The Fall of Gaucho Capitalism

There is a phrase used to characterize the American economic system at its least attractive: "cowboy capitalism." It's a reference to private enterprise run rampant, an economy in which speculative greed and what John Maynard Keynes referred to as animal spirits rule unimpeded by public oversight and regulation. Under cowboy capitalism, an irresponsible wild West atmosphere prevails and anything goes; the worst impulses of the marketplace come to the fore, encouraging a get-and-grab mentality. The unspoken corollary is: the public interest be damned.

Although the dot-com crash and the Enron fiasco provide evidence that America's cowboy capitalism is alive and well in the era of globalized laissez-faire, the US has yet to face a serious day of reckoning for its market excesses of the recent past. However, one of our Latin American neighbors is providing an object lesson in the ultimate costs of free-market economics carried to the extreme. Argentina, home of the legendary gaucho, cousin to the North American cowboy, evolved its own native version of cowboy capitalism during the 1990s under the pressure of globalization. Let's call it "gaucho capitalism."

Argentina was the Southern Hemisphere's most enthusiastic and thoroughgoing convert to the conservative American economic model that emerged from the Reagan-Bush years and matured during the Clinton presidency -- the so-called Washington Consensus favoring a minimal role for government (also termed "neoliberalism" after the anti-statist classical economic liberalism of the late-19th century). As defined by American free-marketers, neoliberalism demanded privatization and deregulation of industry, limited government social spending, a strong currency, a "flexible" (or cheap and unprotected) labor force, and a trade policy that eliminated commercial barriers in accordance with the dictates of the International Monetary Fund (IMF) and the World Trade Organization (WTO).

Under the leadership of President Carlos Menem (1989-99), Argentina committed itself whole hog to neoliberalism as the route to economic growth, even adopting a currency reform that tied the country's peso to the dollar in an effort to curb inflation, a decidedly "hard-money" approach beneficial to lenders over debtors. Other policy changes included spending and wage restraints, an open door to outside ownership of the Argentine private economy, including its banking sector, and sale of the country's government-owned water, oil, gas, telephone, electric, railway, and airline companies, as well as its postal service -- mostly to foreign investors and multinational corporations.

These moves were supposed to place Latin America's third largest economy on the fast track to prosperity; instead, Argentina's 36 million people were put on the road to poverty and chaos. Menem's free-market reforms created an investment boom for foreign investors, but also led to stagnant wages, double-digit unemployment, and the undermining of locally owned business and industry. Privatization was accompanied by bribery, scandal, and inflated subsidies; worst of all, the resultant lost government income, combined with a need to bolster the overvalued peso, led the Menem administration to borrow heavily from foreign banks and later from international agencies like the IMF.

By the end of the 1990s, Argentina, erstwhile showcase for free-market economics and globalization, was mired in recession and billions in debt. President Fernando de la Rua, who succeeded the discredited Carlos Menem in late 1999, offered only a corruption-free version of neoliberalism. The hallmarks of his brief administration were further spending cuts and a restrictive labor-flexibility law (read: no rights or job security for workers) demanded by IMF creditors. By the time de la Rua was driven from office a few weeks ago by angry, demonstrating Argentineans, the country's unemployment rate had reached 18%, and it had defaulted on its $140 billion national debt.

Enter Eduardo Duhalde, Argentina's fifth president in a riotous two weeks, who took office through a special legislative selection process on Jan. 2. While Menem, the Bill Clinton of his nominally left-of-center Peronist party, was an economic conservative, Duhalde hails from the progressive wing of the same party and represents its populist tradition. It may surprise Americans to learn that party founder and namesake Juan Peron, the dictator who ran Argentina with an iron fist from 1945 to 1955, was nevertheless a believer in economic populism and held power largely at the sufferance of labor unions and the country's working class, the descomisados, or "shirtless ones."

Under Duhalde, Argentina is returning to Peronism's regulatory and economic-nationalist roots. His first moves, a devaluation of the currency accompanied by strict rate controls on foreign-owned water, power, and telecom firms, are a direct challenge to the free-market hegemony. "My commitment," the new president has said, "is to do away with an exhausted economic model ... and ensure a better distribution of wealth."

There is good reason for Latin Americans (and the rest of the Third World) to reject what another hemispheric populist, Venezuelan President Hugo Chavez, calls "savage neoliberalism." Argentina is only the latest victim of a globalized free market run wild. First, there was Russia's IMF-recommended "shock therapy" conversion to capitalism in 1992, which produced 500% inflation, a 50% poverty rate, and a descent into underdeveloped status. Then, there was Mexico's banking crisis and near economic collapse in 1995, which necessitated a $50 billion US bailout. Next, there was the East-Asian "hot-money" financial crisis of 1997-98 that nearly levelled the economies of Indonesia, Thailand, Malaysia, and the Philippines. And, finally, there was the 1998-99 stock-market crash and forced monetary devaluation in Brazil, which contributed indirectly to Argentina's economic woes.

All of these good tidings were brought about by corporate globalization in the form of international financiers and their investment/loan guarantors at the IMF, operating with the support and encouragement of the US government. A succession of economically conservative administrations in Washington have determined that the American model of neoliberalism is the proper model for the world at large and have messianically set out to make it so. Since the IMF relies on the US for roughly a fifth of its funding and cedes a fifth of its executive voting power to US representatives, it has become a ready instrument for those in this country who would advance the neoliberal cause.

Be like us, Third World countries are admonished, by opening your markets and letting laissez-faire be your guiding economic philosophy. It worked here, didn't it? Well, yes and no. Americans have prospered not because of unrestrained free-market capitalism, but because we possess vast natural resources, land to spare, and a large, energetic, and talented population -- and because at crucial times we have tamed our capitalist system and regulated it in the public interest.

America would have succeeded under almost any form of economy. Yet, Washington's free-marketers insist on imposing a very narrow, ideological version of American capitalism on the developing world, and when it fails (as in Argentina), they rely on the IMF and its austere structural-adjustment programs to "rescue" the ne'er-do-wells -- at high debt interest, of course. Argentina has become the first prominent victim to reject the bargain and get off the globalization treadmill; it may not be the last.

Wayne O'Leary is a writer in Orono, Maine.

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