Javier Milei viz. Heller's sequence to capitalism
“There is no Plan B” for Argentina and "the greatest liberator was Moses" WSJ video
In Emma Tucker’s fascinating interview Javier Milei says (my translation) —
“Everything that can be privatised will be privatised … as fast as possible”
And to the question “With what leader in the world do you identify and why?” Milei replies “… I would say the greatest liberator in all human history was Moses … after him were the roles played by Ronald Reagan, Pope John Paul II, Margaret Thatcher …”.
There is much more here.
Argentina’s President Promised a Free-Market Revolution, and Says He’s Delivering
‘There is no Plan B,’ Javier Milei tells The Wall Street Journal as his moves to privatize state companies and slash government jobs spark inflation and protests
This wide-ranging interview and the accompanying article by Ryan Dubé and Emma Tucker of the WSJ (Jan. 28, 2024) is recommended to readers of Social Science Files.
Learning from the past
Javier Milei is an uncomfortably familiar figure for longtime observers of Latin America. I support his reform effort in Argentina, but my expectations for his success are unfortunately ‘low’. I can see there may be short run political utilities to be gained from charisma and professed religious conversions, but in the twentieth century such utilities led to sequences of catastrophic populist-messianic failure and crisis in Latin America. The exception was 1970s-1980s Chile, which was not populist or charismatic.
My book in support of transitions to ‘Capitalism’ proposed a sequence of reforms designed to avoid repeated failure. In chapter 6 titled ‘Models of Crisis’ preceding chapter 7 on ‘Transition Sequence’ I include an overview of the failed ‘Neoliberal transition’ in Latin America in the 1980s and 1990s. My theory and policy proposals were much influenced by working in a think tank headed by a leading politician and (almost successful) presidential candidate in Argentina for 18 months in 1995-1996.
I exhibit the concluding section of chapter 6 here (below) because I believe it remains highly relevant to the ‘capitalist’ reform trajectory in Argentina proposed by Javier Milei. In practical terms Milei’s political position is quite weak. He does not lead a majority coalition in the legislature. The labour unions and Peronists are biding their time. The courts and leftwing legal profession have already begun a counteroffensive. I hope he succeeds in spite of televised kissing marathons and religious conversions.
There is no Plan B, but it is important for Argentina to be reminded there is such a thing as an economically coherent, entirely secular and ideologically attractive Plan A. The greatest capitalist-minded modernisers of 19th century Argentina such as Juan Bautista Alberdi and Domingo Faustino Sarmiento emphasised the role of education. They were, in a literal empirical sense, Argentina’s best homegrown ‘great liberators’.
When in the following paragraphs I speak of ‘activist’ alternatives I mean dirigisme, socialism, and the institutionally demanding industrial policies which transformed East Asia. In seminars I told Argentines that the latter could not succeed in Argentina because it was not institutionally capable of such disciplined authoritarianism, and they should instead pursue a Weberian sequence of reforms towards capitalism.
What I wrote:
Lessons of neoliberalism
Neoliberalism can simply grind to a halt because economic reforms have not worked as they should in theory and could in practice. However, the underlying difficulties in Latin America related to continuing entanglements with the preceding mode of economic governance, poor leadership, lack of imagination and foresight, errors of implementation, inadequate economic regulation, the weakening of a regime’s resolve to reform, and, in some countries, an eventual return to old ways.
Neoliberal crisis results not from economic policies, which are usually designed to remedy the ills of activism, but rather from their implementation in environments characterised by economic and political turmoil, forced retrenchment and painful restructuring, ingrained personalistic and discretionary procedural norms of policy making, deeply embedded political profit making and regulatory closure, and the lack of credible institutions to enforce market competition.
After too little market competition there was suddenly much more, but often of the wrong kind. New markets created by deregulation and privatisation lacked transparency and incubated new forms of rent seeking.
Despite all the debate about neoliberalism’s impact in the 1980s and 1990s, it is worth noting that few countries implemented a comprehensive neoliberal project (as defined by neoliberals). The reforms tended to be hesitant, limited to a few sectors, and were prone to reversal. Most reforms were short-run pragmatic solutions to short-run pressures. Although some reformers aspired to full-scale modernisation, the overriding policy rationale of neoliberal policy was to urgently restore economic health after catastrophic populist or activist crises.
Strategies to improve the long-run flexibility of economies were not uppermost in the minds of policymakers in the aftermath of crises. From the perspective of this book, the broad lesson is that neoliberalism was a lost opportunity to undertake the sequenced Weberian capitalist transition — market to law, law to bureaucracy, bureaucracy to democracy. The intention here is not to dismiss the utility of neoliberal reforms that were undertaken, nor to disparage the ideas and motives behind them. It is easy to understand that they were undertaken under extreme pressure and faced many constraints. Even if it failed to respond to structural pressures for regulated market competition, there is no doubt at all that neoliberalism raised the scope and quality of market transactions to new levels in Latin America.
