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Argentina can learn from Australia’s economic success

In 2009, I launched a book titled Drifting Apart: The Diverging Development Paths of Argentina and Australia, which I co-authored with Fernando Tohmé from Universidad Nacional del Sur in Argentina. We…

Argentina, like many other Latin American economies, could learn much from Australia’s economic resilience. Luis Fdez

In 2009, I launched a book titled Drifting Apart: The Diverging Development Paths of Argentina and Australia, which I co-authored with Fernando Tohmé from Universidad Nacional del Sur in Argentina. We compared the economic and social trajectories of Argentina and Australia over the twentieth and early part of the twenty-first century. At the time we were writing the book, the Argentine economy was still struggling to recover from the massive economic and social crises of 2001.

While Argentina’s financial situation appears to have improved since, I would like to posit that the nation’s recovery itself was contingent on an extended period of democracy (from 1983 onward) and the subsequent institutional reform this made possible.

This relative improvement in Argentina’s economic situation has also been experienced elsewhere in Latin America, in countries such as Brazil, Colombia and Chile, among others. Tjeerd M. Boonman et al provide confirmation of this, claiming that the key to Latin America’s growth has been an “improved institutional framework, a healthier financial system (better regulation, higher profitability margins, lower non-performing loans) and lower levels of debt”.

While this situation sounds and appears much better than in the past, particularly as a result of a worldwide commodities boom, Latin American countries are still haunted by the “eternal return of the same”, falling victim to past mistakes arising from poor governance and weak financial institutions.

Such blunders and the “eternal recurrence” of periods of economic and social turmoil can be attributed to two key factors. The first being the poor functioning of institutions in Latin America, an inheritance from Spain that by and large created a set of institutions designed to benefit the Spanish crown and its representative elites in the new colonies.

These institutions were characterised by poorly defined property rights and often a lack of democratic principles. Furthermore these “institutions were shaped largely by the factor endowments that the Europeans found in Central and South America”.

The second is an over-reliance on the cult of personality manifested in the form of the Caudillo. The term Caudillo is commonly used to refer to charismatic populist leaders such as Hugo Chávez in Venezuela, Evo Morales in Bolivia and even Argentina’s late President Néstor Kirchner.

“In the ragged history of Argentine politics, he was part of a phenomenon which remains constant amongst all the turmoil – the figure of the all-powerful leader known as the Caudillo. From Juan Manuel de Rosas to Juan Domingo Perón to Néstor Kirchner, these strongmen have used charisma and cunning to lord over the multitudes, crush those who oppose them and reap that which nourishes them – power.” (Colasimone, 2012)*

The curse of Caudillos in Latin America has been characterised by a lack of respect for institutions, emanating from extreme and unchecked power used to promote their own wealth and that of their cronies. It is my belief that the rise of such a new breed of leaders in Latin America poses a grave threat to the important process of democratisation and relative economic wealth and stability.

But what can Latin American countries do to avoid making the same mistakes? Is there a model to follow?

While Argentina and other Latin American countries have had to suffer myriad highs and lows, I would argue that in contrast Australia’s ability to successfully navigate global downturns and crises – thus enjoying a steady path of economic affluence and success – is a by-product of well-constructed and stable institutions: financial, political and social.

To begin, it is important to note that since federation, it has been Australia’s political stability that has provided much of the bedrock from which these effective institutions could be formed. As such, Australia’s institutions have allowed the country to prosper, assisted in helping assert its position in the world, and thus experience both continuous and sustainable growth, and economic and social prosperity.

While much of Western society was brought to its knees by the global financial crisis, the rapid intervention of Australia’s government – which produced policy initiatives by the Federal Treasury and the Reserve Bank – led to the country emerging from the GFC with little or no impact on its society, economy, employment statistics or gross domestic product.

Thus as I compare Australia and Argentina, what stands out are their divergent national histories. However, looking deeper, I encounter the profound disparity between their governments’ ability to envision, create and maintain institutions which remain adaptive and responsive to international events. This means that while Australia has fostered stability, which in turn has expedited sustained prosperity, Argentina (and many other Latin American countries) have experienced an unabated roller-coaster of frenetic growth and fiscal ruin.

Douglass North suggests the main tenet of the neo-institutional strand of economics is that good institutions induce a good economic performance over time. Causal evidence suggests that successful economies are endowed with solid and effective institutions.

North defines institutions as: “the humanly devised constraints that structure political, economic and social interaction. They consist of both formal and informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights)”.

Institutions are crucial, as they help solve a key economic problem of agents coordinating their economic plans and activities by promoting cooperative behaviours. They do so because institutions reduce uncertainty and support the formation of human and social capital. To date, Australia’s institutions have to a high degree been able to do this.

