I welcome Will Milberg’s response to my book and was pleased with his appreciation of how the case of Argentina challenges conventional wisdom in economics. His review adds to the debate about Argentina, highlighting one of my motivations for writing the book: to show how the Argentine experience since 2001 flies in the face of economic pundits, both in the academy and in the financial press, and that it is important to pay attention. Milberg’s message was seconded by Paul Krugman in a NY Times blog posting in which he directly identifies “conventional wisdom” as obscuring accurate perception of strong Argentine recent economic performance.

I would carry this further to the case of the recent re-nationalization of the Argentine oil company, YPF. The exaggerated external critique and prediction of economic doom once again for Argentina fails to see that this decision makes sense if the government is able to achieve its own institutional objective of making YPF a well-run enterprise serving the national interest by expanding energy production. Commentaries by The Financial Times and The New York Times, with the exception of Krugman, sound eerily similar to their alarmist predictions in 2002 that Argentina would fall off the tip of South America after the default on its debt. Conventional wisdom, I believe, as Milberg notes, is sorely in need to revision.

And while I very much agree with most of Milberg’s observations about the Argentine case, and accept his friendly critique of some parts of my book, I think that he is too easily accepting some external views, from the U.S. and Europe, that “the country is once more on the edge.” This is not true in terms of its growth, balance of payments, fiscal deficit, growing investments in infrastructure, and most importantly reduced poverty and inequality. Low unemployment continues despite some slowdown in the construction sector.

Recent policy decisions and major legislative victories by President Cristina Fernandez de Kirchner on critical issues of social policy and the reorganization of the Central Bank demonstrate continued governmental momentum in strengthening “the model.” GDP growth in 2011 was 8.9%, an outstanding performance, particularly in a context of global economic uncertainty in Europe and the United States.

The YPF decision is supported by more than 75% of the Argentine population and is again an example where the logic of giving priority to domestic interests above foreign obligations makes good political sense and has brought clearly identifiable economic benefits to the country.

The issue of inflation remains a major concern, as real inflation is probably close to 25%, and deserves government attention. The unresolved issue of the controversial  calculation of inflation by INDEC, the government’s statistical office, probably itself contributes to uncertainty and thus itself fuels inflationary expectations.

The continuing drama of Argentine expectations deserves deeper historical analysis. Expectations play a major role in behavior and for different reasons, both the government and external observers should be careful in fueling negative expectations. Global capital will not benefit if Argentina’s economy fails to grow or worse still, falls into recession. Smart investors should study the Argentine case in detail to learn that there are lessons which should be considered, as solutions are suggested for Greece, Spain, and the rest of Europe, not to speak of a still sputtering US economy. Argentina’s government has learned that it must chart its own path, listening to the world at large, but in the end, make its own decisions in the interests of its people. That, after all, is part of the meaning of sovereignty and democracy, both of which cannot be taken for granted in a period of globalization.

My New School colleague Michael Cohen’s new book Argentina’s Economic Growth and Recovery: The Economy in a Time of Default provides the first detailed account in English of one of the remarkable episodes in recent economic history.  Cohen’s rendering of 21^st century Argentine political economy is detailed, nuanced, filled with summaries of political debates and standoffs and with a rich appreciation of the unequal ways in which the economic benefits are shared as the Argentine economy recovered from its macroeconomic collapse in 2001.

The book is a fast-paced (at times blow-by-blow) account, of macroeconomic extremes in terms of debt, exchange rates, government budget and trade balances and fiscal and monetary policy in Argentina.  But when I finished reading the book (and took a big exhale) what struck me — not an expert on Argentina by any stretch — were the many ways that the Argentine experience contradicts the conventional economic wisdom.  Without much explicit attention to issue of conventional economic wisdom (other than the attack on World Bank and IMF structural adjustment policies imposed on Argentina in the 1990s), Cohen’s account nonetheless forces us to think critically about some widely-held views in economics and especially development economics.  Let me describe seven different ways in which Argentina’s experience in the 21^st century should make us revisit some of the accepted aspects of economic wisdom.

To continue reading Will Milberg’s review of Argentina’s Economic Growth and Recovery by Michael Cohen, click here.

My New School colleague Michael Cohen’s new book Argentina’s Economic Growth and Recovery: The Economy in a Time of Default provides the first detailed account in English of one of the remarkable episodes in recent economic history.  Cohen’s rendering of 21^st century Argentine political economy is detailed, nuanced, filled with summaries of political debates and standoffs and with a rich appreciation of the unequal ways in which the economic benefits are shared as the Argentine economy recovered from its macroeconomic collapse in 2001.

