The seeds of Argentina’s economic downfall were sewn early in the nation’s history. The distribution of land rights caused political and economic problems that would eventually cripple the country
Argentina, stumbling through yet another crisis, is the world’s most unsuccessful economy. There are many countries poorer. But Argentina is a poor country that was once rich.
A century ago, standards of living in Argentina were not very different from those of western Europe. You can see that if you visit the older parts of Buenos Aires. They have all the elegance of European capital cities of the same period. Today, output per head in the big European economies is four or five times as great.
An even more relevant comparison is with other countries that populated by European immigrants – Australia, Canada, New Zealand and the United States. Those who went to Argentina were mostly Spaniards and Italians, while the English-speaking settlements were mainly populated by northern Europeans. But there were few other differences. In economic terms, Argentina was as much a British colony as Australia, with which it is often compared. Many readers’ grandparents will have bought Argentine bonds or stock in Buenos Aires tramways.
What was it that went right for Australia and wrong for Argentina? An empty country can assign land rights in one of two ways. (The settlements were not empty, but the settlers behaved as if they were). Rights can be allocated from the top down – the government distributes or sells the land. Or they can be allocated from the bottom up – the government recognises the land claims of those who are first to settle on it. Every newly settled country has experienced tension between these two mechanisms.
The history of the debate is best documented for the United States. The American revolution ended the fiction that continues today in Britain – that all rights in land derive from the Crown. Even before they had framed their constitution, the victorious colonists approved the Northwest Ordinance, which assigned rights in unsettled land to the Federal Government.
But the federal government was often thousands of miles away from the action. When it tried to enforce its authority on the people who occupied land, the squatters mostly won. And, in a democratic society, squatters acquired increasing political influence as well. The main success of the Federal government in land allocation was in assigning small plots to war veterans. The Civil War, which removed the influence of large southern landowners and created an even larger class of veterans, settled the issue. The Homestead Act of 1862 allowed anyone who settled and cultivated a 160 acre plot of land to claim it as his own.
In Argentina – and in other Spanish speaking settlements such as Chile – the argument was resolved the other way. Central government succeeded in assigning land to the rich and influential. The beneficiaries were not good landowners, in the main: like many large landowners, they preferred the bright lights of capital cities to close involvement with the sources of their wealth. And, more important, the unequal distribution of income and wealth that resulted never enjoyed popular legitimacy.
So Argentine politics has been polarised for well over a century between the haves, who need to maintain control of the state to maintain their privileges, and the have-nots, who see these same privileges as the cause of their own poverty. And power has alternated between military dictators defending the status quo and populists like Juan Peron. Argentine politics is the source of Argentina’s modern economic problem: but its historic economic problem is the source of its politics.
Today, as always, Argentina looks externally to explain its failure. The best known Argentine economist is Raoul Prebisch, who developed dependency theory: the idea of the inevitable decline of geographically peripheral economies that were forced to subordinate their interests to the controlling influence of western Europe. And, more recently, to the United States: although the history of the United States shows how a peripheral economy can actually outpace the centre. The success of Australia and Canada makes the same point.
In response to dependency theory, Argentina imposed trade barriers and embarked on extravagant projects of domestic industrialisation, with the same lack of success that these policies enjoyed everywhere else.
There will be no new frontiers. Yet post-Communist Russia encountered a very similar issue. Its equivalent of empty land was the complex of state-owned industry and mineral resources. Applying the theory that as long as public ownership was ended it did not matter what followed, many of these assets were allowed to fall into the hands of the rich and influential with results similar to those in Argentina. The owners are more concerned to exploit their assets than to develop them. And the lack of legitimacy of the structure of property rights creates – as in Argentina – a polarisation between those who must maintain political influence to protect their economic interests and those who see no benefit to themselves from the current economic system.
The depressing lesson of Argentina is that this is a trap from which it has never been possible to escape. Let us hope that Russia fares better.