The sadness of democracy: Example of Argentina

Argentina was one of the top ten wealthiest countries in the world 100 years ago. However, it is currently suffering one of the worst inflations in the world, and its poverty rate is skyrocketing. What went wrong? It seems that behind the economic crisis is the bad government management, and behind bad government management, it is the failed democracy mechanism that cannot solve the issue, if not make it worse.

Hyperinflation

Argentina constantly suffers from inflation, and in recent years, it has become worse with a more than 100% inflation rate based on the official number (the price would double every year). I was lucky enough to observe how people live in a society with hyperinflation in Argentina.

For lucky Argentines who can save some money after paying the living cost, their strategy is to exchange their money for the U.S. dollar. As the government implemented capital control to preserve its dollar reserve, it inevitably created illegal black markets. The people who want to get dollars must pay almost double the price of the official rate. As the gap between the official rate and the de facto rate is so large, exchanging money at black markets becomes the worst-kept secret in the country: everybody knows where and how to exchange their money into dollars, and even if it is illegal, nobody seems to care.

For the unlucky majority, they do not have the privilege of figuring out how to preserve the value of their money. They must pay all their salary for living, and their living standard is constantly declining because of inflation. I once met a middle school teacher from a rural area protesting in a city park. He told me his salary five years ago was 20,000 Argentinian pesos, and now he receives 75,000 Argentinian Pesos. Sounds pretty good, right? But the Peso devalued more than 12 times in this period, from 40 pesos to 1 dollar to 500 pesos to 1 dollar¹. Thus, de facto, his salary was reduced from 500 dollars to 150 dollars. His actual purchasing power may decrease even further as the purchasing power of the dollar also decreased a lot during the last five years.

Professional Protest

What Argentines can do? In a democratic framework, they can protest and elect their preferred president, which is exactly what Argentines do. During my trip to Argentina, I observed people protest at different scales in every city. I was amazed at how professional the Argentines do the protest and how peaceful they can be.

One interesting protest that happened to me was in Jujuy Province, where local people would block all the roads. Unlike blocking indefinitely, which would cause too much influence on people’s lives, they allow cars to pass one hour every three hours intervals. This strategy effectively increases everyone’s transportation time by three times, but not infinitely. It seems to me that this strategy reaches a perfect balance point. Although the drivers and passengers are unhappy about the delay, they seem to accept the rule and peacefully wait for every blockage. From the side of the protestors, blocking roads does not need too many resources; thus the protest can last for a long time.

An issue democracy alone cannot solve: seeking short-term interest

I would argue the problem faced by Argentina is the incomplete democratic mechanism. People want to improve their living standards, which is understandable under the situation. Then, they will prefer and select the government that can promise welfare to people, and the only method the government can do is to increase its spending to provide it. However, the Argentina government already reached the point where it cannot increase its spending: It can print more Argentina pesos, but the currency will devalue even faster, leading to an even worse situation than before. At this point, Argentina is in a trap that lies more fundamentally: all entities can only seek short-term interest.

The next

Both Argentina and human history demonstrate the most likely path: the country falls back to an authoritarian or even totalitarian regime. A strong government may seek for the long-term interest with a bigger short-term pain, but it entirely depends on the mercy of the government. There is no systematic method to guarantee that the government will do the good things to society.

For other countries, the most important thing is preventing it from falling into a trap like Argentina is in now. How Argentina falls into the trap in the first place is, in fact, because the government has too much power: when the country does not have the ability to provide welfare in a sustainable way, a democratic government can still promise its people welfare. Thus, there should be a systematic framework to limit the power of the government, especially on spending. If the domestic parliament is too weak to restrict the government, perhaps such a framework should come from the international level, using agreements or monetary tools to restrict government power on spending, but it is another big topic, perhaps in another blog post.