An evolutionary synthesis beyond populism and liberalism

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Federico Poli

Economist. Former Undersecretary for SMEs (2003-2006)

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Populism assumes that there is enormous wealth in Argentina which, if distributed correctly, could improve income distribution and make poverty disappear. This is false.

From 2012 to 2021, the GDP of the Argentine economy contracted by 0.3% annually with the population growing by 1%, for which GDP per capita is declining by 1.3% annually. Our productivity is declining. In an economy where productivity is collapsing, real wages cannot be raised permanently. On the contrary, they will necessarily decrease by the magnitude of productivity. Nor will corporate profits be able to grow in this framework, on the other hand we have already mentioned how much the value of corporate assets has been destroyed in our country. What appropriation of wealth are we talking about?

Assuming an average growth of 2% in Argentina, José María Fanelli’s account is that compared to the performance of the economy in this decade, it leaves us today with a loss of a quarter of GDP. We clearly have a problem of declining productivity, economic stagnation and, consequently, poverty.

We have tried, unsuccessfully, distribute wealth that does not yet exist. Fantasy that destroyed the investment process, economic growth and employment.

In the years of Alberto Fernández, the fourth Kirchnerismo, this populist model is exacerbated. This is a government that has shown a bad disposition to cut corners by creating new taxes. It leads to the absurdity of multiplying the number of taxes, overtaxing already taxable events and, even worse, doing it ex post, i.e. once they have been produced. “There is always a good opportunity to raise taxes,” the government paradigm, in a stagnant economy with tax-burdened companies.

You can’t create new impositions permanently because those who invest do not know what they are getting into. The tax structure can exceptionally be modified but it should not be “tinkered” every year, with the excuse of unforeseen events. This uncertainty in a country of Argentina’s historical instability is devastating for the process of capital accumulation and wealth generation. Argentina became the realm of regulatory uncertainty. It is lethal to the investment process not knowing what tax and regulatory structure it is facing. Reproductive investment, in machinery and equipment for manufacturing and industrial buildings, has long been at an all-time low. It’s not by chance.

You have to get out of vicious circle which implies more taxes, less private investment and private employment, more unemployment, more public employment, more social plans and more poverty. This requires more taxes to finance this perverse process, which affects the decay loop. The second round implies a further decline in investment and private employment, with which more unemployment, social plans, public employment and poverty. Thus begins another cycle of decline.

The paradox that closes all controversies is the data of exponential increase in poverty and indigence from 2011 to today in the face of the increase in transfers of public funds for social assistance (Osservatorio del Debto Sociale Argentina-UCA, 2022).

The necessary evolutionary synthesis

It is not an exclusive problem of our country even if, surely, we are among the crudest in these practices. Latin America it is plagued by redistributionist governments when what we need are development governments whose center is the promotion of investment and real employment. Consequence leap in investment and real employment it will be the fall of poverty and higher levels of equity.

As I think back on the text, I read that the Italian economist Mariana Mazzucato, in an interview in Argentina, states that “the problem is that when one falls into a populist way of doing politics, it is very difficult to create wealth. We think too much about redistribution rather than the creation of value which can then be progressively redistributed”.

The challenge for the next government, which will take office at the end of 2023, is order the macroeconomics and lay the foundations for productive development. The macroeconomic dimension and the productive dimension must be thought of together.

Furthermore, policy makers must have sufficient pragmatism and strength to carry out the necessary transformations, valuing assets and taking care that capabilities are not destroyed, applying the necessary active, industrial, technological and innovation policies.

It is what is imposed on the world, which has realized it rusty liberalism and populist paroxysm are two sides of the same coin.

We can do it if we put our heads to it.

*Extract from the Introduction to “Beyond liberalism and populism. An evolutionary synthesis for Argentina”, Sudamericana, Buenos Aires. In February 2023 in bookstores.

Source: Clarin

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