Photo of me skiing in Argentina circa 1964
The Elite Statist Society that is Argentina
You are warned by the photo — today a somewhat self-absorbed ramble about my earlier Argentina-based work and family life, which you can skip by scrolling down to the two just-published fascinating articles on Milei, which are well worth reading.
The Christmas season and an article in today’s Spectator (below) led me off on the trail of memories of Argentina. I dug out my late father’s autobiographical sketch which covers the Argentine period. I left London aged 4 or 5 in 1962 to live in Argentina when my father was recruited by the International Labour Office to set up a new Productivity Centre modelled on the provenly successful Israeli Productivity Centre. He worked with government and large and medium sized companies. He wrote the “greatest resistance to change” lay within government. In Buenos Aires my mother was chair of the Social Services Committee of the University Women’s Club. She coordinated with Argentine charities, for instance meeting young girls coming from the poorest regions in the north of Argentina to try their luck in Buenos Aires, and helped them find jobs and accommodation and enrol in literacy programs.
The problems my father encountered were political.
He writes “During my three years in Argentina there were four mini ‘coups’, that is to say abrupt and involuntary changes of government.” He was probably referring to the military overthrow of President Arturo Frondizi and the military appointment of two successive Presidents, followed by the coup d'état in 1966 and the imposition of the “authoritarian-bureaucratic state” famously theorised by the Argentine marxist sociologist Guillermo O’Donnell (Yale PhD) whose seminal but thoroughly dull ‘new left’ books were compulsory reading when I studied sociology in the 1980s.
[Funny that I do not remember seeing the tanks patrolling the streets of Buenos Aires but do have a very vivid memory of the cop cars patrolling the University of California campus in Berkley, with rifles hanging out of the windows, in 1968-1969. My father had by then abandoned the UN in preference for a professorship in psychology.]
To cut a long story short, the government resisted the proposed measures that could have created “clear-cut and substantial productivity improvements”. So my father took up an offer to be (I think the longest job title I have ever read) Chief of United Nations Special Fund on the Integrated Development of Small and Medium Scale Industry in Chile. This was a much better environment in which to live and work. In the 1964 elections the progressive social democrat Eduardo Frei skilfully defeated the socialist candidate Salvador Allende, and pursued incremental reforms in many areas.
I do hope that Argentina’s current President Javier Milei succeeds. The capitalistic disequilibrium policies he claims to be pursuing are like the ones I advocated in 1995-1996 when I worked for an Argentine think tank headed by one of the presidential candidates in 1995 elections, and as a lecturer on East Asian political economy. The Argentines thought I might teach them how to be successfully ‘statist’ like the Asians and I tried to disabuse them. Therefore the job did not last! Then I worked on and off in Argentina twice a year setting up university programs right through to 2006. My book which proposed a policy sequence for transition to Capitalism was inspired by my work experiences in Argentina but also in Chile, Indonesia, and Mexico. I was married for five years to a wonderful and beautiful Argentine woman. So I really do feel strongly ‘invested’ in the future peace and prosperity of Mi Buenos Aires querido.
But having lectured on Latin American history and politics I’m not optimistic. Argentina is not quite the paradigmatic Elite Statist Society, but it comes close. Though it autonomously pursued Western political and economic trajectories in the late nineteenth century, Domingo and Eva Perón changed all that. It is no longer a country that wants to feel it is in the West. It feels more comfortable with the Rest. I think Peronists will win back the presidential sash, and Argentina, once among the richest and most promising countries in the world will return to its century-long habit of sequenced economic crises and dependency on international bailouts. O’Grady (below) knows the ineluctable Latin American trajectory better than most, she is only cautiously optimistic. She has been cautioning about Milei’s prospects for a year.
‘The public sector is the illness’: Javier Milei on his first year in office
By Kate Andrews, 14 December 2024
Milei is proud of his global reputation as a state slayer. … This month marks one year since Milei took office …
Slashing bureaucracy is his idea of a good time. ‘I derive pleasure from removing the state,’ he says. ‘I feel, that way, we become more free, that I am giving freedom back to the people.’ …
… ‘People used to say that if we implemented the very harsh stabilisation programme, there would be huge costs in terms of economic activity and employment and salaries,’ Milei explains. ‘We’re going to close the year with GDP higher than what we had when we first took office. At the same time, there hasn’t been a substantial loss of jobs despite the strong cuts we introduced in the public sector.’
