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Argentine Folly Undermining Brazil

Argentina under President Cristina Kirchner is wrecking its own economy. That’s bad enough, from a Brazilian point of view, as neighboring Argentina is an important market for Brazilian exports. Worse, the Kirchner government, short of hard currency and desperate to create jobs at home, is pushing a made-in-Argentina policy to build up Argentina’s manufacturing industry.

But Brazil is also pushing manufacturing as a key engine of growth, and Argentina is a vital market for Brazil’s factories.

The short term problem is that state led investment and economic policies in the two neighbors are undermining each other. The longer term, deeper problem is that both want to build 20th century style Fordist utopias in which a large manufacturing sector supports a mass middle class with high wage manufacturing. They want to do in the 21st century what Europe, North America and Japan did in the 20th.

It’s a perfectly reasonable thing to want to do, but the only trouble is that it’s no longer possible. Manufacturing has become commoditized. That is, so many countries are entering the business, and so many firms are opening manufacturing plants, that the wages in manufacturing no longer support middle-class employment very well.

We see the affects of this in the economic and social problems in Europe and North America; and we also see that countries like China face greater turmoil because it is hard for wages to rise to meet the demands of the industrial working class.

Brazil and Argentina have not built a stable mass middle class on the basis of manufacturing. That door is closed. The problem of the death of the blue social model isn’t just a problem for countries that have already built a blue, Fordist society. In some ways, it is a much bigger problem for countries that think of this kind of society as their goal.

If you can’t make your people happy and placid by creating a Fordist mass prosperity economy, what can you do instead? It’s a question policy makers all over the world need to start thinking about, because the door to 1950s America is closed.

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