Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

The early manufacturing sector was closely linked to the primary sector and supplied the domestic
market with products that were naturally protected from external competition, (e.g. wine, meat and
flour). There also was a smaller industrial sector that competed with imports (e.g., clothes,
cigarettes, perfumes). These industries were granted some degree of protection after the passage of
the Customs Act of 1876. However, the level and extent of protectionism were rather limited
compared to what was yet to come. First, the main goal of these customs duties was to obtain
revenues for the government, which was a widely accepted practice in Latin America at the time
(see Brambilla et al. in this volume). Second, the protected activities accounted for a small share of
total economic activity and, to a large extent, the policy was geared toward protecting regional
products as a means of preserving the federalist model adopted by the country. Thus, this specific
departure from free trade can be more accurately interpreted as a means of securing revenues and
of sustaining a political order that, on the whole, was pro-export oriented.
Thus, in our view, the period from 1870 to 1914 was one of specialization in production, with the
country specializing in the production of primary goods, importing manufactured goods and
employing its workers mainly in the primary sector and the services industry. This was therefore a
period in which the political views of the majority of economic agents were aligned against
protectionist policies.
4.2 Globalization Backlash
It is not clear whether Argentina could have sustained its fast pace of growth under specialization
(see Llach in this volume) if the world had remained widely integrated, as it was during the Belle
Époque. However, there is no reason why it should not have diversified its production and exports
of agricultural and manufactured goods under a policy of free trade. Had the terms of trade
remained favorable for Argentina, even if the productivity of the primary sector had not kept
increasing rapidly, some manufacturing sectors would have eventually become competitive and
taken off. What is more, if the economy had continued to expand, it would have begun to meet an
increasing (but previously inexistent) domestic demand for many manufactured goods, thereby
encouraging their domestic production, particularly in view of the existence of natural barriers.
The same reasoning applies to services (see Galiani et al., 2008a).
Instead, the country's fortune took a sharp turn for the worse in the 1930s. World trade collapsed
after the Great Depression. The 1932 Ottawa Conference marked the end of multilateralism in
international trade. Great Britain, Argentina's foremost trading partner, shifted its trade to
members of the Commonwealth. A protectionist pandemic spread throughout the world. As a
consequence, the ratio of world trade (export plus imports) to GDP declined from 22% in 1913 to
9% in the 1930s. Though there was a recovery toward the end of the decade, international trade
was again disrupted during the Second World War, when it was geared toward war requirements.
Trade opportunities did not start to improve until after the Second World War under the Bretton
Woods system and with the signing of the General Agreement on Tariffs and Trade (GATT). Then
world trade began to recover and, by 1950, it had surpassed pre-war levels, mostly thanks to the
growth of trans-Atlantic and intra-European trade. 9 There is a consensus that, after the Second
9 After successive rounds of negotiations, substantial tariff reductions were put into practice, mainly for industrial
products. Unfortunately for Argentina, distortions in the trade of agriculture products remained relatively high. In the
US, subsidies to American farmers date from the Great Depression, whereas, in Europe, protectionism in agriculture