Fantasies of the Past. What the “imports subsitution industrialization”; was, and what it wasn´t – By Damian Bil

505941_20120815113857Damián Bil

OME – CEICS (Marxist Economics Observatory – Center for Study and Research in Social Sciences)

During the second half of the 19th century, Argentina inserted itself in the world market as an exporter of agricultural products. The soil fertility, the abundance of ample extensions of land close to the ports and adequate technical resources, made of this activity the most dynamical sector of local capitalism. Thanks to the competitiveness of the Pampean agro, Argentina historically procured a mass of differential ground rent, a plus based on the different rentability of diverse farming regions in the world. That is, an extraordinary income for the export of commodities with this origin, over the average profit of agrarian capital which would be necessary to reproduce it as such. Since it does not affect the reproduction of agrarian capital, this amount of ground rent became a source of dispute. Through different mechanisms (overvaluation or taxes on foreign trade), other sectors which do not own land were able to appropriate it, sectors which without this support would have severe difficulties in sustaining their activities against their competitors. In point of fact, during the first decades of the 20th century, these resources were used for public works and the payment of foreign debt.

Thus, due to the development of agrarian capitalism, an internal market with industries to furnish it with supplies took shape. The importation of inputs for these other sectors was facilitated by the transference of resources. [1] This system seemed to have ended with the crisis of the 1930’s. It is a deeply-rooted idea that the Argentinean agro-exporter vocation descended to a secondary level, giving rise to a process of industrialization. As a result, Argentina would have gone from an “agro-exporter” model to an “imports substitution industrialization” (ISI) one. According to this conception, before 1930 the country did not have developed industries, or they were only barely developed. It is supposed that, up until then, Argentina had been a landowner’s paradise, where these subjects captured the larger part of the social wealth stifling the development of other sectors. The new industrializing direction was to be carried through by a new block of classes opposed to the landowners. From this period onwards, Argentina would industrialize through the progressive substitution of products which were previously imported. In this sense, the ISI is presented from different angles as the lost possibility of greatness, a shortcut for Argentina to transform itself into an industrialized country like the great powers. The stories and images of the Pulqui airplane, Puma motorcycles, the Pampa tractor, the Rastrojero, Siam refrigerators, SOMISA (industrial welding and maintenance company) or Altos Hornos Zapla (iron and steel industrial complex), to cite some cases, are part of this imagery. The fate of greatness would be thwarted by de-industrialization and the financial model imposed by the coup d’état of 1976, which together with the dismantling of the industrial structure, mortgaged a promising future.

This periodization through “models” is dominant. Even the school manuals which future citizens are brought up with pose the problem this way. It is taken for granted that, in the ‘30s, the economic logic in Argentina turned in another direction. A superficial look at the statistics could vouch for this claim: remarkable growth of the industrial sector since 1930, relative stagnation of agricultural production indicators, emergence of industries previously inexistent, especially in the 50’s and ‘60s. However, in the more detailed analysis, we find that these positions have certain difficulties in explaining the economic evolution of Argentina in the international context. We will see, then, if the ISI represented something different in Argentine history, as the moment of constitution of a national and booming industrial bourgeoisie [2] or if, in reality, this is only a fantasy which hides the local limitations of capital accumulation in the global context.

The problem, is it politics?

The dominant schools, although they are quite aware of the limitations of the industrial structure in Argentina, put an emphasis on the political elements. These would be the ones which, in the last instance, determine the change in the behavior and the viability, or inviability, of this process. From the standpoint of liberalism, it is understood that there is a change in the model due to the state’s intervention in the economy. The state is put to blame for a maldistribution of resources in favor of small capitals and workers, which reduced the possibility of concentrating them in branches which, a priori, could become more competitive due to their economies of scale. [3]

From the standpoint of developmentalism, the necessity of expanding the scale and productivity of industry is also acknowledged. Hence the interest of this current in the incorporation of foreign capitals, which would play a determinant role in the second phase of the ISI. Others put emphasis on the social groups which gain access and control of the state, which would allow them to cap the influence of the most concentrated capitals, distribute the income and begin the cycle of industrialization (implicitly identified with Peronism). This is the position of Basualdo, the intellectual linked to the CTA (Argentine Workers Headquarters). In this same group of authors we could include Aldo Ferrer. For him, agricultural exports ceased to be the dynamical component of the economy, which place is now occupied by public and private investments. He further argues that the domestic market was sufficient to sustain the change of model. [4] In general terms, while the problems of the economic structure are acknowledged, the consensus is that the right path was being trodden.

