Argentina: The Rise of NeoCorporatism

Like piggies at the trough, Argentine businessmen are falling in love with the nationalization of YPF. At first, the private sector recoiled at the idea. It symbolized the growing isolationism of the nation, the abrogation of private property rights and the heavy-handed nature of the Fernandez de Kirchner Administration. However, the move is taking a new life of its own. Prior to the economic reforms of President Carlos Menem and Economy Minister Domingo Cavallo, most of the largest Argentine fortunes were made by the families who provided goods and services to state-owned enterprises. The cozy relationship between the government and conglomerates, such as Techint and Perez Companc, was one of the legacies of Juan Peron. Academically, known as corporatism, it is a three way relationship between the state, private sector and organized labor. Some academics, particularly Marxists, attribute this corporatist structure to the economic success Argentina experienced during the post War period. Indeed, Argentina was the envy of Latin America, with a vibrant middle class and a strong private sector. The problem is that corporatist structures end up undermining the overall competitiveness of the economy by transferring too much wealth to corporate providers and labor unions while undermining the value of state-owned assets and the quality of the services rendered. By the 1980s, Argentina was a museum of industrial history. Telephone services were completely obsolete. The ports were among the most inefficient on the planet. Brand new automobiles employed designs that were 20 years old. It was no surprise that the country slipped into hyperinflation by the late 1980s. Nevertheless, from a political perspective, it was a structure that explained the rise of Peronism through the support of organized labor and large corporations. Therefore, it is little surprise that Axel Kicillof, a young Marxist professor, is emerging as the president’s most important consigliere.

It is perhaps this nostalgia that also explains the enormous popularity of the president’s decision to nationalize the oil giant. Some polls show as much as 70% support for the measure, and it is helping revitalize the political fortunes of the Administration. Unfortunately, Repsol did not particularly endear itself to the Argentine public during its tenure. Despite the deals that were cut with Nestor Kirchner, investment was very low. The Spanish oil company was never known for its technology or operating prowess, and it virtually used its YPF operations as a cash cow. Moreover, there is a tense undercurrent in Argentine society against its former colonizers. Despite the facts that Buenos Aires tries to emulate its European counterpart and most Argentines can trace part of their lineage to the Iberian Peninsula, they always felt like they were looked down upon by their Spanish cousins. Therefore, it’s no surprise that the government’s decision to “stick it” to the Spaniards was received with a wide round of applause.

What started as the settling of a personal score transformed itself into what may become a new political-economic paradigm for Argentina. The Argentine Industrial Union (UIA), which represents the old-guard private sector, declared its support for the nationalization of YPF. Therefore, President Fernandez de Kirchner has the support of the private sector, the unions and the public. In other words, it’s a win-win situation and it looks like the Kirchners pulled another rabbit out of the hat. The successful nationalization of YPF probably dooms the fate of the electricity and gas sectors, which will probably return to the hands of the state. However, given the recent discoveries of huge shale oil and gas deposits in Neuquén, it may also mark the start of a new era of cheap energy for the country. Argentina may be a pariah in the international community, but it can’t be blamed for the recent moves. None of the other Latin American governments privatized to the same extent as Argentina, and none of them relinquished control over their national oil companies. These companies, such as Pemex, PDVSA, Ecopetrol, Petrobras and ENAP remain under the total or partial domain of the state. They are huge sources of politically-mandated contracts, social programs and employment. The last two decades marked the nadir of Argentine industrial history. Many of the large conglomerates disappeared, only to be replaced by foreign multinationals, such as Repsol, Telefonica and Santander. Ironically, the nationalization of YPF may mark the renaissance of Argentine industry. Sometimes, Marxist theories, such as corporatism, may provide some of the best insights to what is occurring today. In the meantime, we will see a lot of smiling Argentine faces as they see ample opportunities to provide sub-standard goods and services to state-owned companies at very inflated prices.

11 Responses to "Argentina: The Rise of NeoCorporatism"

  1. Dario   April 25, 2012 at 1:43 pm

    Marxist's consigliere!?! Ja! Well, that is very strange. Kirchner is very, very rich woman, political woman, non a business woman. Her equity have increased more than 700% between 2004-2010 and Kicillof and partners of La Campora, they live in exclusive and more expensive zone of Bs As, with very, very high salaries. Marxist's consigliere!?! Well… like that, we are all Marxist!!!

  2. guille   April 25, 2012 at 5:08 pm

    buen analisis, la Argentina de posguerra fue corporativista pero el mundo cambio y el dasarrollo pasa ahora por un mercado interno fuerte y empresas medida pasa por dar proriada ala inversión en lugar de la fuga de capitales y dividendos.

