The Argentina Syndrome: How India is fumbing the future

April 30, 2012

A version of this was published by firstpost on April 30th, 2012 at

Is India fumbling the future, Argentina-style?

Rajeev Srinivasan on what we can learn about India’s failing institutions from Argentina’s debacle

Argentina did something recently which not many Indians would have paid much attention to: but we probably should look a little more carefully at it. What happened there was that the government of President Cristina Fernandez de Kirchner nationalized a Spanish-owned oil company, YPF.

While Argentina possibly had justifiable reasons for doing so, the net result has been that foreign and domestic investors will look askance at the country. It is anyway not doing so well on the macroeconomic front and it could use some FDI flowing in. From the outraged howls emanating from Europe, it would be safe to say that Cristina made a big boo-boo.

Compare this to India. Some years ago, a female Prime Minister suddenly nationalized banks in India. (Not to be outdone, in 2001, Argentina froze all bank accounts in what was dubbed Corralito, in order to prevent capital flight). Recently, in a display of childish petulance, the UPA government decided to overrule a Supreme Court order in the case of Vodafone and its tax obligations by unilaterally modifying relevant rules retroactive to 1962! This, I suspect, means India can kiss goodbye to quite a bit of FDI, which India too needs, mostly to offset its large current account deficit and budget deficit.

Thus, both countries are going down the slippery slope of strong-arming those who are foolish enough to invest: a short-term gain with sure long-term pain. Both of these may turn out to have been unwise actions. But it turns out there are other, surprising similarities as well between Argentina and India. In fact, if you look at the data here, it appears as though Argentina is generally doing much better than India! India’s growth is less, current account deficit and budget deficit (in particular) are much higher, and its currency has fallen far more this year (13.68% vs. 8.15%).

GDP growth % Inflation% Current account balance, GDP % Budget balance GDP % 2012 Currency to $, Apr 1, 2012 Currency to $, Apr 1, 2011
Argentina 7.3 N/A -1.4 -0.7 4.38 4.05
India 6.1 9.1 -2.8 -5.8 50.7 44.6

Fig 1. Comparative data. Source: The Economist, Apr 7-13, 2012

It is an obscure fact that in the 19th century many people thought that the race for economic superstardom would be between the United States and Argentina. Imagine them two hundred years ago: both large countries, thinly populated, with much good farmland. In both, European colonists had managed to subdue (and in some cases, exterminate) the native populations.

In the case of Argentina, the migrants were mostly southern Europeans, especially from Italy. In the case of the United States, the migrants were mostly from northern Europe. But in both cases, they were, as migrants often are, pushy and energetic. So an impartial observer in the 19th century would have given both of them high marks for potential to be superpowers.

At the beginning of the 20th century, Argentina was one of the richest countries in the world, based largely on its agricultural exports. But then something remarkable happened: Argentina faltered, it was subject to endless military coups; eventually Juan Domingo Peron, a military officer, took over. Later his widow Evita (of “Don’t cry for me, Argentina” fame) was in charge. To this day, Peronists are in charge. What happened to Argentina?

According to Daron Acemoglu and James Robinson, two well-known development economists, the answer lies in their recent book, Why Nations Fail: The Origins or Power, Prosperity and Poverty, where they study institutions. They posit that “… while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has”.

The authors argue that institutions can be either ‘extractive’ or ‘inclusive’. If it is the former, then there is a vicious cycle; if the latter, a virtuous cycle, they claim. They quote the “Iron Law of Oligarchy” on their blog, which is that “… Extractive economic institutions always create struggles for control, and they tend to attract would-be elites bent on extraction, and whoever comes to power takes over a system without checks on their power. The outcome is to re-creation of extractive institutions under a different guise.”

Thus Argentina fell victim to a model: their original elite immigrants created large, exploitative estates where they used essentially slave labor from the conquered natives, which is a good example of extractive institutions. (Pakistan’s twenty-two zamindari families that control everything might be another example).

The original immigrants to the US did not end up creating extractive economic models (well, if we forget the small matter of African slaves and tobacco plantations in the US South – but then, they did fix that through their Civil War), and ended up being far more inclusive.

