All Commentary
Wednesday, May 30, 2012

Argentina’s Way to Decadence

Argentina’s former president Eduardo Duhalde—elected by Congress in 2002 after a coup toppled the candidate who had defeated him in the regular elections—once said that Argentina was condemned to success. Indeed a country with fertile land, a mild climate, mighty rivers, a small population that used to be well educated, no major conflicts, and no racial rifts would seem difficult to sink. It must inevitably rise. Nevertheless, we Argentines have demonstrated a rare ability to avoid success. Fortunately destiny—good or bad—is never inevitable.

People often point out that the two Koreas provide (as the two Germanys once did) good examples of what the rule of law means for the life of a nation. Argentina provides yet another example of the changes that take place when respect for rights—including property—is no longer considered relevant. Except that in the case of Argentina, the division doesn’t concern space but time.

We Argentines started very well. People tend to forget that by 1928 Argentina had the sixth-highest gross domestic product (GDP) in the world. Income per capita was similar to Germany’s. Literature and music flourished.

Immigrants viewed Argentina as a place where hard work made people prosper. It was considered as promising as Canada but with a milder climate. People voted with their feet—the most honest and thoughtful way of voting—and they came to Argentina by the thousands. They came from Spain and Italy, but also from Wales and Denmark. Jews arrived and found that they enjoyed equal protection under the law. One of their sons wrote a novel describing the lives of what he called “gauchos judíos,” Jewish gauchos. They could buy land like anyone else and work it. Nicaraguan poet* Rubén Darío dedicated a poem to Argentina, in which he admired the Jewish settlers: “youth of strong figure, and sweet Rebeccas of honest eyes.”

What made that flourishing possible? Good land and hard work, of course. But also wise principles and noble ideals. After a period of civil wars, Argentina adopted a reasonable Constitution, largely copied from that of the United States. In fact when the Constitution was amended in 1860, it was considered necessary to add some provisions that “ignorant hands”—as it was said at the Convention—had forgotten to copy from the model.

Since then Argentina’s Constitution has declared property “inviolable.” Now that these principles have been abandoned, few people realize that this Constitution today is still more open to free trade than the U.S. Constitution. It declares that Argentine rivers are open to all ships, no matter the flag. That constitutional clause is the result of a lesson from history. Years before the Constitution was adopted, the tyrant General Rosas—who once executed a pregnant girl—had closed the rivers to those nations willing to trade with provinces that defied his orders. The tool he had used for strangling the economy of some regions and favoring that of others was banned by the Constitution.

We copied from other nations, but we chose good models. Why reinvent the wheel? It was said at the Constitutional Convention in 1860: Why should we design again the institutions that protect freedom when we have the example of the United States? Today you won’t find similar declarations in the mouths of Argentine politicians.

But the copying wasn’t blind: It was always in favor of liberty. For instance, in 1871 Congress adopted a Civil Code based on the French one. However, the rules about torts were completely different, and for many years they secured Argentines against the whims of judges fond of being generous at the expense of others. Unfortunately, in the 1930s we started to copy bad ideas, and Argentine law professors began a relentless fight against those restrictions on the powers of judges. They won. The wise rules about torts are still in the code, but nobody cares about them.

Before that ideological shift, the men who governed and educated Argentina had embraced free trade and had thought that no progress was possible without respect for property rights. They read Tocqueville and The Federalist. Debate was free too, and sometimes fierce, but these men no longer exchanged blows, only ideas.

Discretionary Authority

Let’s have a look at the present—so different a picture! At the beginning of 2012 the Argentine government replaced the general rules previously applied to imports with discretionary authorization from the government applied on an individual basis. A government official can ban an international deal without providing any explanation. Authorization is often subject to odd conditions: A company may import engines, but only if it promises to export some local product that might be outside its line of business, like wine.

As for exports, the government has banned and allowed and then banned again exports of wheat, meat, cheese, and many other products, to keep prices low for the local market. That is popular with voters, but cripples the prospects for the production of these goods.

In 2002, after the civilian coup that toppled President Fernando de la Rua, the new government—presided over by the candidate who had lost the elections—seized the dollars in all bank accounts and forcibly exchanged them for bonds or pesos less than half the market value of the dollar. For a short time there was another choice: You could use your money to buy a car and get an exchange rate a bit less ruinous. That was meant to boost the local automobile industry. In all these schemes people’s rights to their savings counted for nothing. The money could be used to promote an industry or be destined to serve any other plan that grabbed the imagination of government officials.