The book is a fast-paced (at times blow-by-blow) account, of macroeconomic extremes in terms of debt, exchange rates, government budget and trade balances and fiscal and monetary policy in Argentina.  But when I finished reading the book (and took a big exhale) what struck me — not an expert on Argentina by any stretch — were the many ways that the Argentine experience contradicts the conventional economic wisdom.  Without much explicit attention to issue of conventional economic wisdom (other than the attack on World Bank and IMF structural adjustment policies imposed on Argentina in the 19990s), Cohen’s account nonetheless forces us to think critically about some widely-held views in economics and especially development economics.  Let me describe seven different ways in which Argentina’s experience in the 21^st century should make us revisit some of the accepted aspects of economic wisdom.

Conventional wisdom #1.  Conventional wisdom is that default on foreign debt will have disastrous consequences for economic growth, economic suicide.  The country that defaults, the thinking goes, immediately shuts itself out of international capital markets for an unpredictably long period of time, brings on a long-term collapse of the exchange rate, requires a long-term recession as the country is forced to “live within its means.”

Argentina defaulted in early 2002 and then:

*one year later was borrowing considerable  from the World Bank and Inter-American Development Bank.

*between 2002 and 2006 inward FDI rose at a rate of 26% per year  (much from Brazil)

*by 2006 was experiencing rapid economic growth rates, funding new social programs aimed at reducing poverty and was considered fiscally very sound.

Conventional wisdom #2.  Conventional wisdom runs that globalization is a process that drastically reduces the power of the nation-state, since increased capital mobility means that capital’s interests no longer coincide with those of the nation state and, anyway, the state’s influence over capital and the economy generally is diminished because capital (and labor) can simply move or shift production locations if domestic policies put it at a disadvantage.

Argentina’s example in a time of default is increased power of the national government, first over the decision to default on foreign debt, and then to run very active jobs and redistributional policy. Nestor Kirchner’s “strong state” was even criticized for being too powerful at time.

Conventional Wisdom #3. A corollary of this conventional wisdom about the diminished power of the nation state in the era of globalization is that one size – that is the neoliberal policy package – fits all.  Fiscal and monetary restraint, current and capital account liberalization, removal of subsidies are the basic requirements of any structural adjustment.  As a result of this thinking (which Cohen shows originated in the US and Europe), these policies became the basics of IMF and World Bank conditionality attached, in one form or another, to loans made throughout the later part of the 20^th century.

Cohen’s account of Argentina in the run-up to default is a case of “the (neoliberal) operation was a success but the patient died.”  Hyperinflation was cured but the debt became unsustainable.  Cohen’s account since default is a description of a complicated set of deviations from this policy prescription – and with considerable success: Higher taxes, pro-poor redistribution and spending, job creation programs, loose monetary policy with careful attention to a competitive exchange rate.  This was the political foundation for the rapid growth of the 2000s.

Conventional wisdom #4. Latin American wisdom (from  1950’s structuralist views on economic development made famous in the writings of Raul Prebisch and Hans Singer) says that developing countries should actively seek to avoid a pattern of specialization which is too reliant on commodities and primary goods – they have a low income elasticity of demand and are standardized goods for which no market power and no labor bargaining can take place.

What happened in Argentina in the 2000s was a period of rapid economic recovery strongly supported by the global commodities boom that drove an explosion of exports and which had a considerable multiplier effect across the Argentine economy – continuing to this day.  The terms of trade — driven to a great extent by high world prices for soybeans — is up over 50% in the last decade.  And this has come even in a period of depreciation of the Peso against the Brazilian Real. (Note that Cohen also questions whether the main source of economic growth was domestic demand.  When the peso was devalued in 2002, import substitution took place, raising demand for domestic goods and services.  Government spending also grew.  These, he argues, were the basis for the “demand-led recovery.”

Conventional wisdom #5: With the rise of China, consensus is growing around the view that the autocratic is most able to promote development.  Increasingly, Chinese success is connected to the autocratic nature of the political system.  It is this absence of democratic accountability in China, the conventional wisdom goes, that has allowed the Chinese government the ability and nimbleness to harness labor and capital investment in a massive industrialization effort.  Argentina’s remarkable era of democratically-elected governments belies this consensus view.

