The Collapse of Argentina, part one: Railway Imperialism

As the Argentine economic collapse began to deepen, I decided to search for radical or Marxist literature on the country written in English to help me understand the situation better. This proved futile (although I continue to be open to recommendations). Nestor Gorojovsky, an Argentine revolutionary who I have been in touch with on the Internet or by phone for at least five years now, could recommend nothing. (His own efforts at a Marxist overview of Argentine history can be found at: http://www.marxmail.org/archives/january99/argentina.htm.) Not even after posting an inquiry to the H-LatinAmerica list, whose subscribers are exclusively academic specialists, were any recommendations forthcoming.

Taking the bull by the horns, I plan now to fill this gap beginning now with a series of posts based on scholarly material from Columbia University's library. Although I do plan to review literature on Argentina written in Spanish, most of the source material for my posts will be in English, a language that I am more comfortable with when it comes to higher-level analysis.

My own involvement with Argentina dates back to the mid 1970s when I was drawn into a faction fight within the world Trotskyist movement over political perspectives in Argentina. The two main antagonists in the debate were the late Joe Hansen, Trotsky's bodyguard at Coyoacan and a leader of the Socialist Workers Party, and the late Ernest Mandel, the renowned Belgian economist who was on the executive committee of the International Secretariat. The Americans and their mostly English-speaking followers (I use the word advisedly) backed a Trotskyist group in Argentina that appeared to be implementing their own orthodox approach.

Led by the late Nahuel Moreno, this group participated in trade union struggles, the student movement and opposed the ultraleftist guerrilla formations that were kidnapping North American executives or hijacking trucks in order to dispense meat and other goods in poor neighborhoods like Marxist Robin Hoods. It was one of these groups that the Mandel faction backed. Although they paid lip service to Trotsky, these Argentine guerrillas organized as the PRT/Combatiente were more interested in applying Regis Debray's foquismo theory to the urban sector.

My role in all this was to battle the Mandel supporters in Houston, Texas who held a near majority in the branch and whose affinity for guerrilla warfare was open to question. Most were disaffected from the SWP leadership, whose alleged "petty-bourgeois" orientation to the student movement was supposedly leading the party to ruin. A couple of years later, the SWP leadership would go completely overboard in a kind of 'workerist' orientation to the trade unions, thus robbing the dissidents of their raison d'etre. By the time this turn had taken place, the SWP and the Fourth International had parted ways. As a local leader of the anti-Mandel faction, I had the opportunity to spend long hours in discussion with Argentine co-thinkers who visited Houston to give reports for our faction. Security was extremely tight in those days and I had to check my 1968 Dodge Dart for bombs before driving any of them to a public engagement.

During that intense struggle, I gained a deep appreciation for the Argentine people, their culture and their revolutionary will. Although I grieve to see their personal suffering today, I am inspired to see them acting collectively for a better country and world. One hopes that their heroic example can begin to erode the "TINA" mood that has affected wide sections of the left since 1990.

In this first post, I want to address the question of Argentina's "golden age", a notion that you can find in many left publications or on the Internet. In this version of Argentine history, the country is seen as an exception to the rest of Latin America where conventional notions of "imperialism" and "dependency" might not apply.

For example, British state capitalist theoretician Chris Harman writes:

"Argentina is an industrial country, with a higher proportion of its workforce in industry than in Britain. It's also a country where working people have, within living memory, experienced living standards close to west European levels. It was known as the 'granary of the world' at the beginning of the 20th century, with an economy very much like that of Australia, New Zealand or Canada, centred the massive production of foodstuffs on giant capitalist farms for the world market. Relatively high wages made it a magnet for millions of immigrants from Italy and Spain who brought traditions of industrial militancy with them."

http://www.swp.org.uk/SR/260/SR3.HTM

Brad DeLong, an economist who held a post in the Clinton administration and who is a ubiquitous figure on leftwing electronic mailing lists, wrote the following on Progressive Economists Network (PEN-L):

"As I said quite a while ago, Argentina was a *first* *world* country--like Canada, Australia, or New Zealand--up until the 1950s. Arguments that development possibilities were constrained by relative backwardness may work elsewhere: they don't make *any* sense for Argentina."

http://www.mail-archive.com/pen-l@galaxy.csuchico.edu/msg46848.html

If views like these are meant to support a kind of Argentine exception to the Leninist concept of imperialism or its subsequent elaborations such as the Baran-Sweezy theory of monopoly capitalism, they are mistaken. They would fail to see Argentina's role in the world capitalist system, which--despite favorable moments--has been that of victim of imperialism. Comparisons with the USA, Canada, etc. are specious, even if in a given year income or other statistics were comparable. The *structural* questions are far more important for understanding Argentina. Despite the presence of European immigrants, industrialization, national independence, the lack of feudal-like latifundias, etc., Argentina had much more in common with direct colonies in the 19th century like India.

