Harmes-Liedtke has worked with bodies like the European Commission, the Netherlands Development Organisation (SNV), and Argentina’s Economy and Finance Ministry. Other clients have included the Inter-American Development Bank Multilateral Investment Fund (FOMIN), the UN´s International Labour Organisation, and regional development agencies and business associations.
He moved to Argentina ten years ago with his family, living first in Buenos Aires, and then establishing himself in the quiet rural township of Chascomús. He talks to Catherine Hubbard about Argentina´s current economic policy, its neglected consumers, and why the country need not fear opening its doors.
You travel very widely for your work. How is Argentina´s economy doing compared with those of other Latin American countries?
Argentina is traditionally very advanced when compared with other Latin American countries. But on the other hand other countries like Chile, Colombia or Peru are leapfrogging and growing faster. In former times the self-perception of Argentina was that it was seen as a European country outside of Europe and now the Latin American reality is much more present in the economy and society. When you look at the growth rate and the general development pattern, Argentina is experimenting a lot with a model that is based more on their nationality and historic beliefs, and other countries are more open to markets and foreign interaction. I think this is the major difference and this is an ideological conflict or different development path. Argentina is strongly inward looking and my impression is that they see global competition more as a threat than an opportunity.
What is the rationale for protectionism, and is it working?
These are the lessons learned from the 1990s, when the economy was very open and a large part of the former glorious Argentine industry disappeared. The current government sees the solution in the past and tries to repeat or reinvent the import substitutions of the phase between the 1950s and 80s. And without a doubt it makes sense to promote local industries, but on the other hand, you can promote industries in an open economy, because when you close your economy too much, the competitive pressures are reduced and therefore afterwards in the long run you cannot be competitive globally. This was a lesson of the failure of the old strategy of import-substituted industrialisation and it is still valid today.
I think Argentina is very protectionist and frequently it feeds back negatively to its own industry because, for example, local firms have difficulties in accessing critical inputs on time and pay high prices for their parts.
The specific competitive disadvantages of Argentina are deficits in logistics and transport infrastructure. It´s not just borders or customs, logistics (everything related to transport and the intelligence behind that) are very expensive and not so reliable.
Then there are institutional deficits in the banking sector: the use of banks is very low, the acceptance of credit cards is not frequent, lack of trust is a generalised phenomenon in the financial sector. Given the consequences of the default and the restrictions in currency exchange all financial transactions are extremely costly and bureaucratic.
There is a lot of potential that is not leveraged because of the lack of this kind of service infrastructure. This is not only related to exports, this is also in the internal market. Consumers in interior areas in particular have to pay much higher prices for nearly all products and services.
In general, the current governmental policy is arguing a lot in favour of local industry and employment, and this is good – because the country needs jobs and income generated by local firms. On the other hand nobody is really advocating for the Argentine consumer. Workers and business people are also consumers, you promote and protect one thing, one part of the economy, but at the same time the same sector is not protected because consumers are paying very high prices. From my point of view, when there are a lot of monopolies and no competition, the prices are going to go up and the services are not very good, and not very good quality.
What could Argentina do better?
The government is not supporting sufficiently the access of new players into the market. Large incumbent companies are somehow protected against the entry of new, more competitive players. This is valid for large private corporations and also for the newly nationalised public companies. Entrepreneurs face high barriers to enter the market and new market niches are only partially explored and exploited. There´s a lot of bureaucracy which deters entrepreneurs from opening new businesses, and who suffers from that is the consumer, the same people the government is trying to protect. Argentines pay higher prices than Europeans, and the Europeans have double or triple the income of Argentines, and this is a major issue, the lack of consumer protection and the lack of consumer voices.
Is this a deterrent to consumer spending?
When you go to a shop here in Argentina, often they will say: ¨We don´t have it¨ – the choice and availability of products are quite small. The lack of supply is in the interest of many firms because people have to spend their money anyway, but they won´t get the best product for the best price or the best service for the best price. Better market access and more competition would help to reduce these inefficient monopoly rents.
Globally analysts talk about the shift towards a knowledge economy, in which services generate the majority of a nation´s wealth. Is Argentina prepared?