Some people attacked bank employees, who of course had nothing to do with the decisions of the government. Others sued the government, and that was criticized as unpatriotic. But they started winning their cases and recovering their savings. Even the much-reviled Supreme Court declared that if the Constitution says that property is “inviolable,” then bank accounts must not be seized. The federal government had taken even the dollars possessed by the provinces—the equivalent of U.S. states. One of these, San Luis, also sued, and won.

The federal government solved this problem by removing judges and replacing them with others who were more pliable. The old judges were accused of countenancing abuses committed by previous governments. The new majority on the Supreme Court declared that taking the dollars was in accordance with the Constitution.

The currency has derailed. Most sources say inflation was between 25 percent and 30 percent in 2011. It can’t be said for sure because the government has sacked those in the National Institute of Statistics who failed to produce good numbers. And private institutes that dared to say that the new figures don’t reflect the real level of inflation have been fined heavy sums.

We must realize that the majority of the Argentine population looks at these events with indifference. They won’t be bothered with these minor details about confiscations and inflation when the only relevant thing—so they have been taught—is to have a leader in control ready to fight the wicked capitalists who are always plotting against the national interest with the help of foreign nations. Unlike our founding fathers, today a large number of Argentines see the world as a ruthless struggle between nations. Principles and laws are merely weapons to be used or discarded in that fight. General Juan Perón expressed that conviction in his motto: To the enemy, not even justice.

A large number of Argentines are always ready to pardon injustices done to (other) individuals. What counts is the country as a whole and the struggle for social justice. As Perón used to say, you cannot make a tortilla without breaking some eggs. The eggs broken were journalists and union leaders tortured by his government. From then on, people have learned to see the big picture and look with indulgent eyes on those minor accidents.

It is clear that without some colossal confusion about basic notions of law, most of what happens in Argentina could have never taken place.

Evolution of (or Away from) Rights

Argentine constitutional scholars adhere to what they call social constitutionalism. They teach that the evolution of rights is similar to technical progress: You have first-generation rights (classic rights like property and free speech), second-generation rights (such as a right to a job and a salary), and third-generation rights (among others, a right to a sustainable environment and to the enjoyment of culture). To stop somewhere in that progression is simply to reject progress, a proposal that only ignorant people could suggest. The parallel between technical improvements and the new generations of rights reminds us of the many warnings Friedrich Hayek made about the use of technical or engineering images in social issues.

Ignoring Hayek’s advice, one of the most influential law professors of the last decades, Augusto Morello, wrote that judges must see themselves as social engineers. More than that, in one of his last books Professor Morello pointed out that the Supreme Court must act like a spearhead breaking the path for reforms whenever legislators might feel reluctant to pass a law against the opinion of their constituencies.

The tool to apply for these purposes is a dynamic interpretation of the laws, and especially of the Constitution. This is no abstract issue. When in 2006 the new Supreme Court needed to show that the constitutional clause declaring property “inviolable” doesn’t prevent the government from taking people’s dollars and exchanging them for bonds or devaluated pesos, the judges argued that what is inviolable is the essence of property—but not necessarily its extent. And the Court found that if the taking was reduced a little, it actually respected the “essence” of the savings. So the judges modified a number of laws and presidential decrees that confiscated dollars and declared that they took a considerable portion of the extent of the accounts, but not their essence.

That decision was less remarkable than the reaction—or rather lack of reaction—from Argentine law scholars. Just compare: If you tell an American law professor—even a “liberal” in the American meaning of the word—that the government has seized dollars in private accounts and that the Supreme Court (after the necessary changes in its composition) has justified everything, you would expect to see him raising an eyebrow. In Argentina a broad and benevolent view was considered wiser. The Court’s decision was described by experts as a good balance between the rights of individuals and the rights of the community.

Trying to find something positive to commend, most law scholars wrote that the Supreme Court brought tranquility by putting an end to the uncertainty that surrounded the issue. But even that soothing argument required a major twisting of the facts. The issue had already been resolved by the previous Court that declared the taking unconstitutional. The uncertainty—or rather certainty—came from the surmise that the new Court, after a prudential interval, would declare that the judges sacked by the government had been wrong. So they did.