With regard to the limits of accumulation, beyond the structural distortions which are enumerated, these are explained by political problems or eventualities which the state could not correct. For example, Marcelo Diamand considers that the limits of the ISI were built up by the impossibility of securing a system of differential exchange rates to allow for a greater development of industry due to the currency’s tendency to overvaluation. There are also those like Schvarzer, Azpiazu and Nochteff, and others from the CEPAL (Economic Commission for Latin America and the Caribbean) who, for the most part, ascribe the failure to a lack of a regulatory framework which would generate incentives for entrepreneurs, who took advantage of the niche markets formed by state protectionism; or to the lack of “innovation” of the bourgeoisie, which adopts technologies produced in other countries. [5] Different strands of Marxism have posed the problem of the ISI’s progress in terms of the opposition of imperialism and monopoly capital against the local attempts at industrialization. [6]

In short, in spite of the different shades of meaning, the historiography of the period concurs in marking the period beginning with 1930 as one where the functioning of the economy bent in another direction. Since then, the landowning class would cease to be the beneficiary of economic evolution (for better or for worse, depending on the current of thought), so that other social groups would acquire primacy. Another commonplace is that the action of the state could have modified and channel the process on different rails. The “will” of the different actors, whether to block, push for or take advantage of the industrial policies, is another element resorted to explain the economic unfolding of this period.
Implicitly, it is assumed that the ISI could have succeeded. In other words, harmony between policies for the protected sectors together with a greater willingness for negotiation of those involved, to give up part of their interests, would have allowed for a different outcome. Even though the structural economic problems and the gap with the world powers are acknowledged, the idea which underlies almost all these analyses is that the correct path was being taken. A weighty industrial structure and virtuous value chains could have progressively developed, which would have reached maturity were it not for the discontinuation of the model with the coup d’état of 1976. Had a more selective protectionist policy been applied in order to promote a more adequate framework for innovating activities, Argentina would have probably overcome its structural difficulties, to then become a “serious” country.

Not all that shines is gold

As soon as one begins to analyze the period in question, the first point which stands out is the primacy of agricultural exports: in spite of some unfavorable junctures for the Pampean agro, the income of this sector due to exports maintains itself, which allows sustaining a large part of the rest of the economic structure. They continue to play a fundamental role in the composition of exports. A subsidiary idea, also deep-rooted in common sense, is that before 1930 the landowners were the ones who kept the larger part of the wealth for themselves, and that this configuration changed radically afterwards. Again, if we refer to the data, this is not correct either. In the period preceding the crisis, more than 50% of the mass of differential ground rent was appropriated by non-agrarian sectors through diverse forms of transference, such as taxes on imports or overvaluation of the currency. [7] After the crisis, the portion of differential ground rent appropriated by these sectors, depending on the circumstances, generally continued at the same level. It is incorrect then to argue that before the ‘30s the “oligarchy kept the whole cake for itself”, stifling the development of a booming industrial sector. On the contrary, the agrarian sector “fed” (not only before the crisis but throughout history) the rest of the fractions of local capital. This brings us to the second problematic point about the idea that the model changed: it is false that there was no industry, or that it was barely rooted, before 1930. In reality, various sectors of production were already developed in the ‘20s, even at the level of large-scale industry. [8] The fact that they were not able to insert themselves successfully on an international level has to do with other problems (reduced scale, costs, late insertion in the world market); but not with their inexistence.

