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Some elements of Peronist beliefs and tastes
Latin American Economic Review volume 27, Article number: 6 (2018)
Abstract
We study the beliefs and values of Peronism. Instead of a comprehensive approach, we focus on three elements. First, we study beliefs and values about the economic system present in Peron’s speeches during the period 1943–55. Second, given that these beliefs are non‐standard (for economists), we present two models formalizing some of the key aspects (for example, the idea that there is something more than a material exchange in labor relations). Third, we study survey data for the 1990s on the beliefs of Peronist and non-Peronist voters in Argentina and Democrat and Republican voters in the US. While income and education suggest that Peronists (in relative terms) look like the Democrats, their beliefs and values suggest that Peronists are the Argentine equivalent of the Republicans.
Introduction
In a seminal study, Díaz Alejandro (1970) blamed Argentina’s relative decline to the replacement of the export-oriented, market friendly policies of the early 1900s by populist, interventionist policies around the time of the great depression. While other authors have claimed that lower growth rates had already begun before the change in policies, Taylor (1994) has demonstrated that any “early retardation” accelerates after 1929, and again after 1950, with the onset of ineffective government intervention. In this account Argentina’s relative decline during the 20th century can be attributed, broadly, to economically inefficient “populist” policies supplied by leaders who often exploit a mass of uneducated, poor voters. Peron and his followers play a prominent role in such narratives of Argentina’s exceptional underperformance. Of course, there are some variations in the basic account. For example, it is often claimed that policymaking, even during relatively centrist administrations, was complicated enormously by the presence of a populist party demanding government intervention. But in the end, in this account (the “Diaz-Alejandro hypothesis”, for short), the key problem is Argentina’s populist tradition, which has fueled bad policies and political instability.
A troubling aspect of this account, however, is that it does not explain why voters find populist policies appealing. As stated, this narrative soon has to conclude that democracy is not a reasonable way to elect the country’s leaders, and it is of some relevance that many Argentine conservatives ended up supporting military coups. Paradoxically, this narrative implicitly questions the very benefits that can be expected from free markets. The reason is that it maintains that the rational judgment of market participants cannot really be trusted (in political settings). Indeed, humans in this account must have some type of dual type of rationality: on the one hand they are able to make a reasonable use of information so that markets for goods and services are in fact quite efficient, but on the other hand they are unable to see that the leaders they elect are bad for them. Rationality in Diaz-Alejandro’s account of democratic capitalism is a bit like the Cheshire cat of Alice in Wonderland: now you see it, now you don’t.
We structure this paper around the basic Diaz-Alejandro hypothesis (i.e., the view that Argentina’s relative decline is caused by the government’s supply of bad policies), but complement it by providing a theory of the demand for such “bad” policies. The evidence we gather suggests two peculiarities of populist beliefs: they are often wrong (for example, they involve unrealistic expectations concerning the inflationary costs of printing money); and they often reveal a distrust of market outcomes (markets result, for example, in “unfair” prices and wages). An implication of such beliefs is that voters can demand policies that lead to a decline in output, even when this is fully anticipated (because these policies are expected to bring about more “fairness”). In brief, an alternative title for our paper is “The Diaz-Alejandro hypothesis with rational voters”.
