The Argentine as a Market Part 3

Argentina is professedly a protectionist country. It is also professedly Republican, with a philosophic ideal of the greatest good of the greatest number. The two ideas, however, have not achieved a complete harmony. This was perhaps inevitable. Curiously enough, the vital industries of the country have not been favoured in any way by the fiscal system, which has been used to foster exotics and economic growths hardly suited to the conditions of the country.

In the Argentine there can be no question of "Back to the Land"; there has never been any departure. But until the present chief of the Department of Commerce began his campaign for a rational tariff, there seems to have been a tacit a.s.sumption that factories const.i.tuted wealth.

That the country should remain permanently agricultural was never advised. It was a.s.sumed that it must manufacture, and on this a.s.sumption the national policy was directed. As a matter of fact, there was probably no reasoned determination at all. Some industries existed originally before communication was established on the present great scale with the rest of the world. As time went on these suffered from outside compet.i.tion, and protection was invoked and secured. Other industries were then started speculatively and for them similar protection was granted. If prevailing opinion is of any value, it was even impossible for an industry to succeed except by political jobbery.

Even now the evil appears to be very far from removed, and the difficulties experienced by the English Railway companies are partly attributable to this cause. These have consistently refused to bribe, and it may be said that almost without exception they have adhered to this rule. The nearest approach to this form of persuasion is the nomination of influential Argentines to the local board of the company, and the retention of prominent lawyers for nominal services at a fixed yearly fee. Except for this no attempt is made to secure support in congress, and in all probability no payment has ever been made or promised by an English company in return for particular support for a definite proposal. The great privileges which the railways enjoy, especially in the matter of tariff, were granted in pursuit of a declared policy of encouragement to railway enterprise--a policy which no one there has reason to regret, as without it the country would never have emerged from its former lethargy.

With the exception of railway material, which for the most part, comes in duty free, all manufactured articles pay a very heavy duty indeed.

But, whereas in almost every other country of note, some portion at least of the raw material is procurable locally, or at least from no great distance, in the Argentine the most elementary of basic materials have to be imported. With the exception of wool, grain, cattle, a special quality of timber, and sugar, there are no raw materials at all available for industrial purposes. There are no minerals; cotton is a negligible quant.i.ty at present; and fuel is as expensive as labour. Coal does not exist (at least to a workable extent, if at all); petroleum, though reported in parts of the Cordillera, is non-existent for all practical purposes; while wood is found in any quant.i.ty only in the forests in the North, North East, in Entre Rios, and in parts of Cordoba and San Luis. The expense of carrying this to the capital would be prohibitive except by boat from the riverine forests. And, in any case, the wood being slow-growing and intensely hard, it would be manifestly uneconomical to use anything but the tr.i.m.m.i.n.gs as firewood.

We have, then, a country with a highly protective tariff compelled to import by far the greater part of its fuel, which, though admitted free, is necessarily burdened with freights prohibitive to economic industrial development. The Argentine, indeed, may be said to be placed, geographically, in the worst position possible for such a purpose.

Keeping, then, the question of fuel in mind, the possible advantage (from the purely economic point of view) must be examined of reducing at home to the state of finished commodities the raw materials mentioned above.

In every case of manufacture, the two obvious economic reasons are either the ability to produce better or the ability to produce cheaper.

The former is out of the question in the Argentine, because there is no hereditary or traditional skill, nor special climatic conditions as in Manchester; the latter, for the same reason, can only be a question of freight. Any article to be consumed at home, and produced mainly from native raw material should, _prima facie_, be capable of production at home for that consumption, granted an adequate supply of labour. But, for export, general conditions being at best only equal to those in the importing countries, the only circ.u.mstances which could render home-manufacture profitable would be greater liability to deterioration in transit in the raw material than in the finished article, or a great saving in bulk or weight in the latter.

Taking the raw materials, therefore, in the order given above, the wool produced or procurable in Argentina is greatly in excess of the present local requirements. What skill there is in the country for spinning and weaving is insignificant for practical purposes, the articles produced being either extremely crude, or quite exceptionally fine, and consequently expensive. Both are the work of Indians, or half-castes--who are rapidly becoming a smaller and smaller proportion of the total population. Pa.s.sing by as inconsiderable, therefore, the advantage of home production on the score of special skill, there remains the question of cheapness. For some goods, special lines of purely local popularity, which European houses would not make for other customers, there are points in favour of local production. But in such things as socks and articles of general clothing, that command a universal market (with differences only in design), it is found cheaper to import. It must be added that there is comparatively little demand for woollen goods at all in the Argentine itself. Though the tariff, therefore, does not impose a great burden on the people, from its protective aspect it is encouraging an unprofitable industry.

The duties are as follows: On spun wool about 1d. per lb., valued at about 7d. per lb., on washed wool 1s. 7d. per lb., the customs valuation being 7d.; on stockings and socks (all cla.s.ses) about 50%, on woollen cloth (pure) about 40%, and on wool and cotton mixed, over 30%.

