Candles in the wind
President Mauricio Macri’s 60th birthday yesterday was something less of a diamond jubilee in the light of the dire economic data that has continued to emerge in recent days. Various examples are at hand but we will single out just one here – the 14.7 percent slump in industrial output in the last month of 2018 as against the end of 2017 according to official INDEC statistics bureau data announced last Tuesday. Argentina is thus staring deindustrialisation in the face – a grim reality which neither the brighter prospects for energy exports already manifest nor a very likely bumper harvest in the near future can alter. Moreover, this recession threatens to go beyond a merely cyclical downturn to spell a terminal crisis for small- and medium-sized businesses, the famous PyMEs accounting for almost half production and 70 percent of employment – in turn a key to the sociological bedrock of a country where 70 percent historically define themselves as middle-class.
It is a grim reality, but it is one which is neither exclusively the fault of this government nor unique to this country. Deindustrialisation has swept through most of the developed world in recent decades, even ahead of the robot revolution. Australia is now in the process of signing the final death certificate of its car industry almost with pride while the shipbuilding so strong in every major industrial economy only a generation or so ago (Tyneside or Belfast in Britain, for example) now hardly exists outside Japan and South Korea – except perhaps for the almost idle Río Santiago shipyards here.
Again, many examples at hand, but it might be interesting to go back to the first days of deindustrialisation and draw parallels with another government preparing for elections – Margaret Thatcher in early 1982. It is almost forgotten in Britain today just how deep that winter of discontent was before Argentina so unexpectedly came to the rescue with the South Atlantic war, but the first event of the 1982 political calendar was a by-election in the north-western cradle of the Industrial Revolution – the striking feature here was not the Labour Party comfortably retaining a safe seat but the Conservative candidate polling a single-digit percentage and losing his deposit, a humiliation never suffered by either major party in even the most hostile constituency. Unemployment topped three million for the first time since the days of the Jarrow March almost half a century beforehand. Inflation in eternally single-digit Britain spiked at almost 25 percent after Thatcher doubled VAT value-added taxation – a shock comparable to last year’s 47.6 percent here, the worst figure in 27 years (value-added taxation or IVA is hardly a novelty here but electricity and other bills have quadrupled for businesses under Macri). Nor could Britain go to the International Monetary Fund like Macri last year because that had already been done in 1976 – then the biggest loan in IMF history at almost US$4 billion just as Argentina’s US$56 billion is the biggest now.
The most obvious moral of this story might seem to find a war quickly and in a way Macri is trying that – no intention of declaring war on Britain, of course, but there is always the war on crime with Security Minister Patricia Bullrich almost spending more time in television studios than in her office of late. Chubut’s xenophobic decree barring foreigners with criminal records (even sentences awaiting appeal and convicts who have done their time) is another case in point.
But the real lesson of the British experience is the inevitability of change both with and without the state even if the transformation is not wholly positive as Brexit bears witness. A mostly monetarist economic policy fixated with exchange and interest rates needs to face up to the reality of deindustrialisation and a small business crisis. The plight of the textile industry (protected until recently from Asian competition long after most countries) is particularly urgent – here the answer is not necessarily restoring that protection but seeking alternatives along the lines of those French or Italian companies which retain a lion’s share of the profits by sticking prestigious US$50 brand names on US$10 Asian-made shirts. Again, just an example, but the government needs to understand that biting the bullet means more than a balanced budget.