The school of thought associated with Diaz Alejandro has sometimes been interpreted as suggesting that markets are good for growth. Thus, a policy is deemed “bad” when it interferes with the market. A more reasonable position in our view classifies policies as “bad” only when they clearly lead to unsustainable macroeconomic imbalances. Beyond some extreme cases, it is often difficult to agree on what makes a policy clearly unsustainable. For example, it is simply not obvious that populism is necessarily associated with unsustainable declines in investment. Theoretically, it is possible that Peron’s redistributive policies put enough money in the hands of workers to spur consumption. This, in turn, might provide a promising enough internal market to compensate investors for any political instability that populism might generate. And empirically, the evidence on the effect of populism on total investment is mixed, as we shall see (although there is some evidence of a negative effect when the focus is only private investment). Perhaps a more attractive version of the Diaz-Alejandro hypothesis assigns Argentina’s relative decline to the bottlenecks in foreign trade (produced by excessive aversion to trade with other countries), the large fiscal imbalances (produced by an underestimation of the costs of inflation) and the instability that some of Peron’s redistributive policies induced. In some cases, the negative effect of these policies was unanticipated by voters. But in other cases, agents understood the material costs, but were seeking outcomes that appeared more “fair” to them.Footnote 1
Economists have not made significant progress in understanding Latin American populism because they tend to find the interest group theory of policy quite compelling. In the standard account, bad policies are put in place by special interests and voters would get rid of them if only they cared to vote or were able to organize. Interestingly, however, voters do vote in large numbers (by and large, voting is compulsory in Latin America), so the empirical appeal of the interest group theory of policy formation, at least in its simplest form, appears low. A more promising approach accepts that populist policies are in fact appealing to (at least some group of) voters, perhaps because they do not fully understand their implications, as argued in Dornbusch and Edwards (1991). These authors point out several instances were policymakers in populist governments espouse views that would not be standard in economics.Footnote 2
Our analysis begins with a brief section on the historical and political background of Peronist policies (Sect. 2). It then contains three substantive parts. In the first, (Sect. 3), we use qualitative data from Peron’s early speeches (1944–55) to provide some evidence on Peron’s beliefs (i.e., positive descriptions of how the world works) and preferences (i.e., normative values describing how the world should work). These speeches suggest to us three simple but important points. First, Peron’s policies were known to his voters (in contrast to later Peronist presidents, such as Carlos Menem in the 1990’s, who was elected on a platform but changed it upon being elected). Second, what Peron is doing in the speeches, at least in part, is providing “meaning” by interpreting the evidence available in the light of (what we would call) a coherent model of the world. Although such “interpretation” is unusual in economic models, it is often discussed by scholars who study beliefs (and in “discourse analysis”). The third and final element in his speeches that we emphasize is that Peron gives a prominent role to the forces that determine income. In contrast to what the literature on varieties of capitalism has emphasized in terms of the origins of income (distinguishing between effort versus luck), Perón emphasizes the role of others in determining (reducing) our income through exploitation. This emphasis results in a focus on actors (foreign countries and rich local elites, whose center of vital interests was Europe rather than Argentina).Footnote 3 And in a focus on distinguishing the components of welfare: there are utility losses from being “exploited”, which go beyond the material losses (losing one’s dignity).
In the second substantive part (Sect. 4), we study Peronist beliefs after Perón’s death and place them in comparative perspective by looking at data from the World Values Survey in the 1990s. Respondents that declare an intention to vote for Peronism are also those that are on low income and have low educational attainment (relative to the middle class: these surveys do not sample those at the top of the income distribution). This is consistent with our analysis of Perón’s speeches of the 1944–55 period, which appear to be on the left side of the political spectrum, and with specific events of that period (the burning of the Jockey Club, the anti-American slogans, etc.).Footnote 4 Our results suggest that most Argentine voters are on the left of the political spectrum (relative to voters in the US), but that, surprisingly, within Argentina, Peronist beliefs tend to be more on the right of the political spectrum relative to those of the opposition. In relative terms, Peronist beliefs in the 1990s appear to be similar to Republican beliefs. In other words, the opposition to Perón seems to have come from the conservatives while the opposition to the Peronists in the 1990s seems to have come from the ideological left (although in both periods the opposition seems to have been on higher income than the Peronists). Put differently, what appears to be exceptional in Argentina is that the middle class is ideologically to the left of those at the bottom of the income distribution.
In the final substantive section (Sect. 5) we develop a model to explain a low “demand for capitalism”. If voters maximize something else than just their material payoff, then even with correct beliefs about how the world works they may demand bad policies (from the narrow point of view of maximizing income). A voter concerned with the fairness of outcomes is a case in point. Specifically, we assume that voters demand that firms behave kindly (and this must be true in some scenarios). When they do not, voters experience anger. Such anger can be expected to fall when selfish firms are punished. In Argentina firms are more likely to misbehave than in rich countries (perhaps because of low competition or because of low productivity), so the State must intervene (“regulate to humanize Capital”). Section 6 concludes.
Peron, interventionist policies and argentine politics: background
Political instability and economic uncertainty coincide with the onset of Argentina’s relative decline. By 1930, a military coup by a conservative group with fascist inclinations resulted in the first military government of the country. With the world crisis as context, ad hoc inward looking, import substitution policies were adopted. The succession of non-democratic governments that followed (seven) included episodes of serious violence and resulted in the presidency of Perón 1946. Since 1930 and until the Menem administration of the 1990s, no democratic president was able to complete its term, with the exception of the first Perón government. This coincided with Argentina’s economic woes. Indeed, Argentina’s comparative economic performance (see Fig. 1 in Glaeser, Di Tella and Llach of this volume) reveals two periods were divergence appears to be present: the period leading to the crisis of the 1930s, when the series appears to begin to fall (with some exceptions), and the 1970s, another period of heavy political instability, when the decline appears to accelerate.
