November 23, 2014
Tomato or onion?
Cabinet Chief Jorge Capitanich’s announcement of government willingness to import tomatoes from Brazil could be the thin end of a very big wedge, changing some basic paradigms of economic policy. Critics who question the move’s timing by arguing that tomato prices were actually much higher some weeks ago, are missing the point — the main thrust of Capitanich’s announcement has nothing to do with either tomatoes or Brazil but rather with delivering the basic message that the government is willing to import if that is what it takes to keep prices under control. This represents a huge policy shift — the “national and popular” creed followed by the increasing need to cut back on import dollars (other than for fuel) have long conspired against welcoming purchases from abroad. But one consequence of protecting national industry has also been to protect its cartels which have made a bigger contribution to inflation and the disarray of relative prices than generally realized. Inflation is usually blamed on a blatantly reckless expansion of money supply but the recent experience of the United States (and now Japan) argues against this being automatically inflationary — the mix of often low producer prices for farmers and sky-high consumer prices in the supermarkets is explained by middlemen and structural inefficiencies peculiar to the Argentine economy which could be removed at a stroke simply by overcoming the taboo against importing competition.
Like most major strategic shifts, relaxing protectionism would carry both benefits and risks. Argentina’s growing isolation in the world is generally attributed to its debt problems but it is also not complete nonsense to call it a “serial payer” (in the presidential phrase) — in fact Argentine protectionism has arguably played a much bigger role in antagonizing many countries than its creditor performance and a more open attitude to imports would undoubtedly improve external relations (and hence overseas investment). The risk is employment. Relatively low unemployment figures (both more impressive and more authentic than the official inflation data) have been one of the most genuine achievements of the “won decade.” Critics can argue that too many people have been employed in the public sector and too many dead-end jobs preserved in the private sector with productivity gains minimized but employment has been successfully defended for a decade — this could be jeopardized by a retreat from protectionism.
Capitanich may have been talking about tomatoes but there are as many layers to peel here as an onion.