A future which works

Over a century ago a muckraking Californian journalist wrote rhapsodically about an infant Soviet Union still in the throes of civil war: “I have seen the future and it works” – the challenge facing Argentina’s libertarian government today is to present at the other end of its revolution a vision of a post-industrial future which works rather better than the Soviet Union ever did.

“No la ven” (“they just don’t see it”), is a catchphrase used with perhaps decreasing frequency by President Javier Milei and libertarian influencers to dismiss critiques and that is perhaps starting to become a central problem this year – all too many people just do not see it, a vast group including almost all overseas investors well aware that everything could have gone south last year without two packages of around US$20 billion from the International Monetary Fund (IMF) and the United States Treasury.

What they do see is a stagflation in recent months with an upcreep of inflation alongside slumping production and shrinking consumer markets, a country risk now much closer to 600 points than 500 amid volatile and high interest rates (the worst of both worlds) paralysing credit with arrears mounting, real wages and formal employment on a downward slide, factory closures of which FATE tyres plant is only the most visible, etc. etc. – all they can see in pulling the rug from under obsolete, uncompetitive, dead-end industries is a dependence on Chinese imports and rising unemployment rather than Joseph Schumpeter’s “creative destruction” with such achievements as a fiscal surplus abstract by comparison.  

The basic problem is, of course, that Milei’s determination to open up one of the world’s most closed economies (ranking 178th out of the 179 countries measured by the World Bank, according to his state-of-the-nation speech last Sunday night) is moving at vastly superior speed to the painstaking parliamentary passage of the structural reforms local companies need to compete. Juan Domingo Perón’s famous metaphor of prices going up by the lift while wages have to use the staircase could be updated by replacing “prices” with “tariff reductions” and “wages” with “structural reforms.”

So how does the government go about bridging a growing credibility gap and presenting the destruction as creative? Last Sunday’s onslaught against the business establishment gave every impression that Milei would like to see most companies go under in favour of a model of export-led growth based on Vaca Muerta shale oil and gas, mining and the historic forte of agriculture. The problem is that none of these cash cows are labour-intensive. Such priorities align with countries playing to their strengths and comparative advantages, as recommended by David Ricardo over two centuries ago (Portugal sticking to port and England to cotton looms rather than vice-versa his examples back then) – rather more recently an Australian ambassador told this columnist that his country took off the day it ceased to have an auto industry, which would be in line with the free market notion that while there can be nations without industry, there may not be countries without competition. But all this leaves everybody wanting to know what sectors are going to be created to replace the destroyed.

Milei did not entirely dodge such questions in a state-of-the-nation speech far richer in insults than details but most of his answers were theoretical with reading between the lines required. Nor were concrete answers to be expected when no future legislation was spelled out beyond the 10 packages of structural reforms to be presented by each ministry over the next nine months for the “New Argentina.” The only new potentially boom sectors he specifically mentioned were petchems and data centres – underlying both was the “transversal input” of cheap energy which could free costs for investments to create jobs. Milei ascribed similar “transversal input” potential to easier credit and lower interest rates and to lower prices via imports as freeing money for investment and placing more in consumer pockets to buy the goods and services of new sectors.  

Without specifically mentioning Artificial Intelligence, Milei also took issue with the “Luddite fallacy” that technical progress is the enemy of employment. With world population multiplying tenfold in the last quarter-millennium, less than 10 percent would now be employed had the Industrial Revolution destroyed jobs, he argued. Milei would not admit to any rise in unemployment under his watch, despite the “chainsaw” destruction of some 300,000 registered jobs – if unemployment improbably fell from 7.9 to 6.3 percent last year, this was due to the underground economy and self-employment, he failed to confess. Milei’s speech even included the boast of two consecutive years of growth when INDEC national statistics bureau posted a contraction of minus 1.8 percent for the mega-austerity year of 2024 – the presidential claim was based on the last month of 2024 being 6.6 percent up on the catastrophic last month of 2023, ergo six percent growth.  

Anarcho-capitalism also means each individual being responsible for their employment rather than the state with anything resembling an industrial policy anathema but such dogmas will not win elections. Employment does not have to come from a manufacturing industry accounting for only one worker in seven in today’s Argentina while developed countries average over 70 percent of the workforce in the tertiary services sector. Even when wealth originates from a resource like Vaca Muerta shale, this need not crimp other sectors – thus less than two percent of Dubai’s economy in the oil-rich Persian Gulf comes from petroleum with tourism, global financial services, upmarket real estate and the Emirates aviation hub far more dominant. In Argentina’s case tourism would do wonders to decentralise the creation of wealth. Software has already emerged as an alternative to heavy industry with healthcare, culture and entertainment and even construction among other sectors ready to enter a stabilised economy.

Confronting the businessmen who could spearhead such initiatives towards a productive reconversion is no way out – aluminium magnate Javier Madanes Quintanilla’s closure of FATE in order to diversify more into energy could even be seen as a clumsy experiment in productive reconversion. Surely better to sit down with the productive sector in order to adapt to an economy open to the world rather than scornfully consign them to the past.