The UK chooses the Argentina Option
This article can be read in two ways, firstly all the way through or secondly just the UK section. Within the limitations of an article I cannot get into the deep history of economic failure within Argentina and the utter lawlessness and state looting that took place in the 1990s. The documentary below provides that, detailing the breathtaking corruption and self-serving nature of the Argentinian elites. It is a very different history from that told by mainstream sources.
Argentina: A History of Elite Corruption and Extraction
The history of Argentina since the start of the twentieth century has been one of continuous disappointment as the nation slipped further and further behind other nations in terms of per capita wealth. It was among the richest nations in the world at the beginning of the twentieth century, richer than France and Germany in 1913, and had robust economic growth up to 1930. Then it all started to fall apart, first on a relative basis then on an absolute one:
Between 1930 and 1970, Argentina continued growing, but at a slower pace than the world as a whole. By 1975, Argentina’s income had slipped to being 60% of incomes in France. Then, after 1970, Argentina stagnated and during some years even declined[i].
In the post-WW2 period, Argentina was unable to develop the scale of industrialization through which so many other nations had managed to diversify their economies away from agriculture, mining and extractive financial and commercial interests. The nation did attempt state-sponsored industrialization, and there was a significant build up in the industrial sector, but it did not utilize the full suite of policies that allowed Japan, the Asian “little tigers” and then China to turn themselves into industrialized nations; especially those that drove domestic competition rather than clientelism. It was also focused on import substitution rather than exports, facilitating corrupt and clientelist relations within an already heavily corrupt protected domestic economy. The industrial sector shrank considerably as its protections were rapidly removed in the 1980s; in contrast to the slow and careful deregulation and opening policies of other successful nations such as China. In the present day, Argentina’s exports are predominantly agricultural and minerals, with soybean meal (15%), corn (7%), soybean oil (7%), soybeans (5%), meat (4%), and mineral fuels (4%) only split by delivery trucks and cars (12%) in the top seven exports. Its imports are dominated by industrial goods[ii].
The military dictatorship of 1976-1983 implemented a disastrous period of neoliberal debt-fuelled policies, including the socialization of US$15 billion of private debts, the socialization of the losses of unfinished private construction projects, and the Falklands War. At the end of this period external debt had ballooned and debt interest payments were higher than the trade surplus. The external debt, that had been taken on by an illegitimate military junta substantially to enrich itself and its elite friends, could have been revoked under the concept of odious debt. But that was not to be the case, and the average person was made to pay for those odious debts, not the elites who gained from the socialization of their debts and losses; through public policy austerity and large increases in the prices of services provided by state run utilities during the period of the democratically elected Alfonsin administration (1983-1989). During the decade of the 1980s, real incomes outside the top 10% of households fell by 40% and more in real terms[iii]. Continued increases in indebtedness and a collapse in commodity prices lead to state insolvency, a currency crisis, and hyperinflation.
The fixing of the Argentinian currency to the dollar in 1991 had worked to bring inflation down, but also facilitated massive capital flight (there were no exchange controls) through tax evasion and money laundering by an extremely corrupt elite and state functionaries, together with further deindustrialization due to an overvalued currency (the US currency to which the Argentinian one was fixed was appreciating). The IMF kept lending new money to the government, even though it was obvious that the government could not service its debts without continuous new lending; providing a decade-long window for elites to offshore their wealth at an overvalued exchange rate. The economic ship was also kept afloat by the one-off foreign currency earnings from the extensive privatizations carried out under the neoliberal Menem administration (1989-1999). By 2000, real incomes for the bottom 10% had fallen by over 60% while those for the top 10% had risen slightly (and for the 1% risen substantially)[i].