Source: Gerchunoff and Llach (1998), updated
Total Investment over GDP.
This suggests that, at least at this broad level of generality, there is some merit to the hypothesis that political instability and relative economic decline are positively correlated. Interestingly, the rate of investment during 1930–40 (the “infamous decade”) appears low (9.1%), particularly when compared with the rate prevailing during the decade prior to the start of the First World War (19.3%), one of the periods where the government was in the hands of “elitist” governments and the economy was relatively open to international trade (see, Gerchunoff and Llach 1998). Figure 1 reveals that investment over GDP rises with Peronism, with an increasingly larger role taken by public investment (whereas in the early years it is mainly private investment; still, it is a matter of debate whether the increased investment helped growth, since it is unclear if public investment was efficient) until the fiscal crisis of the early 1980s.Footnote 5 A simple hypothesis suggested by the data is that political instability causes lower private investment, and that this is a cause of Argentina’s relative decline.
Several authors have emphasized the role of investment in Argentina’s relative decline. Díaz Alejandro (1970, 1988), for example, has focused on the difficulties in maintaining high levels of investment once the export-oriented, market friendly regime was replaced by the more interventionist regimes that follow the great depression. Taylor (1994) also emphasizes the role of the pre 1913 extremely high rates of capital accumulation, explaining how subsequent protectionist policies resulted in a high relative price of imported capital goods, and that this contributed to retarding capital accumulation (for evidence on the role of machinery investment in growth, see De Long and Summers 1991). A natural extension of this line of research is that political instability plays a similar role interfering with private investment and contributing to Argentina’s decline. Of course, then, a key question is why do these interventionist policies get implemented, and why does political instability persist.
Several authors have emphasized the role of Peronism in Argentina’s development.Footnote 6 Since General Perón’s ascent to the Labor Secretariat in 1943 (with the Military Government of General Ramirez), he was the preeminent political figure of Argentina. Even after his death, policies have been defined with relation to the Peronist political legacy (see, for example, O’Donnell 1977 and Portantiero 1973). Several hypotheses have been advanced to explain the causes of Peronist support. A simple fact is that Perón adopted a series of policies that favored organized labor at a time when the country was shifting towards light manufacturing (see, for example, the analysis in Gerchunoff 1989). During this period, the share of output accounted for by industry increased significantly and labor became a central economic and political force in the country. Thus, Peronist pro-labor policies in a context of increasing importance of Labor go a long way in explaining its popular support, even if voters only had material concerns. Some authors estimate that the real wage for unskilled labor in the Buenos Aires area increased by 17% per year during this period.Footnote 7 It is unclear how much of this increase was sustainable, however, even in the presence of economies of scale and higher profit margins, as the internal market expanded and import substitution became widespread (see Galiani and Somaini, this volume). It is worth pointing out that anti-export policies also contributed to the increase in real wages through lower prices of food (see Brambilla, Galiani and Porto, this volume).
A less obvious cause for peronist support concerns labor reallocation. It appears that the changing economic structure of the country involved significant labor migration, and that this generated new political demands. Germani (1962), for example, has emphasized the emotional fragility of internal migrants (from the provinces) and the charismatic, paternal nature of Perón’s leadership. He provides an estimate of 83,000 migrants per year to the greater Buenos Aires area for the period 1936–47, increasing thereafter. By 1957, Germani estimates a doubling of the population in the Buenos Aires metropolitan area (form 3.4 to 6.3 million), so this was a significant phenomenon. Besides policies that directly supported labor, a variety of social programs in different areas were put in place, ranging from increased access to free health care, to the creation of a comprehensive housing program and the establishment of a generous system of social security (for a good description see, for example, Gaggero and Garro 2009). There was also the real and symbolic role of the Eva Perón Foundation—a private entity run by Perón’s wife—funded through contributions from the private and public entities, and which distributed considerable amounts of social assistance (see Stawski 2005).
