On Income Distribution Dynamics in Argentina During the 1976–1983 Dictatorship: A Classical-Structuralist Interpretation

ABSTRACT

The long-lasting, distributive changes in Argentina during the 1970s have been extensively studied from different theoretical perspectives. What has not yet been sufficiently examined, however, are the reasons behind the non-monotonic trends observed on income distribution during this period and, in particular, under the dictatorial regime (1976–83). To fill this gap, we have developed a model inspired in the modern Classical-Structuralist approach to income distribution. We argue that the irregular trend of the real wage reveals that only a partial correspondence exists between the class interests of the 1976 coup and the effects on income distribution of the successive economic programs implemented by the dictatorship.

KEYWORDS:

• 1976 dictatorship in Argentina
• distributive conflict
• exchange rate dynamics
• small open economy

JEL CODES:

• N16
• O11
• B51
• F41

Acknowledgments

We wish to thank Germán D. Feldman, Fabián Amico and Natalia Bracarense for their helpful comments and discussions on an earlier version of this paper. We are also grateful for the comments received during the 3rd International Workshop on Demand-led Growth of the Institute of Economics of the Federal University of Rio de Janeiro (IE-UFRJ). Finally, we appreciate the two anonymous referees, whose comments and suggestions contributed to conspicuously improve the quality and clarity of this article. Any remaining errors are ours alone.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 It should be noticed that this feature is also implicitly recognized by some scholars who characterize the set of policies of the dictatorship as relatively ‘opportunistic’ and lacking a coherent project (e.g., Sábato and Schvarzer 1984; Nochteff 1994; Müller 2001).

2 Of course, this does not deny the negative impact that external indebtedness during the same period had on the sustainability of the regime. But this process has been deeply examined elsewhere (see Díaz-Alejandro 1985; Basualdo, 1987, 2006; Dornbusch, 1989), and therefore we will not deal with this issue here in detail.

3 The requirement of imported inputs refers to what Tavares (2000) calls ‘technological dependency’. This is, the need of peripheral economies to import means of production from central economies, due to the existence of ‘black holes’ in their input — output matrix (Dvoskin and Feldman 2018, p. 353).

4 $E$ is defined as the amount of domestic currency per unit of foreign currency, meaning that $E$ goes up with a depreciation of the local currency.

5 The inclusion of differential rent in the analysis would imply an additional distributive variable and a more complex distributive configuration (Dvoskin et al. 2020). However, since the aim of the paper is to examine the distributive conflict between, on the one hand, workers and capitalists and, on the other hand, between financial and productive capital, the consideration of differential rent (and the differentiation between agrarian capitalists and landowners) does not seem to shed additional light on the non-monotonous distributive trends during the period under study.

6 It is easy to show that the condition $p_A=E{p}_A^{\ast }$ holds independently of the exchange rate regime assumed. Firstly, consider the case in which condition $p_A<E{p}_A^{\ast }$ holds in a fixed exchange regime. Then producers will allocate commodity $A$ abroad, since each unit sold in the international market will pay $E{p}_A^{\ast }$, which is higher than $p_A$ by hypothesis. The shortage in the domestic market will eventually increase the price of $A$. Under a flexible-exchange regime, specialization in commodity $A$ in the foreign market will imply the inflow of foreign currency, pushing down the exchange rate until condition $p_A=E{p}_A^{\ast }$, holds. We thank an anonymous reviewer for suggesting the need to clarify this point.

7 The curvature of the ‘$e-r$ curve’ in Figure 2A implies the existence of a maximum level of the profit rate, derived from the inclusion of capital goods — in this case, imported — among the technical requirements of the productive method in sector $A$.

8 A difference between price-maker and price-taker open economies is worth noting here. While in a price taker-country the profit rate should necessarily rise with devaluation, the effect is indeterminate in a price-maker country. Consider the second case, first. Since the international price of the exported commodity is not given for the domestic country, when devaluation increases the price of imported inputs, one can envisage two polar cases. Either the increase in production costs is passed-through into the selling price of $A$ — the economy ‘exports’ inflation — , and hence, for given money wages, the real wage falls; or alternatively, the rise of imported inputs is compensated by a decrease in the profit rate. Of course, the intermediate case in which both the real wage and the profit rate fall is also possible. On the contrary, in the case of a price-taker economy considered here, the condition $p_A=E{p}_A^{\ast }$ must hold and hence devaluation necessarily increases the selling price of commodity $A$, with the implication that the real wage in terms of the tradable commodity falls. Since the surplus is not evaporated, this fall is absorbed by the rise in the normal profit rate, as shown by condition (3). We thank the comment made by an anonymous referee that gave us the opportunity to clarify this point. (For the difference between price-taker and price-maker economies, see Dvoskin & Feldman 2020).