But Argentina thrived for a while, and it was in the 20th century that its lack of inclusiveness began to hurt. Those who took power in the coups were not the original elites, but they soon became indistinguishable from them, because they all had the same objective: extraction.

Why should all this concern India? Well, I hope it is obvious that India, too, suffers from elites who have formed extractive institutions, or perpetuated them. The imperialist British had created institutions that were meant only to loot the country (not for the nothing was the principal official in a district called a “Collector” – his job was to collect taxes.) After 1947, a new ‘elite’ came into the picture, Brown Sahibs, who found it convenient to perpetuate the extractive economic institutions.

And India’s political institutions have not been able to get the country out of this death spiral. Indeed, they were not designed to; and with the passage of time and the clever use of technology, the ability of the political elite to manipulate the electorate has grown by leaps and bounds. It is not unreasonable to wonder whether there have been crypto-coups in India that has kept the same bunch in power.

If the Argentina-US example at the turn of the 20th century can be put in the context of India-China rivalry now, the prognosis for India is poor. China, with its extractive political system, built a somewhat inclusive economic system, which has enabled many to climb out of poverty. India, like Argentina, may fail to loosen the extractive nature of its economic system, because the political system benefits greatly from it.

If that unfortunate eventuality happens, India will be doomed to Argentina-like irrelevance. Already there are suggestions that the ‘I’ in BRICS should be Indonesia, not India, given India’s recent downgrade by S&P.  India’s beloved leaders, then, would have fumbled the future, yet again.

1085 words, 29th Apr 2012

Correction: In an earlier version, the table had a wrong caption: the Re-$ exchange rates are for April 1, 2011 (not December 31, 2011) and April 1, 2012


One Response to “The Argentina Syndrome: How India is fumbing the future”

  1. lamassu1 Says:

    So, what exactly is it that you have against Communism, then?

    Who are your enemies?



    Social Democrats or so-called Liberals

    Which ideology has resulted in the deaths of millions of Christians, Muslims and Social Democrats?

    Communism. Is that not the enemy of your enemy?

    Keep in mind that so-called Western Commies (Chomsky et al) along with so-called Indian Commies are not actual Communists.

    In a real Communist state, they would be executed. They are Social Democratic Utopians posing as Communists. The co-founder of the CPI (fake communist party, actually Social Democratic in ideology) was executed by Stalin (a real marxist-leninist).

    To understand this ideology, read Lenin’s book: “Left-Wing Communism – An Infantile Disorder”.

    In countries like China, these Social Democratic political opportunists are executed.

    Communism is simply Ultra-Nationalism combined with a police state apparatus. What is wrong with that?

    Would China ever allow tens of millions of Chinese Christians to secede and form their own state on the basis of religious affiliation, as the case with Pakistan? No.

    Remember what Stalin and Milosevic did to the Muslims. They were being slaughtered left and right in Central Asia and Yugoslavia, respectively.

    The USSR was slaughtering millions of muslims in Afghanistan and later Yugoslavia was slaughtering the Muslims in Bosnia.

    Who aided the Muslims, again? That’s right. It was the Western Capitalists on both counts. Only Capitalists tolerate reactionary muslims. Secular Left-Wing Atheist Communists know how to handle muslims.

    So, why do you continue to support Western Capitalism?

    Who promotes the Aryan Invasion Theory, again? That’s right, Western Capitalists. Communists in Russia and China do not care about AIT. This theory is mainly promoted by Western bourgeoisie institutions.

    In China, the government actively protests Western historical revisionism. In India, the corrupt government actively defends Western historical revisionism. Do you see the difference?

    During the Communist revolution, the majority of far-right Chinese supported Mao. Why is this? They were Chinese nationalists first and they saw that Mao would liberate their lands from Western Imperialism.

    The government in place in China, prior to the revolution was the KMT party. This is sort of the functional equivalent of the Congress party. They followed pro-Western ideology, so they were totally corrupt and beholden to Western interests.

    Do you not find it humiliating that the ruling Indian political party was created by the British in the late 19th century? Do you not find it even more embarrassing that Indians tolerate the existence of such a political party?

    When the Chinese overthrew the KMT party, they also overthrew Western ideology in the process.

