When the residents of Buenos Aires want to change the pesos they do not trust into the dollars they do, they go to an office that acts as a front for thriving illegal exchange market.
As the couriers carry their bundles of pesos around Buenos Aires, they pass grand buildings like the Teatro Colon, an opera house that opened in 1908, and the Retiro railway station, completed in 1915. In the 43 years leading up to 1914, GDP had grown at an annual rate of 6%, the fastest recorded in the world. In 1914 half of Buenos Aires's population was foreign-born. Its income per head was 92% of the average of 16 rich economies.
It never got better than this. Its income per head is now 43% of those same 16 rich economies; it trails Chile and Uruguay in its own backyard.
The country's dramatic decline has long puzzled economists. “If a guy has been hit___shots it's hard to work out which one of them killed him.” says Rafael di Tella. But three deep-lying explanations help to throw light on the country's decline. Firstly, Argentina may have been rich 100 years ago but it was not modern. The second theory stresses the role of trade policy. Thirdly, when it needed to change, Argentina lacked the institutions to create successful policies.
Argentina was rich in 1914 because of commodities; its industrial base was only weakly developed. The landowners who made Argentina rich were not so bothered about educating it: cheap labor was what counted.
Without a good education system, Argentina struggled to create competitive industries. It had benefited from technology in its Belle Epoque period, but Argentina mainly consumed technology from abroad rather than inventing its own.
Argentina had become rich by making a triple bet on agriculture, open market and Britain, its biggest trading partner. If that bet turned sour, it would require a severe adjustment. The First World War delivered the initial blow to trade. Next came the Depression, which crushed the open trading system on which Argentina depended. Dependence on Britain, another country in decline, backfired(失败) as Argentina's favored export market signed preferential deals with Commonwealth countries.
After the Second World War, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tariffs and Trade in 1947, Argentina had become a more closed economy. An institution to control foreign trade was created in 1946; the share of trade as a percentage of GDP continued to fall. High food prices meant big profits for farmers but empty stomachs for ordinary Argentines. Open borders increased farmers' taking but sharpened competition from abroad for domestic industry. Heavy export taxes on crops allow the state to top up its decreasing foreign-exchange reserves; limits on wheat exports create surpluses(过剩) that drive down local prices. But they also dissuade farmers from planting more land, enabling other countries to steal market shares.
