Piketty in Argentina?

When members of Congress receive delegations from opposition parties from Argentina this week, they should have a clear understanding of what is truly motivating the existing government in this country.

Argentina´s alternative model to neoclassical policies is collapsing in front of our eyes even as the world has been inspired by the recent work of Thomas Piketty to look for new economic models that could reign in the power of inherited wealth and reinvigorate democracy. At first sight, Argentina would seem to be an interesting place to look for an alternative model. The left-leaning policies implemented by the government of Nestor Kirchner after the economic collapse in late 2001 led to a slight decline in the percentage of income controlled by the top 1 percent of the population in 2004. Exactly such declines are what Piketty claims could be an indication of the re-invigoration of democracy. But the recent orthodox turns in economic policy seem to have lifted the veil on this so-called model, revealing a pragmatic group of politicians seemingly willing to do anything to hang onto power.

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In 2008 the government nationalized Argentina´s version of Social Security. It had been privatized by the right-leaning government of Carlos Menem in the 1990s. The government of Cristina Kirchner claimed that these funds were nationalized to ensure that private investment companies were not absconding with the retirement funds of the poor. Nevertheless, these funds have been used to for a variety of activities including financing the federal police, the national air force, and subsidies for the poor. By owning of companies this government has also been able to force its way into board meetings and demand that some companies adopt a more pro-government posture.

The administration of Cristina Kirchner also nationalized this country´s national airline, Aerolineas Argentinas, in 2008. But since that time it has had to fund it to the tune of almost US$ 4 billion. It is hard to see how a national airline that is used almost exclusively by the wealthy and international tourists promotes greater democracy. In 2012 this government nationalized YPF, the largest oil company in this country, supposedly as a means to address a burgeoning energy crisis. But grabbing control of this company has not solved this problem. Argentina imported US$ 5.460 billion in natural gas in 2013, up from US$ 920 billion in 2010.

Faced with a increasingly dire economy, the administration of Cristina Kirchner has been forced to to make a series of rather orthodox policy changes that will hit the poor the most. These are just the people she claims to most represent. In order to address shortfalls in cash, the Kirchner government recently introduced legislation that will dismantle subsidies on gas and electricity for the vast majority of Argentines. People`s electric and gas bills will go up by between 16.7 percent and 162 percent. And starting in August water bills will go up between 70 percent and 400 percent. These reductions in subsidies are likely to provide an extra push to inflation, estimated to be around 30 percent, even as it reduces the disposable income of the middle class and the poor.

This current about-face in economic policies and the governments decision to stop doctoring the statistics used to calculate inflation are related to the apparent desire of the Argentina government to reach a rapprochement with the International Monetary Fund (IMF). By making up with the IMF Argentina would be on its way to returning to international financial markets. The cynicism of this government in this case smacks one in the face. Cristina and Nestor Kirchner consistently demonized this organization. Their supposed model was said to be based on the need to declare independence from such “capitalist” organizations.

Anyone interested in seeking alternatives to the neoclassical model made famous by the Chicago Boys should look carefully at what is going on in Latin America. But we should avoid being seduced by large proclamations of social justice made by leaders like the Kirchners. Their so-called model is a monument to the power of cynicism instead of one that genuinely promotes the cause of the poor and social justice. As Argentina´s house of cards crumbles, it is time to demand more of self-proclaimed progressive leaders. They would do well to take the work of Pikkety to heart and, in his words, start putting capitalism to work for democracy instead of the other way around.

Friel is an assistant professor of Management at the Universidad de San Andrés in Buenos Aires, Argentina and specializes in how institutions in Latin America shape the strategies of firms.