Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

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250 200 150 100 50 0 1884 1888 1892 1896 1900 1904 1908 1912 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 Figure 5: Share of Wages in GDP (index: 1884 = 100). Source: Gerchunoff and Llach (2004). The Peronist policy of import substitution was not an integrated, well thought plan. Rather, there was a great deal of improvisation in its application as policymakers reacted to short-run economic and political pressures. Clearly, toward the end of the war and during the early post-war years, the government's main concern was to defend the industries that had arisen and expanded prior to and during the war, regardless of their efficiency (Díaz-Alejandro, 1970). The protectionist measures that were used included not only high tariffs on imports of goods that were also produced domestically but also the requirement that farmers sell their crops to a state trading monopoly 11 that would profit from the difference between world prices and the prices paid to producers. Import substitution gave the Peronist state control over resource allocation in the economy. By deciding which industries to protect and where to channel national credit, the Peronist government was able to discipline industrialists and determine the destination of investment. Either industrialists complied with the demands of the government, or they were forced out and their capital was nationalized. The nationalization of private capital and Perón's military ambitions explain why the government became so deeply involved in the economy. Labor was also kept in line by the Professional Associations Act. Only one union was allowed to operate in each branch of activity; obviously, the government was entitled to decide which one could do so if two or more unions vied for the same branch. Outlawed unions had their bank accounts frozen and their offices closed. As a result, the Peronist government cemented a closed-economy and import-substitution model 11 Instituto Argentino de Promoción del Intercambio (IAPI).
for the years to come. The most important government intervention during the period 1945-1975 was the introduction of a relative price system which favored industry (and particularly labor-intensive industry) at the expense of the agricultural sector. As a consequence, internal relative prices diverged from international market prices, thus generating a sharp differential (which put the agricultural sector at a disadvantage) between the internal and external terms of trade (see Díaz-Alejandro, 1970, and Mallon and Sourrouille, 1975). The triumph of the industrialization model under a closed economy, over time, and even after the demise of Perón, led to the adoption of a scheme of industrial integration which consisted of completing every step of the production process, from capital goods and inputs to final goods, inside the country's borders, in evident contradiction with the post-war tendency of developed countries, whose trade was and continues to be mainly intra-industry (see Llach, 2002). Behind these economic policy decisions, there was an alliance of economic and political interests formed by unions, industrialists and the armed forces. Unions consolidated their power by delivering better wages, working conditions and social protection to their members. Industrialists had achieved a considerable level of protection from competition. Finally, the military took the development of the steel and oil industries under its wing. Although this alliance was evidently born after the Peronist years, it had sufficient resilience to last even through the military governments and the periods of political proscription of Peronism (see, among others, Halperín Donghi, 1994, and Llach, 2002). 12 Up to now we have been assuming that the economy operated near the efficiency frontier. This is reasonable if we assume that capital allocation and employment decisions were made in a decentralized way by profit-maximizing agents. However, during Peronism and the years that followed until the collapse of the import-substitution model, that assumption is hard to maintain. Capital was allocated on the basis of political rather than economic considerations. Labor allocation was no less distorted: public employment was used as a means of combatting unemployment; moreover, unions regulated quantities and prices in their members' labor markets to the extent that they were politically able to do so. Not surprisingly, income redistribution and industrial promotion policies rapidly ran up against a formidable constraint: exports stagnated (see Brambilla et al. in this volume). It is true that the stagnation of Argentine exports can be partly attributed to the global closure of markets and to the protectionist policies applied by industrial countries in agriculture that favored self-sufficiency (especially in Europe). However, it is also true that Argentina underperformed even in comparison to other countries that shared the same markets. Argentina accounted for more than one third of all Latin American exports in 1928, one fourth in 1938 and only one eighth in 1954. It exported mainly primary goods: corn, wheat, linen, wool and meat. The joint share of these five agricultural goods in world trade declined from 8.6% in 1926-1929 to 3.9% in 1960. Nevertheless, the fact that Argentina's market share was halved during that period provides evidence of Argentina's decline relative to other agricultural exporters. Overall, if we consider the world exports of these five primary products, Argentina accounted for 1.8% of those exports in the late 1920s and for only 0.4% in 1960. If we analyze export trends by 12 This alliance was very effective at maintaining and obtaining new rents from the state (see Mallon and Sourrouille, 1975).
