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The Crisis of Argentine Capitalism.

By Paul H. Lewis. Chapel Hill: The University of North Carolina Press, 1990. Pp. xviii, 573. $49.95.

The central message of this long, and at times tedious, book is that the economic crisis afflicting Argentina is the product of a corporativist system that, over the years, has burdened the economy with excessive regulations, as well as misguided and self-serving policies. The author, a political scientists by background, attributes Argentina's seemingly permanent economic and political stalemate to the rejection of economic liberalism (in the nineteenth century sense) and the adoption of populist policies, especially with the rise to power of the charismatic and nationalist leader Juan Domingo Peron in 1943. He believes that the huge and interventionist Argentine state is an extreme example of what has ". . . emerged gradually almost everywhere in the world, but particularly in the industrial and semiindustrial West" [p. 494]. This book is essentially written for non-specialists given its relatively low economic content; it does assume, however, some degree of familiarity with Argentine economic and political history.

In addition to an introductory chapter, the book is comprised of twenty chapters distributed among four major parts that trace Argentina's economic and political evolution from 1910 to 1987. In the introductory chapter, Lewis outlines and discusses five major hypotheses that purport to explain Argentina's economic stagnation and social malaise. They are ". . . (1) the traditional cattle-raising and export merchant oligarchy's refusal to accept modern social and political change; (2) the military's increasing interference in politics, which exacerbates instability rather than avoids it; (3) the exploitation of Argentina by foreign capital; [and] (4) the personal machinations of one man, Juan Domingo Peron, who was Argentina's president from 1946 to 1995 and continued to influence its politics for two decades after that . . ." [p. 1]. The book is therefore concerned with testing the veracity of each of these hypotheses in light of the historical material presented in its four major parts.

Part I examines the emergence of Argentine industrial capitalism during the period beginning in 1910 and ending on the eve of World War II. Employing a Rostowian framework of analysis, the main theme of this part of the book is that the preconditions for growth and development along capitalist lines were firmly established in Argentina at the turn of the century. Lewis points out, correctly, in chapters 2 and 3 that Argentina possessed a small, but dynamic class of entrepreneurs that, without much help from the government, was responsible for a dramatic rise in industrial operations and investments between 1895 and 1913. Lewis attributes the rapid rate of industrial growth to the country's agricultural boom led, in turn, by forward-looking estancieros (landholders). In fact, he goes so far as to say that the conventional view of a corrupt and incompetent oligarchy aligned with foreign interest needs extensive revision.

Although I concur with Lewis's view that during the pre-Peronist era--especially before World War II, Argentina seemed poised to enter a sustained take-off into economic growth and prosperity, it struck me as odd that he did not emphasize the almost complete exogenous nature of that growth: namely, the export-import economy. The agricultural boom he refers to derived its dynamism from exporting practically 70 percent of its production; so too did Argentine industry, which was based on food processing (mainly meat packing and textiles); the transportation industry also derived its buoyancy from handling mostly commodities for exports on its railroads and interoceanic shipping. Even white-collar workers and professionals were dependent on the export-import sector since the government's revenues were primarily derived from import taxes. The lack of a truly endogenous source of economic growth, a la Rostow, was clearly evidenced by the serious depression the country suffered between 1914 and 1916 (due to the precipitous drop in foreign investment) and the prosperity of the 1917-21 (largely the result of an export boom).

The author also fails to point out that the benefits of the export economy were very unequal distributed among economic regions and groups of the country, thereby limiting the size of the internal market. Buenos Aires and the rich pampas boomed, while most of the interior provinces stagnated. The cattle fateners and breeders, estancieros, and foreign-born industrialists prospered, while the foreign-born laborers, tenant farmers, and sharecroppers grew poorer. Some indication of the inequalities present in pre-Peronist Argentina can be garnered from the fact that less than 5 percent of the economically active population received 70 percent of the gross income generated in agriculture. Moreover, Lewis's characterization of the landed elite as forward-looking is highly questionable in view of the well-documented fact that much of their extensive landholdings were left idle even though the land was fertile and suitable for intensive cultivation. To compound matters, they played a highly regressive role during the first radical government of Hipolito Yrigoyen (1916-22)-- the country's charismatic leader during most of the late 1920s--by severely limiting the latter's ability to deliver any economic and political concessions to the country's growing working class. Lastly, although it cannot be denied that foreign investment and loan capital played a key role in fueling economic growth during the pre-Peron era, the flip side of the issue is that they severely constrained public finance and overall net capital formation since they contributed to a significant outflow of funds in the form of profit-remittances and debt-service payments.

Part II deals with the rise to, and consolidation of power by Argentina's most enigmatic and influential political figure of the twentieth century, Juan Domingo Peron. Lewis is at his best when he discusses in chapter 7 (Part II) those aspects of Peron's personal life and military career that led him to assume control of a secret army lodge called the Group of United Officers (GOU) that helped mastermind the coup that overthrew right-wing Conservative Ramon S. Castillo in 1943. For example, we learn that while in Europe between 1939 and 1940, Peron met with other Argentine officers who had strong sympathies for the economic and social policies being implemented in Nazi Germany and Fascist Italy. They subscribed to the idea of a strong corporate state that would bring the various classes of society together in a cooperative effort designed to promote industrialization in key sectors of the economy such as steel, railroads, and defense. Once in power, Peron's economic policies were based on heavy government intervention in the economy via the promotion of import-substitution industrialization (ISI) and a fervent nationalism designed to regain control of the Argentine economy from foreign interests (primarily British). Lewis also provides an adequate, but by no means complete, discussion of "The Rise and Fall of Peronist Economics." He observes that during the late 1940s real wages rose at a faster pace than labor productivity in order to stimulate mass consumption and ". . . provide a mass market for domestic industry [p. 182]." Initially these efforts were accompanied by increase in both domestic and foreign investment, but in the long-run the lack of a fiscal apparatus capable of raising the necessary revenues, as well as the discriminatory farm policies pursued by the Argentine Institute for Trade and Promotion (IAPI) led to large public sector deficits and their direct monetization, thereby unleashing inflationary pressures. Furthermore, Lewis points out that Peron's nationalistic rhetoric and actions led to a withdrawal of foreign and domestic capital from key sectors such as steel, energy and transportation. Eventually, Peron had to retreat from economic nationalism because of the capital strike that had begun to take a stranglehold on the Argentine economy.

