Canada and Argentina in the 20th century

Whenever I teach growth theory, I like to compare the Canadian experience with that of Argentina. Up until the 1930's, the two countries followed very similar paths: foreign investment financing the development of resource-based economies. But then the 1930's happened, and Canada and Argentina parted ways.

This is the best graphical demonstration that starting points are not destiny (the data are from Angus Maddison):

During the 65 years between 1870 and 1935, Argentina kept pace with Canada. Since then, Argentina's income per capita increased by a factor of 3, less than half that of Canada.

It's hard to see how that gap could be explained by anything other than the unhappy choices made by Argentina's political classes over the past four generations. Which makes me think that the answer to Dani Rodrick's question is a despairing 'yes'.

Update: Brad DeLong has just reposted his 1991 piece with Barry Eichengreen on the decisions Argentina took in the 1930s and afterwards.

Comments

[Theophilus]

MacKenzie King, Pearson, even Diefenbaker.
As a kid and young student I often thought, what a bunch of duds. How wrong I was. When they study the role of government in a successful country, Canada and Argentina are the bookends on the success failure line.

[Jim Rootham]

My eyeballing of that chart says the 2 critical things are WWII and the Generals capture of the government in the early 70's.

So, military Keynesianism and democracy are good things?

[E. Poole]

Those bad choices made by Argentina's political classes have enjoyed considerable popular support.

Unfortunately, neo-marxist populist resource management policies and right-wing, exploit-it-quickly policies tend to dovetail in the same tragedy of common wealth.

I love Argentina and look forward to returning one day but over the past 6 years in this rip-snorting commodity boom, I have studiously avoided buying resource companies active in Argentina. North Africa and the Middle East are viewed as safe by comparison. Brazil and Chile are also highly regarded.

For full disclosure I own shares in oil&gas and base metal companies active in Libya, Syria, Chile, Cuba and Brazil. I speak Spanish with an Argentine accent.

Note that the neo-marxist, anti-imperialist author who wrote the hugely popular The Open Veins of Latin America was Argentine. One wonders if Argentinians, Bolivians and others are still being driven by exploitive practices dating from the 19th century and early 20th century. I ask because our neo-marxist environmental activists here on the west coast of Canada appear to operate from an isolated bubble.

[travis fast]

Sometimes you tick like a clock. It would be that you throw up Argentina. And you are not the first economists to terrorize his poor undergraduates with this comparison. As I understand it this has been a stock straw man going back to the 50s in Canada. Indeed, I have heard rumors that many a member of the McDonald commission were haunted each night by that graph as they waxed and waned on the issue of free trade.

What you fail to mention is the substantive content of those policies. Such policies range from the political terror of the military coupled with economic ruling class having its way to a liberal democratic state with massive liberalization guided by the paragons of economic orthodoxy: both of which ended in a hyper period of increasing disparity with Canada. In fact one can use Argentina to prove that almost no set of economic policies and political arrangements work. In fact I am going to start using the same comparison in my classes.

I will use it as the proof of the "second law of public policy": Misery cannot be created or destroyed only displaced.

[joel]

Jim:
the "neo marxist" author you refer to is not argentinian, he is uruguayan. Anyway, that's a minor detail among other inexactitudes.

[joel]

sorry, that was for E poole

[michael]

THANK YOU!!!!!