    The Congress Party is acting in accordance with its Social Democratic ideology. Basically, after the British left the Congress continued to administer British rule. The members of the ruling political class are descendants of the very British collaborators. In China, Western collaborators were chased out.
    What is so special about democracy? No major industrialized nation has developed to the position that they are in now as a result of democracy. The US was originally founded as a representative constitutional republic. It did not formally become a democracy, or mob rule as the founding fathers termed it, until the 17th amendment was passed.

    About Secularism – The Greatest mass-murderers of Muslims in the past century have been Secular Atheist Communists. What do you have against secularism?

    What is referred to as Secularism in India is not actually secularism. Secularism is simply the separation of church and state. Communists enforce secular ideology at the individual level. This is the reason why they persecute Muslims (and Christians) so harshly. Christianity and Islam also maintain political elements. Islam was found to be incompatible with Secularism by the Communist party of Bulgaria in 1986 and so the publishing of the qur’an was banned.

    India has never had actual Secularism. Real Secularists like Voltaire and Thomas Paine detested the Abrahamic faiths. Paine cheered the French revolutionaries who executed Catholic Priests and Voltaire protested against Christian missionary incursions into India.

    Lenin denied the existence of the historical Jesus and Marx was a self-hating Jew who advocated the destruction of Judaism. Why? He discovered that Judaism as an ideology could not allow an adherent to be loyal to the nation-state and therefore Judaism would have to be ’emancipated’. Read Marx’s pamphlet entitled: “On the Jewish Question”. He also advocated German nationalism and the annexation of Belgium and the Netherlands. Islam being a Jewish based religion would be necessarily subject to the same treatment.

    In China, Uyghurs are forbidden to fast during Ramadan. They are forced to eat under supervision. All mosques are controlled by the state and are under strict observation; anyone under 18 years of age is not allowed to enter. All Qur’ans are edited by the state and teaching from the qur’an is banned. Hijab bans have been trialed in various cities. Muslims face true oppression in China. Meanwhile in Capitalist India, they are backed by the state.

    What India has maintained for so long in lieu of Secularism has been ‘Social Democracy’ or ‘Social Fascism’.

    What is Social Fascism? Essentially, it is a type of political opportunism. It incorporates petit-bourgeoisie chauvinism ideology that attempts to sustain Capitalism by bribing sections of host nations with the Super-Profits of Imperialism. This creates a ‘Labor Aristocracy’, in which a new bourgeoisie class is created from said super-profits. This bourgeoisie class thus becomes dependent upon the state and the Imperial organ and will actively defend it.

    In his book; “Imperialism – The Highest Stage of Capitalism” Lenin described a scenario in which Imperialists would loot their colonies of natural resources and then ship back manufactured goods, which were to be consumed by a ruling colonial class, who were given a cut of the super-profits for their collaboration. The descendants of this ruling class in India are members of the modern Congress Party. This prevented the industrialization in colonized nations.

    99% of so-called Communists in the West and India are actually Social Democrats who subscribe to the Marginal Utility theory of value. This is a subjective theory of value. The other 1% is composed of traitorous Trotskyites, who are revisionists (contracted the ideologies of Marx and Lenin) that collaborate with Imperialism. In a real communist revolution all these ‘useful idiots’ would be killed. Lenin stated in “Left-Wing Communism: An Infantile Disorder” that he would support the head of the British Labour party the way that a rope would support a hanged man. The Labour Party is the main ideological backbone behind the “Socialist International”. The Indian Congress Party was also a member of this international political organization, for a while. The ideology is based on MARGINALIST, Fabian, Social Democratic ideology and political opportunism, rather than actual Socialism.

    What is Marx’s economic model?

    His thesis was that Capitalism would be unsustainable as mathematically there would come a point in time in which the means of production would become so advanced that contradictions between the means of production and relations of production would develop to the extent that the Capitalist economy would not be able to sustain itself.

    In order to understand his theory, you need to first understand the Labour Theory of Value. Adam Smith pioneered the original LTV. How did he define Capital?

    “A certain quantity of labor stocked and stored up to be employed.” (Adam Smith,op. cit., Vol. I, p. 295.)

