What explains the different economic paths taken by Argentina and Chile?

The Impact of Globalization on Argentina and Chile is the title of a book which looks at the paths taken by two countries. Argentina which was one of the top economies in the beginning of 20th century is not even a pale shadow of its great past. Chile also after many upheavals has managed to get its act together.

The editor of the book, Prof Geoffrey Jones explains the findings in this interview:

Sean Silverthorne: The “Argentina Paradox”—how such a rich country and economic powerhouse could fall so quickly—has been much studied, but little research has been done comparing Argentina with its immediate neighbor to the west, Chile. What was the motivation for the book?

Geoffrey Jones: The book had its origins at Harvard Business School some years ago through a fortuitous combination of circumstances. A prominent Chilean shipping entrepreneur and alum, Sven von Appen, heard me speak about my ambition to encourage global course development and research in business history, and the importance of an informed and rigorous historical understanding for practitioners. He visited my office later to say that he felt Chilean policymakers and business leaders lacked such an understanding, and he would like to do something about it.

Coincidently, our postdoctoral fellow in business history that year was Dr. Andrea Lluch, from Argentina. This was the origins of a research program and conference series which led to this collaborative volume, and the Creating Emerging Markets oral history project, which began with interviews of business leaders in Chile and Argentina.

We concluded that we could add real value by seeking to develop a comparative perspective on the two countries around the theme of how they had been impacted by globalization over the last 100 years. Both countries had rich historiographies, but they had largely proceeded on national lines, with few attempts to compare each other, both the similarities and differences, especially of their business systems. So we set about using the convening power of the School to bring together the best scholars in business and economic history in both countries, and to generate compelling new empirical data through interviews.

Q: What are the main findings from the research reported in the book, and what do they tell us about economic development and globalization in developing countries in general?

A: I think the book demonstrates both the opportunities, and the vulnerability, of many developing countries in a globalized world. During the late nineteenth century both countries flourished as major exporters of commodities to the industrialized nations in North America and Europe. Argentina did so well that it became one of the richest countries in the world. You can still see the richness in the old buildings and streets of Buenos Aires.

Yet this kind of globalized economy also created distortions, as it was the owners of land and commodities who became rich. When globalization came to a shuddering halt with the Great Depression, there was a crisis. Chile passed through an existential crisis as its economy went into a downward spiral as nitrate prices collapsed. It became highly inward looking and had one of the slowest rates of growth in Latin America for decades.

Argentina’s fall from grace was less immediate, but more prolonged. Populist and often value-destroying policies resulted in repeated cycles of growth followed by downturns. Policy instability grew as civilian-led governments alternated with de facto military governments.

Eventually Chile, and to some extent Argentina, opened their economies to new wave of globalization which began in the late twentieth century, but once more the experience has been a mixed blessing.

In Argentina, liberalization and opening to the world in the 1990s first produced growth, and then instability as the Asian financial crisis impacted the country. At the turn of the century a wholesale banking crisis resulted in the country’s GDP falling one-fifth between 1998 and 2002. Chile did better in this era of globalization, and boomed supplying copper to China. Chile produced one-tenth of the world’s copper, but once more was badly affected when Chinese and world demand declined in the last three years.

The commodity boom was accompanied once more by high levels of inequality. While closing the borders of small markets to globalization has been a recipe for slow growth and low productivity, opening them all too often is a recipe for instability and shocks. Effective institutions, consistent policy making, and innovative businesses are the way to maximize the gains and minimize the risks, but all three have been in short supply in Argentina, especially, for decades.

Interesting bit. The promise of Latin America is mostly a disillusion..

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