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Opportunity Lost: Economic Development in Argentina

Opportunity Lost: Economic Development in Argentina

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Published by Robert Kevlihan
Argentina was unusually well placed to launch an export led development program in the early and middle decades (1929-1955) of the last century but failed to do so. This paper provides an overview of what went wrong during this period.
Argentina was unusually well placed to launch an export led development program in the early and middle decades (1929-1955) of the last century but failed to do so. This paper provides an overview of what went wrong during this period.

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Published by: Robert Kevlihan on Nov 05, 2010
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Opportunity Lost?Economic Development in Argentina (1929
By Rob Kevlihan
a country that aspiring to become first tier status in economic terms, yet to date has failedin its endeavours. A country possessing a temperate climate, an integrated national territory, vaststretches of fertile soil, large deposits of petroleum, easy access to the sea and a literate and fairlyhomogeneous population. Yet a country that one commentator describes as holding a morbid
fascination for students of development because it has apparently ‘gone backwards’ (Lewis, 1990, 1).
This paper will examine the import-substituting industrialisation (ISI) policy followed in varyingdegrees by successive Argentine governments from the great Depression of late 1929 to the fall of thefirst Peronist regime in 1955 and consider whether it contributed to a more equitable insertion of Argentina in the international system.Up until even the 1980s, the preferred strategy for many late industrialising countries to attempt tocatch up with the industrial core countries of Western Europe and North America was ISI. While theexact components of such strategies were not identical for each country, some common characteristicscan be described. Tariffs, trade quotas and quantitative restrictions on imports were used to provideprotection for new domestic industries. Initial ISI was frequently driven by military/strategic aims. The
agricultural sector was seen as a major source of ‘surplus’ for investment in industry and finally it was
commonly held that planning and policy interventions could successfully substitute for markets andcould tame business cycles (Waterbury, 1999).A
rgentina’s ISI strategy began in the post 1930 period, but industrial development on a small scale
predates this policy. Prior to this time, Argentina relied on the export of primary commodities towestern European markets and in particular, the UK. From the second half of the 19
century onwards,Argentina built a productive structure that allowed the country to use its comparative advantages in anexpanding world market that incorporated the country fully as a producer of raw materials and foodand a receiver of manufactured goods, capital and labour (Korol & Sabato, 1990). Investment ininfrastructure such as railways and ports assisted in this process and was dominated by foreign, mostlyBritish, capital. Post WWI, American and continental European capital began to displace Britishdominance. American investment flowed into light industry, especially the production of consumer
3durables. By the 1920s, Argentina had witnessed a modest degree of industrialisation outside of thetraditional export sector and its related industries (Corradi, 1974, 351).
 Nevertheless, Argentina’s prosperity continued to rely on the export of meat and grain, controlled by a
relatively small number of large landholders. Mass migrations and urbanisation left the majority of thepopulation in urban areas. These were overwhelmingly employed in ancillary, rather than industrialactivities. The result was a lop sided society, with economic power in the hands a land owning elite andpolitical power in the hands of the clamorous urban masses (Williamson, 1992, 460).By the 1930s, two distinct groups within industry were forming: the large foreign-linked industries andthe smaller national industries. The foreign linked firms represented 2 per cent of all industrial firms,accounted for 55 per cent of the industrial production, and employed 50 per cent of the industriallabour force. The entrepreneurs of the small and medium sized national firms controlled 90 per cent of all family firms, accounted for 40 per cent of industrial production and employed 40 per cent of theindustrial labour force (Alschuler, 1988, 31).The onset of the Depression in late 1929 / early 1930 resulted in the fall in volume and value of international trade. The failure of primary commodity products to recover in price resulted in sharplyreduced terms of trade for Argentina. The result was a consequent inability to pay for required importswith foreign currency. This gap left by the reduction of imports opened up possibilities for domesticindustry and Argentine production, at constant prices, increased by 9 per cent between 1929 and 1938while exports fell by 37 per cent (Corradi, 1974, 344). Additionally, tariffs, exchange controls anddevaluations both restricted imports and distorted their composition, making local producers morecompetitive in the local market. Throughout the 1930s, Argentine manufacturers were able to acquiresecond hand machinery at knock down prices from bankrupt industrial firms abroad. Labour becamereadily available as the shift from cereals to meat production in the countryside accelerated internalmigration from rural areas to the cities (Rock, 1993, 195). The necessity to produce productsdomestically which were no longer possible to import reoriented the economic activity towards thedomestic market. However, this process of industrialisation continued to be focussed on light industry,rather than heavy or capital intensive industries. The result was a continued pattern of economic

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