Therefore, if before 1930 the larger part of ground rent was appropriated by other sectors, if the economic development was sustained throughout history by the transfers from the agro to other sectors and if industry existed before the ‘30s, to claim that the model changed is meaningless. In effect, the Argentine economy continued to function on the same basis. The hypothesis that the model changed in the ‘30s presupposes a series of phenomena at a world level, which projected the appearance of a modification in the economic character of the country, when in reality it developed in the same form. After the crisis of the ‘30s and WW2, the mass of differential ground rent which entered the country shot drastically up. This allowed, when the whole world was going through a period of retraction and protectionism, for the subsidies to capitals which aimed toward the internal market. Later on, during the post-war period, Argentina was part of the world’s ascendant economic cycle. This also explains the installation of foreign capitals since the ‘50s. In short, the growth of the mass of differential ground rent and the development of these capitals gave the impression that Argentina was entering another period, with possibilities to become a world power, or, at least, more than what it was. To sum up, a quantitative change (a superior transfer amount and capitals of larger magnitude operating on a local scale) gave the impression of a qualitative change in the Argentine economy. However, this appearance did not correspond to reality: apart from the elements mentioned above, we must also note that although the economic indicators showed progressive advances, in relative terms the country fell behind with respect to the world leaders, and even in relation to some minor countries.

Thus, the position of Argentina in the world market became ever more marginal. [9] This brings us to another disputable point in the analysis of the problem. The existing studies, for the most part, reduce themselves to a national perception of the process. Since the movement of capital and competition are phenomena which develop on a world scale, omitting this forbids the understanding of local possibilities and limitations. As we just mentioned, the industrial indicators of Argentina grew in absolute terms (within its borders) but fell behind in relative terms. That is to say, even though labor productivity and physical volume increased, they did it at a slower rate than the world average. The consequence was that, except for a few cases, no sector could insert itself successfully into the world market. In analyzing the evolution of certain basic branches, this situation is manifest. One of the paradigmatic cases was that of agricultural machinery, the activity which provided capital goods to the most dynamic branch of production. Since the late ‘50s, with the installation of foreign capitals in the production of tractors, this sector experienced a particular expansion. The most important capitals at an internal level grew and production reached historic levels with 24,505 tractors and 1,633 harvesters. Nevertheless, the size of Argentine production reduced itself from an international perspective: from close to 1.5% for 1960 to 0.89% for 1975. Since the ‘70s, Brazil’s, India’s and Turkey’s production outran Argentina’s. With regard to exports, the datum which allows us to estimate the level of competitiveness on a world level, Argentina’s machinery represented, in its best year (1974), only 0.6% of trade. The case of the automotive industry is similar: the internal production increased until it reached its top level in 1973. But on the international level it turned out to be insignificant: in 1964, it represented only 0.7% of world production; almost 62 times less than that of the US. [10] Throughout the period, Argentina did not only fall behind with respect to world powers (like Japan or Germany), but with respect to Brazil. Just as in the case of agricultural machinery, it lost its meager position in foreign markets at the hands of the Brazilians. This is not because of, as most of the intellectuals believe, the perspicacity of Brazilian politicians or the speculative character of Argentine businesspeople. On the contrary, it expresses the local limitations of local capital accumulation in these sectors: reduced scale, given the smaller internal market, late insertion in the world market, higher costs, among others. In effect, the production of an automobile or a tractor in Argentina was 3 times more costly than in the US or England; and almost twice as costly as in Brazil. The price of production in the basic branches is a problem which permeates the industrial structure of the country. This is manifested by the fact that production costs in the Argentine iron and steel industry were high in international terms. [11]

When observing different branches, we corroborate similar situations: development of the structure for the internal market on the basis of measures for sponsorship and protection, with the expansion of the general physical indicators, but meager export capacity. A lot of these sectors, which in theory were substituting imports, had to purchase inputs from other countries to continue their operations. Some, like the automotive one, failed even to attain the expected savings.

In summary, most activities could not insert themselves successfully in international competition. Moreover, they had to be protected by a whole system of sponsorships, subsidies and tax exemptions against the competition of foreign commodities.

With the same fuel

A common trait of these years, which is highlighted by all authors, was the scaffolding of sponsorships and subsidies to industry. We have seen that local companies, with less productivity and scale than the world’s mean, could not attain a competitive position. Hence, they needed this protection, which adopted several forms: tariff barriers, indirect state subsidies to local capital (for example, through the supply of cheap fuel by YPF –the national petroleum company-), tax exemptions, official credit lines at negative interest rates, among others. Unless we believe that the State can establish protection measures as a mere political decision or create income ex nihilo, this structure of transfers had to have a material sustenance. The resources came from the sector which was effectively capable of inserting itself competitively: the agro. As we have analyzed in previous editions, by bearing differential ground rent, the agricultural commodities produced in Argentina (due to social, natural and technical advantages of Pampean production), allowed the country to get hold of a flow of wealth which could compensate the lesser competitiveness of the rest of its productions. It is indicative that in the composition of exports of this period, the manufactures of industrial origin had a minor weight compared to the agrarian ones in the total mass of value exported.

