January 12, 2025 | Chile.
Academic Dose, Journalistic Dose, Great Transformations
By Emmanuelle Barozet and Juan Andrés Guzmán
In his fight against inflation, Javier Milei has made Argentina poor and economically unequal, as Chile was in the 1980s. He has also lowered customs tariffs, threatening to undermine local industry and turn the country into a producer of raw materials. This interview analyzes the impact that industry has on social mobility and offers some lessons for Chile, which performs better on several indicators but where the leap to development remains uncertain.
Argentine Economy Minister Luis Caputo’s outburst against Chile (“today it is practically governed by a communist who is about to sink it”) is just one example of how often we appear in that country’s debates. The reason is quite obvious: they lag behind us in indicators such as inflation, growth, or poverty reduction, and the route that President Javier Milei has taken to solve those problems and “make Argentina great again” consists of copying and exacerbating the policies implemented by Pinochet’s dictatorship.
Thus, what Milei has dubbed the “largest structural reform in the world” is, in many respects, the harsh path of becoming like Chileans in the 1980s.
The cost of that process has been high for our neighbors: poverty, which Alberto Fernández’s government left at around 40%, jumped to 52% in the first semester of 2024, according to official figures. And while the middle class collapses, a country that was once one of the most egalitarian on the continent begins to change its essence: inequality is rising, which is a characteristic feature of Chile. “When those two things happen together (poverty and inequality grow), it means that elites continue to accumulate wealth,” Eduardo Chávez Molina, a sociologist from the University of Buenos Aires who has studied social mobility in that country for over a decade, told TerceraDosis https://www.flacso.org.ar/docentes/chavez-molina-eduardo/. Chávez argues that Milei’s policies exacerbate the problems Argentina already had.
“In Argentina, there are increasingly more poor people with formal jobs, that is, individuals who have contracts, but whose salaries have lost much of their value.”
So far, however, voters support that process, as Milei has managed to control inflation. But there is one thing in which they hardly want to resemble us, and that is becoming a raw materials producer country. They do not want to, because they know that countries that do so lack a middle class.
Economist Ha-Joon Chang, an expert on the Korean economic miracle—who is occasionally proposed as a model that Latin Americans should emulate—has stated that industry, and especially the manufacturing sector, is the true center of “capitalist learning”: therein lies the force that enables countries to improve their productive skills and develop. The reality is that, thanks to their industry, our neighbors know how to make things that we do not: they manufacture cars, assemble cell phones and televisions. Their industry is not what it used to be (in the 1970s it accounted for 40% of GDP, today it is 16%); it is not competitive, and much of it is sustained because the State protects it by taxing imported products with high tariffs; but it still offers more than a million jobs, which are of better quality than those found in the beef, soy, and other raw materials export business.
Milei frequently speaks against this “failed” industry, trying to garner support to liberalize tariffs. But he does not have it easy. A few weeks ago, the famous Argentine presenter Alejandro Fantino and a Peronist leader (Guillermo Michel, a lawyer and former official in Alberto Fernández’s government) addressed that topic. Fantino thought that industrialists had abused State protection and turned into “hunters in a zoo”: no risk, guaranteed business. His interviewee warned him, however, that if that industry disappeared, Argentina would become like Chile.
– What are you going to do if you only live off the exportation of primary products? With that vision, let’s make a country just for 20 million and leave the other 27 million out. And let’s make a country like Chile: we live only off primary products and have no industry, and society does not develop – said Michel (see interview from minute 39).
Fantino defends many of Milei’s policies. In fact, he was one of the first to bring this economist to television. But here he took a distance. Alluding to a major mining investment in a province, Fantino said that it did not seem sufficient to him that this project only generated jobs, but rather that it was important to make things with the extracted mineral: “The issue is whether we become completely primarized,” he said.
What lies behind that debate is the defense of social mobility, as it has been experienced in Argentina for decades. A country that produces only raw materials does not need a large number of professionals or specialized workers. What it requires above all is a lot of cheap labor, a population that is always under the threat of “if you don’t like it, there are 10 more like you.” Therefore, with raw materials one can escape poverty, as Chile did; but the model falls short when the task is for the next generation to continue advancing. The reason, Ben Ross Schneider would say (author of Hierarchical Capitalism), is that primarized countries do not offer enough good jobs, and that puts at risk what families invest in improving their children’s education.
