Not the stuff that modern economies are made of.

Photographer: Mario Tama/Getty Images

Argentina's Long, Long History of Underperformance

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Congratulations to Mauricio Macri! It apparently wasn't easy, but he has now been sworn in as president of Argentina. He had this to say in his inaugural speech today:

This sounds incredible after years of futile and useless infighting, but it’s now time to grow and improve as one nation.

"Decades" would have been more descriptive than "years." In the 1960s and 1970s, Argentina was the most affluent country in its neighborhood. Since then, Chile has blasted past it, Uruguay has pulled even and even Brazil has gained lots of ground.

The picture looks worse if you go back more than a century. In the decades before World War I, Argentina was one of the most affluent countries in the world. That changed.

Part of the issue is that Argentina's early wealth was built around commodities exports, mainly agricultural products. It was rich, but unlike the U.S. and Germany in the late 1800s (and Japan later) it was not building a diversified industrial economy. Still, other commodity-dependent countries such as Australia and Canada eventually succeeded in modernizing their economies. Why didn't Argentina?

There's a whole cottage industry devoted to explaining this; the Economist published a helpful summing-up last year. The key issue is clearly political dysfunction. Economically successful countries may bicker about things internally, but find a way to set a halfway consistent course forward. Unsuccessful ones careen from one approach to another -- "pendulum politics" is a term that's been applied to Argentina and several other Latin American countries.

An added twist in Argentina is that much of the pendulum-swinging has been within a single political party, the Peronists, a now-69-year-old populist movement that has resembled Donald Trump in its penchant for blithely contradicting itself. Kirchner is a Peronist. Macri, previously the mayor of Buenos Aires and president of the Boca Juniors soccer team, is not -- and his words today indicate that he'd really really like to halt that pendulum. A look at Argentina's history does not give one much confidence that he will succeed. But it also makes it hard not to root for him.

  1. The GK in the chart stands for "Geary-Khamis," and the GK international dollar is, according to Wikipedia, "a hypothetical unit of currency that has the same purchasing power parity that the U.S. dollar had in the United States at a given point in time."

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