Pa.s.sing over grain, the main manufactured product of which, flour, is not imported at all, and cattle, which in the frozen meat trade and its attendant industries form one of the main items of export, there are left wood and sugar. Of the former, the country produces little for constructional and industrial purposes, all the natural timber being employed either for railway sleepers, fencing posts, or for tanning extract. It is an extremely important business, but there could be no question of importation, except for intermediate fencing bars (those not planted in the ground) and for sleepers. Even so the only circ.u.mstances which could render it possible are the inability of the home supply to cope with the demand, and the consequent rise in price. Recently poplar has been planted on the islands of the Tigre near the mouth of the Parana with great success. But the available s.p.a.ce is limited there, though it is quite possible that planting might be continued on the Parana and Uruguay rivers. The duty on imported soft woods is comparatively small.

The one article of home-production left, which was open to foreign compet.i.tion, is sugar. The erratic development of this industry in conjunction with the tariff has been so eventful, and so instructive from the economic point of view, that a rather lengthy review may be pardoned. This is practically a paraphrase and condensation of the extremely interesting, though, at times, somewhat exclamatory article written by M. Ricardo Pillado, the head of the Division of Commerce in the Argentine Ministry of Agriculture, 1906. Unfortunately, in attempting to follow some of the author's calculations it has been found quite impossible to verify his results or to see how he arrived at them.

In some cases the figures are so obviously impossible in the light of the data that the only explanation seems to be a misprint. In order not to sacrifice the continuity of his account, these figures have been given as they stand. The fact that the article in question appears in a collection, derived from various sources, and republished officially at the Ministry of Agriculture, seemed to give additional justification for its presentation here without emendation.

Writing at end of 1903, when the Brussels Convention had just condemned Bounties, and when the original heavy import duties and export drawbacks were still in force, he makes this preface to a general discussion of the whole working of the exaggerated protection of the Sugar Industry.

"The fiscal protection of the Sugar industry, inst.i.tuted in the year 1883, and maintained up to the present moment in all its intensity, has been the source of the gravest evils to the Republic, not merely through its immediate effect and its having admitted and secured the maintenance of an economic system so detrimental to the country, but also, in the sphere of credit, through the complications of which it has been the indirect cause. Every effort, therefore, tending to destroy to their very foundations the fallacies which have been the mainspring and origin of its birth and continuance up to the present day ought to be considered, in my opinion, as an act of patriotism and duty."

M. Pillado is far from being a free-trader in the accepted English sense. "The protection which reasonably may be and, I will even say, ought to be afforded to national industries cannot," he goes on to say, "be identified with the favours which were lavished on the sugar industry." Although he is in favour of a moderate and strictly protective Tariff, he cannot reconcile the prevailing system with any economic theory whatever.

The Sugar plantations and refineries are situated in the remote North West of the country, and the latter were practically in the hands of two powerful concerns. Owing to the expense of rail transport, under no circ.u.mstances could the sugar be transported to the coast to compete on equal terms with the imported ocean-borne article, and certainly not, with the additional freight, in European markets.

The initial error lay in the a.s.sumption that these Northern Districts round Tuc.u.man were especially adapted by climate and other conditions to the cultivation of cane. No such natural privilege exists. The origin of the industry, on the contrary, is to be found in that very distance from a port which renders its present condition anomalous. Sugar-cultivation was inst.i.tuted solely with a view to the satisfaction of local requirements, and the idea of compet.i.tion with foreign produce in the capital was probably never dreamed of. This view is the more probable when it is remembered that Tuc.u.man lies nearly a thousand miles from Buenos Aires, while railway communication was not established until 1888 or even later.

At that time, however, protection was already in full force. Although full communication was not established until 1892, and till then goods had to be transported by cartage, or whatever means the state of the roads (such as they were) permitted, so early as 1883 the duty was raised from the existing rate of 25% _ad volorem_, to a specific tax of 5 cents per kilo, at a time when there was only one currency. The impost being irrespective of quality, the actual burdens resulted as follows: On refined Sugar valued by the customs at 19 c. the kilo, 26%; on white or granulated with a valuation of 14 c., 35%, on raw of 11 c. per kilo, 43%. It is obvious says the writer, that the greatest burden fell on the lower grades, the only ones which the local refineries were in a position to produce and to offer in compet.i.tion with imported sugars.

The year 1885 marked the next stage in the development. Owing to facilities of transport being absent, Tuc.u.man was in no better position than before, while the issue in the same year of the decree authorising a paper currency with the consequent premium upon gold, resulted in a natural increase in the restrictions on importation. The increase in the duty was nominally from 5 to 7 c. per kilo irrespective of quality. But the actual increase resulted in a total of 90% on refined sugar and 108% on the lower grades.