At the same time, institutional weaknesses contributed to the limited political response to the country’s economic problems. Some have singled out specific aspects, such as electoral institutions giving preeminence to the party in the decision to re-elect politicians (see Jones et al. 2002). Others have emphasized the political institutions that allowed unexpected changes in economic policy (see, for example, Spiller and Tommasi 2005). Although electoral fraud preceded Perón, it may have lent some legitimacy to the abuses of the Peronist regime (see, for example, Gallo and Alston 2009). Naturally, the ability to protect the rights to property under weak institutions was limited, and there is the possibility that this, and unexpected changes in economic policy (or the risk of such changes), led to a weaker investment performance (see, for example, Adelman 1999, Cortes Conde 1997, and Gallo and Alston 2009).Footnote 8 Consistent with this, there was less access to external capital after the great depression (see Taylor, 1994). And foreign direct investment fell in importance, albeit from very high levels (Díaz Alejandro 1970 reports that foreigners’ share of the stock of capital in 1927 was 34%, down from 48% prior to the First World War).
A somewhat different picture emerges from the period leading to the Peronist administration of the 1970s. The relatively closed economy of the 1960s experienced difficulties adjusting to economic expansions as increased imports often led to balance of payments crises and inflation. Against this background, and with the political proscription of Peronism, attempts at using wage and income policies to stabilize the economy were unsuccessful. There were several attempts to reduce wage pressure, typically by restricting trade unions (for example, the Ongania government imposed a wage freeze, attempted to increase working hours, limited labor strikes and suspended the legal status of several trade unions). Tensions soon fuelled the presence of left wing elements, and fighting communism became a serious government concern. As riots erupted in Córdoba, left wing terrorism became a political force with some legitimacy (given the lack of democracy) and a claim to membership in the Peronist “movement”. There is some evidence that Perón himself encouraged this identification with the left.Footnote 9 During the 1970s, kidnappings and assassinations reached their peak, as the terrorist organizations (the Marxist People’s Revolutionary Army and the Montoneros—of Peronist extraction) clashed with the police and armed forces (see the data on the assassination of policemen in the province of Buenos Aires in Boruchowicz and Wagner 2013). Eventually, in the 1970s, with the terrorist organizations still active after Perón’s return to the country’s presidency, he broke with them in a dramatic speech, ejecting them from the Plaza de Mayo. Thus, in contrast to the early years, when Peronism arrived and launched a true workers’ movement opposed to the Conservatives, during the 1970s at least part of the opposition to Perón seems to have come from the ideological left. The survey data reported later are consistent with this description.
In brief, it seems clear that Perón’s arrival on the political scene in the 1940s coincided with the increased importance of labor in Argentina’s economy, and a reduced importance of openness to foreign capital and trade as the global economy was affected by the war and the Great Depression. Accordingly, Perón’s ideology reflected a degree of nationalism and faith in government intervention that would persist over time. The Peronist opposition, however, seems to have evolved from a traditional conservative position to a position that is on the left of the political spectrum.
Perón in his own words
Perón’s political legacy has long been a matter of controversy. A natural hypothesis is that, given that he was a fascist sympathizer, his ideological legacy must simply be fascism. This would answer the question of how bad policies (e.g., excessively interventionist/expansionist) come to be implemented: Perón’s authoritarian rule imposed such polices. For our purposes, the biggest problem with this argument is that such policies appear to be popular with the electorate, and they continued to be so even after Perón was deposed and the most egregious aspects of his authoritarian rule (such as indoctrination) were no longer active.Footnote 10 Note also that some elements in Perón’s ideology have a different origin: the idea that government policy should attempt to “humanize capital”, for example, has conservative (and Christian) roots and is present in the European Christian democrats. Furthermore, Peronism seems to involve opinions about economic independence and policy interventions that are central in socialism (and in other, less authoritarian political forms).
It is also of some significance that Perón’s political ideology was developing in the immediate aftermath of the First World War. Born in 1895, he was in his twenties when the communist revolution took over Russia. He was 28-years-old at a time when the Weimar republic was struggling with war reparations, and foreigners became a convenient political scapegoat, together with bankers, Jews and speculators. Thus, it is perhaps unsurprising that attribution (particularly to external forces) plays a big role in his speeches. And he was 35 as the Great Depression affected the world economy and rich countries were starting to cope relying on public works programs and expanded government spending (in part linked to rearmament). Perhaps even more significantly, in 1935 one of the first actions of the newly created central bank was a bailout of the banking system at a large social cost (della Paolera and Taylor 2002). Thus, it must have been clear to him that large shocks could disrupt the macroeconomy to a very large extent, making individual effort often irrelevant in the determination of income.
