An economic lesson from Argentina.

• Author: Adams, Tucker Hart
• Position: The ECONOMIST - Viewpoint essay

I'M JUST HOME FROM A MONTH OF TRAVEL IN South America Argentina, Uruguay (only briefly), Chile and Brazil. The trip was very interesting, from a traveler's point of view, hut it was absolutely fascinating for an economist.

Today, all four countries are listed as Upper Middle Income by the World Bank, although the differences are significant. Per capita output (GDP) adjusted for the purchasing power of the local currency ranges from S12,000 in Brazil to $18,200 in Chile. By comparison, per capita GDP is S49,800 in the U.S. and $102.800 in Qatar, the world's richest country.

In the 1500s, the Spanish established colonies in Argentina and Chile, while the Portuguese established a colony in Brazil. Argentina declared independence in 1816, Chile in 1818 and Brazil in 1822.

Here is where history gets really interesting for an economist. Agriculture in Argentina expanded rapidly, foreign investment poured in from Britain and immigrants came from throughout Europe. From 1880 to 1930, under a modern constitution and a national unity government, Argentina became one of the world's wealthiest nations. At the beginning of the 20th century. Argentina was the seventh richest country on earth and "As rich as an Argentine" became a byword.

Today Argentina's economy has fallen to 67th, below not only Western and Eastern Europe, but below South Korea, many Arab nations and several countries in Africa, Brazil, one of the BRICs (at the same stage of advanced economic development as Russia, India and China), has seen its economy grow roughly seven-fold since 1980. Argentina, by contrast, is only up four-fold.

What went wrong?

During the Great Depression of the 1930s, Argentina's growth slowed, government became unstable and a military coup in 1943 ousted the constitutional government. Under Juan Peron, who was elected president in 1946 and again in 1952, industries were nationalized, workers unionized and five-year plans based on the growth of the nationalized industries were introduced. As the economic situation worsened, Peron was temporarily overthrown, but returned to power in 1973. Economic problems persisted, violence escalated and people were imprisoned indefinitely without being charged. A military coup occurred in 1976 and a junta ruled the country until 1983. During this period, bet wren 9.000 and 30,000 people inexplicably disappeared and economic challenges increased.

In 1983 democracy was...