San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

Argentine Political Economic History

The question that probably occurs to everyone reading of Argentina's history is how can a country that has so much potential have had such a troubled history. The tragic complexity of the problems of Argentina reminds one of the tragedies of Polish history. But Polish problems developed out of and in reaction to the external pressures of its two aggressive neighbors whereas Argentina's troubles seem to be of its own people's contrivance. Perhaps there is a similar difficulty of Argentines and Poles to find compromises and to accept them.

Argentine society arose out Spanish Empire institutions and the development of the natural resources of the plains, the Pampas. The land produced grain and cattle and the land was held by a few families in large estates. The oligarchy of leading families ruled and controlled the economy and politics of Argentina. The revenues of these families came from the export of beef and grain. They spent their earnings on imported products. They supported free trade. They encouraged immigration from Europe as a source of an educated work force which would develop the economy of Buenos Aires. The oligarchy wanted political stability and supported a strong central authority as a means of promoting that stability. Generally otherwise they wanted as little involvement of the government in the economy as possible. In a word, the oligarchs were classical liberals.

The oligarchs were not opposed to foreign investment in Argentina. British interests built the railroads and other projects of development. Argentina had so much British involvement in its economy that at one point Queen Victoria in England thought that Argentina was part of the British Empire.

The oligarchy was able to maintain one-party rule through the following presidential administrations.

This period of single party rule was known as the unicato.

The oligarchy represented their own class interests and organized political parties with alternate ideologies were not able to challenge the oligarchy until the second decade of the twentieth century. The political downfall of the oligarchy and the end of the unicato started with a balance of payments and financial crisis of 1890. The crisis did not bring the immediate end of the unicato but it created organized political opposition that emerged victorious in 1916.

The opposition was led by Leandro Alem and Bernado Yrigoyen. Alem was successful in leading protests that forced the resignation of President Celman. Alem was exiled in 1892 but returned to Argentine politics later. Alem was an opposition leader in Congress, but in 1896 he committed suicide. His political organization Unión Cívic Radical (UCR), fell to Bernardo Yrigoyen and his nephew Hipólito Yrigoyen. It was the nephew Hipólito Yrigoyen who finally ended the unicato with his election to the presidency in 1916.

It must be noted here that political organizations in Argentina and other Latin American countries which have the word Radical in their names are not radical in the American sense of the term. Argentine Radicals are moderately conservative from the American point of view. The politically radical organizations such as the socialists, communists and syndicalists began forming in the early years of the twentieth century as a result of the immigrants from Europe bringing those ideology with them. Unions also became important in the political scene as well. The oligarchy fought the unions with legislation which called for the deportation of union organizers. The socialist organized politically but they were not an important political force in those early years of the twentieth century.

The Unión Cívic Radical (UCR) drew its support from the middle class elements of Argentine society, small business owners, small farmers, army officers, professionals, the educated and government employees.

Before 1912 the Unión Cívic Radical (UCR) directed its efforts into public protests rather than elections because it was felt that the electoral process was subject to corruption and fraud. But the oligarchy-supported candidate for the presidency in 1910, Roque Sáenz Peña, when elected supported electoral reform including the secret ballot and universal male suffrage. Male suffrage was not only allowed it was compulsory under Sáenz Peña's law. Sáenz Peña subsequently resigned but the electoral reform was supported by his successor.

Hipólito Yrigoyen

The UCR entered the election campaign for the Congress in 1912 with notable success and won the next presidential election in 1916 with Hipólito Yrigoyen.

The Radical political control continued from 1916 to 1930 when the onset of the Great Depression brought political change. Yrigoyen was overthrown in 1930 by the military representing the Conservatives.

The 1930's Great Depression was especially hard on Argentina which had specialized in the export of beef and grain, the products for which it had a comparative advantage. When its trade partners reduced their buying from Argentina as a result of their economic downturn Argentina was devastated. Its products plummeted in price and it did not have the means of importing all of the things it needed. After the experience of the Great Depression the strategy of import-substitution did not look bad. It seemed perhaps the only sensible thing to do.

