December 6, 2013
State of the state
By Michael Soltys
The “social pact” launched yesterday (if it was) would cover a multitude of sins — and also demands from the various sectors of a complex, modern society, thus providing plenty of scope for “divide and rule” as well as the perfect excuse for inaction unless total consensus is achieved.
Indeed there might very well be only one issue over which all the sectors invited (whether established manufacturing, banking, new wave industries, services, trade unions, etc.) would surely agree and that is the need for reliable statistics — the raw material of any economics. Because no socio-economic dialogue would make any sense without them — without hard data any debate becomes a shouting-match of sterile slogans where (to quote Humpty Dumpty on words) a number means “just what I choose it to mean — neither more nor less.”
Let us start with the most basic figure of them all — the Gross Domestic Product of a country, as expressed in dollars. Not even the most ardent Kirchnerite would claim “Chinese” growth rates for the last couple of years but these persist in the statistics. In the “won decade.” GDP climbed dramatically from barely 100 billion dollars in the melt-down year of 2002 to 475 billion a decade later or even 747 billion in purchasing-power parities. Yet much of this gain is simply the result of confusing real and nominal growth via the denial of an inflation not reflected in the exchange rate while the dollar itself has lost value heavily in the last five years with “quantitative easing” — indeed sometimes slower years register steeper apparent growth because of these distorting factors. The revival of idle capacity in the years immediately following 2002 also explains a lot.
And yet if real and nominal growth were separated (as is the norm in the rest of the world), the “won decade” would doubtless not be a total sham — a conclusion impossible to avoid with the official statistics, which do not really help propaganda, never mind any serious economic analysis. In that case we might find the growth of the past decade falling from 470 to perhaps around 80 percent but it would gain in credibility.
Inflation is almost universally perceived as the big scourge and its ravages are certainly widespread — not merely its impact on everyday purchasing-power but also the paper profits of companies and banks (not recognized for tax purposes in the case of either the consumer or the businessman) and the loss of a competitive exchange rate already felt by regional economies and eating its way into the heart of the country.
Yet perhaps there is an even more decisive legacy of the past decade than chronic inflation (no stranger to Argentine history) and that is the state entering into entirely new dimensions of the Argentine economy — from 22-23 percent of GDP in 2003 to 42-43 percent today (while the GDP itself has grown dramatically as in the percentages discussed two paragraphs above).
These dimensions of the state acquire special importance at this peculiarly delicate point in ruling party fortunes. There are good cases for arguing that a gigantic state both makes Kirchnerism more irreversible and more vulnerable.
More irreversible because the state’s advances over the past decade are not easily rolled back — and nor has any candidate in this electoral season been proposing any such thing in any campaign manifesto (any reader spotting anything resembling such a thing in the past month deserves a prize). Not that this means too much in itself — thus there was not a campaign whisper from Carlos Menem that he was contemplating the massive privatizations of the 1990s but quite the contrary. Much more decisive is the fact that over 45 percent of the adult population depends on the state according to a narrow definition (excluding private-sector companies who virtually live off state contracts and other forms of public money) — 3.5 million people employed by government at all three levels (national, provincial and municipal), 6.5 million pensioners and 3.6 million on welfare handouts.
Yet Kirchnerism has worked so hard over the past decade to turn the ruling party and the state into a symbiosis that the question arises of whether it has a life without the state machinery at its disposal — whether there can be a Victory Front without victory? Last Thursday’s column perhaps mischievously suggested that Cristina Fernández de Kirchner’s Plan B for a third term now could be a third term later — i.e. she could take a leaf out of Menem’s book by ensuring that the next election was won by an opposition team vulnerable to Peronist sabotage and bouncing back in 2019. That strategy did not work out for Menem in 2003 (when his 24 percent sufficed to win the first round but not to prevent a run-off whitewash he preferred not to suffer) and it could backfire even worse in the future precisely because the state has doubled its weight in the economy, which doubles the odds against anybody seeking a return to power.
The end of Kirchnerism has been far too glibly pronounced by pundits who should know better, given Argentina’s highly volatile political history, but it is worth asking how much of its essence survives the loss of state machinery — can the gravy train keep running without the “caja K” slush funds?
It is true that Peronism has more than survived both its fall from power in 1955 and the death of its founder in 1974 (forming the government in 24 of the 39 years since then) but there are a couple of important differences. Firstly, those announcing the death of Peronism in 1955 evidently did not believe their own words because they accompanied them with a counterproductive ban which did much to keep the forbidden fruit ripe. Secondly, Peronism did not hold power from the first day of its national existence like Kirchnerism and has extended and dynamic experience outside the corridors of power — a test of time Kirchnerism has yet to pass.
In conclusion, this columnist has no confident hunch as to which way the CFK administration is going to jump — only the certainty that there will be new economic policy initiatives before October 27 (and probably not limited to the “fine-tuning” promised after her 2011 re-election and never really delivered). In the meantime Argentina is further proof of Benjamin Franklin’s dictum: “Nothing is certain except death and taxes” — and even Benjamin Franklin on the 100-dollar banknote is no more immune from inflation than General Roca or Evita.