In 1914, Argentina was among the ten richest countries in the world and had a higher GDP per capita than Germany, France or Italy. The land was fertile and so popular with immigrants, it attracted six million Europeans from 1870 to 1930. There were more cars and telephones in Argentina than in the rest of South America, and for 40 years, its economy had grown faster than anywhere else in the world.
Nowadays, Argentina’s GDP per capita is lower than that of Chile and Uruguay, and its economy is famous for crises, hyperinflation and severe recessions. The country has defaulted nine times since becoming independent in 1816 ‒ last in May, the third time in only 20 years.1
Typical suspects for the country’s economic demise are its foreign debt which started piling up during the last dictatorship, unsustainable decisions like pegging the peso to the dollar to contain inflation or the failure of IMF-promoted neoliberal policies. However, Argentina’s decline has been a lot more steady than these explanations suggest. You can explain it by three structural shortfalls:
(1) Reliance on international trade in times of crisis
Argentina became affluent because it was well-integrated into international trade and exported agricultural products such as grain and meat. When the world slid into the First World War, the Great Depression and another world war, other countries imported less and Argentina’s key sector suffered. Elsewhere, governments became more protectionist to support their economies, but half of Argentina’s capital stock was owned by foreigners. This meant the country lacked the domestic funds to get started with protectionism. The country was out of sync: it relied on an open economy when other countries fostered closed economies.
(2) Weak industrial base
In its best days, Argentina lived off its agricultural sector. The country lacked both the money and the educated workforce to develop an industrial sector. Industrialisation remained very weak until the 1930s, when the government introduced tariffs and quotas to substitute imports. The country began to produce more consumption goods (e.g. jackets) but continued importing the needed capital goods (e.g. a sewing machine). During the famous Perón’s2 first term as president from 1946 to 1951, the government started using the surplus of the agricultural sector to invest in industrialisation. Agricultural production fell and, by the mid-1950s, the economy was slowly reopened so that foreign companies could invest. However, Argentina lacked the means to produce all preliminary products and foreign companies had little interest to reinvest their money in the country. Some foreign companies imported pre-used and written-off machinery from abroad. The technological gap remained. Argentina was out of sync again: its economy remained closed for longer than elsewhere and lagged behind.
(3) Political instability
Last but not least, Argentina failed to build and maintain the democratic institutions that enable long-lasting reforms and ensure the army doesn’t seize power. After a military coup in 1930, the next democratic change of government only occurred in 1989. No president since Perón had to reign with a critical constitutional court. Official statistics are unreliable till this day, and the country lacks political parties with a long-term vision. Instead of focussing on creating wealth, Argentinian parties stand out for their short-termism and stress personalities and influence instead. This means Argentina couldn’t reform when it should have ‒ and other countries did.
