Friday, September 29, 2023

The Myth of the Golden Age | Argentina has never been the richest country in the world

Argentine liberalism, both in its most conservative and its most progressive variants, repeatedly resorts to filler words to explain Argentina’s economic reality. One of them, perhaps the preferred one, is to reaffirm that the main cause of the decline of Argentine society was its failure to follow the “virtuous path” of development and prosperity that the ruling elites of the late 19th century, the false path of state interventionism and especially that obscure idea they call “economic populism.”

The evidence that the Liberals represent is said to be irrefutable: in the 1890s and until 1914, Argentina was considered one of the richest countries in the world in terms of gross domestic product per capita (GDP per capita). They also claim that in some of those years its GDP per capita was higher than that of the United States, France or Germany, while the country currently ranks 62nd in the World Bank’s annual rankings.

The biggest doubt that arises from this statement concerns the methodology used to calculate the GDP per capita of various countries at the end of the 19th century. Where does the data used come from? Who classified and processed them? What margins of error could be taken into account? How were such heterogeneous statistical methods made compatible? Local Liberals repeat the phrase as if it were dogma, even though they ignore the answers to all of these questions, starting with the fact that they don’t know who Angus Maddison was.

The Madison Index

Maddison was a Cambridge-educated British economist who specialized in measuring historical processes of economic growth and development. Between 1953 and 1971 he worked on these issues for the Organization for Economic Cooperation and Development (OECD). A few years later, already a recognized expert in national accounts, he was appointed to the University of Groningen (Netherlands) and was able to carry out his main project there: the calculation of GDP per capita worldwide and in long historical series.

In 2004, the OECD published its flagship work, The World Economy: Historical Statistics, which summarizes all of its research and the results obtained. Maddison died in 2010, but the Growth and Development Center (GGDC) at the University of Groningen continues his econometric work to this day.

Maddison’s estimates suggest that during the period 1895-1914 Argentina was between seventh and tenth among countries with the highest GDP per capita, surpassing France and Germany. In constant 2011 values, Argentina’s GDP per capita fluctuated between $5,384 in 1895 and $5,263 in 1914. Without doubting the accuracy of Maddison’s calculations, as some Argentine economists have done with cogent arguments, it follows definitely some interesting observations.

According to these calculations, Argentina has never ranked first among countries with the highest GDP per capita. At least between 1895 and 1955, this position belonged to the United States, which from that year was pushed off the podium by other emerging countries of the time such as Kuwait, Qatar and some of the present-day Arab Emirates.

Similarly, Maddison’s series show that in the first half of the last century, the main former British colonies – Australia, New Zealand and Canada – held better positions than Argentina and even Germany and France. Of course, there is another explanation for this strange evidence.

In econometric and national accounts, product per capita is an indicator that relates two different variables, GDP and population, so that any variation registered in either of them changes the final result of the indicator.

So, for example, if a country’s GDP remains constant but the population decreases, GDP per capita will still increase. If the cumulative population increase is greater than the product increase, GDP per capita decreases.

For example, if we look at the period from 1900 to 1950 from end to end, we can see that in Australia GDP grew by more than 300 percent, while the population only increased by 121 percent. In the case of Germany and France, something similar happened in relation to their populations, but for very different reasons: the two world wars in which they were involved destroyed their economies and populations, a circumstance that did not affect the countries that remained neutral.

The statistics compiled by Maddison also show strange phenomena in the economy, some of expansion and others of stagnation. Between 1900 and 1950, the U.S. GDP grew by a net 366 percent, while the population grew by only 99 percent. Britain’s economy, on the other hand, grew by 88 percent over that half century – an average of 1.4 percent per year – while the population grew by just 22 percent. In this case, although per capita product increased, British growth momentum slowed compared to other powers at the time.

In Argentina, economic growth averaged 2 percent per year in the first half of the 20th century, while the population grew at 5 percent annually. Based on the previous explanation, this asymmetry between economic and population growth led to a decrease in the analyzed indicator.

A not so golden era

At first glance, Maddison’s ranking shows that Argentina has effectively been pushed out in the rankings by other countries. However, the evidence that the Liberals ignore – or try to ignore – is that Argentina’s GDP per capita increased for the most part from the end of the First World War until 2018: only in 26 of the 119 years recorded in the statistics in this series showed that Argentina’s GDP experienced a negative annual fluctuation, quadrupling between 1900 and 2018.

Liberals also ignore that the revered conservative generation that brought the country to the forefront of the world economy handed over government to Yrigoyen in 1916, with a per capita product 15 percent lower than that of 1895, which is referred to as ” year” applies. golden” from the agro-export country Argentina. So the conservative order that created Argentina’s growth didn’t know how to preserve it.

In these days of hectic presidential election campaign, one hears the diatribes of some politicians and businessmen against a political leadership that they accuse of being corrupt and demagogic and blaming it for all the causes that led to Argentina’s decline. There are also renewed calls to restore the “economic greatness” that the country has lost. And then that old catchphrase comes back.

At the recent meeting of the Council of Americas, the President of the Argentine Chamber of Commerce, Natalio Grinman, called in a passage of his speech to “return to the course of that Argentina of the late 19th and early 20th centuries with the ideas presented” by Alberdi and “Peace and administration” of the generation of the 80s, a period marked by transformation and progress that made Argentina one of the leading countries in the world in terms of GDP.”

In line with Grinman, Javier Milei also often refers in his speeches and public appearances to that golden era of Argentina, when “it was the richest country in the world and today ranks 140th in the parallel exchange rate,” as he recently published. on his Twitter account.

What Grinman, Milei and other voices of homegrown economic liberalism – who do not know Maddison and his econometric estimates – do not know is that the series created by the British economist and continued by the Dutch university after his death shows that the best record yet of GDP per capita in Argentina since 1900 dates to 2011, the height of Kirchnerian populism. A political period that liberals never tire of cursing.

* Political scientist and doctoral student in social sciences (UBA). Director of Quid.

Nation World News Desk
Nation World News Desk
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