Malaysia in the Era of Globalization #27

Chapter 4: Modern Model States


Don’t Cry For Argentina

Argentina, like the rest of Latin America, conjures a certain indelible image. The phrase Banana Republic is both evocative and descriptive: a country dependent on a single commodity. It is banana for Honduras, sugar for Cuba, tin for Bolivia, and meat for Argentina. It also refers to military dictators in their crisp uniforms seizing power every now and then. Indeed such khaki attires are now chic, a trademark of the Banana Republic brand. Alas, these caricatures are all close to the truth.

There have been many ready explanations for Latin America’s social and political instabilities. These range from cultural, racial, religious, and even geographical. The famous Latin temper seems a reasonable enough explanation. Then there is the entrenched role of the Catholic Church. The cultural explanation, once favored, is now being resurrected. After all it was the “laid back” Southern Europeans rather than the presumably more “cultured” Anglo Saxons who colonized Latin America.

In the late 1950s and early 1960s there was the prevailing view, promulgated primarily by American social scientists, that if only Latin America could be modernized, the ensuing economic growth would generate social changes that would in turn make the region more politically stable. This modernization would, so the theory went, create a large and stabilizing middle class, as in America. Unfortunately elegant theory alone does not guarantee success. There was indeed economic growth but instead of creating a large middle class, it aggravated the inequities. The gap separating urban dwellers from rural peasants widened, so too between owners and workers. The small middle class, instead of being a stabilizing factor, merely joined in with the aristocrats. Stability still eluded the nation.

In many regards Argentina experienced what Malaysia went through in the decade following independence. Malaysia’s socioeconomic gaps were aggravated by their superimposition along racial lines. No such gross ethnic lines were present in Argentina but the end results were the same: increasing polarization of society. Traditional elected governments were unable to respond to such challenges; that in turn bred military regimes to handle the inevitable crisis.

Malaysia went through its harrowing May 13 1969 “incident” and with it the suspension of parliamentary democracy. Argentina is experiencing its own recurring May 13 nightmares, albeit without the added viciousness of racial and ethnic factors.

Latin American scholars had their own pat explanation for the adverse consequences of that modernization venture. Specifically they blamed their country’s dependency on developed countries. This dependencia theory goes something like this. Argentina would get investments from Europe to develop its beef industry. As long as the Europeans were paying a good price on the product, the Argentineans would live high off the hog, well, actually cows. As the pampas owners and meat processors grew rich, they began importing luxury goods and remitting their profits back to the parent company in Europe. Little of that wealth circulated locally, except for the lowly wages paid to the workers.

With a large pool of cheap labor there was little incentive to pay high wages; consequently little of that wealth trickled down, to use a pop economic term. When Europe suffered a recession and cut its beef imports, Argentina reeled. The workers, not having shared the riches in good times, were unwilling to bear the pain.

Proponents of the dependencia theory viewed the world as made of an “industrial center” (Western Europe and America), and the commodity-producing “periphery” (Argentina). To them, trade is a “win-lose” proposition, with the periphery at the mercy of and being exploited by the industrial center. Thus dependencia proponents advocated massive state intervention to break this dependency on the industrial center. Hence high import barriers, closed economy, and general denigration and distrust of markets. All these arguments were artfully cloaked in nationalistic terms and camouflaged as “national security.” To the dependencia advocates, foreign trade was just another form of colonialism by the West.

The massive state presence in the economy merely encouraged corruption and the formation of various pressure groups out to get their share of the bounty from the public trough. The preoccupation of both the government and the governed were less with creating wealth, more on redistributing it to the various favored groups. This only encouraged deepening polarization and increasingly divisive fights for the ever-diminishing wealth. Traditional democratic governments could not easily deal with such diversely competing interests; they were preoccupied with satisfying their own constituencies while ignoring the broader national goals. Thus the ensuing cries of the populace for someone, anyone, to “take charge.”

Enter the military. In reality the generals who replaced the elected leaders were equally inept in economic matters and just as corrupt. They essentially treated the nation like an army, meddling in every aspect of the economy. Thus not only did the generals leave their barracks to command the government ministries, they also meddled in the marketplace. They nationalized key industries, created new ones to compete with the private sector, and abandoned any semblance of fiscal discipline. Argentina followed this pattern of massive state intervention until late 1980’s, when the non-military President Carlos Menem was elected and began instituting fundamental economic reforms toward free market.

Unlike the government involvement in the marketplace we saw in South Korea that produced such phenomenal success, the experience of Latin America was akin to the Soviet model, with creaking state industries, inept public and private management, and highly protected and inefficient domestic markets.

Why government intervention in East Asia produced spectacular successes while in Latin America abysmal failures remains the biggest unanswered question in developmental economics. The obvious difference is that the South Korean Generals used their power to push their nation towards free and global markets, while the Argentineans went the opposite way, to withdraw. Briefly put, the Koreans were outward looking; the Argentineans, inward.

Nature has been kind to Argentina. It has plentiful fertile land, vast resources, and moderate climate. With an area exceeding a million square miles and a population of just 34 million, the country is indeed blessed. It is appropriately called Argentina, silver in Spanish. Although it lacks that rich mineral, the country’s other wealth more than compensated for that deficit.

Argentina should have been a charter member of the G8, the organization of leading economic powers. Instead it stumbles from one economic mess to another. The IMF might as well own the airline that plies between Buenos Aires and Washington, DC, for the number of times its officials have to make that trip.

Argentina reminds me of some of my clever classmates. They knew that they were smart; good grades came easily to them without much effort. Besides, the teachers were constantly reminding them of that fact. But when final examinations came, they stumbled for lack of diligence. Some were given a second chance, and suitably chastened, buckled up and succeeded. Others were not so lucky, or if they were given another chance, merely treated that opportunity as a reaffirmation of their innate superior ability and put no more effort than before, and ended up with the same grief. I am sure that back in their kampong, these former classmates of mine are regaling their grandchildren about how back in the old school days they had managed well and bested others without studying. And if they had learned their lesson, they would add a cautionary advice: that is, natural endowment alone, no matter how superior or generous, is not enough.


Next: Don’t Cry For Argentina (Cont’d)