By Boris Kagarlitsky
MOSCOW - There is a saying that the way you see in the New Year is the way you're going to spend it. Whether this is true or not, the events occurring in Argentina ought to serve as a serious warning for ruling groups and financial elites throughout the world. After the enraged population poured onto the streets of Buenos Aires, people here in Russia recalled that three years ago Argentina was being held up to us as an example. The business press was publishing rapturous articles about the "Argentinian miracle" and its author Domingo Cavallo. Fortunately the Russian authorities at that time, contrary to their usual practice, showed good sense. Instead of pursuing harsh financial policies on the Argentinian model, they devalued the ruble, effectively halted privatisation, and supported production. An economic upturn ensued.
It might be said that a sort of economic experiment was being conducted. Issuing an invitation to Cavallo, the Russian neo-liberals and Western financial organisations argued that the 1998 crash in Russia had occurred not because of the implementation of policies in line with their theories, but because the implementation had not been ruthless enough. Counterposed to the Russian "inconsistency" was Argentina, where the same policies had been implemented firmly and decisively, without any concessions to critics or to good sense. Three years later, we may conclude that we were saved precisely by our Russian inconsistency.
For most of the population of Argentina, the "economic miracle" of the 1990s was in fact a social catastrophe from the outset. After a higher rate for the peso was established, production began to fall. This decline continued without let-up for more than four years, and an important section of the population was left penniless. In the shops, it was impossible to buy local products. Mass destitution appeared in a country that had once looked down condescendingly on its poor Latin American neighbours. Shanties sprang up on the outskirts of Buenos Aires.
None of this stopped the world financial press (and the Argentinian elites themselves) from declaring the policies a success. They became aware of the social crisis only when it began to affect the most prosperous section of the middle classes, and when the economic slump spread to the banking sector. There is nothing unique about this; in Russia, it was not the impoverishment of two-thirds of the country's citizens in the early 1990s that was considered catastrophic, but the crash of 1998, which ruined many of the people who had grown fat on these misfortunes.
The crisis we have seen in Argentina is not by any means the consequence of ineffective management or of mistakes by the Argentinian government. The entire philosophy on which the economic decisions were based - and not only in Latin America - is profoundly at fault. Money has been turned into a fetish. This is not surprising. The financial groups which effectively wield power force everyone to look on the world with their eyes. Everything is turned upside down. A stable exchange rate and low inflation, the argument runs, are capable in and of themselves of solving all problems, even though life shows at every turn that everything is just the opposite: the stability of the financial system depends on the general state of the economy. Recognising this, however, would mean casting doubt on the "leading role" of the financial oligarchy. Russia in 1998 was saved by the fact that our oligarchs had at least some ties with the productive economy. The ruination of the banks at that time merely strengthened the positions of Gazprom and the oil magnates.
In Argentina, where there are no rich deposits of oil and gas, the domination by the financial circles proved to be undivided. The irresponsibility of the government was aggravated by the lack of an opposition; both major parties, the Peronists and the Radicals, shared the same economic ideas. The unity of the "political class" guaranteed the continuity of the strategies involved. In neighbouring Brazil, where there is a constant threat that the Party of Labour will come to power, the right wing did not feel so confident. The Brazilian Party of Labour has long since lost its former radicalism, but the elites still regard it with suspicion. Therefore, when financial disorders started to emerge in 1998, the Brazilian government devalued the national currency and took measures analogous to those in Russia. After economic growth resumed in Brazil, the position of Argentinian industry worsened even further. In Buenos Aires, once famed for its leatherwork, buying a pair of locally-produced boots became impossible; the shops were all full of cheap Brazilian imports. When the British economist Alan Freeman spoke in Buenos Aires in 1999, and was asked whether a devaluation of the peso was needed to revive production, he replied that he did not understand the question; if the economy was in a deep slump, the currency would have to be devalued anyway, whether this was thought desirable or not. It was precisely the unwillingness of the elites to recognise the obvious facts, and their lack of interest in what was happening to the population of their own country, that led to their complete loss of control over the situation.
Despite the differences between parties, the political class has remained united, and in this unity, has totally counterposed itself both to the people and to reality. During the New Year crisis in Argentina, power was literally on the streets - no-one wanted to rule. All at once, the politicians discovered that not one of the decisions they made could be carried out. In such a situation, holding power lost its value. Again and again the "Pink House", the residence of Argentinian presidents, stood empty. People joked that changing presidents had become easier than buying a new television set.
Whatever the political and business elites considered normal, natural and necessary was unacceptable to the population. Whatever seemed indispensable to the population appeared impossible, unthinkable and absurd to the elite. The philosophy that held sway in the "political class" ruled out as impossible a great deal that had already been done repeatedly and successfully, and which, moreover, had been considered normal twenty years earlier. Public investments were excluded in advance. Any measures fraught with increased inflation were declared inadmissible, even if they would have stimulated growth in production and employment, and raised living standards. Privatisation was irreversible, even if everyone including the new owners recognised it as a failure. State regulation was declared ineffective as a matter of principle, and market methods beyond reproach, regardless of the results they achieved. The trouble was that the bulk of the population saw things in quite opposite fashion. The everyday experience of millions of people bore witness that the official ideology was not working, and that nothing could be done to make it work.
The president had to be changed five times in three weeks before the latest national leader, Eduardo Duhalde, finally decided to do the obvious: to devalue the peso. It may be that the financial crisis will be successfully overcome. But this will no longer be enough to overcome the deep crisis of popular confidence in the authorities.
The New Year's drama in Argentina is horrifyingly reminiscent of the Russian events of three years ago, but with one more than substantial difference. In Argentina the people rushed onto the streets, while in Russia they flocked to their television sets. Perhaps it was a matter of temperament and culture. More than likely, however, the difference lay in the fact that in Russia, unlike Argentina, people during the 1990s lost respect not only for the authorities, but also for themselves.
Meanwhile, the Russian authorities are planning a new series of economic measures for the coming year - measures in strict accordance with the ideals of neo-liberalism. The reforms to pensions and communal services will ensure the unrestricted sway of market relations in these areas. The lack of any serious opposition is making the Kremlin authorities every bit as irresponsible as the residents of the "Pink House". The Russian leaders are convinced of their absolute impunity. But the gap between the "political class" and the population is just as vast in Russia as it is in Argentina. Dozens more countries could be added to this list. Sooner or later the people will remember their existence, wherever that existence has been forgotten.