Barking up the wrong tree?

Thursday’s announcement of a 1.2 percent decline in industrial production during 2012 (the first slump in a decade) should be seen as the price of the previous day’s announcement of a 27 percent expansion of the trade surplus but the problem also runs deeper. A smarter communications strategy might have been “a good news, bad news” announcement to soften this blow to a model which prides itself on re-industrializing the country with the 2012 trade surplus of 12.7 billion dollars although this might also have brought more attention to the fact that the former is very much the price of the latter. The import curbs of the last 15 months strangling vital capital goods and inputs for manufacturing have conspired with a repressed exchange rate and rising real wage costs to outweigh the best state efforts to keep industry growing.

Yet the dip in industrial production could signify more than a temporary failure to achieve a worthy goal due to tactical errors — the whole aim of re-industrialization seems misconceived. Manufacturing industry has now fallen to 16 percent of Gross Domestic Product when it was 18 percent at the height of convertibility in the 1994-8 period when factory jobs were being shed massively as a strong currency led to the reverse of import substitution while privatization boosted productivity. Yet this relative decline is not the result of the policies of the last decade — on the contrary, industrial production has recovered with the help of Kirchnerite protectionism and there would surely have been a much steeper process of de-industrialization without it. Instead the vision itself goes against the way of the world — the global shift of industrial heavyweights from the developed world to Asia has transformed the terms of trade by altering the price ratio between manufactured goods and primary products, thus leading to a commodity boom which the Argentine state prefers to milk rather than encourage.

Perhaps a key flaw of this objective of industrialization lies in the fact that its roots are political rather than economic — the dream of reviving the blue-collar workforce which was the backbone of the first three terms of Peronist presidency. This supremacy of electioneering over economic planning means that there is no industrial policy — not even import substitution, which has led to the import of more inputs (and more recently fuel) and to the absurdity of every import being balanced by an export which has only led to importers disguising themselves badly as exporters. But it is not only a problem of methods — the whole aim should come in question.