Brazil has much to learn from its neighbor to avoid following the same path.
No object is as emblematic of Argentina as thebandoneón or accordion . Its music is the soundtrack of the country. Its variations seem to echo changing personal moods. It serves as a useful metaphor for its economy and its potential, for the country itself, after cycles of expansion and contraction that have marked its history over the past 200 years.
Argentina’s take-off dates from the second half of the 19th century. London was then the center of the global economy, and as Britain registered income gains thanks to industrial productivity, demand for goods in which Argentina had competitive advantages increased.
Argentina was then relishing some Ricardian-type exchanges. Exporting commodities was enough. By 1910, the country boasted the tenth largest income per capita in the world, which was equivalent to that of France. Today, this would mean an income per capita that is equal to that of the United States.
Talk to any middle–aged resident of Buenos Aires and he will say that he grew up with the conviction that his country would be a world power as robust as the United States. By the 1890s, it had expanded primary school access to levels that Brazil would only achieve one hundred years later.
In the imposing city of Buenos Aires, European architects were designing sumptuous “hôtelsparticuliers,” there were as many theaters as in London, and there were enough bookshops to make Paris jealous.
Until 1930, God was Argentine. But since then, the country has gone into decline. It is the only nation whose socioeconomic indicators were in line with those of the most advanced countries, which failed to become “developed”.
So what happened?
During the 1940s economist RaúlPrebisch warned his fellow Argentines that the world was going to change: the United States was becoming a stronger industrial player as well as the leading agricultural power. He argued that Latin American elites would not manage to keep the same living standards and produce a stronger middle class if they remained mere exporters of valued commodities.
The issue was “industrialization or death”. This led to the policy of import substitution. It also resulted in a series of fresh and growing interventions in the whole of the economy. Today the finance ministry may threaten to close stores that hike prices, but back in 1947 a Peronist decree was already setting the price of menu items in restaurants.
It is a whole history of distortions, of support for burgeoning industries that degenerates in protectionism, and patriotism that is mixed with nationalism. The political class does not belong to the left or the right wing, but is merely opportunistic. This leads to a phenomenal waste of human and physical resources. And society becomes more expensive for what it actually produces.
Recent mistakes come on top of structural dysfunctions. This includes difficult relations with international finance, an imaginary partnership with China, the world seen through Bolivarian glasses, volatile rules of the game, a public-private environment that is averse to innovation… All in all, a recipe for stagnation.
Thanks to the current crisis, Argentina has become an advanced laboratory for what must not be done. Brazil is learning from the valuable lessons of its neighbor. But if there is no change of course, Brazil also runs the risk of becoming an “accordion country” in a not-so-distant future – one that expands and contracts according to the international environment and the lack of definition of its strategies.