Argentina and Australia

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By FERNANDO NOGUEIRA DA COSTA*

Commentary on the book that identifies the factors that determined different paths for countries that initially had common characteristics

Argentina and Australia had common characteristics. In this way, they allowed comparisons by historians, but economists and political scientists had to identify the determining factors of the bifurcation after 1930.

A third object of comparison – an idealized third country – is what Pablo Gerchunoff and Pablo Fajgelbaum, in the book Why was Argentina not Australia?, are dedicated to description. They seek to extract from the tangled plot of history the elements present (convergent and divergent) in both countries.

For purely pedagogical purposes, they appeal for permission to call this imaginary country Argentália. In this mixture, it has a variety of climates, with a predominance of temperate temperatures.

In the long history of the planet, it is a young nation, belonging to that rare group known as “regions of recent colonization”, located in the Southern Hemisphere (Buenos Aires and Sydney are on the 34th parallel) and far from the centers of power (Buenos Aires is 11.082 kilometers from London and 8.454 kilometers from New York; Sydney, 16.997 and 15.989, respectively). But Australia is closer to Asia…

Argentália, since its origins, had a small population and abundant land – in 1896, Argentina and Australia were the two countries with the smallest number of inhabitants per square kilometer of productive land. As a consequence of this provision of production factors, with a shortage of workers, wages were relatively high in relation to the world average.

As a producer of raw materials, Argentália saw both sides of the coin: for decades it established a privileged relationship with the dominant power, exporting the land products needed by England to facilitate its industrialization and importing inputs, capital goods and labor. work that he needed for his progress. However, since the Great Depression in the new power (United States), the country has suffered first-hand the decline in trade in primary goods.

In the heat of the expansion of the internal market and the technological evolution of production processes, some manufactures emerged within its borders, mainly those transforming exported raw materials. But limited as it was by the shortage of labor, Argentália was not a country well equipped to face a sustained and diversified industrialization process.

As long as global exchange continued to be vigorous and benefiting Argentina, free trade would be convenient for both countries, because it boosted growth. But protectionism will become convenient for its workers because, given the country's structural conditions, economic protection will increase employment and real wages, and improve income distribution.

Protectionism will improve the relative price of what is imported. Considering, due to its original endowment of production factors – abundance of land and scarcity of workers –, Argentina imports relatively labor-intensive goods, protectionist measures would improve the relative income of labor.

The most effective economic policies from the point of view of growth, for example, free or almost free trade, would determine a distribution of income favorable to the owners of the most abundant factor of production, that is, land.

This specific logic links the original allocation of factors to economic policy, just as there is a logic linking this policy to the dynamics of growth. This distributive conflict is characteristic of Argentália.

The more acute the conflict, the more distributive the protectionism. And the more protectionist it is distributive, the more labor intensive the industrial sectors born under its protection will be, the greater the proportion of total employment explained by protected activities and the greater the share of exported food and wool, components of the popular consumption basket.

When distributive protectionism has already been installed as an economic policy regime, the risk is stop and go, a term familiar to Argentines and Australians. When they expand, protected industrial sectors require imports (inputs and capital goods) and do not provide exports, hence their contribution to net exports is low and may even be negative.

If raw material exports grow weakly, there will be recurring imbalances in the trade balance and governments will try to correct them with nominal devaluations. But in this way, real wages that were previously growing, due to distributive protectionism, will be reduced.

As long as workers maintain their resilience, this will result in increased volatility in growth and inflation. This will only be alleviated if raw material exports revive or industrial sectors begin to make a positive contribution to net exports.

In the divergence phase, Australia had a distributional conflict and a cycle of stop and go more moderate compared to Argentina. Although in Argentina protectionism is distributive, this does not imply that distributive policies necessarily originate from protectionism.

In Australia, as in Argentina, that is, in Argentina, if there are distributive policies not emerging from protectionism, protectionism will be necessary to sustain them. It therefore faces a distributive conflict and a cycle of stop and go, derived from its own economic architecture, shaped largely by nature and geography – and politics has influence over it: for bad, for good.

Each of these two countries is a version of Argentina, but in some ways they differ from this mix and in some ways they differ from each other.

Australian historians and economists have focused on Australia's decline relative to the most developed countries on the planet. In 1900, the country had the highest income per inhabitant in the world. In 1950, it fell to third place. In 1970, it was eighth and in the 1990s it was no longer in the top twenty.

Except in sporadic periods, during the 170th century, the per capita product of the two countries grew more slowly compared to the panel of developed nations. In Australia, the relationship starts at 90%, when its few inhabitants were “the richest in the world”, in per capita income, and ends at 75%. Argentina starts with 35%, but at the end of the series its relative product per inhabitant is XNUMX%. Only.

Even after the serious economic crisis of the beginning of the 179st century, Argentina continued to have a middle-income economy. Out of a total of 2016 countries, according to IMF data, in 61, Argentina ranked XNUMXst in per capita income.

Although far from the living standards of Western Europe or the United States, Argentina's income per inhabitant of $20.000 (in 2016 PPP) was much higher than that of almost all African countries, and higher than that of non-oil countries in the Middle East, Eastern Europe and the nations of South Asia.

In 2021, with US$9.997 and in 66th place, Argentina was no longer the richest country in South America as it was for most of the 49th century. It was below Uruguay (17.029th US$ 53), Chile (15.399rd US$ 63) and Brazil (11.136rd US$ 37). Its per capita income was considerably lower than that of Portugal (23.030th US$XNUMX) – the poorest country in Western Europe – and that of the richest economies in Eastern Europe.

Warning: per capita income should not be compared without presenting the population of each country. Any commodities with a high market price, given by factors exogenous to the exporting country with a small population, can provide it with high per capita income – without it being well distributed.

In 2008, of the almost 7,2 billion inhabitants of the planet, approximately 5,8 billion lived in countries with incomes below US$18 thousand, and almost one billion in countries with incomes above US$34 thousand, considered rich. In 2021, the world's middle-income countries – 30 in the per capita income range between US$11.355 (world average) and US$27.871 (31st) – were few with populations greater than 10 million.

There are five main groups of commodities: petroleum, mining, cellulose, animal protein and agriculture. In general, the most profitable, due to global demand and price volatility, are in the order: oil, iron ore, gold, silver, copper, coffee, soybeans, natural gas, corn. The gas pipeline to connect vaca muerta to Brazil is still missing…

It would connect this region with large reserves of unconventional gas for 467 km to another existing gas pipeline through financing with BNDES. Furthermore, Argentina has 21% of the world's lithium reserves (the 3rd largest in the world) and is the 4th largest in the world. world's largest producer of the mineral, “white oil”…

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/3r9xVNh]

Reference


Pablo Gerchunoff and Pablo Fajgelbaum. Why was Argentina not Australia? México, Siglo XXI Editores, 2019, 108 pages. [https://amzn.to/49m6pgV]


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