The Peronist regime of the 1940s and 50s accompanied the economic changes that were implemented, first from the Labor Secretariat and then from the Presidency, with a powerful new rhetoric that gave workers a preeminent role in the formation of policy. Keynesian solutions were becoming known, in part through president Roosevelt’s actions, and some of these ideas were making their way to Argentina.Footnote 11 Rhetoric, of course, was only one element in a broad attempt to create support for the social and political changes that would sustain the redistribution of income at the core of Peronist policies. Other elements included a set of political rituals linked to mass mobilization, the emotional appeal of Evita and a clear attempt to influence people’s perceptions and beliefs through propaganda. Although we study Perón’s speeches, we note that this might be a relatively narrow focus, particularly given the discussion of these elements appearing in Plotkin (2003). Of course, a potentially important determinant of beliefs is the education system, and the Peronist regime heavily intervened in the design of the national curriculum and the public schools system (see, for example, Bernetti and Puiggrós 1993; Bianchi 1992; Escudé 1990). A broader study of political ideas in Argentina appears in Romero (1987).
Previous work in the field of discourse analysis by Sigal and Verón (2003) focused on Perón’s speeches.Footnote 12 They analyze several aspects of his discourses and put special emphasis on their political dimension. For example, Sigal and Veron put forward the interesting hypothesis that Perón actively constructs the notion that he “arrives” to the State from the “outside” (e.g., a life dedicated to the military) to provide unity/harmony to a divided country (during 1973–4, the main focus of their analysis), which is significant given some of the electoral decisions made at the time. In contrast to this work, we focus on the economic dimension of his early speeches.
It is possible to study Perón’s ideas through his books, particularly those written in the context of the controversy with the American Ambassador (Perón 1946) or his first book following his exile (Perón 1958). Yet, the analysis of speeches is important for at least three reasons. First, we are not sure how many people read his books, while we know that participation in his rallies was massive. For example, an estimate supplied by the “La Razón” newspaper put two million people attending a Perón rally on August 22nd, 1951. Second, the subset of Perón’s ideas included in his speeches presumably provides us with some sense of what he himself thought would be well received by his voters. Finally, an important part of Perón’s ideas were communicated through speeches at that time; books became more important during exile.
The material we studied was contained in 62 speeches, delivered between October 15th, 1944 and May 1st, 1953. They include a few speeches during rallies (as reported in the media), some speeches during particular celebrations, as well as messages to congress and other legislative bodies. It should be noted that there is some variation in the content of the speeches, which can be traced back to the changing economic circumstances (such as those made around the 1951–2 crisis where Perón justifies a less expansionary stance).
Perón’s speeches
The first striking point (to an economist) of his speeches is their low informational content. In contrast to what might be expected, they are not of the form: “I am informing the people of Argentina that we are facing a shock with the following characteristics, and here is what we are going to do about it.” In other words, they are not predominantly exercises in the transmission of information. Rather, they are heavily interpreted narratives of what has happened in the past, and how the conclusions that we draw from looking at history can help us shape policy in the present. In brief, a key element of the speeches is that they are primarily centered on the reinterpretation of already available information. Also, scholars working on analysis of discourse would say he is engaged in the “production of meaning”. In particular, such research is concerned with establishing the “source’s relationship to the content” (related in this case to the source’s status). Under the assumption that minds and memory are malleable in this way, an economist would have no problem modeling it as a (self-interested) activity of the politician. An example is Glaeser (2005), where politicians supply stories and voters fail to investigate their accuracy. Finally, the speeches can also be interpreted as trying to influence the system of values of the population. In this regard, Rokeach (1973) is an influential study of value systems and their impact on behavior (also focusing, in part, on the writings of major political figures). See also Converse (1964) and, for a recent review, Kinder (1998).
The second, and perhaps key part of this “interpretation exercise”, is that Perón assumes the role of a heroic whistleblower, denouncing a corrupt state of affairs where politicians are “bought” by one particular group in society (the economic and cultural elite, who are seduced by all things foreign) to enact policies against workers and the poor. It is a variation of the theme of Perón’s “arrival” as an external player (as emphasized by Sigal and Veron but with special significance for the beliefs about the generation of income). One example is:
It can be seen that, not versed in the art of pretending, I have exposed the distressing situations that burdened my feelings as I absorbed the Daedalus of laws and decrees (…) which in a large number of cases restricted the rights of workers, or, if they recognized them, it would be to kill the last trace of the hope of justice. May 1st, 1945.