This knowledge, experience and skill is a service resource that can be exported to emerging economies such as Argentina, Brazil, Colombia and Chile to assist them in following a path of continuous sustainable economic growth and social development.

In my last four visits to Latin America - and in particular to Argentina, Chile, Colombia and Mexico - the repeated question asked by my academic colleagues has been: “What have Australians done and continue to do that we are unable to achieve, to ensure stable government, societies and economies?”

By world standards, Australia has a reputation as a nation where egalitarian values continue to flourish in relative terms. Its democracy has been characterised by solving complex economic and socio-political issues by consensus and by ensuring wide participation. The way its colonies became a federation in 1900 ensured on the whole that trade and interstate commerce would be unaffected by protectionism.

Since that time, Australia has developed a solid parliamentary democracy characterised by a highly professional and well regulated public service, excellent education, welfare, legal and health systems, together with powerful financial institutions at both government and private levels. Indeed, it is important to point that as a result of the correct functioning of these institutions, Australia has been able to sail through the GFC almost unscathed. This efficient institutional matrix, as Douglass North describes, is in my view a model for nations in Latin America, such as Argentina. These nations, in the midst of high and rapid economic expansion, have much to learn from Australia’s experience and legacy.

Argentina can learn much from Australia’s institutions. These two southern hemisphere countries share many physical similarities, such as climate, soil and abundance of natural resources in vast, scarcely populated, territories. Their current populations arose in demographic processes in which the native inhabitants were decimated and masses of immigrants (mostly Europeans) arrived in the late 19th and early 20th centuries. In recent decades the source of most of the immigration has been the geographical neighbourhood. The early implementation of mass education to high rates of literacy and the creation of educated elites provided the basis for a sustained process of development. A robust middle class arose in both countries, unlike their neighbours, which acted as a strong force for upward mobility.

The economies of the two countries show a striking parallelism, both specialising in the production of commodities, while their urban population is catered for by a large variety of services like those in the rich countries of the northern hemisphere. In fact, up to the Great Depression, Australia and Argentina were two dominions of the British Empire, one in official and the other in informal but equally real terms. They exported food and other commodities to Britain, while the latter invested in the development of their infrastructure, mainly in transportation and communications, but also in all kind of services aimed to support these commercial ties.

Like Australia, Argentina and other Latin American countries are experiencing a period of solid economic growth fuelled by the demand of its high quality export commodities. The challenge for Latin America is to make this economic growth continuous and its benefits to be shared by their populations at large. Their challenge is to strengthen their institutional matrices so that this period of wealth creation is not wasted and serves to benefit the masses of poor and struggling Latin Americans.

Looking to countries such as Australia is a way of ensuring the creation of sustainable development, so that their societies do not again experience cycles of economic upswings and downturns that leave these nations in dire social dislocation and distress. The benefit to Australia is that exporting their institutional expertise to this wealthy and marvellous continent will provide Latin Americans and Australians alike with varied economic opportunities, a far more secure financial future and an end to the “eternal return of the same”.

EDITOR’S NOTE: *This story has been updated to acknowledge the use of a direct quote missing from the original published version. This error occurred during production of the story.

Join the conversation

24 Comments sorted by

  1. Nicholas Biddle

    Fellow at Australian National University

    Interesting article Alexis on a country that doesn't get a lot of media attention (outside of World Cup time) despite the obvious similarities with Australia. I was wondering whether in your book you discuss the role of the dominance of Buenos Aires in the divergent paths between the two countries? It seems to me that Australia not having a single dominant city (and a relatively small capital city) has led to important experimentation in economic and social policy across the states, as well as a fair degree of political pluralism.

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    1. Alexis Sergio Esposto

      Senior Lecturer, Economics at Swinburne University of Technology

      In reply to Nicholas Biddle

      No I don't discuss the role that Buenos Aires plays. I think that this indeed is a book on its own, however, in essence the problem still remains an institutional one. The reason is touch slightly on the Caudillos is that I believe that their lack of respect of institutions is a result of the weakness of Argentine institutions. I believe that this is central problem of development in Latin America and many developing countries. Thanks for your comment and am happy you enjoyed the article.

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  2. Ron Chinchen

    Retired (ex Probation and Parole Officer)

    Fascinating article and one that demonstrates how fortunate we are to live in Australia. Sad that the initiatives of our present government to protect us from the GFC traumas overseas have been overlooked by the majority of our population who seek to bite the hand that feeds them. I wonder though if Brazil has turned the corner and is now taking its place as a major world power. As for Argentina, it sounds as if it will continue to be politically volatile and many a tear will be shed there I suspect before true stability is achieved.