Since social mobility is the way a country’s development is embodied in families’ histories, Argentina’s various political parties have agreed on public policies that make mobility possible, including protecting industry.
Sociologist Eduardo Chávez Molina explains it as follows:
People understand that social mobility is part of the promise that an open and democratic society makes to them. I would even say that it forms part of a liberal ideology, in the sense that if we are equal before the law, everyone should have opportunities to advance. Of course, we all also understand that behind that hope there is discrimination, skin color, university status, and a host of mechanisms that prevent that theoretical proposition from materializing. That is why in Argentina that mobility has always been closely tied to structural political decisions that generate mechanisms and platforms for mobility to be possible. For example, the decision to lower customs tariffs or not; or the decision to develop one market rather than another; or the decision of how much to support young people to complete higher education. The latter issue is very important because a family has to plan and support a young person for 25 years so that they can have an educational level that allows them to apply for good jobs and move upward. Popular or more marginalized sectors, which do not even have guaranteed nutrition, simply cannot give their children those 25 years. Therefore, public policies are needed there to level the playing field so that mobility is possible. And that is why, when the State stops acting as a balancer, what we have today happens: 50% poverty. We have known the reason since the 19th century. When there are asymmetric social relations, if the State does not intervene, the big fish eats the little one. Today we are in the realm of the big fish; that is why not only poverty increases but also inequality. When those two things happen together, it means that elites continue to accumulate wealth while the middle class becomes impoverished.
TIMBA
In this time of change, many souls coexist in Argentina. Chávez Molina, a Chilean-Argentine trained in Buenos Aires, provides a good rundown of them. On one hand, he says, there is the country accustomed to prosperity depending on State intervention and unions in the struggle for redistribution: “That is the Argentina that appears when you get into a taxi, encounter a blocked street, and the taxi driver says, ‘no, what’s happening is that the collective bargaining agreement hasn’t closed yet.’ And what he’s telling you is that there, on the street, is a group fighting organized for the amount of the raise they’re going to get.”
“Today, the industrial worker who managed to get his children to university sees that they earn less than he does.”
That union language of picketers and political negotiation has long coexisted with a financial terminology that appears with surprising frequency in private and public conversations. On political analysis programs, for example, they discuss LELIQs, debt bonds, the exchange rate clampdown, and the evolution of the various types of dollars (official dollar, savings dollar, card dollar, blue dollar, financial dollars, MEP, CCL, etc.). “Argentina is also a financial casino,” says Chávez: “Even I, if you ask me where to invest, have some information. The academics who visit me are surprised because here we handle a lot of stock market terminology. And that’s even stronger among young people who have gotten into Bitcoin and stock market shares.”
That financial knowledge is partly explained by the need to protect oneself from inflation. In a country where work does not generate value at the same speed that inflation destroys it, the youngest seek protection in financial betting where gains are promised that can indeed outpace inflation, when they work.
Chávez Molina began studying social mobility from the mid-2000s, when Argentina experienced a strong economic takeoff. The researcher links that expansion to the 10 years when Néstor Kirchner governed (2003–2007) and then his wife Cristina Fernández (2007–2015).
– Before Kirchnerism, in the 1990s, the major research topic was poverty and particularly the collapse of the middle classes, which reached its worst point in 2001. But starting in 2004, recovery began, and Argentina started growing at “Chinese rates.” In the following years, many people escaped poverty, inequality decreased, and incomes rose. Formal employment also grew, which was a great novelty because for decades the only employment that had been growing was informal. In that context, a debate reemerged that hadn’t been had since the 1950s: how to think about growth.
“What was interesting then was the type of mobility that occurred. In people’s minds, mobility is always linked to upward social mobility, even though it also includes downward mobility. That idea of ‘upward movement’ comes with the notion of achieving greater well-being, of life improving. Economists see mobility as changes in income, so they understand ascent as earning more money. Sociology, however, considers incomes as the result of how people insert themselves into the occupational structure. Therefore, for us, social mobility has to do with changes in the position people occupy in the social class and occupational structure, which eventually lead to improvements in remuneration.
“What happened during Kirchnerism was that people did not change class or occupation significantly. But the remuneration they received did change very deeply. That is, they started earning much more, doing more or less the same thing. In Argentina, the group that benefited the most was the industrial working class and, to a slightly lesser extent, service workers. Those were the big winners of the Kirchnerist model. People could buy cars, houses, travel to Europe—all that in a country that doesn’t have a debt culture. Imagine the purchasing power that existed at that time!
