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OPINION AND ANALYSIS | 30-11-2024 05:46

The invasion is about to begin

Putting up protectionist barriers can be wonderfully easy, but pulling them down is anything but.

In his Confessions, Saint Augustine famously prayed “Lord, make me chaste, but not yet.” Most Argentine businessmen feel much the same about free trade. On principle, they are very much in favour of it, but with few exceptions they insist they need more time in which to prepare themselves to do battle with their foreign competitors on what they say must be a “level playing-field.”

Before they meet the foe, they want the government to remove the many obstacles that, according to the more bullish, prevent them from being world-beaters: punitively high taxes, bureaucratic rules that are haphazardly enforced by corrupt officials, woefully outdated labour legislation and much else. They also demand that steps be taken to deprive outsiders of the allegedly unfair advantages they enjoy. As far as some are concerned, most foreign products are cheaper than their own because those selling them are guilty of dumping.

There is nothing new about such claims. Argentina has been going back and forth between extreme protectionism and a theoretical adhesion to free trade for a very long time. After wavering a bit, Cristina Fernández de Kirchner came to the conclusion that self-sufficiency was best so every single nail used by local firms should be produced here. Now, Javier Milei is beginning to open up the home market so consumers can buy things, especially electronic artefacts, without having to pay through the nose. Whenever this happens, as it did when Domingo Cavallo was in charge and later, during Mauricio Macri’s term in office, many accuse the government of making an unpatriotic attempt to kill off the country’s industrial sector and ask how can we be expected to compete with gigantic foreign companies that are already making billions on the international market?

Such attitudes are understandable, as is the reasoning behind them. Were all tariff barriers to be demolished overnight, a large part of Argentina’s manufacturing economy would quickly crumble into dust. Much as Milei despises “gradualism,” circumstances oblige him to tread carefully. However, while even the best-run local businesses will need time in which to ready themselves to compete on what is likely to remain a very lumpy international playing-field, there are plenty of others that will never be able to survive without government help, that is to say, without taxpayers paying their bills in exchange for less than nothing. As always happens on these occasions, lobbyists are insinuating that letting even one of them go to the wall would be a crime against humanity.  

Protectionists, reinforced recently by the electoral triumph of Donald Trump, often point out that, ever since the Industrial Revolution, the only countries keen on free trade have been those that enjoyed a competitive advantage. When Great Britain was top dog and sold desirable products at prices others could not match, governments in Germany and the United States were not averse to helping their compatriots, but after they overhauled the British, they realised that freer trade was in their own interest and began supporting it as, much later, did the resurgent Japanese who have been followed by the Chinese. These days, Xi Jinping talks like a true believer in untrammelled liberal capitalism without tariff barriers of any kind.

Though countries do tend to become less protectionist when they become more competitive, this does not mean that they got that way thanks to the measures taken to prevent their infant industries from being strangled in the cradle by ruthless foreigners. There is no easy route to economic success. While in training, as it were, German, North American, Japanese, South Korean and then Chinese businesses were encouraged and goaded to shape up by governments that were determined to ensure that before too long they would be able to stand on their own two feet.

Is this what Argentine administrations have been doing over the decades that have been given to local concerns in which “to prepare themselves” for the day in which they will have to compete in the international arena? Hardly. Perhaps the hawkish Libertarian parliamentarian José Luis Espert was a bit rude when he told representatives of the business community they were bare-faced hypocrites who should go to hell – a recommendation he made in excremental terms – who always whined plaintively whenever a government said it wanted to open up the economy, but he certainly had a point when he accused them of profiting by flogging poor-quality products at grossly inflated prices to people barred from having access to anything better.

Putting up protectionist barriers can be wonderfully easy, but pulling them down is anything but. By making companies flabby, they render them incapable of confronting the challenges flung at them by foreign rivals. Argentina’s farmers can do so well on the world stage not because governments have helped them but because they have had to overcome the many difficulties placed in their path by a succession of populists convinced that they are all greedy oligarchs who should be forced to hand over most of what they manage to earn.

Milei wants to turn Argentina into a free-enterprise dynamo able to emulate well-off countries that enriched themselves by their own efforts. He thinks businessmen should play the leading role in the spectacular recovery he dreams about.  Will they be able to rise to the occasion? No doubt some will, but many, perhaps most, will be hard put to survive, let alone prosper. In addition to having to retool their enterprises, which will require far more credit than is likely to become available in the near future, they will have to recruit an adequate workforce from a population which has seen educational levels drop sharply in recent years and whose members, in far too many cases, have never even acquired the habits employers demand from those they hire to perform relatively simple tasks.

Previous attempts to modernise an economy that had fallen behind the times, like those undertaken under Carlos Menem and then Macri, led inevitably to an abrupt increase in joblessness which, needless to say, had negative political consequences. Even if Milei does succeed in curing the country of its deep-seated financial woes and the bulk of the population agrees that there is no viable alternative to free-market capitalism, the eventual benefits of the revolution he has set in motion will not be shared by the millions of Argentines who will continue to depend on the public purse to keep body and soul together.

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James Neilson

James Neilson

Former editor of the Buenos Aires Herald (1979-1986).

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