    Smith also pioneered the Cost-of-Production theory of value. He did not suggest that all value was reducible to labor, but that a significantly quantity of it was dependent upon labour – i.e. a product could not be sold for a profit below required labor costs. The market value of a commodity would have to be sold at its exchange value. This is how goods would be produced in primitive economies, however in advanced economies; this would no longer be valid as the owners of Capital would receive payment in stock that employed it. Nevertheless Ricardo held the view that the market value of a good would always be proportional to the amount of labour needed to produce it.
    Marginalists such as Social Democrats/Keynesians, Chicago-School/Friedmanites are actually fundamentally closer to Austrians in the basic assessment of value. They are marginalists who fundamentally believe in a subjective theory of value. Social Democrats are closer to Austrians, than Marx in that regard. See Rothbard’s analysis of Adam Smith. Rothbard pointed out that the Marginal Utility theory of value of the late 19th century was actually more pre-dated by earlier subjective theories of value, just to give you a perspective of how revolutionary Adam Smith’s theory was in his time. Nearly all of the theories of Marx can implicitly be found in the works of Smith and Ricardo. Both were bourgeoisie economists, yet at the same time, both were skeptical of the capitalist class. They were merely interested in attaining an objective understanding of economics.
    Marx went on to perfect the theory of the LTV as established in its earlier iterations by Smith and Ricardo. While Ricardo did not formally distinguish Labor-Power from Labor, Marx did make that distinction in order to identify economic exploitation as workers were being paid less than the costs necessary to employ them. He claimed that workers would be forced into competition as a result of the reserve army of unemployed labor.
    It’s interesting, but unlike the Keynesians/Friedmanites, Marx actually justified the conclusions of Say’s Law. He stated that recessions were a necessary part of Capitalism. Keynes claimed that recessions were the result of underconsumption as a result of ‘animal spirits’ in which capitalists would chose to pull investment and push capital into savings. He rationalized this model on the Marginal utility theory of Value and the idea of ‘Animal Spirits’, of course. Keynes believed that workers should get paid by the government to dig ditches and refill them in order to stimulate consumption as he claimed that recessions were caused by liquidity traps as a result of those very ‘animal spirits’ (swings in the confidence of producers) kicking in. The type of economic policy implemented in India prior to liberalization in the 1990s was based on Keynesianism, not socialism. Base Profits (rather than Super-Profits) of economic production were redirected into social welfare and bribery. This resulted in industrial stagnation as capital investment was extremely minimal. Eventually, the Indian government almost went bankrupt in the early 1990s as a result of these excessive fiscal spending programs as fiscal spending far exceeded economic growth, population growth and trade. India never had actual socialism; the means of production were controlled by the private sector, there were only technocratic governmental administrative policies in place to control and regulate consumption (ultra-keynesianism). This would be enforced through fiscal/monetary policy measures and through the regulation of investment flows to prevent funds being diverted to what Keynes termed prodigals and imprudent risk takers. Keynesianism was actually abandoned by the British government after the Callaghan government. Keynesian policies in reality do not produce anything other than inflation. So, in order to encourage consumption, what could a government do? If they increased taxes, they would increase the spending power of the government, but they would also proportionately reduce the spending power of the public. If they issued more Treasury Bonds, they would only reduce the spending power of investors. The final option would be to sell Treasury Bills directly to banks, this would in turn force banks to liquidate their money market holdings, however then the money market could simply go to the Central Bank to borrow the necessary funds. All that would occur as a result is inflation. Inflation is simply the over issuance of inconvertible (non-gold backed) currency beyond the amount necessary to accommodate Trade, Production and Population Growth. Friedman believed that recessions were caused by contractions in the stock of money (money supply +velocity of money) and that it would take monetary policy measures to remedy the situation. Both ideas were conceived of in the marginalist context. To understand the fallacies regarding the basic Marginal Utility theory of Value, see the Cambridge Capital Controversy. Sraffa proved that the Marginal utility theory of Value was false on account of re-switching. According to the Marginal Productivity Theory, the rate of profit depends upon the amount of capital employed (i.e. increasing the amount of capital employed should result in lower returns); with reswitching Sraffa proved that the amount of capital depends upon the rate of profit and that at certain rates of interest, select capital intensive techniques could result in higher rates of profit than at other even higher interest rates. This discredits all marginalist-based economic ideologies. For Austrians, Sraffa in his debates with Hayek debated with him about the natural rate of interest, and told him that there was not a single natural rate of interest, but rather many natural rates of interest, hence why futures contracts adhere to extremely varying levels of volatility.
    Marx actually stated that Capitalism was a necessary stage prior to Communism. This is why Lenin engaged in an economic liberalization program for the Russian economy during the 1920s and why China has been engaged in a program of economic liberalization since the 1970s. Stalin closed the NEP, mainly for pragmatic desires. He saw that the Russian military and industrial capacity were in poor shape and extremely limited in capability, so for strategic reasons he ended economic liberalization and engaged in a forced policy of industrialization. Millions died from his forced collectivization programs, yes, but if it wasn’t for Stalin, the USSR wouldn’t have had the military capability to take on Nazi Germany. He couldn’t simply re-open the USSR economy after the war, either, as the USA had become an economic behemoth (as a result of Bretton-Woods) and that it could use its market advantages to destabilize Russia. In modern times, it is a different story, as the world has become much more multi-polar.