– Do you mention Kirchnerism because social mobility during that period was not just the result of economic growth but of public policies?
– Yes. The thing is that in Argentina, unlike Chile, redistributive struggles are not resolved by the market. Here, collective bargaining agreements and wage negotiations work, where the business sector, the union sector, and the State meet to settle wage levels. What Kirchnerism constantly did was intervene in that struggle in favor of formal workers, especially industrial ones. That was very important for that group, due to Argentina’s chronic high inflation. Without that intermediation, inflation would have outpaced wages. But between 2011 and 2014, when there was annual inflation of 20, 25%, wage increases were achieved that were quite superior. Then, from Mauricio Macri’s government onward (2015–2019), what happened is that inflation started to outpace incomes, because Macri withdrew the State from the distributive struggle, and workers were left unprotected against business power. This has led to the paradox that there are increasingly more poor people with formal jobs, that is, individuals who have contracts, but whose salaries have lost much of their value.
“Higher education continues to be a social elevator, partly because the majority of the workforce does not have that level.”
– What happened to the mobility that had been achieved?
– After the “virtuous” period, that is, from the middle of Mauricio Macri’s government onward, in 2017, came the non-virtuous period. To the decline in wages’ purchasing power was added a macroeconomic crisis generated by various factors, including policies that facilitated financial speculation and ended up causing Argentina to take on an enormous debt. The problem was that Macri eliminated the obligation that foreign investors had to remain in Argentina for a time before selling. During Kirchnerism, they had to stay for two years, which avoided investment volatility. Macrismo broke that, and as a consequence, there was a first period of strong dollar inflows; but when the economy started to wobble, at the end of 2017, investors left, generating a gigantic financial crisis that led Macri to request 46 billion dollars from the IMF. Macri also had to renegotiate with the Chinese, who had been practically expelled from Argentina in 2016.
“One consequence of all that is that the industrial worker who managed to get his children to university sees that they earn less than he does. So what you have is a mobility process that improves in terms of class, because people have continued investing in education, but worsens in terms of remuneration. Espinoza and Kessler, in a 2003 study, called that ‘spurious social mobility’: people ascend socially, but do not receive the expected remuneration. That generates a crisis of expectations that is socially complex: frustrations build up that can lead to the emergence of a figure like the one governing us today, who says any barbarity.
– Do you think that the stagnation of mobility that occurred under Macri and continued with Alberto Fernández (2019–2023) created the conditions for someone like Milei to come to power?”
– I would not attribute Milei’s arrival to a mobility problem, but rather to a crisis of expectations. But to explain that, one must understand an Argentine particularity. This country has a very extensive industry that the State protects. The shirt I am wearing is made here; also the table I am sitting at, the bedspread, the paint, etc. It is a varied but endogenous industry, meaning it is intended for local consumption and has little export capacity due to its low technological level. Although there are areas that escape this, for example, the manufacture of pipes for oil and gas transport; and the automotive industry, since Argentina is the major exporter of standard cars to South America. This endogenous model has its virtues and misfortunes. On one hand, the industry has enormous capacity to generate employment. But its misfortune is that this industrial complex collapses with economic growth itself.
– Why?
– Because as the population’s consumption level increases, it requires more shirts, more sweaters, more tables. Manufacturers need dollars to bring in inputs that are not produced in Argentina, but since the industry does not export, it has no dollars. The sector that does have dollars is agribusiness, which sells soy, wheat, meat, etc. However, that sector generates little employment. The tension between these two actors leads to continuous crises because the State must intervene so that dollars reach the industry. Remember that Argentina does not have a “copper” like Chile’s, which gives foreign currency to the State. In Chile, 25%, 30% of foreign currency comes in through CODELCO. Here, there is nothing like that.
“So what needs to be understood is that when the State intervenes to defend industry, it inevitably has to limit people’s consumption and accumulation expectations, because it needs to make imported products enter at high prices. Those prices make successful the shopping malls that Chileans set up in the Andes or in Osorno: Argentines drive there and buy everything from refrigerators because prices are low. And they are low because Chile does not produce any of that. The same happens with cars. In Argentina, you don’t see the latest models that enter Chile, because Argentina is one of the 12 countries in the world that makes automobiles. That generates 130,000 direct jobs, while nearly 1,000,000 people work in the entire metalworking industry directly and indirectly. Not even Milei dares to lift the barriers and let Japanese, Chinese, or Indian vehicles enter because it would put many jobs at risk.
