Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

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).