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Exceptional Argentina Di Tella, Gla
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A third explanation of Argentina’
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Maddison's "Western Offshoots" by l
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A final point on this mechanistic a
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GDP in 1900 at 12,100 (in constant
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nationalized railways and banks, to
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country interacted with initial con
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1900. As there is an extremely stro
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Between the 1940s and 1970s income
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particularly in terms of food consu
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Even before the 2001 crisis, Argent
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Scandinavia and Northern Europe the
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Figure 4. A modified Human Developm
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Figure 6. Per capita GDP across Arg
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production 15 . Moreover, beyond st
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Figure 10. Average weight of export
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etween the prewar export-led growth
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which was wholly bound to local dem
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protectionism", certainly stronger
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agricultural pastures and cropland
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far. Argentina's differential popul
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Appendix Figure A. 1. Argentina's r
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Peru 35 38 25 34 34 34 32 29 26 27
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Like the Llach paper, the Campante
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I. Introduction Both Buenos Aires a
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across the ocean. Over the course o
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Buenos Aires’ hinterland rose dra
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significantly greater education lev
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Why is there such a difference in l
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illion dollars today). Each Chicago
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Chicago also appears to have been a
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casualties. Roca secured the presid
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capital to St. Petersburg he was pr
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and the logarithm of per capita GDP
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Moreover, years of schooling today
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y its overwhelming political import
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200 Figure 2a: Annual Wage Data 187
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Figure 3: Real Monthly Wages in Chi
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Log GDP per capita 2000 5 6 7 8 9 1
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Figure 7 Log GDP per capita 2000 7
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Table 2: Top 5 Industries in Chicag
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Table 4: 19th Century Variables and
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A simple calculation suggests that
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toy model with a minimum of paramet
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were lifted, but import taxes remai
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to compute that the MPK term above
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versus foreigners, on most occasion
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X institutions policies income p
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series variation. The coincidence o
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Figure 1—The Great Divergence and
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Figure 3—Trade taxes
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Transition Remarks The previous ess
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CHAPTER FOUR Argentine Trade Polici
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Argentine comparative advantage lie
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thousands of product lines in Argen
Page 111 and 112: Japan). Third, the agricultural pro
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Page 117 and 118: esult, soybeans were finally adopte
Page 119 and 120: Figure 1 Trade Openness Exports + I
Page 121 and 122: Figure 5 Relative Sectoral Protecti
Page 123 and 124: Figure 7 Average Export Taxes 0 10
Page 125 and 126: Figure 9 Average Export Taxes at 2-
Page 127 and 128: Figure 11 Evolution of Argentine Ag
Page 129 and 130: Figure 13 Yields in Agriculture: Wh
Page 131 and 132: Table 2 Livestock per Capita 1895 C
Page 133 and 134: Table 5 Mean Share of Exports (Impo
Page 135 and 136: Table 7 Tariff Statistics for perio
Page 137 and 138: Table 9 Evolution of Industrial Pro
Page 139 and 140: CHAPTER FIVE Path-Dependent Import-
Page 141 and 142: actors, and they were demanding pro
Page 143 and 144: the primary sector, using land and
Page 145 and 146: Figure 1: The Long Run: Four Region
Page 147 and 148: Finally, in the reversal of pattern
Page 149 and 150: Figure 3: Medium Run Preferences ov
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Page 155 and 156: Argentina did relatively well when
Page 157 and 158: World War, a second globalization e
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Page 161: Clearly, world market conditions we
Page 165 and 166: governments zigzagged in their poli
Page 167 and 168: public spending on infrastructure s
Page 169 and 170: understand the rise of the urban-ru
Page 171 and 172: To sum up, by the beginning of the
Page 173 and 174: has a comparative advantage in the
Page 175 and 176: L λ = m L K κ = m K That is, λ i
Page 177 and 178: K c a = 1− α 1−α T A ( κ )
Page 179 and 180: Given a set of parameters ϒ , φ a
Page 181 and 182: consumption of good i. For any agen
Page 183 and 184: Proposition 3 In the short run, pro
Page 185 and 186: ρ 1/ 1 ρ ρ 1 ( ξ ξ ) 1 TT K ,
Page 187 and 188: Up to 2008, the FPV government had
Page 189 and 190: negative correlation between the pr
Page 191 and 192: policies would, supposedly, eviscer