There is no doubt that Lewis is acquainted with many of the details surrounding the implementation of fiscal policy during the Peron years, as well as the institutional constraints under which the Argentine economy operated (and to a great extent still operates under), but I found most of the economic discussion in Part II, as well as Part III, to be of a descriptive nature and covering already familiar ground. One notable omission from the investigation, in light of the important and well known role played by government banks and financial institutions in late-industrializers [1], is any detailed examination of the use of specific monetary and financial instruments for allocating resources to the private sector. That is, to what extent, if any, did state banks provide financial, technical, and managerial assistance to ensure the successful implementation of projects financed by the state. It is also interesting to note that in light of the author's own discussion of the tremendous economic influence and leverage exerted by foreign capital, in alliance with powerful elements of the country's elite during both pre-Peron and Peron years, he nevertheless dismisses outright the possibility that foreign capital constituted, at certain key periods in the country's history, a formidable obstacle to economic growth and development. One final comment on this part of the book is in order. It seems, at times, that Lewis subscribes to the "Great Man" view of history because he attributes much of the blame for Argentina's structural difficulties on the political machinations of one man, Juan Domingo Peron. If that was the case, then why do many of the larger Latin nations share similar problems to that of Argentina?

Part III examines the economic and political events leading to his fall from power at the hands of a military coup in 1955 and their lingering effect on Argentine society. It is by far the most lengthy and complex part of the book. Part IV covers the return to power of the Peronists, the eight years of nightmarish military rule (1976-83), and the return to democracy under the leadership of the first democratically elected president since the Peron in 1946. In terms of substance, it does not add anything novel to the discussion in Part III and, in view of space limitations, I shall confine my specific comments to Part III of the book. The main focus of this part is the inability of both civilian and military rulers to stabilize the economy during the post-Peron years--a situation that Lewis largely attributes to the presence of powerful vested interest among the military, elite,, and the labor movement. He also puts part of the blame for the economy's lackluster performance on the unwillingness of local businessmen to invest in innovative and strategic sectors of the economy. The lack of entrepreneurial spirit among Argentine businessmen according to Lewis, however, is not their fault, but that of the state which thru the pursuit of ISI strategies ". . . made them too conservative" [p. 329].

It has become almost commonplace in these heady days of privatization and economic liberalization in Latin America to blame ISI for just about everything that has gone wrong with the region's economic performance. It is conveniently forgotten, however, that the problem is not ISI per se, but as Gustav Ranis [2] suggests, the particular progression toward industrialization followed by Latin American nations as opposed to that pursued by the Asian economies, for example. Like their Latin counterparts, South Korea, Taiwan, Hong Kong and Singapore, began to industrialize via primary import substitution (sometimes called "easy" or horizontal ISI) with significant state participation, but unlike the major Latin nations, after completing this stage they began a process of export-substitution--the gradual replacement of primary agricultural exports with semi-manufactured goods produced by local capitalists. The major Latin nations, on the other hand, proceeded with hard or vertical ISI by promoting some consumer durable and intermediate goods in a highly skewed domestic market, thereby generating a structurally incomplete form of development. The role of the state in facilitating the transition from primary ISI to export-substitution was by no means inconsequential in the East Asian case, but rather, qualitative different. Lastly, it should also be mentioned that the economic success of the East Asian countries, as opposed to that of major Latin nations such as Argentina and Brazil, has its basis in fundamental agrarian reform (assisted by the U.S. in South Korea and Taiwan) which weakened the power of landed interests and the importance of agricultural exports for income generation. This throws considerable doubt on Lewis's major conclusion that ". . . so far as capitalist development is concerned, the estanciero oligarchy and domestic industry had, in the pre-Peron era, embarked on a path of development which, had it been followed, would probably have led to a system that would have been . . . essentially successful: somewhat like that of Italy" [p. 498].

In sum, this is a long and detailed book that attempts to answer the important question of why the appearance of economic prosperity in Argentina during the latter quarter of the nineteenth century and the early twentieth century proved illusory. It falls short in its attempt because it downplays a host of structural factors (maldistribution of income and wealth, lack of land reform, inefficient and regressive tax system, overdependence on foreign markets and capital, etc.) that have distorted the country's economic and political system in favor of oversimplified explanations. Miguel D. Ramirez Trinity College, Hartford


[1]Gerschenkron, Alexander. Economic Backwardness in Historical Perspective. Massachusetts: Harvard University Press, 1962. [2]Ranis, Gustav, "Challenges and Oppoortunities Posed by Asia's Superexporters: Implications for Manufactured Exports from Latin America." Quarterly Review of Economics and Business, Summer 1981, 204-26.
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Author:Ramirez, Miguel D.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Apr 1, 1992
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