When the international prices of agrarian commodities were high, the mass of rent which entered the country was considerable. This occurred after WW2, due to which the State counted with more resources to maneuver. Thus, different capitals developed aiming toward the internal market. The Peronist period, marked by many as the moment of consolidation of this new model, in reality comes about thanks to the income generated by agrarian exports. Again, there is nothing new in the behavior of the Argentine economy which warrants the talk of another “model”.

In turn, ground rent has its limits. In the first place, it is only one branch of production, so that there is no other sector which can compensate its occasional drops. Further, agrarian production is subject to conditions which espace human control, such as droughts, frost or excessive rain which may ruin the harvest. Dut to this and other reasons, its movements are cyclical. [12] After 1952, ground rent contracted, withholding the capacity of the State to intervene. With less resources to transfer and protect local productions, capital which operated in the country had to increase their efficiency. This is one of the reasons behind the “turn” in the economic policy of Peronism with the Second 5-year Plan and the entry of foreign capital. This process would open, according to the historiography of the period, what was denominated as the second phase of the ISI. But, again, we maintain that the economic logic was not modified with the installation of foreign capital. Generally, it installed itself on a smaller scale than in its country of origin, and survived on the basis of its appropriation of differential ground rent, as was the case throughout Argentine history. This “conduct” characterized capitals from the small metal workshop of the neighborhood to the Ford Company.

ISI, you don’t exist

It is beyond doubt that beginning with the ‘30s an expansion of the industrial sector takes place. As we have seen, this made most historiography characterize the period as one where a change in the trends of the economy came about, which would have allowed for a new model, a different form of capital accumulation, based on industry. The approach toward this model was that, albeit the difficulties it faced, it presented the possibility of overcoming the problems of Argentine economic backwardness, until it was dissolved by the coup d’état of 1976 and replaced by a model based on finance and speculation. But when examining the form in which it sustained itself, we observed that there was no qualitative change which warrants the characterization of the period as a different one. In other words, the motor of the economy, which set the rhythms of the cycle, continued to be the agrarian sector and the flow of ground rent due to exports. Before 1930, this ground rent appropriated by the State was used to finance public works and pay external obligations. Later, it was also used for public spending and subsidies to capital which were inefficient on a world scale. In broad strokes, this is the element which explains the historical functioning of the Argentine economy: the appropriation of differential ground rent by non-landowning sectors through state mechanisms of transfer. During the period being analyzed there was not another modality. Before that, it is fair to say, there was a moment in which the mass of available ground rent, and an expansive cycle on a world scale afterwards, allowed for the support of the structure which protected the less efficient capitals. In that sense, Argentina followed the general tendencies which developed throughout the world.

The expansion of the industrial sector was unable to surmount the local limitations (scale, costs) and insert itself competitively in the world market. Numerous authors, in not observing the link between national and world development, evaluate as advances the processes in which Argentina’s economy fell behind the world mean, in relative terms. From this point of view, Argentina was not part of a totality ruled by cost competition, but a unit which could prosper of itself had the correct decisions been made. Hence the emphases on variables like the behavior of certain actors or different policies of promotion which were adopted. But when the international context is considered, we can understand that these years do not constitute a period of lost greatness. On the contrary, in spite of all the transfers to the non-agrarian sector, the evidence points to the widening gap with respect to the world economic powers. Argentina was not on the path to overcoming its difficulties, but conversely the global development of capitalism itself was deepening them.

By the ‘70s, the world crisis had hindered the continuation of the structure of transfers on the same magnitude of previous decades. 1976 did not establish another model, but was the attempt to relocate these resources to other, more concentrated, sectors, abandoning the more inefficient capitals to the laws of competition. The successive crises since the beginning of the ‘80s showed that, in spite of this, the accumulation of capital in Argentina did not manage to generate competitive sectors (expect for singular exceptions). In consequence, it was not able to cut itself off the compensatory mechanisms like differential ground rent.

