An Approach to “The Great Transformation” and the Liberal Theory — Argentine and convertibility
In “The Great Transformation”, through an anthropological analysis, Karl Polanyi attempts to denature some fundamental concepts of the capitalist economy. To achieve this, the author describes how in pre-market societies the economy was embedded in the social and the political: the detachment of these two areas is a modern event that arises with the market economy. In this type of economy, it is assumed that the system is automatically regulated and oriented by the markets and that men act selfishly in pursuit of their interests, consequently collaborating with the functioning of the system and with the common interest. Thus, from the supply and demand flow generated by these economic men, certain prices are established that invariably lead to the equilibrium of each market.
This idea is theoretically based on the premises of Adam Smith raised in “The Wealth of Nations” that could be summarized in the well-known quote: “It is not thanks to the benevolence of the butcher, the brewer or the baker that we wait for our dinner, but thanks that they consider their interest. “ (Smith, 1976, p. 26–27). In this system, the State should not intervene, as it could affect this balance, its function should be limited to establishing measures that help the functioning of self-regulation.
The founding of self-regulating markets required also a “market society” to be created. For this, it was necessary to recognize as merchandise three things that were not created for sale; labour, land and money, what Polanyi calls “fictitious commodities”, which now have their market and depend on self-regulation. The creation of fictitious commodities was necessary since these three elements were essential for the development of the industry.
Polanyi indicates that the idea of self-regulation could not last so long without leading society to destruction, for this reason, a dual movement arises: on the one hand, the expansion of the market economy based on economic liberalism and supported by the merchant classes. And on the other, civil society taking measures to preserve itself through legislation and associations, with the support mainly of the working classes and landowners. In other words, the dual movement is nothing more than a bid for the separation of the economy on the one hand, and on the other, the attempt for the reinsertion of it in the social and political.
The unsustainability of self-regulation could even be found by returning to Adam Smith: in “The Theory of Moral Sentiments”, published before “The Wealth of Nations”, the author discusses ethics and sympathy explained through the concept of the “impartial spectator”, dismissing the idea that man is selfish and highlighting the significance of social justice.
Polanyi describes liberalism and the idea of Laissez-Faire as a utopia, whose foundations are a concurrent labour market, international free trade and the automatic gold standard; its central basis of natural self-regulation collapses when taking into account that the Laissez-Faire was imposed by the State itself by ending the enclosures, establishing a Poor’s Law, imposing the gold standard, etc. Hence, when attempting to separate the economic dimension from power relations and sovereignty, it falls into a fetishism.
When Karl Polanyi published his book in 1944, he believed that the liberal utopia of the self-regulating market had been banished through the force of social protection deployed in the “dual movement”. This force would have made possible the social and political reintegration of the economy after the disasters caused by liberalism. However, the experience of convertibility in Argentina is an example that the liberal utopia is still present.
The twists and turns of the Argentinian economy
In the 1930s, Argentina seemed to have a prosperous economical future. The export of meat and investments in infrastructure provided by England generated a great per capita income, similar to that of some European potencies. However, their economic potential started to decline prematurely in the mid -1940s due to the international context and protectionism.
At the end of the decade, Peronism was born and with it, the search for a change in the country’s productive matrix through a plan of industrialization by substitution of imported goods (ISI) nourished by an international context between the wars. Peronism incorporated the masses into politics and granted a series of rights to the workers. However, the economic improvement achieved through the ISI was soon annihilated by the dictatorship, which appeared to weaken Peronism as a political force and to reestablish a liberal economic plan. When democracy was restored, the economy was in a deplorable situation: the country reached inflation of 200% per month, followed by an exorbitant external debt.
Convertibility and liberal utopia
When Carlos Menem became president in 1989, Argentina faced highly dollarized public spending and high-interest foreign debt acquired during the dictatorship. To react to the deficit and inflation, liberal measures were taken such as the liberalization of trade relations and the privatization of state companies. However, these measures did not manage to stabilize the economy and the, then Minister of Economy, Domingo Cavallo, tried to tie the value of the Argentinian peso to the value of the American dollar, favouring the search for stability over full employment. This policy was presented as a politically neutral, economically independent mechanism and was supported by the discourse of economists.
In the beginning, convertibility favoured inflation to fall and boosted the economy’s growth. However, in a short time, that policy began to show its flaws as the gold standard did at the time, given the contradictions that sustain it. If a peso was worth a dollar, it was necessary for the State to have a dollar of support for each available peso, which was inconsistent with reality taking into account the true economic situation of the country. At the same time, convertibility implied a rejection of monetary policy instruments and an increase in the prices of Argentinian products for foreign markets, in other words, a loss of competitiveness and a renounce of sovereignty.
