Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

have improved substantially.
The protectionist measures enacted by most countries in the world and the increased risk of
sending goods overseas during wartime reduced trade opportunities beyond what would be
expected as a result of the terms of trade. To sum up, in the late 19th century, Argentina had highly
auspicious opportunities to trade with the rest of the world: favorable terms of trade, peace and the
application of free trade policies by its trading partners. The terms of trade did not start to decline
until early in the 20th century, and were then followed by war and protectionist policies.
4.2.1 Endogenous Industrialization
The deterioration in the terms of trade during the 1920s severely damaged the economy. At the
same time that the profitability of the primary sector was plummeting because of low export
prices, opportunities in the secondary sector flourished thanks to the natural protection provided
by high import prices. As indicated by the research of Villanueva (1972), the 1920s were a
particularly active period in terms of the development of the industrial sector in Argentina.
International conditions worsened again in the 1930s, leading to another wave of endogenous
industrialization. As the economy began to produce goods that it had imported in the past, it
naturally began to close itself off from the world economy. 10
The decline in the terms of trade harmed both service workers and landowners. However, the
situation was less appalling for workers, since capital and labor were shifting to the secondary
sector. The flow of workers to the urban secondary sector was primarily composed of people from
rural areas. Their welfare began to increase as capital was reallocated to its most productive uses
and as new manufacturing activities prospered. In the model presented in the previous section, this
is reflected by a shift from specialization in production toward diversification and trade.
The early industrialization process of the inter-war period was accompanied by the consolidation
of the labor movement. Argentine unions date back to 1877, but active unionism did not start until
the 20th century. Union demands centered on basic improvements in working conditions, some
sort of insurance for work-related injuries and the prohibition of child labor. As industry
blossomed and wages rose during the 1920s, the unions succeeded in having their demands met
(see Galiani and Gerchunoff, 2003). The Great Depression put an end to the workers' bonanza,
however. Unions tried, without much success, to prevent wages from falling, but they did succeed
in retaining most of their achievements in terms of working conditions. The union movement was
seen by employers as a lesser evil that would maintain industrial peace, while workers saw it as a
reliable tool for protecting their rights. Unions thus emerged as an institutional device for coping
with the conflict of interest between capitalists and workers in the incipient process of
industrialization during the inter-war period. The battleground was the shop floor, and the conflicts
were mainly about the improvement of working conditions and wage stability.
It is somewhat ironic that the debate about protectionism became a permanent fixture in the
national dialogue in the wake of the Roca-Runciman Treaty, which was devised to protect the
10 Of course, the size of the market played an important role in promoting industrialization. In others words, the same
shock, in a much poorer country, although it might promote industrialization for export activities, would not
necessarily lead to import substitution.