The great expounders of the rule of law A. V. Dicey and F. A. Hayek have described its progress as a long struggle against discretionary rule. In Argentina generations of lawyers have studied books and heard professors that praised every expansion of discretionary powers as the main vehicle for progress. It is better, so they have said, if judges can decide every question on its merits, without being encumbered by precise rules. Professor Morello has written that the “glorious ambiguities” in laws and the Constitution are not defects but great advantages.

New Civil Code

The Civil Code is still a legacy from a time when the lessons given to law students were different. Since the 1930s, Argentine law scholars have pushed for its abrogation and replacement with a new code. Finally, last March, President Cristina F. de Kirchner announced that a new code had been sent to Congress. She had the votes to make it law.

The project stands legality on its head. It is an old principle shared by all free nations that nobody can be punished or forced to pay damages for doing what the law does not forbid. I may cause losses to a competitor by selling better goods, but losses alone are no cause for compensation. That great principle has been our Constitution since it was sanctioned in the nineteenth century. Damage counts in law only if it was caused by doing what the law forbids.

However, according to the new code drafted by President Kirchner’s advisers, damage is claim enough. The requisite “doing what the law forbids” is dropped. Even prejudice to someone’s legitimate “interests” (whatever that may mean) makes one liable to pay compensation. Of course, a Civil Code that allows a grocer to sue another on such a basis cannot be applied consistently. Indeed, inconsistency is what Argentine law professors suggest as the way out of the legal maze: Each one of the thousands of judges will have to decide which interests deserve protection, judging each case “on its merits.”

The abrogation of the old code with its archaic notions about freedom of contract and security of property will mark the final triumph of the doctrines that Argentine law scholars have been promoting for more than seven decades. In the past they even took advantage of the dictatorial powers of military juntas to impose their ideas. Indeed, before the present attack against the code, the biggest one was made in 1968, when Argentina was ruled by a military junta. Then the code was amended by the decree of a general, who followed the draft written by a law professor he had appointed as his minister. The new articles provided many discretionary exceptions to the rules in the code. But though that reform created many cracks and drilled deep holes in the structure of the code, it still retained a considerable part of its noble frame.

There have been exceptions to the ideological trend that dominates in the universities. The brightest light in Argentine jurisprudence, Sebastián Soler, explained decades ago the vices of collectivistic tendencies in the clearest of terms. His book Faith in Law is today out of print—a sign of the ideological shift.

Juntas and State Corporations

The fact that the main changes to the liberal code in the twentieth century were made by a military junta should give the lie to leftist propaganda that has tried to associate the juntas with liberalism and free markets. Moreover, all military governments kept intact the big State enterprises and corporations, and even enlarged them. For decades the extraction of oil, carbon, gas, iron, and uranium was performed by State-owned companies. Another State company owned the ships. Two big corporations, the JNG and the JNC, were in charge of the exports of grains and meat. Water, electricity, railways, and telecommunications were in the hands of the State. Finance was highly regulated and dominated by State-owned banks.

In truth privatization started with democratic governments, in the 1980s and ’90s, timidly by President Raúl Alfonsín and more decisively by his successor, President Carlos Menem.

Today the tendency has been reversed, and “privatization” is a bad word. Youngsters feel nostalgic for a country they never knew, ruled by powerful State corporations—they have read it was a wonderful world.

The State has kept moving in that direction. After forcing oil companies to sell below the market price, the government has found—to its anger and surprise—that investment in that industry has stalled. So it used force again to take the shares a Spanish company had in YPF, a State corporation privatized more than ten years ago.

In a curious step in the same direction, the government has decided to finance football. In 2009, announcing this new governmental endeavor, President Kirchner compared the tragedy of the disappearance of gratis football from our TV sets with the disappearance of people at the time of the military juntas. Her government often links its policies—no matter the area—with the fight for human rights, and she often makes her proclamations to the nation surrounded by an honor guard of prominent NGO (nongovernmental organization) activists. Nobel Prize-winner Pérez Esquivel protested, saying that this was political exploitation of death and sorrow. However, the CEO of an Argentine human rights NGO with strong financial links to the government, Enriqueta Estela Barnes Carlotto, declared that the comparison between a denial of gratis football and political murder was quite right. Like many others in Argentina, she must have thought that you can’t make a tortilla without breaking some principles.


*Correction: a previous version of the article said that the poet Rubén Darío was Colombian. As one the readers rightly mentioned, he was born in Nicaragua. The Freeman editorial staff apologize for the error.