The Argentine "Miracle"

In my last post, I attempted to provide some detail on the biggest challenge that world leaders in the international political economy spectrum face in the XXI century. As I mentioned on Monday, September the 17 of 2012, I believe that the biggest challenge is state capitalism. Today, I want to revise my previous post and through a case study of Argentina, analyze if state capitalism is actually a big threat to world leaders.

Pierpaolo Barbieri, a fellow at Harvard Kennedy School, on August 8, 2012 wrote an article on the Wall Street Journal an article about Argentina and the political atrocities the Kirchner have done since their rise in 2003. Mr. Barbieri smarty calls it Crony Capitalism, he does so, because since they been in power, the Kirchner have been too concerned with making their friends better off and society worse off.

The Kirchners came to power in 2003 after wining the elections against Carlos Menem. Following, what came to be known as the biggest default in history (~$132bn), Argentina experienced rapid growth levels, mainly due to increase demand of soybeans from China. This exogenous increase in demand, allowed the Kirchner to be marked as responsible forgetting Argentina out from its crises. Rest assured, that the rapid growth that Argentina experienced has nothing to do with the policies that the Kirchners' established.

Many renowned economists such as Paul Krugman and Joseph Stiglitz have publicly endorsed Argentina's success story. Does that mean the Kirchner have been successful with their crony and protectionist policies? No, both Krugman and Stiglitz fail to go beyond the data; they simply look at GDP and some main economic indicators. Though they are both of them some of the most brilliant minds in the field, they fail at studying the living experience Argentinians have to put up with. Mr. Barbieri does a great job at this.

Just to summarize the main policies that Mr. Barbieri describes:

1. Decreased independence of institutions:
1. Destroyed central bank's independence from government.
2. Manipulated the national statistics agency to report lower inflation rates.
2. Severe currency and trade controls.
3. Nationalized private pensions
4.  Seized large private companies.
5. Lack of property rights and increased crime rates. 

It can easily be deducted from this bullet points above that Argentina has indeed become a state capitalist country. Also, you can imagine that this state capitalism has benefited no one other than Mrs. Kirchner friends. Therefore, things are not going well, income inequality is growing and the middle class is slowly disappearing. Firms are scared to invest in operating activities and seek no expansion plans at all. Argentina has now entered into stagflation.

Looking at the broader image and other countries in Latin America, it can be concluded that Argentina has wasted an opportunity to climb up the ladder of development that Brazil and Chile climbed when they had the chance.At least, society decided to bring back the famous or infamous cacerolazo of 2001. The question now, is how do we get Argentina out of this mess? With few or none trustworthy politicians and weak institutions, it is going to be a hard task. On a worldwide spectrum, how can leaders in the developed world prevent leaders in the developing world to adopt state capitalism?