9 The adjustment process between two long-period positions, where the rate of profit is uniform across sectors, cannot be precisely determined, since it depends on the details of the adjustment itself. However, one can safely assume that the initial effect of the rise in $e=E/w$ is to increase the selling price of the tradable commodity $A$ relative to its money costs, and hence to raise its own profit rate relative to the rate of profits earned by sector $NT$, which is raised in a second stage through the action of competition. See appendix for an analytical exposition of this point.

10 See Alvarez (2022) for a reconstruction of the advanced stage of Argentine industrialization along the classical-structuralist approach.

11 In fact, as will be presented further, the ability of the central bank to accommodate the interest rate (a ‘cheap monetary policy’) was to be substantially constrained under financial integration implemented by the dictatorship after April 1977.

12 Notice that the level of the exchange rate also influences the monetary price of the non-tradable sector. When $E$ rises, there is an increase in the relative price of the tradable sector, increasing the rate of return to capital invested relative to the non-tradable sector. However, the reallocation of capital and profit arbitrage between sectors will eventually entail the increase of $p_{NT}$, led by the rise of profit rate until the differences in relative returns are eliminated (see Carciofi 1986, pp. 138–139). See appendix for a closer inspection of this point.

13 It should be noted that, while this kind of tariff allows sector $I$ to earn the normal profit rate of the economy for the same level of $e$, it does not allow sector $I$ to export its production, since domestic costs of production in foreign currency do not change. For sector $I$ to reach international competitiveness, a subsidy of the same magnitude would be needed.

14 Basualdo (2006) highlights that the elimination of ${\tau }_A$ raised the agricultural profit rate, thus increasing the price of land and benefitting both capitalists and landowners (p. 120).

15 We thank an anonymous reviewer for suggesting the need to clarify this point.

16 See Appendix for an explanation of wages reaction (or indexation) and its impact on inflation.

17 As stressed by Canitrot, ‘Any early evaluation of the programme (…) could only emphasize its crudely class-based character. Nominal wages had been frozen in the middle of an acute inflationary process intensified by general decontrol of prices. As a whole, farm prices, exempted from export taxes and boosted by a devaluation, had risen relative to other prices. The labor unions had been taken over, and their leaders massively purged’ (Canitrot, 1980, p. 924).

18 In a recent article, Aidar et al (2021) have rationalized these unstable exchange-rate dynamics under similar conditions to those examined here, namely, a free-floating exchange-rate regime and international, but imperfect, capital mobility. They show that, under ‘elastic’ price expectations in the sense of Hicks (1939), a sudden rise in the exchange rate causes further rises that tend to accumulate over time.

19 Additionally, Basualdo (2006, pp. 135–136) argues that the need to increase the legitimacy of the dictatorship, especially when a latent military conflict with Chile gained momentum in 1978, also helps to explain the pressures on the economic board to change the course of economic policies towards price stability and public spending.

20 Argentine Armed Forces visualized a social order in which the working class was subdued but not excluded from economic activity (Canitrot 1981, p. 155–156, 1983, p. 39). The social and political costs associated with high unemployment were not desired by the Military Junta, due to the fear that this would lead to its rejection by society. On the difficulties faced by the dictatorship in achieving political dominance through legitimation, see Lvovich (2009).

21 The passage by Canitrot, which describes the distributive implications for the capitalist class of the change in economic polices after December 1978, is worth reproducing: ‘The government gave clear signs, in its management, of its willingness to face the political costs of its decisions. When it carried out the financial reform, in order to apply the policy of monetary contraction, it did so in full awareness of stopping an economic boom that, under conditions of controlled wages, gave very high benefits to the business sectors that constituted the social base of its political support. Furthermore, in December 1978, it subjected these same sectors to the harsh, and finally ruinous, discipline of the progressive appreciation of the exchange rate, and in 1980 of high real interest rates, without giving in at all to generalized claims’ (Canitrot 1981, p. 170. Own translation)

22 While authors such Basualdo (2006) do not deny the distributive conflict between financial and productive bourgeoisies that emerged during this period (pp. 162–163), they also argue that the conflict among these factions was softened due to fact that the agricultural capitalists would have shown a tendency towards diversification of their activities, by providing financial services, too (p. 161). Notice, however, that our point does not aim to question the existence of these connections between financial and productive spheres. We just limit ourselves to examining the implications for the productive structure and for the political economy of the dictatorship, caused by the change in the relative profitability of financial and productive capitals. That this gradual shift from one sector to the other is done by the same firm, or group of firms, as noted by Basualdo, does not change the nature of the problem under examination. We thank the comment made by one anonymous referee that gave us the possibility to clarify this point.

23 Private foreign debt grew from 3.8 billion US dollars in 1976 to 14.8 billion in 1982, while public foreign debt increased in the same period from 4 billion US dollars to 28.7 billion (Rapoport 2020, p. 660).