My understanding is that both countries were very similar economically in the 20’s and 30’s, yet Argentina now has a terrible economy, and Australia is booming. What did Australia do right, and Argentina do wrong in the last century?
In: Economics
It comes down to governance. Australia has a normal political system. Argentina does not.
1930s, military coup followed by fraudulent elections. 1943-44, three coups in two years. 1950s, Peron elected followed by another military coup against him, including repudiating current constitution(!).
1960s unfree election followed by coup and military junta in power 1966-1973. 1973-76 elected Peronist government. 1976, another coup with junta in power until 1983 (lost Falklands War).
By the end of the dictatorship, Argentina owes massive foreign debt of $45 billion and has unsustainable interest rates as a result. Multiple economic crises in 1980s, ultimately hyperinflation in 1989.
1990s, it’s too complicated but suffice to say attempted popular policies to get debt and inflation under control lead to the infamous 1998-2001 financial crisis and a debt default in 2001 (really a repudiation). Argentina has been effectively in international finance jail since then.
Australia ranked 13th out of 180 for corruption index, Argentina ranked 94th. Corruption is engrained and Australia doesn’t normally hoard foreign currency. Argentina hoards US dollars every time someone sneezes, adding to instability and inequality in the economy, every time someone sneezes. Repeat that for 80 years.
Absolutist regimes like dictatorships do not explain an economic downfall. See Saudi Arabia and UAE.
The problem was populist and leftist policies and their economic interventionism, which leads to inefficient markets, decreased individual freedoms, and economic instability. Here’s how these points explain Argentina’s economic downfall:
**Populism’s Role**
* Economic Interventionism: Populist governments in Argentina, notably Juan Domingo Perón’s administrations in the mid-20th century, implemented policies that heavily intervened in the economy. These included nationalizing industries, implementing protectionist trade policies, and increasing state spending. Such interventions distort market signals, reduce efficiency, and discourage foreign investment.
* Fiscal Imbalance: Populist policies often involve significant government spending to fund social programs. While these programs are intended to reduce inequality, they can lead to unsustainable fiscal deficits. In Argentina’s case, recurrent fiscal imbalances have been a source of economic instability, leading to high inflation and debt crises.
* Price Controls and Subsidies: Populist governments have frequently used price controls and subsidies to keep prices low for consumers. However, these measures lead to distortions in supply and demand, shortages, and discourage production and investment.
**Leftism’s Impact**
* High Taxation and Redistribution: Leftist policies in Argentina have often included high taxes and ambitious redistribution programs. While aimed at reducing inequality, such policies can disincentivize investment, entrepreneurship, and work, leading to lower economic growth.
* Labor Market Rigidity: Left-wing governments have traditionally supported strong labor rights, including high minimum wages and strict employment protection laws. While well-intentioned, these policies lead to higher unemployment and informality, as employers may be hesitant to hire new workers under stringent regulatory conditions.
* Public Sector Inefficiencies: A large and expansive public sector is another hallmark of leftist policies, aimed at providing a wide range of services to the population, leading to inefficiencies, corruption, and a heavy tax burden on the economy.
**Historical Examples**
* Hyperinflation of the 1980s: Argentina experienced hyperinflation in the late 1980s, a direct result of excessive money printing to finance large fiscal deficits—a policy rooted in populist attempts to maintain social spending without sufficient revenue.
* 2001 Economic Crisis: The 2001 crisis, which led to Argentina defaulting on its debt, can be partly attributed to populist economic policies that prioritized short-term growth and social spending over sustainable fiscal management.
* Protectionism: Throughout the 20th and early 21st centuries, protectionist policies have aimed to shield domestic industries from foreign competition but have often resulted in inefficiencies and higher costs for Argentine consumers.
In conclusion, Argentina’s economic challenges are a consequence of populist and leftist policies that have prioritized state intervention, fiscal imprudence, and protectionism over market freedoms, fiscal responsibility, and open trade. The argument would be that a return to these libertarian principles could foster a more stable and prosperous economic environment in Argentina. That’s what Javier Milei is trying to do.
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