The period 1998-2002 brought an Argentinian great depression, as the financial house of cards collapsed due to a lack of new privatizations and the impacts of the Asian and Russian financial crises, culminating in the 2002 currency crisis. The government defaulted on US$93 billion of external debt (a significant proportion of which was owned by Argentinian elites through offshore accounts). Under the administrations of Nestor Kirchner (2003-2007) and then his wife Cristina Fernandez de Kirchner (2007-2015), aided by rising commodity exports due to such things as the rapid industrialization of China, Argentina returned to growth and re-distributional policies focused on reducing poverty and support for industry. Debt to the IMF was reduced and then fully paid off, in an explicit attempt to make Argentina independent from the IMF and the “Washington Consensus”, and currency controls were put in place. The inability of the industrial elites to overcome agricultural, commercial and financial interests was repeated during the Kirchner administration which attempted to redirect agricultural surpluses toward social programmes and industrialization.
In 2015 the neoliberal Mauricio Macri administration came to power, implementing policies of deregulation, tax cuts for the rich, and a floating exchange rate. In 2018 the administration agreed a US$50 billion loan with the IMF (increased later to US$57 billion, the biggest in IMF history) supposedly to stem capital flight which could have been dealt with through capital controls and currency devaluation; as China has, Malaysia and Iceland successfully did during financial crises, and others have during periods of state-sponsored industrialization. Instead, the capital flight continued, now financed by the huge IMF loan. The IMF loan acted as an extra chance to get out before the crash, before the currency collapsed as Argentinian elites rushed to move their money offshore as the possibility of a more progressive government increased. The elites and upper middle class got their money out helpfully funded by all the extra US$ central bank reserves provided by the IMF. At the same time the IMF loan “forced” the administration to cut public expenditures and privatize state assets. The loan was provided just one year before Macri was up for re-election and can be construed as an attempt to facilitate the re-election of a preferred neoliberal candidate by delaying any financial crisis until after the election (just as was done with the Russian Yeltsin in 1996). This was not achieved, but Macri’s successor and the nation have been saddled with the debt, which as in the previous case could be treated as odious debt given the highly questionable way in which it was agreed, including withering criticism from a report of the IMF itself. Once again, the people of Argentina are being made to pay for the debt. With the onset of COVID the Argentinian government’s debt position has increased further. Privatize profits and socialize losses, with the full blessing of the IMF.
The IMF’s engagement with Argentina follows a now-familiar pattern: The fund’s loans are accompanied by demands to cut public services, pay, and entitlements and sell off the public realm. The wealth of the few must be protected, the technocrats and loan managers seem to say, from the demands of the many. The results are now tragically familiar too: Inequality, poverty, and insecurity soar
The timing of the IMF’s 2018 agreement with Argentina, completed the year before a presidential election, was no accident. The details were hidden from the public and those of us in Congress tasked with providing oversight. Our finance minister, Martin Guzmán, has claimed that the U.S. representative on the IMF board at the time admitted that the intention was for the loan to sway the election in favor of right-wing incumbent Mauricio Macri, an ally of then-U.S. President Donald Trump.
Meanwhile, we looked on as the loan allowed the wealthy to take their money out of the country. Undeterred, the IMF continued disbursing each installment of the loan, financing capital flight and leaving the people of my country to suffer the consequences [v].
The UK: An Elite Increasingly Corrupt and Extractive
In the “Glorious Revolution” of 1688, a combination of the commercial and financial bourgeoisie and the aristocracy wrested power from the royal family through the imposition of a Dutch king (William of Orange) who was well trained in the art of constitutional monarchy. Later, in the eighteenth century, the industrial revolution started within the textile industry that had been protected for many decades by high tariffs against the much more competitive Indian textile industry. Aided by access to cheap slave-produced cotton from the US [vi], cheap calories from the Empire including slave produced sugar from the West Indies, the conscious destruction of the Indian textile industry by UK imperialist administrators, and institutionalized theft of so much of the wealth of the Empire [vii] and slave-trade profits among other things, the UK was able to escape the limitations of the domestic agricultural sector. In 1846 the Corn Laws that were designed to keep food prices at home high through import controls were repealed; representing a victory of the bourgeoisie over the landowning elites. The repeal reduced the subsistence cost of industrial labour as well as greatly benefitting the trading houses. On the political level, the victory produced a split in the elite coalition that had installed William of Orange, with the bourgeoisie creating the laissez-faire oriented Liberal Party. The UK bourgeoisie were heavily focused on commercial and financial activities that benefitted from free trade and the control of the Empire.
