THE WELFARE STATE IS OVER

 THE WELFARE STATE IS OVER

The dominant classes in Argentina have reached the conclusion that the welfare state, established in Argentina after the Second World War, is unsustainable under current conditions and must be eliminated.

There are hundreds of analysts who have written and continue to write about Milei’s government and its policies. Many evaluate his measures with satisfaction, while many others express their rejection, in varying degrees of intensity. However, among those I have read, only a few provide a global analysis of the situation and the significance of the emergence of a government currently embodied by Milei.

In this work, we will attempt to argue that Milei is the superstructural expression of a very deep phenomenon that has been developing for 40 years. The dominant classes in Argentina have concluded that the welfare state, initiated after the Second World War, is unsustainable for them under the current conditions and must be dismantled.

THE WELFARE STATE HAS BEEN IN DECLINE FOR YEARS

Argentine history, when simplified to the extreme, has been characterized since 1952, when the terms of trade were normalized, by attempts of successive governments—both civilian and military—to reduce workers' share of national income, and by the workers' struggle to defend it.

In 2003, due to the greatest boom in cereal prices in Argentina’s history and the semi-insurrection of 2001, there was a period of recovery in workers' purchasing power, which improved the living conditions of the less privileged sectors. However, starting in 2013/14, as commodity prices stabilized, this trend was reversed.

Historically, Argentina was the most industrially developed country in Latin America. Over time, various governments implemented different protectionist measures: tariff reductions on raw materials, tax incentives, subsidized credit, and import barriers for finished products, among the most significant. While these policies fostered industrial employment, they also created a business class more dependent on government handouts than on production.

Production was carried out on a small scale for a market of just over 40 million people, with little competition or price agreements that allowed businesses to operate with very low productivity. They could set high prices and secure large profits, which, due to a lack of incentives, were (and still are) transferred to tax havens. The result: an industry with very low productivity and high prices.

Meanwhile, on a global scale, China became the world's factory, producing with the latest technology for 8 billion people, at costs infinitely lower than those of national production. In this context, the development of global capitalism has made the decline of the national industry inevitable. And with it, unemployment has also risen.

Governments, particularly Peronist ones, have attempted to address this growing social sector with state subsidies. Over the years, the number of public sector workers at the national, provincial, and municipal levels has doubled. The number of retirees has also doubled, reaching nearly 7 million. Hundreds of thousands of direct subsidies were granted to families.

This approach supported the most vulnerable sectors, maintained domestic consumption, and incidentally secured electoral support for the ruling party. Added to this were energy and transportation subsidies amounting to billions.

In summary: Public spending at all levels increased from 25% to 45% of GDP. As tax revenue was insufficient, the first solution was borrowing—until the country reached its limit. No one was willing to lend to Argentina anymore. The solution was to print colorful paper money.

THIS IS OVER—MILEI IS ALIGNING THE COUNTRY TO THE NEW GLOBAL PRODUCTION AND CAPITAL ORDER

Opening the country to the world will completely transform Argentina’s economic, social, demographic, and political structure. The old, small-scale industry will give way to large-scale, high-productivity industries coming from China.

The dominant classes in Argentina concluded that this situation had become unbearable for them. Amid widespread public discontent with all the political parties that had alternated in power and failed to meet popular expectations, an outsider emerged to embody the frustration—particularly among young people.

To understand: In the 1960s, Argentina accounted for approximately 1.30% of global trade. Today, it barely reaches 0.30%. The main industrial exports, aside from food, are seamless steel tubes and... candy!

The government aims to develop industries where Argentina has comparative advantages: agriculture, livestock, energy (gas and oil from Vaca Muerta), and minerals in the eastern Andes. This policy inevitably leads Argentina toward becoming more like Latin American countries such as Chile and Peru—producers of raw materials.

However, raw materials generate little employment, mainly around production centers and in urban areas that manufacture extraction equipment. It is easy to foresee that many factories and workshops in Greater Buenos Aires will close, or those that remain will operate at minimal capacity. With state subsidies reduced or eliminated, poverty will become the prevailing condition.

The middle class is and will continue to be severely affected, leading to a significant decline in the traditional bases of major parties, such as the Radical Civic Union and Peronism.

If this program succeeds, Argentina will become a “Belindia”: 20% of the population (segments A and B) will live like in Belgium, while the remaining 80% (segments C, D, and E) will live and consume like in India.

INVESTMENTS ARE NOT ARRIVING, DOLLARS ARE SCARCE

Milei bet that by opening trade, reducing wages, and lowering inflation, both local and foreign investors would regain confidence and develop new enterprises in areas where Argentina has comparative advantages. But after 15 months in office and after taking photos with global leaders and major business figures, not a single investment dollar has arrived—nor are there any serious promises of future investments.

On the contrary, companies such as Petronas, Procter & Gamble, Banco Itaú, HSBC, Falabella, Latam, Telefónica, and Mercedes Benz, among others, have already left Argentina.

THE BUSINESS FRONT IS FRACTURING

The issue at stake is devaluation. Exporters are clamoring for an immediate devaluation of the peso.

Business leaders initially supported this project because curbing inflation and reducing wages would increase their profits. However, the opening of imports and the suppression of exports through an artificially low exchange rate are shrinking their markets, leading to reduced shifts, forced vacations, and mass layoffs.

The government is aware that fueling inflation before an election would cost votes. As a result, divergent opinions on economic policy are already emerging. Criticisms from former Minister Cavallo and Paolo Rocca, head of Techint—the country’s most influential businessman—express the growing dissatisfaction of those who produce for the domestic market or are exporters. The open confrontation with major media outlets like La Nación and Clarín is part of this same phenomenon.

WHAT COMES AFTER MILEI?

The political scene is open for another outsider who, taking advantage of the situation, may seek to rise to power.

The opposition is fragmented due to a complete lack of a concrete program or viable alternative. Given the public’s exhaustion with traditional politicians, the scenario is ripe for another outsider to seize the opportunity.

Much will depend on the level of resistance that the popular movement can mount in defense of their living conditions, which are currently under severe attack. If protests intensify, it is possible that a new leadership could emerge to replace the discredited existing ones and lead the resistance towards an alternative future.

Silvio Dragunsky Genkin
Lima, March 11, 2025
sdragunsky@gmail.com