The traditional division of three main economic sectors – agriculture, industry and services – is practically outdated. Today agriculture and industry are both heavily dependent on services – many of them very knowledge insensitive. In this light “Argentine industry” which is promoted by the current government sounds somehow nostalgic. At the same time I am aware that the government invests strongly in science, research and education. This looks like a good investment.
Argentina’s most important resource is the creativity and entrepreneurial spirit of its people. There are a lot of business people who are anticipating these kinds of future trends – researchers and facilitators with a lot of knowledge and experience, especially in Buenos Aires. Unfortunately it´s still far away from mainstream, to compare this to countries in Europe or even the US, Argentina is lagging in these new techniques to understand the knowledge economy, more creative or dynamic ways of understanding the world.
Is it wise to have an economy based on natural resources?
We have to rethink a lot of traditional paradigms – we need to look at an intelligent combination of different capabilities. You can´t have, even in Argentina, a traditional natural resource based economy, without strong industry and knowledge services. Here in Chascomús in IIB-INTECH they´re doing a lot of research which is directly useful and implementable in the economy. Argentina is advanced in this sense.
Probably where Argentina should be more sensitive is risk and negative implications of technology. For example, when you look at the effects of genetically manipulated soy beans and their effect on the plantations nearby or with other sectors such as honey bee production. There´s not so much research or sensitivity to the impacts or feedback of these high tech inventions or innovations and this can impact in a costly way to society.
Is labour reform necessary here?
Yes. Labour conditions on one hand are bureaucratised, and on the other hand there are a lot of people excluded from the market. There are specialised lawyers who defend people who don´t really have an issue, it´s only to get money. Things that were thought of as noble and needed protection for workers have been perverted and are against the interests of the working class majority, because it excludes them, especially young people who can´t get access, and there´s not a fair deal in labour law. It is a balance between protecting the labour force and maintaining its flexibility.
Wouldn´t it be political suicide to attempt to implement labour reform?
When you have a comfortable majority you can be a bit more experimental. Not by only copying old beliefs that worked in the past and repeating hierarchical approaches, doing only one thing or one paradigm at a time. I would like the government to experiment more.
Peronists might point to statistics about poverty reduction in the past decade and use that as justification for continuing on the same lines. What do you think?
The sensitivity towards the poor is a major achievement of this government. I see it less in the direct transfer to poor people as in the development of infrastructure. For instance, I collaborate with the National University of San Martin, this is a campus in the middle of an old industrial town with a lot of shantytowns around. This kind of investment makes total sense – to give opportunities for education and growth to local people – this is good policy and a profitable public investment.
On the other hand the government is still using a lot of direct transfers to poor families. This policy is difficult to sustain with limited public resources, but even more problematic is that it creates a culture of dependence within the target group. Many families in the shantytowns have already been living on public transfers for two or three generations. This creates a vicious circle of dependence, which is very difficult to invert. The state should provide a certain amount of employment and protection but in the end you need also to have a business sector which is willing to create jobs.
People might ask if that is really in the interests of the government. What do you think?
This is typical Argentine duality- that things are totally good or bad, right or wrong. I am thankful that this country opened their doors for us, it´s a generous country for migration, an open country, and in a world where the issues of terrorism and security are so high, it is a value on its own.
With the government there are aspects which are to criticise, but I see that there is an effort to be more inclusive and to recreate a belief in the nation. I would like Argentines to be more proud of themselves, they do not need to protect themselves so much. I am convinced that Argentines could open their economy and compete successfully in a globalised world. This country has everything it needs to be competitive: i.e. educated human resources, a dynamic middle class, a lot of entrepreneurship, and I think that there is a lot of potential to do more, especially with the neighbours in Latin America.
What do you enjoy about your work?
I appreciate meeting a family in a shantytown and the local economic promoters in a rural community, very bottom up, and at the same time advising and meeting with top decision makers in government and private sector and having the possibility to speak at different levels. This is for me very special because in Latin America society is fragmented – people with high levels of education don´t usually have contact with the popular classes. In my work on the ground and also giving policy and strategy advice allows me to connect with people and in different countries. This is enriching because it gives you a broader picture, everyone wants to do their best and this gives me hope, that there is the possibility of working together. My job is to facilitate this understanding.
It makes me happy to be useful, to contribute something to the world and development, and to give something back to the continent and the country that received us very generously.