In 1943 a military junta took control of the government of Argentina. One minor member of the junta was Colonel Juan Domingo Perón. Perón was given the relatively minor position of Secretary of Labor. He proceeded to build a strong following within organized labor. He was ablely assisted by his young, beautiful and charismatic second wife Eva Duarte de Perón.

As Secretary of Labor Perón was able to issue decrees increasing the minimum wage and regulating working conditions. There was an immediate improvement in the standard of living of the working classes. For the middle class Perón had an appeal, at least initially, because of his strong nationalism, which usually manifested itself as anti-Americanism.

But the gains for the working class were often at the expense of the ranchers and farmers in the countryside. When Perón held down the prices of food products to benefit the urban workers it resulted in reductions in production.

Perón nationalized the large industries and the railroads. These enterprises were often owned by foreigners such as the British and their nationalization was looked upon by the Argentinians as a patriotic act. Juan and Eva Perón were able political demagogues who established the notion in the minds of many Argentinians that their economic problems could be solved by the issuance of a government edict. The evidence of the Peron era was quite the contrary. While Peron may have decreed measures that brought some improvement in the living standards of the poor it was a short term gain at the expense of the long term deterioration of the Argentine economy. At the same time political freedoms and stability were eroded under the Peron regime.

Perón's ideological classification is often alleged to be in doubt. This doubt only arises because of the erroneous notion that fascism and socialism are diametrically opposed ideologies. In fact, fascism, socialism and communism are all collectivist ideologies. Perón's Spanish and Italian heritage inclined him toward corporatism, an economic system involving state control and regulation of the economy without state ownership. Corporatism sanctions government ownership of large scale, key industries but is willing to allow small businesses to remain under private ownership as long as the state can strongly regulate them. Corporatism was an important ideology in Latin countries where it was combined with a strong nationalistic element. The major fascist regimes in Europe were officially as follows:

As originally conceived socialism and communism were international in their orientation but under Stalin the ideology of the Soviet Union became National Communism and promoted Great Russian Imperialism. In Italy Mussolini dressed his followers in black shirts, because they were too poor to afford more militaristic uniforms. Hitler, in imitation of Mussolini, had his followers wear brown shirts. In Spain the followers of Franco were the blue shirts. In Brazil the fascist movement adopted green shirts. Perón alleged that his followers were too poor to even have shirts and called them the decamisados, the shirtless ones. Perón was clearly a nationalistic corporatist but he, at one time, said he was a socialist and that he had wanted to be "the Fidel Castro" of Argentina.

When Perón was deposed in 1955 he went to live in Spain. Despite the economic chaos and the political repression he was responsible for, a clear majority favored having him as their national leader. The strength of the Perónist Party (also called the Justicialist Party) made it difficult to govern the country; it also made it difficult to reverse the policies of Perón such as the nationalization of the railroads.

The military ruled Argentina for a major part of the time after Perón. The military turned the country over to civilian rule but frequently reasserted control when economic conditions or political conditions or both collapsed. Communists and other leftist elements infiltrated Perónist organizations such as the labor unions. This led to what seemed to be factional disputes within the Perónist movement.

Non-Perónist political leaders often resorted to inflationary finance when in power in a desperate attempt to cope with the economic and financial problems of Argentina without engendering a backlash from increased taxes. Finally in 1973 the military allowed elections and the Perónists won decisively the national and local elections and people accepted the fact that the majority of Argentinians wanted Perón back. Perón returned from Spain but he was in his late eighties and not much was accomplished. He died in 1974 and his new wife, Isabel Perón, became the President. As would be expected she was not prepared for the job and the military again took control in 1976.

Argentina went through some very troubled times with the military and urban guerillas fighting a war against each other. The civilian government generated hyperinflation in its attempt to cope with the needs of Argentina and the lack of tax revenue.

The military once in power again could not cope with the economic problems either. In a last desperate attempt to gain popular support the military launched a take-over of the Falkland Islands. It wasn't as though the Argentine government did not have enough desolate real estate in Patagonia. It had to seek more in Antarctica and provoke a war with Great Britain over the Falklands. The Argentine Government kept up a propaganda campaign that hid from the people the military defeat until the last minute. When the truth was revealed some Argentine said of the military leaders that,

First they showed us they could not manage the economy, Next they showed us that they could not rule the country. Finally they showed us that they did not know how to fight a war.