  3. Nicolás Lichtmaier   April 25, 2012 at 6:01 pm

    This article woud benefit from the removal of those weird "marxist" references…

  4. Ekrem Tufan   April 25, 2012 at 7:10 pm

    In capitalist system only reach people take big part of adventages. During economic crisis people are thinking again on distrbition of the resources and become (will become) more corporatist. I heard a news from BBC World News radio channel about this situation and European also start to think in this way. Do not you think, you should start to change your mind which in favour of capitalism?

  5. DiranM   April 26, 2012 at 1:24 am

    This sort of corporatism is also rampant in Greece and the political power system of PASOK, who has been the dominant force in ruling the country for the last 30 years. It is very hard to change such an entrenched political culture.

    In Greece, it was unsustainable and led to the present national bankruptcy.

  6. Adam   April 26, 2012 at 3:06 am

    This is an incredibly flawed piece laden with ideology. The YPF deal – Repsol's purchase of same – was deeply corrupt, way over priced and designed to pay out certain executives in Spain and Argentina. Basically those who were remnants of Franco's time (I note you fail to mention Argentina's fascist military dictators, somehow saying Argentina was kind of "Marxist" in the 1970s and 80s. Amazing.). Repsol-YPF has been trying to get out of the deal ever since, quite openly. Hence loaning the Petersen Group the money to buy a stake in their own company.
    The reason Repsol-YPF did not invest in Argentina, is because they can't make any money there if they do. Prices are capped, exports have quotas and so on.
    The change at the top of Repsol-YPF under Brufau – the introduction of Catalans, Basques and Galicians at executive level – only sped up this process. They saw it as a remnant of the Franco era's corruption.
    I have little doubt that Brufau sees plenty of opportunity here, if Repsol can get even a half decent price for YPF at arbitration he will be delighted. And Repsol will still have much more lucrative assets in the region, notably offshore Brazil.
    I do wonder how you `economists` actually get your jobs. Is it just because you parrot a failing political ideology? It certainly seems that way.

  7. Agustin   April 26, 2012 at 7:06 am

    Kicillof es un marxista de la boca para fuera, igual que todos sus amiguitos de la campora. Son el movimiento mas hipocrita de este pais.

  8. steve   April 26, 2012 at 11:27 am

    Corporatism??! The now nearly universal use of the term corporatism is applied to big multi-national companies that have too much influence over western government policy makers. Corporatism as I know it applies to the likes of JP Morgan, Goldman Sachs, Haliburton etc who (often covertly) have a disproportionately large influence on govt policy.

    The definition from your article: "Academically, known as corporatism, it is a three way relationship between the state, private sector and organized labor" seems to me to be a description of a much more healthy balanced ownership/control mechanism for industries of vital national interest. This is not corporatism as now applied in the western media.

    Surely, Argentina are just re-nationalising industries involved in the production of its own countrys natural resources. What they are doing is arguably to the benefit of their own country – a lot will depend on the backlash from international finance and ensuing legal battles. Bottom line is they probably made a mistake selling out these companies and with the growing global recession we are likely to see more countries resort to these measures.

  9. Xerxes   April 27, 2012 at 2:27 am

    I just had to return to this article 24 hours after first reading it to say it is the biggest pile of rubbish on the internet. It really is utter utter caka and makes me think a lot less of Roubini for allowing such drivel to be published, he even tweeted it.

  10. Pato Arnedo Barreiro   April 30, 2012 at 7:10 pm

    Lo felicito Sr Molano, es la primer persona que emite una opinión inteligente sobre lo que está sucediendo -y no solo lo que ha sucedido- en YPF. Pero piénselo de esta manera: si el yacimiento en Vaca Muerta tiene tanto gas, entonces es un buen recurso para el Estado argentino -y por ende para todos los argentinos- a pesar de las ineficiencias operativas que explica a lo largo del artículo. De la misma forma, si el precio pasa de 2.5 MBtu a 7 MMBtu que se le paga a Bolivia, el menos el 70% (una vez que se le expropien las acciones de Ezquenazi) el Estado argentino va a llevarse gran parte de los beneficios. Si suponemos que algunos de los beneficios no se dilapidan en corrupción y tienen uso social verdadero, "the move" puede ser de valor para los argentinos.

  11. sab   May 1, 2012 at 1:56 am

    "The last two decades marked the nadir of Argentine industrial history."
    … so far.