… ‘We [are dismissing] about 50,000 civil servants; we terminated about 200,000 contracts,’ he says. …
… Milei’s efforts to slash the state and balance the books contrasts with what has been happening across Europe since the pandemic. While right-wing parties have been growing in popularity, this shift has not been driven by any libertarian movement. Instead, the demand is for security: the state needs to be bigger and more involved than ever, to keep its citizens safe.
Meanwhile a consensus has developed in Britain that more investment is needed to fix public services, as evidenced by Labour’s first Budget. I ask Milei how optimistic the United Kingdom – and other countries pursuing this agenda – should be that another cash injection will make the state work as it should. ‘Well, we are proof-positive that that doesn’t work,’ he says. ‘We have 123 years of history that that doesn’t work, that the state is not the solution, that the state is the problem.’
… His warning is stark: ‘The public sector is the illness. If a body has something that is harming it – a virus, a germ, a bug, a parasite – you extract the parasite, you don’t feed [it]. If you feed the parasite you are going to end up poorly off… in our experience it’s clear, we have got the state out of the way, things are working better.’ …
… ‘I am a true libertarian,’ he says. ‘I see the state, government, as an oppressive machine which destroys rights, which destroys liberty. I see taxes as theft, I see the state as an organised criminal gang.’ …
… Milei has a metric in mind when he’s judging how much freedom he’s returning to Argentinians. ‘The best way to see if I’ve given people the power back or not is to see whether I’ve shrunk the state… and I have shrunk the size of the state by one third.’ …
… His daily drive to dismantle the state seems supported by his confidence that the individual knows best – but even without that belief, he says, he could never be a central planner. ‘The task of planning is literally impossible because it involves having perfect knowledge about the preferences of every individual, present and future…
… Milei was the first world leader to meet President-elect Donald Trump after the election – an experience at Mar-a-Lago which he describes as ‘fabulous’. …
… Milei’s Department for Deregulation and State Transformation is being used as inspiration for Trump’s new Department of Government Efficiency (Doge) ….
… There is an obvious difference between the Trumpian worldview and Milei’s, however. The week I arrive in Buenos Aires, Milei has announced he’s slashing tariffs …
… He is critical of the purists, the ‘liberal libertarians who strongly criticise me for not having lifted the currency controls on day one’ – a major move towards liberalisation that still has not happened. ‘If I had done that on the very first day, it would have caused hyperinflation and by January I would have been thrown out.’
Milei is also a fan of Boris Johnson …
… He describes David Cameron as a ‘brilliant individual’ …
… ‘Shakespeare also brought me close to British culture.’
… He wants to ramp up relations with Beijing, for instance, just as Trump’s America seems to be decoupling from China. …
‘China is a natural partner for us. And let me tell you something, I was pleasantly surprised by the way that China works with other countries, in that it’s a very friendly partner… it is a trading partner that does not interfere, that causes no nuisance.’
‘Honestly,’ he says, ‘I am very much surprised by the respectful way they have treated us.’ He then remembers the largest economy, and smiles. ‘And at the same time, I am really filled with joy by the way the Republican party in the United States treats us.’ There might come a point, soon, when he has to choose between the two.
[END]
[MGH: By the way, just across the cordillera Peru is facing a serious ‘nuisance’ with its Chinese investments, see here and here. Perhaps Milei is gullible, or desperate.]
Measuring Milei’s Argentine Progress: A year into his rule, the reform effort is working, but time is running short.
By Mary Anastasia O’Grady, Dec. 8, 2024
Buenos Aires
On a wall outside the office of Argentina’s deregulation czar, Federico Sturzenegger, hangs a kind of countdown “clock.” It registers—not in hours and minutes but in days—the time remaining until the expiration of a special law that grants President Javier Milei’s government sweeping legislative powers for one year. Congress passed the law in June. Last week, when I called on Mr. Sturzenegger, he proudly drew my attention to the illuminated sign, which read “217 days left.”