The Perónists lost the election of 1983. Under Alfonsin Argentina again went through an episode of hyperinflation. In 1989 Carlos Saul Menem, a Perónist and former state governor, was elected. Menem was the son of Syrian immigrants to Argentina.

Against all expectations Menem began to dismantle the state enterprises, which were a legacy of Perón. The privatization of the telephone company, railroads and so forth was a slow process as government bureaucrats found ways to drag out the process. The Argentine state airline is an interesting example. A survey revealed that about forty percent of the passengers were flying for free as government employees. Unsurprisingly the airline was losing millions of dollars each month. When a potential buyer was found there was a million dollar difference in the price the government wanted and the price the buyer was willing to pay. The government employees dragged the negotiation for the sale on for several months over a difference of one million dollars while each month the government was losing several million dollars. That seemed to be the Argentine way of running things.

Under Alfonsin Argentina had created a new currency, the austral, but the government created australs just as fast as it had created pesos and hyperinflation ensued. Under Menem Argentina again called its currency the peso. Menem set up was known as a currency board to stabilize the exchange rate. Under a currency board a country increases its money supply only to the extent that it earns foreign credits. Argentina, using the currency board, was able to maintain the exchange rate at one peso equals one dollar. Unfortunately inflation occurred in Argentina at a higher rate than for its competitors in world markets. As a result of this higher inflation rate Argentine businesses faced increased cost but a fixed exchange rate and thus lost market share to foreign competitors and higher unemployment ensued. After years of unemployment rates nearing twenty percent the economy was again in serious trouble.

Regional Economic Development and Policy in Argentina

Since the mid-nineteenth century a significant aspect of the Argentine economy has been the concentration of industry in and around Bueños Aires. Regional policy has focused on alleviating this imbalance in the economy. Argentina has not pursued regional development policy to the extent that Brazil has, but it has maintained an effort despite drastic changes in the nature of its government.

The first surveys of the Argentine economy in 1895 revealed that one half of the capital in manufacturing was located in the city of BueñosAires. In 1922 it was found that 70 percent of the capital was invested in the provinces in the vicinity of Bueños Aires. In 1935 48 percent of the manufacturing employment was in the city and another 25 percent in the province of Bueños Aires. The remaining 27 percent of manufacturing employment was mainly concentrated in Santa Fe (10%),Cordoba (5%), Mendoza (3%) and Tucuman (3%).

Around 1940 the City of Bueños Aires reached a stable population of 3 million and the growth subsequently was in the metropolitan area of Bueños Aires outside of the City itself.

Government programs led, in the 1950s, to the establishment of the Argentine automobile industry in the city of Cordoba in Cordoba Province. Some firms of Bueños Aires in the 50s and 60s were induced by government programs to establish textile plants in Patagonia. Government promotion programs also led to the creation of an aluminum plant in Patagonia, pulp and paper plants in Tucuman, an iron mine in Rio Negro province and petrochemical plants in Bahia Blanco (Bueños AiresProvince). The electronics industry was induced to move to Tierra del Fuego Province on the island in the extreme south.

Since the election of the Peronista Carlos Menem to the presidency of Argentina the government has moved toward privatization and opening up the economy to international trade and investment. Protective tariffs have been reduced except for certain industries such as automobiles. Argentina has tried to integrate its economy into MERCOSUR (Mercado Comin del Sur),the regional market of Argentina, Brazil, Uruguay and Paraguay. Government investment has been cut back and state enterprises are being sold. This has resulted in employment decreases in the provinces of Tierra del Fuego, La Rioja, Tucuman and San Luis.

The cities of Cordoba, Tucuman, Mendoza and Rosario are also showing some loss in manufacturing employment.

Reference: Jose Antonio Borello, "Regional Development and Industrial Promotion in Argentina: A Review of Events and Writings," International Journal of Urban and Regional Research, Vol. 19, no. 4, 1995, pp.576-592.