The third increase took place three years later, in 1888, when the import charge was raised to 9 c. gold per kilo on refined sugar, other qualities being taxed at the old figure. On M. Pillado's estimate this meant a difference of 268% between the cost of that sugar in bond and its price to the importer.[7]

[7] The percentage seems to work out at 219, while the premium on gold in that year (1888), as given in another official publication of 1906, was in reality 150 roughly, which would mean 184%. But the absence of reliable data makes an amateur result untrustworthy.

The foregoing is a brief account of the course of taxation introduced for purposes of protection as described by M. Pillado. At this point he takes occasion to moralise on the iniquity of the system, and exclaims that it is a matter of congratulation that the promoters of the industry did not think fit to produce even further from the great centres, somewhere on the borders of Bolivia. In emphasising these existing burdens, however, the writer is merely making a dramatic pause preparatory to enlarging on the further excess in the inst.i.tution of bounties on export.

The immediate result of this tariff was naturally an immense rise in the price of all sugar, and subsequently the practical exclusion of the imported article. The figures cited in the work speak for themselves. In 1884 the total imports of sugar of all cla.s.ses were 35,000 tons. In 1902 they had fallen to 155 tons. While the next year saw an importation of some hundred tons of refined sugar, the other grades were represented by a total of about 300 lbs.

We now come to the real interest of the question--the effect namely which this policy had upon the industry itself and the devices which the latter adopted to regulate prices.

In the first instance an unparalleled boom took place. In 1884 the production was 75,000 tons. In 1895 it was 109,000. In the following year the sum of 134,417 tons was reached--a production quite in excess of the country's requirements. The result was that in the words of M. Pillado, "the refiners began to cry to heaven and to earth for any solution whatever to rescue them from the asphyxiation which threatened to overwhelm at one and the same time themselves and their system."

For the planters, however, Tuc.u.man had become a veritable Eldorado. Two years sufficed to give a net return four times as great as the capital invested. As a natural consequence it followed that labour and capital flowed into the Sugar districts, creating an unprecedented boom and denuding the other agricultural industries not only of the province but of the rest of the republic as well of their very necessities of existence. The effect was felt, apparently even in the capital, so that "lawyers deserted their profession, workmen their tools, to throw themselves with a regular fever into an occupation so full of promise."

Works sprang up as if by magic. Palaces were constructed to house the staffs. Capital was lavished on the industry by individuals and banking houses alike. No one, in short, took the slightest pains to investigate the stability of the trade, and investments were made with complete recklessness.

While fortunes were being created in the cultivation of sugar cane, orchards, orange-groves, pasturage, arable land--everything else, in short--were being either transformed or neglected, and the public generally was compelled to pay an exorbitant price for its sugar. The moment had, therefore, arrived for a reduction in the import duties, and in the price of the article. That, however, was not the view of the interested parties. "If," they said, "by any misfortune this year's harvest should prove so good as the last" a worse evil would befall.

Considering that private mortgages amounted to some five million dollars and that the total indebtedness of the industry, in spite of its abnormal prosperity, was no less than twenty million, the gravity of the situation was not exaggerated. A bad harvest would be insufficient to satisfy the claims of creditors. A good harvest would cause a tremendous fall in prices and consequent disaster.

It is not surprising that there was formed in 1895 the "Union Azucavera," or Sugar Trust, with the avowed object of taking over the entire production of all the refineries and determining prices for home consumption and export.

Unfortunately, however, for the success of the venture, some concerns were not in the precarious state to which the majority had been reduced.

By dint of better management and through other causes they still succeeded in maintaining substantial returns. These refused to enter the Trust--or Kartel more strictly--and the result was a more or less complete failure.

Two combines were inst.i.tuted, nevertheless, the above mentioned "Union" (in a modified form, no doubt) and a body known as the "Centro Azucarevo." These concerns devoted themselves with energy to the solution of the problem of the surplus, and, as was to be expected, the easiest seemed to be that supplied by political means, the president of the "Union" being also president of the Chamber of Deputies. So successful were their efforts that in 1897 a bounty of 12 c. per kilo was sanctioned, raised for the next year to 16 c. To pay for this bounty an Inland Revenue tax of six cents paper per kilo was declared on all sugar home or imported. As in countries nearer home, the bounty system was an attempt, a costly attempt, to market a commodity which in normal circ.u.mstances was absolutely incapable of meeting its compet.i.tors.

Argentine sugar under the most favourable conditions could not, and never was expected to, compete in the open market with that of other countries. In the circ.u.mstances it must be admitted that the whole scheme was merely an organised exploitation of the public in the interests of a weak industry and certain speculative financiers. "What public interests," exclaims Mr. Pillado, "what benefit for the community could be cited to warrant a contribution from the country at large of $40,000,000 in five years as a gift to the exporters of sugar?"

Of the $39,850,000 levied, $25,250,000 were given as a free gift to the exporters, only $14,600,000 finding their way into the exchequer.