On the other hand, to aggravate the situation, in the international context there was a fall in the prices of agricultural products and a slowdown in the economy. Likewise, the context was marked by the fall of the Berlin Wall, which symbolized the failure of the planned economy and the communist alternative to capitalism, allowing it to deploy all its aggressiveness, leaving aside its benefactor side.
The episode of convertibility shows that Polanyi was wrong about the end of the liberal utopia: it can be recovered since the hegemonic economic discourse omits the errors of the past and the contradictions inherent in liberalism itself. In this case, it could be said that this discourse made the movement for liberalization stronger, managing to subject society and politics to the economic dimension. The result was catastrophic as Polanyi might envision: unemployment, poverty and instability.
Kirchnerism and the recovery of politics
After the monetary and political crisis, in 2003 Néstor Kirchner came to the presidency with very low legitimacy. This stage was marked by a recovery of the role of the State and the reintroduction of the economic sphere into the political and social spheres, moving away from the liberal utopia of self-regulation that caused the state of crisis.
Néstor’s government was responsible for stabilizing through tools such as the management of exchange rate policy, the consolidation of fiscal and commercial surpluses, the restructuring of the external debt, redistributive policies, job creation in the public sector and the constitution of Collective Labor Agreements for salary negotiation. The management of economic policies carried out by the government played an important role in the growth that occurred in this period.
In 2007 Cristina Fernández took office. Inflation reappeared for this period, reaching a figure of about 25%. In an attempt to stabilize it, policies aimed at the internal market and social containment were targeted, such as the Universal Child Allowance, the increase in the public employment offer, public works and negotiations for salary increases that sought to accompany rising inflation.
The movement for social protection led to the maintenance of high subsidies to public services, which contributed to an energy deficit in addition to the fiscal deficit generated by the limitations of the industry and the impact of the 2008 international crisis that affected the exports. Faced with this scenario, the government decided to restrict the purchase of foreign currencies, arousing the dissatisfaction of the Argentinian middle class, used to make their savings in dollars.
The Kirchner period was a time when the social protection movement was much stronger and liberalism was pushed aside. This may have happened in response to the unsustainability of utopia that caused catastrophes in the convertibility era. However, it should be noted that no profound reforms were carried out in the system to prevent the return of utopia.
Did we change?
The Kirchner government was losing legitimacy in its second term, as a result of inflation, the deficit, the manipulation of INDEC indexes, the excess of personalism on the part of the ex-president and the discourse of the media. The Argentinian middle class (mainly) would demand a change, however, this change would turn out to be the recovery of policies already tested multiple times in Argentine’s economic history.
Mauricio Macri’s objective was to increase growth through liberal reforms, which would lower inflation and reduce the public deficit registered in the previous government. To this end, measures were taken such as the reduction of subsidies, the increase in transport and energy rates, and the devaluation of the peso. Likewise, he sought to improve foreign relations and carrying out pro-market adjustments. These policies allowed Argentina to have access to international money to replenish international reserves and to finance the deficit.
The agreement with the IMF implies, again, subjecting society to the economy, since the organization demands a series of adjustments in public accounts and limits the possibility of carrying out policies aimed at reducing unemployment and poverty. Indebtedness allows the necessary adjustments to be postponed, however, it introduces a dilemma: the external debt, which already exceeds 60% of GDP, is denominated in foreign currency so the devaluation of the peso generates an increase in external and public debt.
With the 2019 presidential elections in mind, it was safer for the government to postpone adjustments, thus resorting to the policy of freezing food and drug’s prices. However, the term “freeze” is taboo for Macri, since it reflects a huge transgression on the part of a liberal government: that of intervening in the self-regulation of markets. In the end, the freezing plan applied by Macri’s administration is very similar to the one applied by Cristina Fernández in different stages of her government and harshly criticized by the current president Mauricio Macri.
Up to the present, the result of the policies carried out by Macri’s administration is an increase in the rate of inflation and poverty, a decrease in purchasing power and an increase in external indebtedness that makes the country more vulnerable to external shocks and devaluations. Besides, it was not possible to get out of the recession.
Conclusion
Argentine’s economic history can be characterized by a pendulum that swings towards self-regulation and social protection respectively. This movement begins once Perón begins a “Great Transformation” reinserting the economic dimension into politics and society. However, the transformation was weakened through force during the dictatorship and later through the hegemonic economic discourse during the convertibility and government of Mauricio Macri.
Looking at history, it seems clear that self-regulation is not beneficial for the Argentinian economy and has always resulted in greater external dependence and a sacrifice of society that translates into hunger and misery. In turn, the governments that sought to use economic policies for full employment always reached exhaustion of the model, making it impossible to carry out systemic reforms.
This analysis allows us to conclude that Polanyi was rushing into believing that the liberal utopia had ended. While the social protection movement enables lasting improvements in society, it does not prevent the liberalism movement from advancing again.
Note: This article is based on bibliographical research, although it also contains my personal opinion.
