Don’t cry for me Argentina

Financial Times trade editor Alan Beattie doesn’t focus on New Zealand in his book False economy – A surprising economic history of the world but there’s a lot of scary analogies for New Zealand in a chapter where Beattie looks at Argentina’s fall from economic grace.

As a read, the book feels like it should be more interesting than it is, but it has got some thought provoking stuff.

Like New Zealand, Argentina boomed during the early 20th century on the back of the first wave of globalisation and fertile farmlands.

By the Great Depression, like the US (and New Zealand) it was one of the 10 most wealthy countries in the world. Now, Argentina is a basket case.

The US and Argentina were dealt similar hands, Beattie says but played them quite differently.

“Perfect hindsight encourages us…to imagine [the US and Argentina] were fated to diverge in the way they did, that one was bound to fly and the other destined to stall.”

Trying to nail down a single turning point is almost as unhelpful as fatalism, Beattie says. There was no single event where Argentina’s fate was sealed, “but there was a series of mistakes and missteps that fit a general pattern”.

Critical differences in the way the US and Argentina grew include:
• Argentina’s reinforcement of privilege (particularly of the small number of wealthy and powerful landowners).
• America’s more “democratic” expansion (for example encouraging small family holdings).
• Immigrants to America were pulled by the American dream; those to Argentina pushed out by poverty.
• Argentina was dependent on imported capital and technology (and debt).

If Argentina had managed to wisely use the benefits of the early 20th century agricultural export boom, Beattie says it could have kept up with the pack chasing the US.

But he says its precarious growth rested on farm prices continuing to hold their own against the rising prices of manufactured goods and on global markets remaining open.

This last bit is horribly familiar. New Zealand has (so far) managed to avoid the total economic collapse that took place in Argentina because the way we grew was more like the US than Argentina.

This has, till the last 30 or 40 years, enabled our farmers through innovation, good management and hard work to hold their own against the world’s manufacturers.

But as economist Ganesh Nana from economic researchers BERL says, we’re just “running to stand still…”

“That (big) bale of wool that bought the car just after the war would only get two-thirds of the car in 1985.

“Conversely, that bale of wool would need to be one-and-a-half times as big in 1985 to get the whole car.”

Hate to think how big it’d need to be in 2010.