In conclusion, the defense of the illusion of the ISI is based on an apologetic vision of small inefficient capitals which operate in the country, which require constant transfers since they are incapable of surviving against more productive capitals. It is not the fault of imperialism which did not allow the national bourgeoisie to develop (an argument which fits perfectly the position of this bourgeoisie to keep receiving subsidies). It is, precisely, the maximum which accumulation in a national framework can offer. Under current conditions, in which the gap with the more productive countries has widened, the hypothesis of returning to the ISI is reactionary: as it occurred during the last years due to exceptional prices of soy, the transfer to these sectors of the bourgeoisie turned out to be an immense squander of wealth (produced by workers), with no definite prospects of attaining a competitive edge. The solution to these already chronic problems can only come through the concentration of the means of production in the hands of the working class, in order to go beyond the limits of the national scale. The banner of the United States of Latin America gains, in light of this analysis, a fundamental importance.

Footnotes

[1] The measurement can be found in Iñigo Carrera, J.: La formación económica de la sociedad argentina, Imago Mundi, Bs As, 2004.
[2] A debate against the idealized character of the ISI and this national bourgeoisie canbe seen in Baudino, V.: “¿Dónde acecha el enemigo?”, en El Aromo, nº 36, 2007.
[3] Díaz Alejandro, C.: Ensayos sobre la historia económica argentina, Amorrortu, Bs As, 1975; Gerchunoff, P. y Llach, L.: El ciclo de la ilusión y el desencanto. Un siglo de políticas económicas argentinas, Ariel, Bs As, 1998;
[4] Basualdo, E.: Estudios de historia económica argentina. Desde mediados de siglo XX a la actualidad, Siglo XXI, Bs As, 2006; Arceo, E.: Argentina en la periferia próspera. Renta internacional, dominación oligárquica y modo de acumulación, UNQui, 2003; Ferrer, A.: La economía argentina, FCE, Bs As, 1986.
[5] Diamand, M.: Doctrinas económicas, desarrollo e independencia, Paidós, Bs As, 1973; Schvarzer, J.: La industria que supimos conseguir, Ed. Cooperativas, Bs As, 2003; Azpiazu, E. y Nochteff, H.: El desarrollo ausente, Norma, Bs As, 1994; Katz, J. et al: Desarrollo y crisis de la capacidad tecnológica latinoamericana. El caso de la industria metalmecánica, CEPAL, Bs As, 1986.
[6] Braun, O.: Desarrollo del capital monopolista en Argentina, Tiempo Contemporáneo, Bs As, 1970; Ciafardini, H.: Textos sobre economía, política e historia, Bs As, 2002; Peña, M.: Industrialización y clases sociales en la Argentina, Hyspamérica, Bs As, 1986. A critique of these positions regarding the obstacles of Argentine development can be read in Kornblihtt, J.: Crítica del marxismo liberal, Ed. ryr, Bs As, 2008.
[7] Iñigo Carrera, J.: op cit, pp. 18-22; data in p. 42 y pp. 88-90.
[8] A summary of these investigations of the CEICS on the matter of Argentine industry preceding the ‘30s can be seen in Sartelli, E. y Kabat, M.: “¿Clase obrera o sectores populares?”, en Anuario CEICS, nº 2, Eds. ryr, Bs As, 2008. Also in the doctorate and bachelors thesis published about the shoe, graphics, textile, agricultural and mill industries, among others.
[9] We have analyzed the position of Argentina in international trade in previous editions. See Dachevsky, F.: “Competencia internacional y endeudamiento externo. Las (des)ventajas absolutas y los límites de la acumulación de capital en la Argentina” (“International Competition and Foreign Debt. The absolute (dis)advantages and limits of capital accumulation in Argentina”, see ceics.org.ar for English translation), in El Aromo, nº 54, 2010.
[10] Baranson, J.: La industria automotriz en los países en desarrollo, Serie Estudios del Banco Mundial, Tecnos, Madrid, 1971.
[11] In Estudio de la industria siderúrgica en América Latina, ONU, Depto. de Asuntos Económicos, México, 1954.
[12] A synthesis of this period according to these variables can be seen in Sartelli, E.: La plaza es nuestra, Ediciones. ryr, Bs As, 2006.

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