The Economics of it All (Part 1)

The following is a translated excerpt of a presentation made by Aldo Ferrer, Professor of Economics at the University of Buenos Aires before the House of Representatives in Congress on June 25, 2008 regarding the conflict between the agricultural sector and the government. Ferrer is one of the country’s leading economists and is part of the Fénix Group which was formed in the year 2000 by Argentine economists seeking to design an economic model for the country which could offer an alternative to the neoliberal policies promoted by the Washington Consensus. His presentation before Congress offers an interesting summary of and take on the conflict and he’s able to see the situation from a much broader perspective than that reflected in the daily papers. He also touches (in the second half... to be posted soon) on some similarities that Argentina shares with Canada and other countries which you might find interesting.

I hope you’ll forgive any errors and awkward phrasing. My knowledge of economics is somewhat limited and I did this translation quickly. The original (in Spanish) can be found here.

I’m posting the (unrevised version) of the first half of his presentation tonight. The translation still needs some correcting (which I hope to get to as soon as possible) but if you don’t mind braving the rough wording, feel free to have a go at it now. Tomorrow there are two important protests planned –one for each side of the issue (or rather a rally and a counter-rally). The bill was passed from Congress to Senate and is being debated in Senate tomorrow afternoon. At this point, it is very close and no one is able to tell what the results will be. In addition to this, representatives and others associated with the producers have made public statements to the effect that even if it’s passed, they are not willing to comply and claim the unconstitutionality of the proposed export tariffs. The rallies tomorrow are planned to coincide with the announcement on the results of the debate.

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Mr. President, Representatives of the House, Ladies and Gentlemen, the topic we are here to discuss, that of the tariffs, in my opinion, has up until now been discussed from only one perspective, that of the redistribution of earnings, the distribution of an income that is coming not only from individual production but also from a situation of high prices on the world market, and the increase in earnings from exports.

The debate has been whether or not it is fair to distribute this income in order to defend food prices on the domestic market and have a more equitable distribution of wealth or, if this income belongs wholly to those who produce the export goods.

In my opinion, this approach is insufficient because implicit in the topic of the tariffs is the prior and very important problem of the productive structure of the country. Development in today’s world is a process based essentially on the use of science and technology, in the management of knowledge and with the goal of augmenting worker productivity throughout the social and economic fabric of a modern nation. Several conditions are necessary in order for the incorporation of science and technology to produce development in modern constructions. One of them is to count on an integrated and diversified structure that is able to incorporate diverse sectors of modern production from the conversion of natural resources to leading edge technologies connected to biotechnology, information technology and the production of capital goods.

If this does not take place, if a system does not have a sufficient level of diversification or ability to incorporate and produce knowledge, it is unable to develop under modern conditions. This is also closely linked to the development of national systems of science and technology. Only countries with integrated, diversified and complete structures that cover a variety of productive sectors, have systems that are strong in science and technology. There are no exceptions in this sense. There is no scientifically and technologically advanced country without a productive structure with those characteristics.

Therefore, the development of the country requires –as stated—a structure with these characteristics, one that cannot be sustained in one sector alone. For instance, it cannot rely solely on the production of primary goods. Nor is there any developed country in the world which relies solely on the transformation and income from primary goods. Countries rich in oil, copper, minerals or tropical resources are not able to leave an underdeveloped state unless they manage to develop a complex and diversified structure. In our particular case, the agro-industrial chain, with all the direct and indirect employment it generates, represents around a third of the employed workforce. If we are unable to rely at the same time on industry as a base, we will be unable to provide work and social welfare for a population of 40 million. In other words, unless we can rely on an integrated structure we will never be able to reach fully employment, we will only be able to take care of less than half our population.

We must face the fact that, as the great economist (as well as engineer and businessman) Marcelo Diamand has said, the Argentine economy is structurally unbalanced. By virtue of a great wealth of natural resources in the country and high efficiency shown by many producers that are using the latest technology, we have an agricultural sector that, as some like to say, is a “precision agriculture” in many areas. The fact that many rural producers are employing cutting edge technology is revealing. Today, in contrast to some time ago, agriculture is no longer an activity of low “knowledge employment”. Rather, agriculture is on the technological frontier which has allowed, on the other hand, the extremely important development that this sector has carried out on the natural resources which this country counts on.

However, it so happens that the Argentine economy is part of the world market and the relative prices on the world market are not the same as our domestic prices. If we were to transfer the prices of the world market to our domestic market, we would be determining our productive structure with respect to price indications on the world market.

One can also take the opposite example, of relatively different prices in a highly industrial region such as the European Union. Precisely because the European Union wants to have an integrated structure and advanced agricultural industry, it applies a common agriculture policy to which it devotes much of the resources in the region. If it weren’t to do this, there would be no European farming. It has rightly decided to defend its primary production with a common agricultural policy in order to assure its food supply and social integration.

Given our relative underdevelopment, we are in the opposite situation. Therefore, because a modern State has the obligation and right to administer international prices within its own borders with the objective of national development, which consists in maintaining a diversified and complete structure, from the production of natural resources to a diversified service industry and the aim to manage development, incorporate knowledge and technology and, as a consequence, to grow. This forces us to confront our unbalanced structure, one in which...

[Here, Professor Ferrer was interrupted by proponents of the agricultural producers and other opposition obligating the House to take a recess and resume later in the afternoon.]