Specifically, one of the main factors that led to Argentine dependency was its reliance on British capital and expertise for the construction of railways in the 19th century. Just as was the case in India, these steam-driven showplaces of modernization did nothing but drain the country of capital and force it into a secondary role in the world economy.

If one is a Marx "literalist," there can obviously be a lot of confusion about the introduction of railways into Argentina or India, especially when Marx wrote:

"I know that the English millocracy intend to endow India with railways with the exclusive view of extracting at diminished expense the cotton and other raw materials for their manufactures. But when you have once introduced machinery into locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication. You cannot maintain a net of railways over immense country without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with railways. The railways system will therefore become, in India, truly the forerunner of modern industry." ("The Future Results of British Rule in India," NY Daily Tribune, Aug. 8, 1853)

In contrast to these early hopeful writings, before Marxism had developed an understanding of the negative role of imperialism, the historical record demonstrates that foreign owned railways did not lead dependent countries to become anything like the those of the investors, engineers and builders from the core. Rather than serving as a catalyst for Argentine industry, they did nothing except enrich British finance capital, the nefarious Barings Bank in particular. For a scholarly treatment of this subject, we can turn to Alejandro Bendaña's 1979 PhD dissertation "British Capital and Argentine Dependence 1816-1914". (Bendaña was a senior level Sandinista official who served as 'responsable' with Tecnica, the volunteer organization I was involved with in the 1980s. He continues to participate in the radical movement, nowadays with the Center for International Studies in Managua and the Jubilee Campaign against 3rd world debt.)

The most important sector of the Argentine ruling class in the 19th century was the 'estancieros', or ranchers. From 1820 onwards, they began to develop an alliance with British capital, which was seen as strategic for the goal of exploiting the country's land-based riches. Arising from within its ranks, Juan Manuel de Rosas emerged as the primary spokesman for this class. British merchants played an important role in guaranteeing the Argentine rancher access to world markets. Smiling benignly on this interdependence, the British consul wrote:

"the manufactures of Great Britain are becoming articles of prime necessity. The gaucho is everywhere clothed in them. Take his whole equipment - examine everything about him - and what is there not of raw hide that is not British? If his wife has a gown, ten to one that it is made at Manchester; the camp-kettle in which he cooks his food, the earthenware he eats from, the knife, his poncho, spurs, bit, all are imported from England. . . Who enables him to purchase these articles? Who buys his master's hides, and enables that master to employ and pay him? Who but the foreign trader. Stop the trade with foreign nations, and how long would it be before the gaucho would be reduced to the state of the Indian of the Pampas, fed on his beef and horse-flesh, and clothed in the skins of wild beasts?" (Bendaña, p. 34)

However, one important piece was missing from this jigsaw puzzle. Unless a modern railway system was introduced into the country, Argentine goods would be not as competitive with those of countries which could deliver beef, hides, and etc. to seaports in a much shorter time over rail rather than horse-back. Furthermore, unless workers and managers could make reasonably quick trips over rail between cities and rural points of production, the entire system would lack the kind of internal cohesion that other capitalist countries enjoyed. From the standpoint of classical economics, one would think that it would be to the mutual benefit of English and Argentine capitalist classes to develop a kind of partnership. Instead, what transpired has much more in common with the con games of the 1990s in which Wall Street banks got rich at the expense of the Argentine people. Except, in the 19th century, it was Barings Bank rather than Goldman-Sachs that was doing the robbing.

To look after its interests in this vastly ambitious railroad-building enterprise, the Argentine government named North American William Wheelwright as its agent. They were overly optimistic. After making the rounds in British banking houses, Wheelwright said in 1863 that a deal could be done only on the following basis:

--The land grant must be doubled (land adjacent to the tracks given free to the railroad company.)

--45 percent of the railroad revenue would be counted as working expenses.

--The profit ceiling would be raised to 15 percent, more than triple the norm.

--Most importantly, the expropriation clause would be eliminated.

Although the Argentine ruling class and its British partners were committed to liberalism in the economic sphere (the model for 1980s-90s neoliberalism), this loan-sharking deal had nothing to do with free market principles. Such concessions could only reflect the internal weaknesses of a bourgeoisie that relied on cattle ranching, as opposed to the British ruling class that had accumulated vast amounts of capital through manufacturing, and then finance.

When the shares for Central Rail, the new British-owned railroad, sold sluggishly, the bankers demanded further concessions. No longer would working expenses be limited to 45 percent, they would be *whatever the company accountants said they were*. So, not only do you get concessions forced down the throat of the Argentine government, you get an 1860s version of the kind of accounting that Arthur Anderson did on behalf of the Enron crooks.

