentina. From 1880 to 1930, Argentina’s economy was primarily a rapidly expanding agricultural exporter that specialized in cattle, wheat, flaxseed, corn, and other staple crops. This made the country very rich, with real wages amounting to about 96% of the United Kingdom’s by the early 20^th century and a much better standard of living to be found among the millions of immigrants, primarily from Italy and Spain, that the country received. The Great Depression, unfortunately, but perhaps understandably, changed that perception and ideas of changing the agro-export model took hold. This was the environment where the theories of Prebisch could take hold. According to him, the problem facing Argentina and much of the rest of the raw materials-exporting developing world were that they were in the “Periphery” and would be doomed to keep exporting raw materials in perpetuity and would never develop on their own. The solution, therefore, was for these countries to throw up massive trade barriers and industrialize for an internal market in order to avoid downturns like the one they were in in the 1930s and only then would they become wealthy. There are multiple problems with this theory, but sticking with Argentina in particular, the largest one would be the fact that Argentina was not only an agricultural exporter at this time and was indeed already fairly industrialized at the time of Prebisch’s writing and as a result, the subsequent obsession with industrialization for the sake of self-sufficiency that occurred under Juan Perón and whose legacy continues on today with Argentina’s relatively large amount of protectionism the country suffers under has quite possibly been largely redundant.

            While it is necessary to be fair and not try to paint Argentina as some kind of free trade paradise prior to the start of the import industrialization substitution that the country pursued after the Great Depression, it should be noted that most of the tariffs imposed at that time were largely for revenue-generating purposes. It was only the odd politically-connected industry, such as wine from Mendoza or sugar from Tucuman, that received explicitly protectionist favoritism. With that out of the way, the history of Argentine industry that developed with no help from the state (and that Prebisch would have been wise to read about) deserves to be recounted. As Mauricio Rojas recounts in The Sorrows of Carmencita, between 1900 and 1913, industry had multiplied by 2.4 times and the 633,000 people employed in industry in the 1910-1914 period accounted for 20.6% of the Argentine workforce. They were spread out across over 48,000 workplaces. This hardly sounds like the feudal backwater dominated by landed oligarchs that Peronist propaganda famously claimed to be taking on. Whatever else this indicates, it is that autarky is not necessary to develop a country. Even Henry Clay in America never went that far.

            So, what does the historic trade policy of Argentina have to do with modern politics in the nation. Well, for one thing, it illustrates just one of the many ways that Javier Milei wants to pull the country out of the policy decisions that should have been left in the 1970s and brought into the modern world economy to become the developed country that Argentina has long been seen as destined to be. Adopting a liberal trade policy akin to next-door Chile and Uruguay’s would likely be an easy place to start. After all, who does not like cheaper products, regardless of where they were produced. Even if Milei does not win in October, hopefully his trade recommendations will be taken to heart.