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    1. Carlos Caceres

      Reader, Materials,

      In reply to Ron Chinchen

      Ron, if you ask me, I would tell you that there is a lot more truth in your words that you can possibly imagine. I am an Australian citizen, but something in my Argie genes make it difficult to praise the British in public (must be the soccer, or the Malvinas’ syndrome perhaps). However, here I go:
      IMHO, what makes Au the lucky country and by the same token, makes Argie-land the unlucky one, is the type of colony imposed by the Brits here and in the US as opposed to what the Spaniards and Portuguese…

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  3. Russell Walton
    Russell Walton is a Friend of The Conversation.

    Retired

    Yes, an interesting article indeed. !00 years ago Argentina was predicted to leave Australia far behind in economic development, the country seemed to possess all the necessary advantages, apparently, none of the economists of the time factored in the value of democratic institutions, particularly those of British origin.

    I can remember, when I briefly visited authoritarian Argentina in the early 1980s, noticing the signs of vanished prosperity and wondering what went wrong, economically and politically.

    It certainly is a "marvellous continent" with enormous economic potential and opportunities for Australians, perhaps one day, Australians will take notice.

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  4. Steve Drummond

    Retired (self funded)

    Argentina does look like a Bizzarro World economic analogue of Australia. In 1900 both countries were listed in the top ten for standard of living and have gone to produce very different social and economic outcomes.

    For me the most important factor associated with the divergence is that at the turn of the 19th century, Australia had compulsory free education and Argentina did not. Now, about the most significant unique thing we have in common is that in both countries the size of the meat serving on a dinner plate is likely to be greater than the serving of vegetables or salad.

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    1. Carlos Caceres

      Reader, Materials,

      In reply to Steve Drummond

      Sorry to contradict you, Steve. Argentina has had free compulsory education since late 1800's, thanks to President Domingo F Sarmiento, aka "the Great Educator". (Wikipedia: While president of Argentina from 1868 to 1874, Sarmiento championed intelligent thought—including education for children and women—and democracy for Latin America. He also took advantage of the opportunity to modernize and develop train systems, a postal system, and a comprehensive education system.)
      So the reasons for the…

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    2. Alex Tewes

      logged in via Facebook

      In reply to Carlos Caceres

      Good point about Sarmiento! [who also introduced the eucalyptus into Argentina]. Of course, funding for public schools has always been an issue, and poverty has kept many kids from the opportunity to get more than a basic education.

      Regarding the "Curse of the Caudillos", it is worth saying that just because a problem can be explained in simple terms, it doesn't mean that it has a simple solution.

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    3. Carlos Caceres

      Reader, Materials,

      In reply to Alex Tewes

      True about the caudillos, the solution may not be that simple. But, the falsehood of Alexis' point is here: Argentina was in the top ten economies of the world up the 1960's. The last Caudillo (Peron) was forced out of Argentina in 1955. So, the most successful years were always under these despicable Caudillos.
      Peron came back by the force of the people in 1972, only to die soon after. Economic disaster followed at the hands of the military who imposed the usual recipes which brought Argentina…

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    4. Carlos Caceres

      Reader, Materials,

      In reply to Alex Tewes

      Good point about the eucalyptuses, Alex.
      I wonder who brought the Jacarandas-es to Australia ?

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  5. Alex Tewes

    logged in via Facebook

    I think that it is a common sport among those who have experienced both societies at close quarters, to argue and wonder why the two countries are not more like one another.

    My preferred explanation focuses on the basic ethos of the common man in either Argentina or Australia. In Argentina, the locals are proud of what they call "Viveza Criolla" which can be freely translated as "native cunning" but which really means that "to achieve success in life, anything goes: lies, taking advantage of…

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    1. Carlos Caceres

      Reader, Materials,

      In reply to Alex Tewes

      Alex, love your concept of the Argies as a bunch of frustrated wanna-be crooks, so unlike your average aussie mates always caring for each other, rain or shine.
      I guess you still remember when the newly installed Rudd's Government offered rebates to install insulation in the ceiling of residential homes, about 2 years ago, and many ended up with roof fires due to sloppy workmanship.
      I can only conclude that a despicable gang of opportunistic and hardly qualified Argie emigres, all infested with a severe case of "viveza criolla", are responsible for that shameful and so Un-Australian disaster.
      Can I suggest that you report your theory to the immigration department and have all these fake tradies deported back to Bs. As. ASAP.
      Ta!
      PS: Do you live in Wagga Wagga, by any chance...?

