August 01, 2008
Why Government must get away from "meddling"
From Breadbasket to Basket Case
By: MARY ANASTASIA O'GRADY
June 23, 2008; Page A15
As the presidential campaign drones on, Barack Obama and the Democrats are fleshing out the promise of "change" with some specific, big-government policy proposals. Many are familiar, perhaps because they already have been tried - in Argentina.
That country has gone from South American breadbasket to world-class basket case. For the long version of how it happened and why Americans might not want to try it, hop on a flight to Buenos Aires. Here's a condensed version:
Although the winding down of Argentina to the status of international deadbeat began a century ago, the latest chapter is instructive. In March, President Cristina Fernández de Kirchner seized on rising soybean prices to slap "a windfall tax" on soy exports. Farmers refused to pay, the president wouldn't budge, and a deadlock ensued.
Much of the rest of the country joined sides with the growers. But the uprising is no longer a tax revolt. It has become a rebellion against unfettered executive reach - or, in the view of the opposition, Mrs. Kirchner's authoritarianism. A week ago thousands of Argentines poured into the streets of cities around the country, banging pots and pans to express their dissatisfaction with their president's heavy-handed ways. It was the largest public outcry since the economic crisis in 2001.
Mrs. Kirchner, whose approval rating is down to 20%, responded to the protests in a harshly worded speech on Tuesday. She warned that "the country cannot be governed by casserole dishes, bullhorns and roadblocks." Easy to say now. But it was saucepans in the streets that led to the collapse of the government of President Fernando de la Rua in 2001. Mrs. Kirchner didn't seem to mind that overthrow of democracy, perhaps because her Peronist husband Néstor Kirchner was subsequently elected president.
Nor did Mrs. Kirchner cry foul when her husband used "emergency powers," delegated to him by the Peronist-controlled Congress, to rule by decree for five years. There was no intervention that Mr. Kirchner considered out of bounds. It was, after all, "a crisis." He imposed price controls, raised export taxes, increased populist subsidies, abrogated contracts, stiffed creditors, ended central-bank independence and even manipulated inflation statistics. The private sector and profits were demonized and the press was harassed.
The repression worked well enough to get his wife elected in October, but now the wheels are coming off again. Mrs. Kirchner's recent verbal defense of her beloved "democracy" is hard to square with the fact that she is following in the footsteps of her husband, who had no respect for institutional checks or balances.
This gets us to the root of the problem, which developed long before the Kirchners' abuses of market and legal principles. The constitution once held limited government and private property to be among the highest ideals of the land. But in the 1920s these protections, which had made the country a magnet for immigrants and the seventh-largest economy in the world, began to erode.
An early example of this assault on liberty was when Congress imposed a rent freeze to deal with a housing shortage after World War I. This only exacerbated the problem, and in 1922 a politicized Supreme Court widened state powers to allow the regulation of rents. That decision put property-rights protection on a slippery slope. A decade later the Court gave the legislature the power to regulate interest rates.
The interventions didn't end there, and as state control of the economy expanded and the nation grew poorer, the country could not recover its footing. Economic populism and labor militancy took hold; protectionism blossomed and Argentina became a welfare state. Meanwhile, the informal economy swelled under the high cost of legality.
Fiscal crises have been recurring. According to a paper recently released by researchers at the Buenos Aires business school Eseade, external debt as a percentage of GDP has now climbed to 56% compared to 54% in 2001. If you include the unpaid debt to bondholders, the number is 67%. More than a few analysts are worried that should the economy slow, the government may tap Central Bank reserves, sparking a run against the peso or, fearing that, choose default, for the second time in a decade, as its escape hatch.
Will that mean an end to ballooning entitlements, class warfare, hostility toward producers, capital and private property, protectionism and subsidized central-planning? Unlikely.
Americans reading that laundry list may note that it sounds a lot like the mindset of the left wing that will dominate the Democratic Party's convention and choose Barack Obama as its candidate in August. From nationalized health care and government-owned refineries to punishing taxes on the rich, Argentina has been there, done that. There are good reasons to find the resemblance disturbing.
Write to: O'Grady@wsj.com
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