Argentina is a regulatory nightmare in which red tape, growing like kudzu over generations, chokes off innovation and risk-taking. Mr. Sturzenegger is charged with cutting it down to size. He also leads the “transformation of the state.” But once the omnibus law expires, his super powers will go with it. If the government has to go back to negotiating with Congress—where Mr. Milei’s Liberty Advances party is in the minority—reform is likely to slow down at best. Thus the clock: Mr. Sturzenegger is a man on a mission.
Mr. Milei begins his second year in office on Tuesday. He inherited a large fiscal deficit, swelling debt and a 2023 inflation rate of more than 200% from Peronist former President Alberto Fernández. At his inauguration Mr. Milei was careful to warn the nation that recovery would be painful. He’s been right. The economy is expected to contract 3.5% this year and annual inflation will finish 2024 near 120%. Even so the president’s public approval is above 50%. He scores higher in public trust than any of the past three presidents after 12 months in office.
Milei supporters are convinced that things would be much worse if not for their chain-saw-wielding president. He’s their David fighting the Goliath state, a reckless central bank and regulatory capture by special interests—from labor unions and nongovernmental social organizations to domestic producers. The recession is probably over and next year the economy might grow 4% to 5%. Country risk has fallen sharply. Inflation still isn’t whipped—prices are forecast to rise around 30% in 2025—but relative to recent history it’s tame. For now he can boast a softer-than-expected landing and some stability, which a year ago seemed out of reach.
Skeptics have reason to fret. The government brags that it has reached fiscal balance. But as a recent paper by economists Sebastian Galiani at the University of Maryland and Santiago Afonso at the University of Buenos Aires explains, Milei technocrats used surging prices in the first six months of this year to get there. “The administration,” the authors write, “has heavily relied on inflation-driven cuts to social spending and public investment rather than on structural reforms.”
Mr. Milei has backed off his campaign promise to close the central bank and dollarize, which could turn out to be a fatal miscalculation. Exchange and capital controls remain in place and the peso is overvalued, making the country very expensive in dollar terms. Cristina Kirchner, convicted in a $1 billion kickback case in 2022, is now head of the Peronist party that has a plurality in both congressional chambers. Mr. Milei’s negotiations with her are making advocates of the rule of law and institutions nervous.
Changes at the micro level are more promising. Early on in his tenure Mr. Milei used emergency powers to eliminate rent control and amend scores of other economically repressive laws. Mr. Sturzenegger’s task is to deepen and broaden what Mr. Milei began by dismantling the legal architecture guaranteeing many other privileges and protections to organized groups (aka rent seekers) at the expense of the wider population. “Their power is written in the law,” the minister says.
The Massachusetts Institute of Technology-trained economist told me that he came to the government having spent a year and a half mapping the country’s regulatory landscape. He identified more than 4,000 laws, 70,000 decrees and countless resolutions that discourage investment and entrepreneurship, bar competition and damage productivity.
Price differentials between the international and domestic market are one measurement he uses to prioritize his agenda because wide variations often signal barriers to competition. It’s no coincidence that Argentines pay five times what Spaniards pay for medications and that the local pharmaceutical industry is heavily protected by regulation. I was surprised to learn that importing some used capital goods is prohibited and in other cases unbearably cumbersome. But not for long, Mr. Sturzenegger said. Last week he announced on X that the ministry would eliminate the bureaucratic complexity required to start a business and streamline product registration.
A web portal that welcomes comments from the public has helped Mr. Sturzenegger identify “themes.” He’s discovered a rough rule of thumb: Where deregulation happens, prices decline in the range of 30%. He has seen it in textiles, logistics and some agricultural products—and the deregulation job is only 20% along. That’s good and bad. The clock is ticking.
[END]
My thanks to the Wall Street Journal, the Spectator, and conservative Condorito
Dr Michael G. Heller