    Marx adhered to the theory of Dialectical Materialism. He believed that after attaining a certain degree of maximum efficiency, an economic system becomes obsolete and a hindrance to progress. Ironically, internal contradictions and fundamental weaknesses within the system develop as a result of improved economic efficiency, weakening the system as a whole. In the context of Capitalism; as the amount of fixed capital (Constant Capital/Capital Investments in machinery, factories, tools, buildings, etc. –dead labor) grew, you would proportionally see a decline in the amount of living labor power (Variable Capital or the amount of Labor utilized to make a product). This would result in an increase in the Organic Composition of Capital, as the amount of fixed investments in Machinery increased, so too did the ratio of labor value of Variable Capital decrease. As the amount of economic surplus available was dependent upon the exploitation of human labour, the amount of value that could be exploited would decrease; this would result in a decline in the rate of profit. Eventually, recessions would increase in volatility and scope, while concurrently the bourgeoisie would shrink as a result of the declining economic surplus until the period in time at which the system is overthrown by the masses in a revolution and you see the realization of a Post-Capitalist economic system. I don’t necessarily agree with Communism as the proper successor to Capitalism, nor do I agree with all of Marx’s works, but his theories do provide an interesting theoretical framework.
    According to Marx, the Capitalist business cycle was as follows: During the Boom phase you see Capital Accumulation and Investment; this in turn leads to a greater Organic Composition of Capital. Followed by the increased Organic Composition in Capital; you necessarily see a lower level of economic surplus. What follows is that as the economic surplus necessary to maintain current levels of economic production no longer exists, you see an economic recession in which older and less efficient means of production are destroyed and asset prices fall to match the equilibrium level set by the newly adjusted lower rate of profit.
    Anti-Communalism is an Imperialist ideology. All Left-Wing Communist regimes are communal and communitarian. In North Korea and Cuba, Islam is banned. In China, Christians and Muslims face real oppression, whereas in India, they are backed by the state. In India, patriots are attacked – In China, Christians and Muslims are attacked. In Communist regimes, only the interests are of the respective communes of the host nations are represented, all those who are loyal to foreign interests are deemed reactionaries (as they hold back domestic economic progress through their support for imperialism and exploitation) and (pro-western liberal/christian traitors, pro-arab muslim traitors, etc.) are executed.