Page 193 and 194: I. Introduction In a seminal study,
Page 195 and 196: terms, Peronist beliefs in the 1990
Page 197 and 198: Several authors have emphasized the
Page 199 and 200: foreign capital and trade as the gl
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Page 203 and 204: having the need to do more than wak
Page 205 and 206: Argentines (who implement these pol
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cost of the deviating firm, since w
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Admissible Region Bounds on w b Nex
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The previous proposition may be par
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and note that Peron insists on the
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Appendix 2: Definitions of Variable
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Table II: The Beliefs of Peronists
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Transition Remarks The previous cha
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CHAPTER SEVEN A Short Episodic Hist
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the income distribution between 193
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empirical evidence and on existing
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of commodities. The country was off
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accounts increased by 8% between 19
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Argentina in 1942 (4.1%) is not ver
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This change in inequality is also r
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1982, when Mexico’s default on it
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1995. While growth bounced back qui
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The main characteristics of this ep
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skilled workers that more than offs
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Household Expenditure Survey. An in
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The relationship between internatio
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machinery and equipment can acceler
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occurred not only in production tec
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a relative abundance of rents to sh
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even when the number of well-off in
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and similar patterns emerge when co
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This chapter described the level an
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Transition Remarks Economic success
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CHAPTER EIGHT Why do Argentines tru
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in the 1970s and 1980s. Despite the
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Figure 5. Percentage of the populat
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analysis of the Argentinean and Chi
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observationally equivalent individu
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the low rank policeman. 13 4. The C
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Figure 7. Share of people having a
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6. Why did the Argentinean Police d
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instability, σ, a worried leader h
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the deeper question of why the Arge
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Table 2. Comparative facts for cano
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of formal education, whereas in the
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only bargaining tool to get money.
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Table 6. Tierra del Fuego Subinspec
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4. Police deaths during the 20th ce
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Of course, these conclusions depend
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“stop go” dynamics 4 ). In fact
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income distribution and earnings gr
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Figure 2. Basic Statistics Food Clo
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Table 2 Dep. Var.: Share of food Sm
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Figure 3. Variety in food retailing
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Table 3 Dep. Var.: Share of food at
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3.3 Income distribution effects The
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Figure 6. Individual Effects Using
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Expenditure Income 5000 6000 4000 4
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Figure 10. Income distribution Dens
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Appendix A: Estimation strategy Est
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w ijt where [ ln( 1+ ∏ ) − ln(
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2.2 Income distribution effects Fol
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Appendix B: The data To run our est
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Appendix C: Additional tables C1: B
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C3: Table 3 coefficients Dummy for
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CONCLUSION 20 th century Argentina
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can be harbingers of worse things t
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Ahumada, Hildegart, Alfredo Canaves
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Barro, Robert J. 2005. “Rare Even
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Burzaco, Eugenio et al. 2004. “Ma
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Cortés Conde, Roberto and María M
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Di Tella, Rafael, Juan Dubra and Ro
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Gaggero, Horacio and Alicia Garro.
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Gerchunoff, Pablo, Fernando Rocchi
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James, Daniel. 1988. “October 17
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Maddison, Angus. 2006. The World Ec
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Piketty, T. 2003. “Income Inequal
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Spiller, Pablo and Mariano Tommasi.
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Williamson, Jeffrey G. 1995. “The
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