To make sure that all the Central shares got sold, the British investors demanded that the Argentine government buy 2000 shares, which is a little bit like asking someone being hijacked to drive the truck. An Argentine Minister glumly commented:

"We are faced with having to lower our heads for all these demands and any other ones that may be put before us given our nation's need for the railway's benefits and our own incapacity to secure these by any other means." (Bendaña, p. 93)

Finally, in the May of 1870, 17 years after the original conception and 7 years after work began, the first locomotive arrived in Córdoba. Over the course of the 1870s, the Argentine state provided nearly 40 percent of the guaranteed profits for the new railroad. In a nutshell, the wealth of the country was being drained to make sure that British investors enjoyed super-profits. Furthermore, the British enterprise was tax-exempt. This turned out to be a bonanza for the Central Argentine Land Company that came into existence in 1871. Unlike the railroad, commercial exploitation within land claim areas were far less risky and had no particular claim to the kind of tax-exempt status enjoyed by large-scale capital projects. Once again, the weak Argentine bourgeoisie had been given an offer that it couldn't refuse.

With British technological superiority, one might at least hope that the new railway would provide adequate service. As it turned out, the Argentine people had ended up with a Yugo rather than a Rolls-Royce. Public complaints about service and rates grew legion.

Central was just the first in a series of white elephants. Next came the Northern, the Eastern, and the Great Western Railways, all financed by the British and all imposing larcenous penalties on the people of Argentina. A government audit revealed that the East Argentine railroad was marked by an excess of employees (exclusively English at high salaries), overly generous salaries for company directors, inadequate rolling stock, dubious accounting procedures, and bloated operating costs.

When such exploitation operates in open view, one might ask why the Argentine capitalists did not rebel. After all, if one is committed to national development, then one must allow oneself the ultimate weapon against foreign exploiters: expropriation. Unfortunately, except for the urban middle-class, such calls were not made. As is the case today, the dominant fraction of the national bourgeoisie lost its nerve. And like today, the ideological excuse for inaction was a commitment to the "free market." The estancieros regarded their own economic well-being as synonymous with the extension of railway lines made possible by foreign investment.

When the harsh reality of British theft collided with the delusional schemas of the local bourgeoisie, voices of dissent began to be heard in parliament. Why couldn't the nation redeem itself through seizure of properties that were based on criminality to begin with? Even the conservative "La Nación" asked in 1872:

"Can and should the state build all railways itself and expropriate existing ones? We do not believe that the benefits of state railways should necessarily carry us to the latter consequence . . . Although the country cannot afford expropriation now or for many years to come, there may come a day when revenue and necessity may, possessed of means and facing a need for new lines, expropriation might become convenient." (Bendaña, p. 152)

Skilled as they were in keeping the natives at bay, the British turned to one defense after another. They bribed ministers, congressmen and railroad bureau officials to vote against nationalist legislation or to look the other way when laws were being broken. When this proved insufficient, the British were not above gunboat diplomacy. In late 1875, the British bank in Rosario suddenly demanded immediate repayment of railroad notes as part of a maneuver to destroy local financial competitors. When the nationalist-minded local governor in Santa Fe sided with his countrymen, the British sent their navy to blockade the city. Buenos Aires caved in to the show of force and the British won their demands without a shot being fired. Bendaña cites H. S. Ferns's "Britain and Argentina in the Nineteenth Century":

"prosperity had created a nation of boosters, and the porteños (Buenos Aires elites) looked at the Governor of Santa Fe as Pierpont Morgan might have regarded William Jennings Bryan." (p. 258)

By 1913, Great Britain owned 95.8 percent of all private railways in Argentina. That amounted to 60.2 percent of total British investment in the country. The economic consequences on the nation were enormous. Arturo Castaño, a legislative deputy and rail expert, warned:

"the more the railways extend themselves, the greater will be the economic disruptions, and the greater will be the migration to the cities from the provinces. A third of our national production is absorbed by the railways, without the Executive being able to intervene in rate-making due to an administrative system which favors the companies."

Indeed, when foreign capitalists absorb a THIRD of national production, the question of imperialism has to be addressed.

The railway era lasted about a century. The first 3 decades, from 1830 to 1860, were a time of rapid expansion in the imperial centers. The spread of railways into Asia, Africa and Latin America did not produce concomitant benefits. Although Cecil Rhodes characterized railroads as "philanthropy plus 5 percent," the profits were always far higher and the progress realized in countries such as Argentina was far less than advertised.

In my next post, I will take up the question of Juan Perón and his legacy.