“Now, that defense of employment and industry limits consumers’ expectations. Because if a young person wants an iPhone or the latest television, it will cost them a fortune. They will have to buy it with a 50%–70% surcharge because Argentina produces other brands and licenses. That generates constant tension because people say, I want more, I educated myself, I grew up, but the model does not allow me to have the latest. And there emerges that rather fragile idea of understanding freedom as freedom of consumption, which puts a development model at risk.”
THE POLARIZED FUTURE
Chávez Molina highlights another threat on the horizon of social mobility that is already perceptible both in Argentina and in Chile. It involves the polarization of employment.
– It is a global phenomenon that consists of the emergence mainly of two types of jobs. On one hand, jobs for a highly qualified population, which allow access to high incomes and high levels of social protection; and, on the other hand, very low-skilled jobs, unprotected, and with low incomes. The first type of jobs has benefits that we can assimilate to the idea of the welfare state; the second has incomes so low that workers cannot even reproduce themselves.
– In that polarized context, it seems clear that not all jobs allow mobility.
– No. What is happening in Argentina—and I think also in Chile—is that the hope of mobility still exists, but only for those who achieve good training and also insert themselves properly into good jobs. In that sense, higher education continues to be a social elevator, partly because the majority of the workforce does not have higher education. That will probably continue to be the case to the extent that not all the workforce becomes educated. But there are already signs that this is changing. For example, a few years ago, to be a cashier in certain supermarkets they required a completed high school education: now they ask for university studies. It is possible that, in three or four years, they will require a degree.
“Today, those who suffer most from this polarization process are those working in services linked to commerce. A particularity of Argentine poverty today is that three out of every four commerce workers are poor. That is, the people who sell you socks or shirts in stores, but also those who serve you in restaurants or hospitality, are below the poverty line. However, professionals working in those sectors, for example, the hotel manager, are not poor. That employee generally has a higher educational level. So the problem lies with those who did not educate themselves. In the past, those people could join jobs that required physical strength or just a bit of attention; with that, a work trajectory could be sustained. But that is ending. Those jobs are being replaced very quickly by machines. Recently I was talking with the former president of the YPF Foundation (Yacimientos Petrolíferos Fiscales de Argentina), and she told me about a study done on employment in oil extraction. Traditionally, the oil well was done by people without complete secondary education, who had to dig and use explosives, etc. That changed completely in five years. If before a well required 20 workers without higher education, today it employs 10 workers with higher education who program machines. The 20 workers who used their strength are no longer needed in the industry. There you have a very strong impact. Future prospects are complex in sectors like agriculture, where studies indicate that almost 99% of production can be automated.”
– In Chile, part of social mobility was sustained through indebtedness. For some researchers, rather than mobility, what Chile has had is families’ efforts to maintain a lifestyle through credit; and that strategy shattered with COVID. What relevance does debt have in the case of Argentina?
– There is a growing degree of indebtedness, especially in the formal sector. But a couple of things need to be taken into account. On one hand, Argentina is not a country that has incorporated a debt culture. The 2001 crisis, for example, if it taught anything, it was that people should distrust banks and financial companies. Even before, in 1981, Argentina had a crisis when the military dictatorship deregulated financial companies and many of them went bankrupt. In a sense, the Falklands War was a way out for the military dictatorship to distract attention from the financial disaster. So that sector has not been able to win the population’s trust to get indebted. On the other hand, due to the inflation problem, in Argentina, no one pays in installments, as in Chile. What people do is “bicycle”: pay everything with the card and then spend 60–70% of their salary to cover the card. Now, that is not seen so much in popular sectors, because they are not banked.
– And how do they cope with the crisis if they don’t get into debt?
– On one hand, through public subsidies and on the other through pure informality. Today there are income transfers that Milei has maintained, but that assistance policy is so weakened that it doesn’t even lift the population out of indigence. So many people manage their lives by resorting to illegal markets and pure informality. In Buenos Aires, for example, there is a gigantic fair called La Salada; for very little money you can buy everything. But everything is fake. Trucho, they call it here.
Source: TerceraDosis.