USA, Argentina and Alan Beattie: Wrong Starting Point

I was intrigued by the early announcements of Alan Beattie’s book ‘False Economy: A Surprising Economic History of the World.’

So I read with interest his shorter piece summarizing the opening chapter of the book that presents his interpretation of the history of USA and Argentina (“Argentina: The superpower that never was” May 23 2009, published by the FT).

The simplified argument is that about a century or more ago the US and Argentina were roughly comparable in economic terms, but good policy choices in the US and bad ones in Argentina have led to the large differences that currently exist between both countries. Alan Beattie seems to be pretty satisfied with the policy and morality tale he wants to tell. The problem is that the premise of rough economic comparability between both countries in the XIX century is off by several orders of magnitude.

There was simply no contest in terms of population and total GDP: since there is comparable data the US has always been far bigger and richer. The next Table (from Angus Maddison’s historical data published by OECD) makes the point.

USA and Argentina: Indicators

1820 1850 1870 1900 1930 1950 1975 2003

Population (thousands)

USA 9980.5 23579.7 40240.6 76391.0 123668.0 152271.0 215973.0 290342.6

Argentina 534.0 1100.0 1796.0 4693.0 11896.0 17150.3 26081.9 38740.8

Argentina as % USA 5.4 4.7 4.5 6.1 9.6 11.3 12.1 13.3

GDP (million 1990 Geary-Khamis dollars)

USA 12548.0 42583.0 98374.0 312499.3 768313.8 1455916.0 3516825.0 8430760.0

Argentina na na 2353.9 12931.8 48530.7 85524.0 211850.0 296991.0

Argentina as % USA na na 2.4 4.1 6.3 5.9 6.0 3.5

Source: Angus Maddison

In terms of GDP, Argentina was never bigger than about 6% of the US economy. The big decline happens after the military coup d’etat in 1976. Also considering total population, there are big differences: in 1870 the US had the same population that Argentina has reached just now. This is central to understand another point made by Alan Beattie regarding the differentiated nature of the agrarian structure and the size of the domestic markets in both countries (to which I turn).

Beattie seems to think that the agrarian structure in the US and Argentina were policy decisions (“America chose a path that parcelled out new land to individuals and families; Argentina delivered it into the hands of a few rich landowners”). In fact, the forces of demographics and geography defined the ratio of settlers to land in both countries. It was simply far easier (distance and language) to go to North America than to South America. Therefore, between 1820 and 1930 the US received about five times the amount of migration from Europe than Argentina (which was nonetheless the second place of immigration). More relevant, total US population, as shown in the previous table, was several times larger than Argentina’s to start with: in 1820 it was already 18.7 times larger. A bigger original stock plus a larger flow of migration determined that the US was always far more populated than Argentina: in 1850, 21.4 times; in 1870, 22.4 times; and in 1900, 16.3 times.

But total population has to be compared to land availability. Taking the current situation as an indicator of the potential relative availability of agricultural land in both countries, the US is (and was) somewhat more than 3 times larger than Argentina (according to FAOSTAT current US potential agricultural land is about 410 million hectares against about 130 millions hectares in Argentina). This indicates that during the period of formation of the agrarian structure, the US had between 5 to 7 times more people than Argentina per unit of notionally available land. When the US army was pushing the frontier to the west there were far more settlers eager to occupy the land than in Argentina simply because of demographics.

Beattie, along with many others, mentions the importance of the agrarian structure both for the development of an internal market and for democracy (on the latter, Barrington Moore’s “The Social Origins of Dictatorship and Democracy” is a classic that is always good to keep at hand). But in Beattie’s morality tale, this was a policy decision, when in fact geography and demographics determined the outcomes. When the next waves of immigrants came to Argentina in the early XX century, an agrarian, economic and political structure was already in place that was more constraining than the structures in the US for the development of industry and the strengthening of democracy. This fact is central, in my mind, to understand the subsequent development of Argentina.

Although this blog discusses current events, it is always useful to have a sense of history to better understand what happens in the present. Paul Samuleson was supposed to have said in the 1970s that countries in the world can be divided into four categories: developed, developing, Japan (which it was not obvious how it had become a developed country) and Argentina (which it was not clear why it had turned into a developing country). Argentina continues to puzzle and infuriate many, starting with her own citizens. So, for analysts following Argentina’s twists and turns, particularly when trying to define scenarios after the recent mid-term Congressional elections that have given the opposition a far more determinant percentage in the Legislature, it may be important to understand history, including agrarian issues. But, in my opinion, Alan Beattie’s account is not the place to start.