Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

stumbling along in a volatile stalemate. The successive administrations proved unable to prevent
the progressive institutional decay of the country. Nevertheless, the darkest hour for Argentina was
yet to come.
4.6 Crisis and Reforms (1973-2010)
The intervention of the state in the economy increased substantially during the Peronist era and the
next twenty years. There is a stark contrast between the industrialization process of the period
1920-1945 and that of 1946-1975. In the former, the private sector reacted to the shortage of
foreign manufactured goods and led the way toward endogenous industrialization. In the latter, the
state took an active role in deepening the import- substitution process. This led to decisions based
on political expediency rather than economic rationality.
The industrialization process was guided by an alternation of administrations with different
strategic objectives, so it is not surprising that, overall, we find that it failed to achieve
self-sufficiency or even a more rational or coherent industrialization process. This led to an
essentially disproportionate development process that promptly ran into binding constraints: (a)
the inadequate growth of exports was a very serious obstacle to the industrialization process,
which required growing inputs of capital and intermediate goods; and (b) the intensification of the
industrialization process, especially the development of heavy industry, required larger subsidies
that needed to be financed in some way. The government's inability to accomplish this task with
fiscal resources drove inflation up to levels that were inconsistent with a healthy economic
performance.
A final populist experiment (under President Perón and then his wife) in the early 1970s ended up
in economic and political disorder. On the political side, it failed to curb the spiral of violence that
leftist guerrillas had ignited in the late 1960s. On the economic side, the oil crisis exposed the
weakness of the import substitution strategy. The increase in the price of imported oil, a vital input
of the manufacturing sector, fueled inflation and reduced real wages. 13
A top-down disciplinarian military administration then took its place. The main economic
objective of this government was to reduce inflation. A significant, although gradual and partial,
market-oriented financial and trade liberalization program was also implemented. This time, the
military government was quite intransigent in its attitude toward the other groups within the
weakened industrialist alliance. In disciplining the unions, the military government not only
suppressed collective bargaining and other union rights, as it had at other times in the past, but
actually used its military might against union leaders, some of whom became victims of
kidnappings and forced disappearance at their hands. Nevertheless, the unions were not entirely
decimated and, after the return to democracy some years later, they were again a very powerful
social force in the country. Industrial businessmen were also disciplined through trade
liberalization measures.
The discipline imposed on both labor and capital was not reflected in fiscal austerity. With
favorable international conditions for credit, the military-industrial complex was empowered, and
13 Recall that in our model the oil price hike can be interpreted as a negative productivity shock to the manufacturing
sector.