The United Kingdom peaked in its global position around 1870 when it was the “workshop of the world”. This position was based upon its colossal global empire from which massive agricultural, mineral and financial resources were extracted, together with the UK’s first-mover advantage in the first wave of industrialization based on relatively simple technologies. It was unable to extensively develop the “scientific” industries of the second wave, as the state’s laissez faire orientation (benefitting commercial and financial interests) precluded the kind of state-lead development followed by Germany and required for the second “scientific” industrial revolution. After two ruinous world wars, the UK was stripped of its empire and its vast foreign financial resources, with the US taking full advantage of the UK’s parlous financial position to remove it as a competitor and gain access to the previously protected “Sterling Zone” markets.
Faced with the collapse of the Empire that supported so much of its earnings, UK financial interests developed offshore banking where individuals and corporations could transact in relatively deregulated financial markets where their identity could be hidden if necessary; perfect for tax evaders, criminal elements, and national elites stealing the resource and other revenues of their respective nation-states. This “Spider Web” is detailed in the documentary below:
With severe financial limitations and an industrial sector that was extremely weak (much of the industrial nationalizations of the post-WW2 period were really rescues), together with the heavily laissez-faire oriented commercial and financial bourgeoisie, attempts at successful large-scale industrial policies were again doomed to fail. Throughout the post-WW2 period UK industry fell behind its competitors – the US, Germany, France, Japan, South Korea, China and others.
The last attempt at a true industrial policy was driven by Tony Benn in the 1970s, but this was stopped by the Labour right-wing under Prime Minister Callaghan. It was Callaghan’s administration that in 1976, in response to a currency crisis that the administration’s Treasury Secretary later stated was due to the UK Treasury’s grossly overstated forecasts for government borrowing, agreed to the largest IMF loan in history at that time. The loan “forced” the government to carry out the austerity measures that helped lead to the Winter of Discontent in 1978-79, which greatly aided the election of Margaret Thatcher in 1979.
At the time, the government revenues from North Sea Oil were only just ramping up and therefore there was no long-term government fiscal crisis. Even with the UK Treasury’s seeming dirty tricks, the situation could have been managed through exchange controls. The IMF loan conditions brought in neoliberalism to the UK and the victory of the laissez-faire Margaret Thatcher; commercial and financial capitalism at the expense of industrial capitalism and the general population. Instead of being spent on increased social services and industrial policies (anathema to the elites), the increasing North Sea oil and gas revenues were given to the elites through tax cuts. Without the oil and gas revenues, and the timely burst in popularity due to the Falklands War, the Thatcher government may very well have failed after its first term.
A “new” Labour, shod of any socialist leanings, came to power in 1997. It practised a neoliberalism with trickle down and state spending approach similar to that of Lula in Brazil. There continued to be deregulation and privatization (through “private-public partnerships” etc.), but the impacts on the general population were ameliorated by increased public spending on critical services such as the NHS. Private-public partnerships, which tend to socialize risk and privatize profits became extensively used – with some of the private partners being offshore organizations that would not even pay taxes on their profits in the UK. The implementation of “internal markets” in the NHS also readied it for later stealth privatization while actually increasing administrative overhead. The extraction of state wealth was hidden behind complex legal and organizational maneuvers, and nothing was done to rebuild the strength of the unions after the huge losses during the Conservative governments (1979-1997). In 2008 the Global Financial Crisis hit and the Labour government stepped in to rescue the elites by socializing the losses by transferring them to the state, with no thought given to the nationalization of the failed financial institutions and the imposition of losses on the creditors, shareholders and counterparties of the financiers. During the next decade, especially under the Conservative governments (2010 to present), state social services were extensively cut during a period of states austerity to pay off the debt taken on by the state to rescue the financiers. Losses were socialized while profits remained privatized.
