Import substitution has led to more poverty

One of the most damaging policies that led us to poverty and decline was to isolate ourselves from the world by buying the import substitution model and the history of the deterioration of the terms of trade.

In the face of this already structural poverty, the majority of political leaders talk about growth without reducing public spending, that is to say the same argument for change: they expect a rain of investment only because of changes in government.

Although many factors explain our long decline, it is quite obvious that the closure of the economy began with populist policies that aimed to redistribute the state. C & # 39; is to say, we closed to the world and this created a discouragement to invest and improve the price and quality of the products .

Tune between declining GDP and exports per capita

Why strive to invest, innovate and improve productivity if companies had a captive market that allowed them to sell poor quality products at high prices?

Companies have extraordinary revenues because the state eliminates much of the external competition and leaves the consumer at the mercy of the local producer.

The relationship between the decline in per capita income and the closure of the economy is clearly visible in the following 2 graphs.The first graph shows that between the late nineteenth century and the mid-twentieth century, Argentina's per capita income was among the top 10 countries in the world. That is to say, Argentina has remained for decades among the 10 countries with the highest average income of its population in the world. Even in 1895 and 1896 he took first place.

When does the fall begin? The graph shows that the break occurred in the middle of the decade 40, just as consolidates the closure of the economy, statism, populist policies of income redistribution and the appearance of the economy. worrying inflation .Between 1900 and the mid-20th century, Argentine exports accounted for between 2% and 3% of the world total. It is from the mid-twentieth century, where participation in world trade is rapidly lost to the point where it accounts for only 0.3% of the total.

If one observes the loss of positions in per capita GDP in the world rankings, it is almost at the same time that Argentina loses its participation in total world exports.

The data is not smaller because if Argentina had maintained its participation in world trade, as is the case for example in Canada or Australia, it should currently export $ 572,000,000, or an additional $ 510,000,000 to the United States. last year. . How many jobs, wealth and living standards were lost by exporting 510,000 million USD less than the current level?

For example, we can see the case of Australia, which currently exports 1.3% of world exports and has, in the past, had an average share of between 1.5 and 2%. With Canada, something similar happens: at the beginning of the 20th century, it exported 2.5% of the world total and is currently at the same level.

Those who admit the idea of ​​boosting economic activity with domestic consumption do not realize that with 44 million inhabitants, a third of the poor population and low income per capita it is impossible to imagine a strong investor.

The limitations imposed by the internal market

Who can imagine big investments to provide only 44 million people, a third of them in poverty? And without these investments, it is unthinkable to create jobs, to improve the productivity of the economy and, therefore, real wages. It follows that the output of Argentina is not to stimulate domestic consumption as most politicians suggest, but to integrate into the world and increase exports significantly.

Currently, Argentina's exports account for 11% of its GDP. Countries that have been successful at capturing large investments, creating jobs, improving their real incomes and lifting themselves out of poverty have done so by integrating into the world.

While Argentine exports account for only 11% of its GDP, German exports are 47%, Chile 31%, Australia 29% and Ireland 120% of GDP. . I have deliberately not given examples in Southeast Asia, so that they do not come to me with social dumping or the verse of the rice dish.

In 2017, as a result of data from the World Bank, Argentina exported $ 71 billion worth of goods and services, Chile $ 79.5 billion, Australia $ 315 billion, the Canada's $ 511 billion and Ireland's $ 476 billion, to name just a few cases.

All these countries have made extraordinary structural reforms and joined the world. They saw the world as an opportunity and not a threat, as our politicians see it in the world.

This, yes, a lot of political leaders want to export more but do not want to import more, without realizing that all these countries export and import much more than Argentina, accumulating much more volume of foreign trade.

While in 2017, imports from Argentina accounted for 14% of GDP, Chilean imports rose to 27%, Australia to 21%, Canada to 33%, and imports to Canada. 39, Ireland at 88%. All export more and import more. They are not getting close to world trade with the false argument that jobs are lost.

Argentina, closed to the world, not only loses jobs, but also increases poverty. On the other hand, countries that integrate the world export and import much more in relative terms, do not have poverty and attract large investments.

If it is accepted that the output of Argentina is the export and not the artificial and unsustainable stimulus of domestic consumption, the process is very clear. First, in order for the exchange rate to be high in real terms and as the structural reforms that make the economy more competitive are put in place, capturing investment, this very high real exchange rate will decline over time.

In short, the decline starts from the moment the country closes the world to replace imports; to make redistributive populism and statism . The previous graphs are quite eloquent and show that per capita income was lost just when it was launched with populism and commercial isolation.

The exit is a foreign trade based on structural reforms and not on transitional increases in foreign exchange or on the expectation of wind commodity prices.

One of the keys to becoming a major exporter again is to turn Mercosur into a free trade agreement instead of the broader protectionism of the southern trading bloc.

At the time, that did not seem to me a reason, if it is the madness of Argentine political leaders, so that we can not resume the path of progress.