Conventional wisdom #6: Conventional economic wisdom is that a tide of economic growth will raise all boats.  The friendly World Bank amendment to this has been that one also needs good institutions, i.e. clear property rights protections.  The conventional wisdom is that economic growth per se is the central means to the improvement of well-being and the reduction of poverty.

The Argentine case shows that growth alone was not adequate and Cohen attributes progress on the poverty and employment front to Kirchner government efforts to support housing, health care, job creation, social protection and infrastructure.

Conventional wisdom #7. Conventional wisdom is that the international financial institutions are more powerful than domestic political forces – thus the old joke that the World Bank has brought down more governments than have national revolutionary movements.

Cohen’s account tells the fascinating story of a country that defaults on its foreign debt in the face of enormous IMF pressure not to do so.  Then, just a few years later, the government elected with the largest plurality in decades finds itself in an unwinnable battle about export taxes with the powerful and large domestic farmers.  These huge corporations, profiting greatly during the commodities boom of the 2000’s succeed with a lockout (keeping produce and meat off the domestic market), protests, influence peddling in the Senate, control of the media.  So what’s new?  Argentina defies the conventional wisdom.

Perhaps what is the most unconventional part of this book is the way Cohen tells the economic story of Argentina in a time of default.  Contrary to the economists, Cohen argues that all economic processes must be understood as political, that economic change comes generally with a “major realignment of political power.” Even more interesting is Cohen’s insistence that you can’t assess economic policy in some pure way, but only in the context of its institutional and political overlay.  This leads him to strongly resist the notion of the end of history or the end of politics in Latin America.  The book resounds with a very hopeful view of the possibilities of creativity and innovation in policy making and poverty reduction, management up urban development, but also with a realistic sense of the limits of politics.

Cohen’s views on these issues are closest to those of Peter Evans and his notion of “embedded autonomy.” The idea is that the most effective developmental states are those most closely connected to economic and civil society actors, but which also have sufficient autonomy  (a) to be able to implement policy effectively even when the impact of a policy shift is not favorable to one or more group of actors, and (b) to implement policies with long-term developmental consequences rather than short-term ones. Embedded autonomy is a particularly useful lens with which to think about economic policy making in Argentina, with its history of Peronism, military dictatorship and now a vigorous democracy.  Embedded autonomy remains particularly relevant in the Kirchner era, which at various moments was accused of being too embedded and at times too autonomous.

Finally, I would be remiss if I didn’t speak of Cohen’s own problem of “embedded autonomy.”  Cohen has been personally friendly with the Kirchner’s over many years and  they have supported the Latin American Observatory at the New School.  So the big question as I opened the cover of the book for the first time was whether Cohen would pull his punches in his assessment of the Kirchner governments.  The answer is that he does not hide his colors – he is mostly supportive of the Kirchner governments and their efforts at redistribution and poverty alleviation.  But he does this within a distinct analytical frame and from a clear sense of principles – that economic growth alone does not alleviate problems of extreme inequality, persistent poverty and lack of access to health care.  While the rapid recovery following default is remarkable, Cohen does not let the reader lose sight of the perhaps more remarkable feat which is the recovery from a brutal military dictatorship in 1976-1983 to a strong democracy that seems to have come not just with ambitions of voting rights but also of economic rights.  And he is critical of the Kirchner’s in a number of places, mostly for ignoring important aspects of long-term social well-being related to the development of science and technology, infrastructure and the apparent collapse of energy production over the last decade that may cripple the economy going forward.

Recent economic reports indicate that Argentina is once more on the edge:  The economy may well be spiraling into another crisis — exchange rate overvalued once again, capital flight, expansionary fiscal policy, inflation taking off.  Rumor is that the government may be falsifying the published rate of price inflation.  And while Cohen covers the politics of this in much detail, he is insufficiently critical of the government in its dangerous politicization of inflation data.  The recent law regarding the accountability of the central bank makes sense in that public accountability is in general a good thing, but the political pressures this creates for monetary policy to finance public deficits are not necessarily good over the long term.

Argentina’s Economic Growth and Recovery: The Economy in a Time of Default reflects a deep appreciation for the political culture, the economic history, the geographical complexity, the class differences and the international pressures that Argentines have struggled with over the past two decades.  It is an important treatise in political economy and Cohen tells it in detail and with a lot of passion and even, at times, frustration.  My sense is that these two sentiments – passion and frustration — are conventional sentiments for most Argentines.