It was justifiable to proceed with privatisation when appropriate judicial and regulatory frameworks were not yet in place. Especially in Chile, Mexico, and Brazil, the market-oriented economic approach did, in fact, complement genuine efforts to strengthen the rule of law and to make state administrations more accountable, impersonal, and effective. It is apparent with hindsight that these efforts and experiences raised the skills of policymakers, and spread knowledge about the functional interdependence of modern economies and institutions.
However, it cannot be said that neoliberal reformers in most countries genuinely expanded markets in a rational sequence, or that they undertook capitalist reforms with integrated economic and institutional components. Too often it was apparent that the professed commitment to neoliberal reform was not a commitment to transparency, predictability, genuine competition, and impartial justice.
Neoliberalism self-destructs because of the institutional lag of legal-regulatory development, which in Latin America was largely a consequence of continued and sometimes heightened personalism linked to policy processes. In part, therefore, the inability to progress towards second-stage institutional reforms represented a general failure of leadership.
On the other hand, we have seen that neoliberalism did not have the stage to itself. In return for some autonomy, technocrats were forced to compensate numerous political interests. Neoliberalism traverses a dangerous political period between painful post-crisis adjustments and the eventual outcome of economic restructuring. Even when neoliberal reforms begin to show positive results in some areas, further trade and price liberalisation can quickly alter the power balance and motivate interest groups to engage in political action against neoliberal reform. For these reasons, the political causes of neoliberal crises have ultimately been more important than the technical and economic causes.
No single factor can adequately account for Latin America’s failure to construct better regulatory institutions. Analysts and practitioners who want to draw valuable lessons from neoliberal crises in Latin America should consider the following points. The intensity or harshness of neoliberal reform reflects the severity of the preceding crisis, which in turn reflects the extremeness and longevity of the activist model. Neoliberal reforms, even by their own limited criteria, were not fully implemented. Democratic processes and political bargaining limited the power of neoliberal reformers.
The fate of neoliberal reform was sealed by the fact that reforms were mainly economic in nature and neglected essential institutional components. In addition, future reformers might consider whether it was right to rely on personalist policy networks as the procedural means for achieving reform outcomes, even when the ‘law of small numbers’ counsels in its favour. They should also assess the optimal speed of sequencing between stages of reform, in order not to lose momentum and legitimacy.
Perhaps the most important lesson is to be aware that avoidable failures of neoliberal policy — in particular with respect to the markets–law nexus — can discredit capitalist solutions and strengthen anti-capitalist prejudices.
The resurgence of populist socialism in some Latin American countries is testament to that.
If the institutional reforms advocated in this book had been undertaken during a ‘second stage’ of neoliberal reform but had ended in crisis, the analysis would need to refocus on crises resulting from attempted capitalist transitions. That did not occur. The country that went furthest with second-stage reforms, Chile, did not experience such a crisis.
This points to a more general conclusion. Despite the disappointing results in Latin America, neoliberalism is generally preferable to activism. Both are ‘developmental’ in the sense that they can lay foundations for capitalist transition and may evolve in a capitalist direction. But whereas ‘neoliberal myopia’ can be cured with good institutions, the sources of ‘activist decay’ probably cannot be eliminated without a major change in economic policy orientation. Statist regimes have no equivalent option of institutional upgrading to prevent crisis. Institutions that could indefinitely perform the technical tasks of economic activism have not been invented. Given what is known about the limits of human rationality, they probably never will be.
Compared with relatively parametric neoliberal policies, discretionary state activism is far more knowledge-intensive and exerts greater demands on dispersed and everyday human rationality.
These arguments are not intended to repudiate activism altogether. In moderation, some selective activism might be justified if institutional capacity is sufficient to bear its weight safely. But countries can and should learn from the dismal sequence that follows prolonged and wholesale activism. Although the efficiency time-span of state activism is inherently very limited, its decay time-span can be indefinite. If activist decay results in activist crisis, it is also possible that the neoliberal effort to cope with the effects of that crisis will itself result in neoliberal crisis. That is because neoliberalism, which almost by definition is a corrective to activism, inherits a dysfunctional yet deeply embedded institutional structure that is difficult to reform. A Weberian sequence, on the other hand aims to establish good policies and effective institutions at the outset, without too many unnecessary evolutionary detours, and without veering from one extreme to another.
The Source:
Michael G. Heller, Capitalism, Institutions, and Economic Development, New York: Routledge, 2009
My thanks to the Wall Street Journal … and conservative Condorito
Dr Michael G. Heller