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    2. Ron Chinchen

      Retired (ex Probation and Parole Officer)

      In reply to Carlos Caceres

      Sad thing is Carlos, that the idea of cheap home insulation was the right way to go...doubt the other side would have thought of it. Because it meant not only an attempt to stimulate employment, but to reduce home power costs. Yep they bungled it in trying to introduce it too quickly without sufficient guide lines and professional standards, but in the end a large number of residences in Australia now have insulation cutting a good percentage of airconditioning/heating costs....a fact long now forgotten and overlooked

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    3. Carlos Caceres

      Reader, Materials,

      In reply to Alex Tewes

      Sorry Alex, I was just being mean.
      If we had a beer or two in between us, I would have to agree that the Viveza Criolla does distinguish many Bogans born and bred in BsAs. If Argies had a bad reputation in South America, has a lot to do with that annoying attitude, which is real, or used to be.
      About Wagga Wagga, there was a doco on the SBS a while ago, interviewing the locals which unwillingly, I suppose, presented themselves on not a very good light regarding immigrants and the like.

      Cheers mate.

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    4. Alex Tewes

      logged in via Facebook

      In reply to Carlos Caceres

      No problems. After all, as a born-and-bred "porteño" who has spent a large chunk of my life in Australia [and have had to advise senior business figures about the "Argie" character in business] the question of why Argentina is not more like Australia has been a regular topic of discussion!

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    5. Carlos Caceres

      Reader, Materials,

      In reply to Ron Chinchen

      Ron, of course I am all in favor of insulated homes. Hope I did not give the wrong impression. The only point I was trying to make was that buggers ready to rob each other blind are not just privy to Argentina.

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  6. George Naumovski

    Online Political Activist

    Australia is the envy of the world because to its economic management due to the ALP but also we Australia can learn for the mistakes of the US & EU as not having a fair tax system as the vast majority pays the taxes so the business elites pay no tax and receive subsidies!

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  7. Steve Drummond

    Retired (self funded)

    In the early days of settlement Australia had first red cedar and later gold which meant that anyone with an axe or shovel had the opportunity to earn a living free from the imported ruling class. We were also blessed with a high proportion of very cynical Irish settlers who did not trust government and were excluded from joining the social elite.
    Argentina had a very different social ethos.

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  8. Richard Dobson

    logged in via Facebook

    The reason why Australia has prospered in the last 100 years and Argentina has not is very very simple: because (except for a short period in the early 1970's), Australia has had sensible Conservative governments embracing the economic principles of laissez-faire capitalism, whilst Argentina has not.

    Simple as that, its as plain as the nose on my face.

    Even during the 80's under a left-wing Labor government, we still had the good fortune to have the genius de-regulator Paul Keating in charge…

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    1. Carlos Caceres

      Reader, Materials,

      In reply to Richard Dobson

      That is most interesting point of view, Rick. Just let me clarify two minor issues: Arg, to the best of my knowledge, never had a socialist government, well meaning or otherwise. If anything, the military made sure the most conservative economic policies were applied up to the 1980's, as per the instructions of the IMF. The democratic governments since the 1980's followed suit too, as proven by the crippling crashes the internal market had in the late 1980's and in the late 1990's.
      Regarding Au prosperity, I guess you haven't heard of the resources boom. It is based on a simple fact: the Chinese, (commies as far as I know, only of the rich and smart variety) are the engine powering Australia's sudden wealth buying all sort of Australian dirt, be it black, red or yellow. If I were you, I would refrain from labelling our Chinese Sugar Daddy "socialist idiots", lest they go and buy the dirt somewhere else.

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  9. Carlos Caceres

    Reader, Materials,

    Alexis, it was not my intention to argue so much re your post, but I could not help myself.
    I feel that I should now write directly to you to try and bring this to a closure.
    I will keep it short. I intent in addressing two issues: the political one you raised, and a methodological /institutional one. After all, I am an academic as you are.

    The Political issue: I think your book is a perfect example of the extent to which the land reform is a taboo-issue in Argentina. The further your book…

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  10. Carlos Caceres

    Reader, Materials,

    Alexis, just in case your students look at this site, i thought I should correct a couple of things that are wrong in what i wrote.
    the main one is a misquote of Hegel's famous statement. The correct version is statement is "what is rational is real, and what is real is rational.
    The second correction refers to the Menendez-Behety family. Their property ios not as big as I stated; it is (only!) about 1.3 million hectares, and it is located in the Patagonia, not in Bs. As.
    This is not minor…

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    1. Carlos Caceres

      Reader, Materials,

      In reply to Carlos Caceres

      Re posted without the typos:
      Alexis, just in case your students look at this site, I thought I should correct a couple of things that are wrong in what I wrote.
      The main one is a misquote of Hegel's famous statement. The correct version is: "what is rational is real, and what is real is rational".
      The second correction refers to the Menendez-Behety family. Their property is not as big as I stated: it is (only!) about 1.3 million hectares, and it is located in the Patagonia, not in Bs. As…

      Read more