The Resiliency of Populism: Lessons from Argentina

In the wake of its most recent economic crisis, Argentina has just signed an agreement with the International Monetary Fund (IMF). The agreement will reinforce the austerity measures introduced by centre/right president, Mauricio Macri, since 2015. Most observers blame Argentine populism for the country’s current economic debacle and urge strict austerity, institutional reform, and an end to corruption as the solution. However, such measures are not likely to solve much because they do not address the root cause of populism. Understanding the enormous reliance of populism is key since the most pessimistic of observers suggest that the current Argentine crisis may be the harbinger of worsening economic and (political) troubles in the region and beyond.

The Long History of Argentine Populism and Economic Crises

The standard explanation of Argentina’s current difficulties is the period of populist rule beginning with the election of Peronist President Néstor Kirchner in 2003. The administration of Cristina Fernández de Kirchner from 2007 to 2015 was particularly harmful. During this period, the government increased public spending, nationalised companies, heavily subsidised basic consumer items, and controlled the exchange rate. This latter created a black market in dollars, discouraged exports, and heavily distorted prices. As commodity prices declined, debt and the fiscal deficit shot up. In many respects, this populist surge is a puzzling outcome since the country has experienced so many populist expansionary episodes in the past, followed each time, by the similar outcomes: economic crisis, tough austerity measures, and recession. Indeed, the country’s populist expansionary episodes between 1958 and 2003 resulted in no less than 26 agreements with the International Monetary Fund.

If populist intervention and spending is the problem, IMF and IMF-type austerity programs have not provided a solution insofar as their standard prescription of cutbacks in government spending, credit and wage restriction has not produced sustained growth. A more useful approach is to explore the root cause of populism; addressing the root cause is a prerequisite to successful institutional reform and to policies producing macroeconomic stability over the long-term.

The origin of Argentine populism (Peronism) is found in the exclusionary political arrangements that maintained power in the hands of the country’s landed/commercial oligarchy until the middle of the twentieth century. A strong supporter of free trade, this elite was unable to forge a political party that could win elections. It therefore resorted to military intervention and repression to ensure the exclusion of the country’s growing working class and urban poor from political representation. Frightened by the mild reformism arising from the institution of universal franchise in the early part of the twentieth century, Argentina’s landed/business elite took power through military coup in 1930--and on various occasions thereafter. This 1930 coup marked the beginning of a thirteen-year period (1930-1943) known as the infamous decade during which electoral fraud and political repression kept opposition political parties out of the political game and social reform off the political agenda. These events eroded the legitimacy of Argentina’s liberal democratic institutional framework, setting the stage for the rise of Peronism in 1943.

Populism: A political project to open the political system and maintain power

The resilience of Peronism needs to be placed within the context of the Argentina’s intransigent political and economic elites; it was Peronism with its emotionally charged political appeal that made way for the industrial growth and social improvements that these elites had so fiercely resisted. However, Peronism, like most populisms, was not a long-term (or even medium term) economic project. It was a political project that could only knit together its heterogeneous support base by dispensing material rewards to supporters. Organized workers and middle classes received improved wages and benefits, small and medium industrialists generous state protection and cheap credit, and the rural poor some improvements in income and social benefits. Access to government patronage kept key popular leaders in line. Hence, through the 1950s, the regime’s conduct of the economy was riddled with inefficiencies and it was not sustainable. This was a classic case of what Joel Migdal characterizes as the “politics of survival” in which patronage and corruption become central to the maintenance of political power. A similar scenario played out during the presidency of Cristina Fernández.

Regime survival and institutional capacity require an underlying distributive political settlement that addresses the collection and allocation of national wealth. The absence of such a settlement means an ongoing and bitter struggle over control of the state. Competing political forces often view this struggle as zero-sum. This kind of struggle can erode regime illegitimacy and exacerbate political polarization. Corruption expands as state managers strive to hang onto power. In the absence of a distributive settlement, business groups remain fearful of centre/left governments and strive to limit their policy choices, often through capital flight. Popular groups and the parties that purport to represent them remain equally fearful of regimes where powerful business groups appear to have sway.

Without a Distributive Settlement, not much will change

While Mauricio Macri was popularly elected in 2016, his victory against the Peronist candidate was a narrow one. As his austerity policies have taken hold, with large-scale layoffs, inadequate salary increases in the face of rising inflation, and increasing prices on basic consumer goods, protests, strikes and demonstrations have been on the rise. With the memory of the sharp rise in poverty that had occurred with the 1999-2001 economic crisis and the association of this crisis with the IMF’s tough austerity advice, public protests against the Fund have gathered momentum. Meanwhile, the country’s big business sector, particularly the country’s exporters, is highly supportive of President Macri’s policy direction. Given that Marci’s policies have increased both unemployment and poverty since 2015, while the country’s taxation remains regressive, it is not difficult to grasp why populism, involving a deeply rooted antagonism to both the domestic business oligarchy and the International Monetary Fund, remains deeply rooted and is not likely to diminish any time soon.

A national distributive settlement is essential to the fair and transparent operation of public institutions and good public policy. In the first instance, political exclusion is at the root of this deficit because it means that the claims of the excluded do not make it onto the political agenda. In Latin America, populism served to push open political systems in the face of fierce elite resistance. However, without a distributive settlement, the rise to power of the previously excluded produces dread and profound feelings of insecurity among those (the wealthy and middle classes) who have held power. This is understandable given that over time, exclusion serves to de-legitimize public institutions in the eyes of the excluded with the result that newly elected populist leaders have little reason to treat those institutions with respect. Meanwhile, political contestation can easily become zero-sum; deep suspicion and fear feeds political polarization as those who have power struggle to maintain it at almost any cost.

Venezuela is probably the worst-case scenario of this type of outcome in Latin America. However, to a greater or less degree the absence of distributive settlements is at the core of intensifying political contestation and growing polarization in much of the region. Most countries in the Global North have had distributive settlements. Their unravelling in the face of rising precarious employment and the weakening of welfare states plays an important role in the rise of populism in Western Europe and the U.S, a topic I have addressed in earlier posts.