    You seem to believe that politicians naively believe in myths regarding Islam, etc. This is not true. Capitalists openly support Islam. They even create catchphrases like “Islamophobia”, or “Radical” or “Extremist” to refer to those who oppose their interests. For instance, they also illogically refer to certain atheists as “extremists”. When you attack the Taliban, the Capitalists will not say anything, as they detest true Sharia-supporting Muslims. When you attack Apostate Capitalist dictators like Turkish Kemalist dictators, they will call you an “islamophobe”. This is because the Capitalists are using those particular Muslims for their own interests. On what objective basis do they distinguish between moderate and extremist muslims? They say that those Muslims who are compatible with Capitalism happen to be moderates, and those who are not are extremists. It is completely arbitrary in nature. The truth is that the majority of Muslims have always supported the Shariah. What has happened is that Muslim lands have been colonized and as such pro-western apostate dictators have been placed as figureheads to rule over the lands of muslims. The Capitalists support corrupt Islamic colonizers, as they find them rather easy to control. However, as the economic/political influence of the West continues to deteriorate on a relative basis, you will concurrently see the West lose control over its appointed Muslim dictators and thus see Muslims replace their corrupt leaders with Sharia. The Muslim Brotherhood is just the beginning.

    Whenever Muslims are attacked, the Capitalists aid the Muslims, as we have seen in Yugoslavia and Afghanistan. Even the Chechen rebels, by and large receive support from elements within NATO Turkey. The Capitalists do not want war. War causes supply shocks, volatility and instability, this increases input costs and financing costs and therefore reduces the rate of profit. The Capitalist objective is to maintain their rate of profit at all costs. Killing Muslims would be antithetical to that objective. Islam cannot be confronted unless the Capitalists are dealt with first.
    As far as Anders Breivik goes, he simply executed Social Democratic traitors; there is little difference between how he executed Social Democrats and how Stalin executed them in the 1930s. In fact, in modern Russia, you see few social democrats, why? Russians cleansed their genome of such types long ago. The same situation holds true to China. There are comparatively few ‘Useful Idiots’ infesting China compared to India. With India, you also have to deal with Pakistan. Western Punjabi/Sindhis are the same race as Indians; they only act as attack dogs for foreign interests. This is why you see them only criticize and attack India, but never see them attempt to improve their own socio-economic conditions. They find their own living environments to be irrelevant, as they are the willing agents of foreign interests (Arabs, British, Americans, etc). The Han Chinese are laughing at India over these petty artificial rivalries. They consider Indians/Pakistanis to be the same people (which is true). The Chinese would never have allowed Muslims/Christians to secede and thus would not have allowed such a situation to even come into existence.
    Only Chaos and destabilization can unsettle the ruling Capitalist regime. It is not a surprise that the rise of far-right political parties in Europe have been consistent with periods of economic crisis. Hitler came to power in the 1930s and again far-right political parties began to emerge in Europe during the early 2000s (on account of the early 2000s recession) and yet again the parties came into more power after 2008 (as a result of the current economic crisis). It is not a surprise, either, that the BJP started to come into power after 1992 as that was the particular time in which India almost went bankrupt and the corrupt ruling party was forced to receive an imf bailout in order to prevent India from descending into further chaos.
    In the future, the whole game will be changed. The US is on the verge of bankruptcy; all organizations that are us-based/us-dollar based such as the imf/world bank (in which funds are funneled to corrupt ruling governments to sustain their establishments) will cease to become relevant. The US will no longer be able to bribe foreign regimes. Muslims will overthrow their apostate dictatorships as said dictatorships will lack the funding to continue to rule. Pakistan will likely degrade into theocracy in order to maintain territorial integrity. China understands this; this is why they have positioned themselves for a post-US world. Eventually, the US will be forced to withdraw its troops stationed abroad and shutdown its foreign military bases. This is when border-conflicts will restart all around the world. China is prepared, In India the ruling party, which is composed of ideological stooges of the West will have no real position or ideology once their US/UK masters sink. This will cause massive chaos in India.
    The only way to break down the education system in India is through a revolution. That can only be accomplished through violence, not democracy. What did Gandhi do for India? Nothing. The British simply went bankrupt like all other western empires after ww2 and preferred to leave India in the hands of pro-western ideologues. Ho Chi Minh was the true freedom fighter against Imperialism. He synthesized nationalism and socialism for the interests of the Vietnamese nation. It was his type of ideology that the British really feared. Remember, Bose supported a type of Indian Socialism and was opposed to democracy.
    So, why do you support the British-created Indian political system, when it is so tolerant of foreign imperialist agents (Muslims)? If Communism can be utilized to liberate India from Imperialism, just as it did for the Chinese, Vietnamese, etc., is it really such a bad idea?

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