First, though, I must acknowledge the insight of his media criticism.  I think the Times reporter is inaccurate about politics in Argentina for the reasons Martin presents in his post, and further elaborated in his reply to the post.  The reporter may very well hang around the wrong people, listening to critics who are far from unbiased and with questionable democratic credentials.  And he may not fully appreciate that fundamental change can occur democratically, with radical changes in social policy, because this has not a common feature of American political life since the 1930s.   Such a reporter can’t tell the difference between the democratic, and the authoritarian and populist left.

And when Martin notes that factual lies can persist because they are left unopposed in our fractured media world, in response to my concern about the power of fictoids, I think he is onto something very important.

But I do disagree with Martin’s overall appraisal of Democratic politics and the Presidency of Barack Obama, thus far.  Put simply, I am not as sure as Martin is that President Obama and the Democrats in Congress have not offered a significant alternative to the Republican Party and the Presidential leadership of former President George W. Bush, both in terms of platform and enacted policy.  I don’t deny that “mistakes were made” in the development of this alternative.  Perhaps more could have been accomplished.  And I realize that Obama and the Democratic leadership have not played their hand particularly well in the competition with the Republicans, but this doesn’t mean that a different hand wasn’t being played.  And, we should remember that there were significant winnings as the game proceeded.

The Obama and Bush administrations have proven to be fundamentally different in many ways, and it is important that we don’t lose sight of this.  Instead of a failed attempt to privatize social security, there was a successful accomplishment of healthcare reform.  The reform is initially modest and not all that Martin and I would wish, but the precedent has been set.  Decent healthcare is emerging as a citizen’s right.  America’s relation with the rest of the world is on a much different footing.  The repeal of “don’t ask don’t tell” is now supported by the Secretary of Defense and the military leadership. It will soon be a policy of the past, no matter how much kicking and screaming comes from John McCain.   And most significantly, for the future prospects for a democratic society, there are very different Supreme Court Justices now being nominated and confirmed.

Given these very big differences in program and enacted policy, I think the notion that there is no empty space for politics in America, which Martin suggests drawing on Lefort, is a sophisticated way of saying that the parties don’t offer different programs, and don’t represent very different visions of the American common good and American identity.  I think this is simply not true.

It’s mystifying to read The New York Times’ coverage of my other polity, Argentina, where the editorial positions seem to be the exact opposite to those of their coverage in the US. On the one hand, in American politics, the attacks on Obama and the Democrats as “totalitarian,” for having attempted and achieved a modest reform of the healthcare system are presented as borderline madness by the Times.  But on the other, the progressive, democratic, and successful reformist governments of Nestor Kirchner—from 2003 to 2007—and Cristina Fernandez—since 2007—are accused of “authoritarianism.”

Moreover, the sources quoted when making such accusation are often mediocre conservative political commentators and journalists that would hardly be taken seriously in the US—at least, I think, in The New York Times. In no way less problematic, but perhaps more understandable, due to their sharing social circles with members of financial global institutions, the journalists’ assertions often come straight from “risk consultants” in financial firms.  It is never made clear, however, that these are political adversaries of the democratically elected administration and significantly less appreciative of the working of democratic politics, to say the least, than the Argentine government.

While this strange phenomenon at first may seem difficult to understand without resorting to conspiracy theory, a closer examination of Argentine and American politics explains the apparent reporting anomaly.  In Argentina the working of democratic politics involved during the period serious conflicts about major issues—such as repealing amnesty laws giving impunity to the 1976-83 human right violations, appointing the most prestigious and independent Supreme Court in the country’s history, astonishingly reducing the national foreign debt in tough negotiations with international financial groups and the IMF, building a strong and democratic Union of South American Nations, and passing transformational laws de-monopolizing media markets, universalizing marriage (gay marriage,) extending social security benefits to millions of uncovered senior citizens, streamlining the path toward citizenship for hundred of thousands of Latin American immigrants, and creating a universal subsidy for children. In contrast, in the United States, we have come to expect very little change coming from administrations from the left of center of the political spectrum. In Argentina, the victory of the democratic left led to real changes, in the U.S., less so, revealing a fundamental problem.

Would it thus be too strong a claim to say that The New York Times’ coverage of Latin American politics is over-determined by an expectation that power is no longer an empty place, in the sense of Lefort, as I explored in my previous post?  Would it be too strong a claim to say that democratic politics seem authoritarian from a perspective no longer expecting, or even accepting, successful political agency from our elected leaders?