The old Peronist smiled when I asked what would be the next big change in world politics. Speaking in immaculate English, he replied: “The decadence of market power.” Near the end of the Nineties, it was a strikingly prescient observation. Comfortably seated beneath a vast portrait of the dictator’s wife, Eva, the exquisitely tailored survivor from another political era anticipated the deliquescence of the post-Cold War global market, which opinion formers throughout the West believed to be everlasting.
A few years later, the control of economic policy by institutions insulated from politics – one of the pillars of neoliberalism in Argentina as everywhere – began to collapse. Pegging the peso to the American dollar by an independent currency board was acclaimed by economists as a constraint on inflation and a precondition of growth. When I visited Argentina, everyone – senior officials at the central bank, the current generation of politicians, even journalists – assured me the peg was inviolable. But an overvalued peso meant uncompetitive exports and a steep recession, whose consequences were evident in poverty and crime in the streets. The peg was becoming unsustainable, and I was not surprised when it broke down.
In December 2001, bank deposits were frozen and overnight interest rates leapt to almost 700 per cent. President De la Rúa resigned and a succession of ephemeral presidents followed until Eduardo Duhalde assumed office in January 2002, repealed the Convertibility Law and, after initially pegging the peso at a lower rate, let it float. During the next few months it lost more than two-thirds of its value in relation to the dollar. Since the majority of mortgages and other loans were denominated in dollars, much of the middle class was ruined. The country’s access to international capital markets was permanently impaired.
Argentina’s instability shows no sign of ending. In August, the 52-year-old outsider Javier Milei beat Peronists and candidates of the conventional right to come first in the presidential primaries. A devotee of tantric sexual yoga, known as “the Wig” for a mop of hair he claims has been combed only by Adam Smith’s invisible hand, Milei is a self-described “anarcho-capitalist”; he has named his four mastiffs after Milton Friedman and other free-market economists.
[See also: The New Age of Tragedy]
In vowing to “burn down” the central bank, adopt the US dollar as the official currency and promote large-scale use of Bitcoin, the Wig offers a mishmash of ideological extremes, including legalising drugs, prostitution and a market in human organs, while prohibiting abortion in most circumstances. The outlandish mix unnerved financial markets, with the peso falling almost 18 per cent on news of Milei’s success in the primaries.
For most commentators, the notion that Argentina could have lessons for Britain will seem absurd. We are an advanced democracy, they like to think, whereas Argentina belongs in the third world. But until the Great Depression and the takeover of power by a military junta in 1976, Argentina was a first-world country and one of the richest. Its decline is chiefly the result of its unserious and recklessly inept political classes, and here there are unmistakable parallels with Britain today.
The catastrophic meltdown in public finances that very nearly happened during Liz Truss’s short spell as prime minister was not the result of a one-off act of political folly. Her madcap dash for deficit-financed growth revealed Britain’s heavy dependency on global capital flows and acute vulnerability if they come to a sudden stop. Since then, UK government borrowing costs have risen. Quantitative easing after the financial crisis of 2007-08, the costs of lockdown, and energy subsidies have left colossal levels of public debt. In effect, the British state is operating as a highly leveraged hedge fund.
This poses a stark challenge for an incoming Labour government. Quicksilver global capital has a veto over government spending. The decaying concrete in our schools reveals a decomposing national infrastructure that needs a huge injection of resources. But without money to spend, Labour will be powerless. A consistent increase in growth will not be achieved by persisting in the policies that have failed to generate it under the Tories.
When Keir Starmer buckles under the pressure of public sector strikes and voter discontent and abandons Rachel Reeves’s fiscal restraint, a harsh reckoning with the financial markets will be inevitable. The refusal of the political class to admit they have made Britain into a second-world country will impel it into the third world.
Nemesis could still be averted. HS2 could finally be discarded, and the triple lock on pensions replaced by greater assistance to low-income groups. Labour’s expensive green programme could be exchanged for a more cost-effective strategy of government support for modular nuclear reactors, the cleanest energy technology in terms of carbon emissions. Money could then be released for rebuilding Britain’s infrastructure.
Given the inert progressivism that rules all mainstream parties, no fundamental change in policies will occur until it is forced by events. By then it may be too late to avoid national impoverishment. Oblivious of how they are accelerating the decline of a decadent market regime, our careless ruling elites will continue to lead us to disaster. Along the way, they might consider mandating the universal practice of tantric yoga as a remedy against anxiety.
[See also: Dangerous minds]
This article appears in the 06 Sep 2023 issue of the New Statesman, Crumbling Britain