To most people in the United States, Argentina is known for Lionel Messi, beef, and the Patagonia region that inspired a domestic clothing brand. Most don’t know that Argentines are struggling, and their plight should be a warning sign for people in the U.S.
In September, consumer prices in Argentina rose 3.5%, exceeding expectations and marking a 52.5% increase since last year. Faced with growing inflation anxiety in the country, which I witness firsthand, the Argentine government is extending a price control program to more than 1,200 household items — from bread and flour to milk and rice. Known as Precios Cuidados, the program covers more than 700 products in supermarkets, whose prices can only increase under government supervision.
When big government steps in to control prices, you know inflation is a serious problem. However, while the COVID-19 pandemic is partly to blame for Argentina’s problems, its bloated government is actually the main culprit.
While Argentina’s population exceeds 45 million people, private-sector employment hovers around 6 million people. Fifty-five percent of the country’s registered workers are employed by the government. In recent years, sky-high spending has predictably pushed Argentina’s debt to more than 102% of gross domestic product.
On a daily basis, populism and protectionism stand in the way of entrepreneurship, small business growth, and private-sector job creation. Innovation is halted, overshadowed by government largesse that expands with each passing year. Between 2003 and 2015, public-sector employment grew by 60%, and COVID-19 has only exacerbated that growth — now punctuated by sweeping price controls.
Without a thriving private sector, Argentina’s struggles will be here to stay. Without capitalism, government dependence will fester and poverty will spread, undermining the Argentine way of life.
In the World Bank’s “Doing Business” index, Argentina is ranked 126th between Paraguay and Iran. When it comes to small business formation, we fare even worse, clocking in at 141st behind Palau and Vanuatu. Simply opening a company — which takes hours in the freest, most developed countries — is a multimonth process here. Recent price controls do not benefit entrepreneurs, who rely on the market-based exchange of goods and services to make a living, employ people, and grow the economy.
Alas, sustainable growth is a pipe dream for a contracting economy. Earlier this year, the Argentine economy shrank by 1.4%, capping off two decades of stagnation in fitting fashion.
Herein lies a cautionary tale for the U.S., which is not immune to the many problems hampering Argentina. In the U.S., inflation is more real by the day, with the consumer price index rising 5.4% — a 30-year high. According to the White House, “There will be things that people can’t get.” Price-fixing on prescription drugs has once again become a hot-button issue on Capitol Hill.
All the while, the size of government creeps up and up. In the 1950s, the federal, state, and local governments employed just over 6 million workers. Today, the number is closer to 22 million — roughly half of Argentina’s entire population. And that doesn’t even consider military personnel or the millions more contractors and consultants on government payrolls.
While the U.S. government flourishes, the U.S. business climate is more bearish. The country has slipped to 55th globally in terms of opening new companies.
Then there’s government debt, which is officially a global crisis. In the U.S., total public debt comes out to 125% of GDP, making even Argentina’s tax-and-spend regimes look frugal. Just two decades ago, America’s debt-to-GDP ratio was “merely” 55%.
Washington, D.C., must tread carefully. While the federal government is nowhere close to imposing price controls on hundreds of household items, it would be foolish to write off the harsh consequences of inflation. As prices rise, the entire U.S. economy, which is already grappling with millions of unfilled jobs, will feel the strain.
The only path forward is a reinvigorated private sector that connects employees and job-seekers to new career opportunities. The way forward is entrepreneurship, innovation, and a commitment to the work ethic that made the U.S. so great in the first place. For decades, it was a work ethic that separated the U.S. from the likes of Argentina, which cannot compete with a thriving market economy.
Yet, unless nurtured, advantages can quickly become disadvantages. The free market is only as strong as those defending it. Trust an Argentine: The U.S. would be wise to defend theirs.
Antonella Marty, a resident of Argentina, is a senior fellow at Atlas Network’s Center for Latin America.
