Tearing apart the rag trade

It would be hard to find a more extreme example of an economy minister rubbishing the industry of his own country than Luis ‘Toto’ Caputo saying: “I have never bought clothes in Argentina in my life because it’s daylight robbery.” With the most questionable word there the adverb “never” – “never say never,” it is said. If Caputo did indeed never buy clothing in Argentina at the bargain prices of the first decade of this century, then he was either working on Wall Street all the time or he missed an opportunity.

But the problem, of course, goes further, as Caputo did indeed proceed to acknowledge – unlike Cabinet Chief Manuel Adorni who, talking through his hat, said: ”Importing jeans does not cost anybody a job.” The minister admitted that 150,000 jobs could be losing protection but insisted that he had to see the bigger picture of prices several times their equivalent elsewhere in the world being paid by “49.5 million Argentines” (the recently departed INDEC national statistics bureau chief Marco Lavagna came up with four different totals in his 2022 census before settling on a final count of just under 46 million and now Caputo gives us this fifth figure amid a plunging birth rate).

These statements by Caputo and Adorni do not come out of nowhere but need to be seen as a continuation of the battle between a libertarian government intent on opening up the economy and an entrenched industrial sector, a battle starting last month with the Vaca Muerta pipeline tubing contract going the way of an Indian company underbidding local giant Techint. Rather than giving any ground here, the comments of Caputo and Adorni should be understood as escalating free trade dogmatism. So much so that if Caputo is hard to match as an economy minister rubbishing his own country’s industry, when we look around the planet for the opposite extreme to Donald Trump’s protectionism, the top candidate would seem to be Trump’s devoted fan Javier Milei.

But if Caputo’s outrageous remark throws out the baby with the bathwater in contemplating the destruction rather than the revival of local industry, it would also be throwing the baby out with the bathwater to deny there is a problem. A problem which did not begin this week with Caputo shooting his mouth – for a couple of years now millions of Argentines have been voting wordlessly with their feet via shopping excursions to neighbouring countries. Garments are not up to 10 times more costly here, as argued by Caputo, but there is a surcharge of around two-thirds on average, typical of a closed economy where prices are too often in inverse proportion to quality.

Nor is deindustrialisation automatically incompatible with development in the economics textbooks. Conventional wisdom in Australia has it that its economy started to take off the day it ceased to have an auto industry – shipbuilding once spread over three continents is now confined to East Asia without the other developed countries being any less advanced. The most explicit theory here comes from Deregulation & State Transformation Minister Federico Sturzenegger (also the key figure in the Techint dispute in many ways) – he dismisses the argument that opening up the economy should be delayed until tax, labour and other reforms to reduce costs level the playing-field by insisting that economies should always play to their strengths, a theory proposed over two centuries ago by David Ricardo (whose classic example then was that Portugal should stick to producing port and England weave cotton rather than either attempting the reverse). Export duties on a competitive agriculture to prop up substandard manufacturing is the complete opposite of such thinking.

The only trouble with this approach is job destruction. The winners in this model are all capital-intensive and the losers labour-intensive with over two-thirds of the 180,000 private-sector jobs lost under Milei coming from construction and manufacturing. Milei and Sturzenegger vow to eradicate an inflation permitting industry to hide its inefficiency but the one time this happened under convertibility with genuine productivity gains, unemployment reached 18.6 percent in 1995.

Instead garment prices need a more open-minded approach from both sides. If clothing is often produced in sweatshops while at least a dozen textile industrialists are as opulent as the bosses of the AFA Argentine Football Association, perhaps the problem is not just taxation and labour litigation – a libertarian government could even be right on the basis of socialistic arguments they would hate to use.