After a decade of austerity, and the elite-debacle of BREXIT, the UK was hit with the COVID outbreak that lead to massive state indebtedness to maintain the economy. Heavy beneficiaries were the elites whose wealth jumped as near zero interest rates bid up financial assets. Recently, the state had been looking at some tax rises to start to pay down the massive borrowing, but this was forestalled by the election of the utterly neoliberal Truss as PM. Instead of carrying on the careful policies of her predecessor the PM has decided to massively subsidize the windfall profits of the energy production companies that were created by the combination of the dysfunctional neoliberal energy market (see my previous article on this) and the sanctions on Russia. Instead of these profits being taxed away they will be paid for with massive state borrowing, US$200 billion and possibly more over the next few years (PM Truss used to work for an energy company and the Conservative Party has taken over GBP1.5 million in contributions from the energy sector in recent years). This forestalls an immediate public revolt due to massively rising electricity and gas prices while deferring the payment of the costs by the general populace into the future through public sector austerity. Then to add gasoline to the government deficit bonfire, the Truss administration passed large tax cuts which predominantly benefit the rich. Many commentators have considered the Truss administration to be “mad” and/or “stupid” but I propose that their actions represent a plan for a much more aggressive looting of the public purse and the nation along the lines of the Argentinian Macri administration.
The UK exchange rate and general financial crisis may have been calmed in the very short-term by the announcement of the unlimited buying of government bonds by the Bank of England, but in the medium term the Truss administration’s policies can only lead to a full-blown currency crisis; an outcome that the administration may actually want. The resulting IMF package will “force” it to socialize the costs of the handouts to the energy companies and rich through intensified austerity and provide the justification for the privatization of the previously untouchable state programs such as the NHS. The Conservatives have moved on from the looting hidden by complex contracts, organizational structures and financial complexity to outright in your face large-scale looting. As the UK has lost its ability to loot from its colonies and neo-colonies, and its North Sea oil and gas revenues have declined, its elites must turn their extractive gaze more forcefully upon the domestic state and the general populace. The result will be an increasing impoverishment of the general populace, a shrinking of the social state (but not military spending and other programs that benefit the elites) and the ongoing destruction/selling out of the UK’s remaining industrial companies; with the latter accelerated by the uncompetitive price of energy. The City of London and the related commercial bourgeoisie will continue to prosper, in many cases located in their offshore real estate holdings, while the rest of the population generally become significantly poorer. Welcome to Argentina, where the elites loot at the expense of long term economic viability and the living standards of the vast majority of the population.
Welcome to the Peripheralization of the Core West
The trajectory of the UK elites is being followed by all Western elites as the rise of Russia, China, Iran, India etc. reduces the ability of the West to extract value-added from the Rest. Unable to extract wealth and profits from abroad, elites turn more and more toward implementing in the homeland the extractive policies that they previously carried out only in the periphery. The US is buffered somewhat by its energy independence, its huge agricultural exports and the reserve currency status of the dollar, but as its extractive global supply chains become increasing unable to concentrate profits at the centre it will intensify its domestic neo-liberalization and state looting. Europe, which has no reserve currency status and is heavily dependent upon energy imports, is in a very different place. With its self-harming sanctions that have locked it out from cheap Russian energy exports, it has accelerated its trajectory toward the UK outcome; especially in a Germany which may see its industrial capacity significantly destroyed due to uncompetitive energy prices. In the short run, the US may benefit from the demise of European industry but that demise will severely damage its allies in its battle to keep the Rest at bay.
Western Europe will become a deteriorating archipelago off the Eurasian continent, with an island nation to the West in even worse straits.
[I]https://www.hbs.edu/ris/Publication%20Files/LAER%20Introduction%20to%20Argentine%20Exceptionalism_3c49e7ee-4f31-49a0-ba21-6e2b726cd7c5.pdf
[ii] https://www.icontainers.com/us/2020/01/31/argentina-main-exports-and-imports/
[iii] https://www.cepal.org/sites/default/files/publication/files/10907/78053082I_en.pdf.
[iv] https://www.cepal.org/sites/default/files/publication/files/10907/78053082I_en.pdf
[v] https://theintercept.com/2022/03/10/argentina-imf-debt-protests/
[vi] Beckett, S. (2015) Empire of Cotton. Vintage.
[vii] Tharoor, S. (2017) Inglorious Empire: what the British did to India. Scribe.