INFOBAE – We have the great opportunity to return to compete in the first division and for that we need discipline
In addition to having a good harvest this year, the hope for economic growth into the future is now also set in Vaca Muerta. The two great saviors of the Argentine economy become the humid Pampas (the old saying that with a good harvest we are saved) and that the field produces many millions of tons of grains. Soy, along with Vaca Muerta, has become the economic gem of Argentina. This is the gross error of believing that those are riches. Both the humid pampa and Vaca Muerta are natural resources that do not generate wealth if the institutional conditions are not previously given so that people can invest and work in them. Leaving the economic crisis
As a first reflection I would recall that the humid pampa existed before February 1852. When the battle of Caseros was won, we were able to have a National Constitution (the institutional framework) such as that of 1853 that was inspired by the ideas of Juan Bautista Alberdi, which gave rise to to the impressive economic growth of Argentina. Of course, it was not until 1880, when national consolidation was achieved, that we were able to eject growth. Until that moment the humid pampa was only a natural resource that could not be exploited by the internal conflicts and the malones (raids of Natives) that came from Chile to steal the cattle, kill the colonists and kidnap their women and children. Under these conditions it was impossible to transform a natural resource, the humid Pampas, into wealth. Thanks to the conquest of the desert by General Roca, which stops the malones of Chilean Indians and prevents Patagonia from falling into the hands of our neighboring country, it is that production borders are expanded, railroads appear, immigrants arrive to work the land without fear of being attacked by the malones and in 1895 and 1896 Argentina becomes the country with the highest per capita income in the world according to Angus Maddison data. Put another way, if Argentina wants to end poverty, indigence, unemployment and improve the standard of living of its population, it desperately needs investments. But investments will come if the rules of the game are attractive and permanent over time. Now, how to recover the institutions that made us one of the most prosperous countries on earth in the late nineteenth and early twentieth century? In the same way as the generation of the 80, today reviled by the populist and progressive to the point that in schools and is not studied who was Juan Bautista Alberdi and what were his ideas. What did the generation of ’80 do? It incorporated Argentina into the world and anchored the institutional quality to the institutions of the world. He went on to play first and demanded to be very disciplined in economic matters and institutional quality.
A recent case is the Celtic tiger. Let’s see some comparisons. Argentina has a territory of 2,780,400 km2 and Ireland has an area of 70,273 km2. Ireland is a little smaller than the province of Formosa. The population of Argentina is 44 million inhabitants and that of Ireland is 4,857,000 inhabitants. Let’s say that Ireland has a population that is 10% of that of Argentina and the territory is 2.5% of the Argentine territory. Ireland does not have the humid pampa, nor Vaca Muerta but it has a per capita income of US $ 68,886 in current dollars and Argentina of US $ 14,398 both for 2017 according to World Bank data. Ireland has a per capita income higher than that of the United Kingdom which is in the US $ 39,954.
One more fact, in 2017 exports of goods and services from Argentina were US $ 73,391 million and those from Ireland US $ 399,000 million. Ireland’s exports of goods and services are 5.4 times higher than ours without the Pampas and Vaca Muerta. What does Ireland export? Knowledge.
According to the World Trade Organization, in 2017 Ireland exported US $ 136,761 million in goods and US $ 186,080 million in services (there is a slight difference with the World Bank data cited above). But the important thing is to bear in mind that Ireland exported almost double what we export in goods. What kind of goods did you export? Medically, human blood, animal blood for therapeutic uses, helicopters, airplanes, instruments and medical devices, to name a few of the most important. In the services sector, it exported IT services, financial services, insurance, legal services, etc. Is that Ireland has a corporate income tax of 12.5% that makes many companies settle in that country. It is very competitive in tax matters.
But how did the Celtic tiger achieve these results? Submerged in a great economic crisis, with a public debt of 116% of the GDP and an unemployment that had reached 17%, the former populist Charles Haughey of the Fianna Fail party, although it is a weak government, it must go for an adjustment of public spending in order to join the European Union. Thus, his government of 1987 began a series of spending cuts to lower the fiscal deficit, which consisted of reducing health spending by 6%, education by 7%, spending on agriculture was reduced by 18%, transportation and housing were reduced by 11% and the military budget was cut by 7% according to the work of Benjamin Powell, who adds: “The environmental office Foras Forbatha was eliminated as well as the National Council of Social Services, the Office of Health Education and the Regional Development Organization. Through early retirement and other incentives, employment in the public sector was reduced voluntarily by close to 10,000 jobs. Public spending fell from 55% of GDP in 1985 to 41% of GDP in 1990. ”
With the Maastricht treaty in sight in 1992, Ireland decided, with political agreement, to continue with fiscal discipline and join the EU and the euro. That demanded such fiscal discipline that allowed him to lower the corporate income tax to the current 12.5%, the tax rate that attracts investments to that country.
The growth of Ireland was, then, fiscal discipline with low public spending, monetary discipline but above all openness to the world. It was his decision to stop being a country isolated from the world and to decide to enter the European Union, the fundamental cauda that forced his political leadership to adopt the necessary measures to be competitive.
If Argentina manages to get around the road to authoritarian populism next October, let’s hope that the new authorities understand that our only chance to grow and provide welfare to the population is by incorporating ourselves into the world. Just as after the Battle of Caseros we grew thanks to our incorporation into the world and as Ireland grew when it joined the world, like Spain, Southeast Asia, Chile, Peru, etc., our only chance is to compete again in the first division. That will demand discipline to be competitive. To the extent that we do not want to compete and we agree with the chopping of the neighborhood, we will not reach the levels of excellence necessary to provide welfare to the population.
Our challenge is the world. Whoever wants to make us grow based on the domestic market is selling smoke to try to win votes.
By Roberto H. Cachanosky
THIS NOTE WAS ORIGINALLY PUBLISHED AT INFOBAE