I have been accused of having agitated the conscience of the country’s workers. Of having created a social problem where none existed before … instead of silencing the inequalities and social injustices, I have uncovered them so that we all could know where evil was and we could find the more convenient medicines…. The previous tactic consisted in faking a social welfare … with the exclusive aim of not disturbing the good digestion of the golden Bourgeoisie. May 1st, 1945.
Another characteristic of his speeches is the continuous attempt to reassure supporters that he has a coherent view of the world. Examples take place in several speeches, but the one on May 24th, 1950 is centered on explaining Perón’s theories. He begins by reacting to accusations that his is not a coherent economic plan, stating that
It has been said that … the Justicialista movement lacks an economic theory. Nothing more untrue. We have a perfect economic theory. What happens is that we have not yet spelled it out because we did not want that the oligarchs, or the capitalist consortia that exploited the country through conscienceless and avaricious bosses, could, knowing our plan, stop our action … When we have been able to dominate these international monopolies or the forces of the anti-motherland, then we will explain our theory to the world. May 24th, 1950.
And he explains (in the same speech) some details
… old economic theory … was based on a principle called “hedonic”. … what does it represent? The capitalist says “my capital is the basis of the economy because I am the one who promotes, pays and makes. As a consequence I produce 10, and don’t produce less or more as in both cases I lose.” But me, the sociologist, I tell him: “Yes sir, you produce 10, but here this man has to eat and he tells me that 10 is not enough, he needs 20”. Then the capitalist replies to me “Ah, let him explode, let him eat with 10 because if I produce more of that I lose money.”… That is when the hedonic principle stops being so naturally rational, least of all from the point of view of welfare, which is the basis of all organized communities. … we do not want an economy subordinated to capital, we want capital subordinated to the economy … If, after that, the capitalist is able to fill its coffer with gold, let him do it; we don’t care; even better if he does. But we can’t do that until the people is satisfied and happy and has the purchasing power needed to achieve a minimum of happiness, without which life is not worth living. May 24th, 1950.
We now turn to three aspects of Perón’s speeches that lay the foundations for our model in Sect. 5: a description of the types of businesspeople, elaborations on the idea that “others” determine our income, and finally some ideas on what constitutes appropriate Government policy.
Types of Businesspeople
The “conspiracy” that Peron comes to uncover is relevant to workers because it identifies an influence on their income. This representation requires that capitalists, at least until Perón’s “arrival”, were unkind (inconsiderate or who made their money through corrupt means). The speeches include constant references to such “bad types” amongst business people.
People have been faced with the idea that a fateful lodge of demagogues was the ruling class of the country, its elite, and as such was made up by wise, rich and kind people. It has to be pointed out that the wise have rarely been rich and the rich have rarely been kind. October 15th, 1944.
In other words, those privileged by the capitalist regime are finished; those that had everything, that took the cow in the ship when they went to Europe to have coffee with milk. No, let’s have them have coffee with milk, but with powder milk. It is not that bad for them. May 12th, 1950.
It used to be easy for capitalists: when there was a strike workers were put in jail, they were processed and they did not rise again. … Remember Vasena. … Workers confronted the situation but the result was several thousand men dead. The oligarchs were all home doing the “five o’clock tea”. … It used to happen that a capitalist who was almost bankrupt was made to earn, with just a signature, two or three million pesos without him having the need to do more than wake up in the morning and ask over the phone if the matter was ready. In this way favors were being granted upon someone who perhaps was a shameless one. August 9th, 1950.
“Others” determine our income
With “bad types” amongst the capitalists, it was easier for Perón to press forward with the idea that the process where income was generated was under their influence. This matches well with the widespread belief that Argentina is a rich country and one has to find an explanation for why there is want amidst plenty (for a discussion of belief formation when natural resources are important, see Di Tella et al. 2010). Indeed, one part of his speeches can be reduced to arguments in support of the idea that instead of individual effort (internal to the individual) or luck (external but without intention), the relevant influence on income is an external force with human intention. It is “others” who are actively taking actions that lower the income of Argentinians. It is not a question of making a bigger effort at the individual level; nor a question of taking a collective stand to reduce the influence of natural elements (perhaps through insurance or a better selection of activities and crops). It is a question of actively opposing other actors that try to “exploit” Argentines (on the role of corruption perceptions in explaining the appeal of capitalism, see Di Tella and MacCulloch 2009).
There are numerous examples of this conception of the income generating process, and the support of the State in enforcing it, in Perón’s speeches. One example is
The economic destiny of workers was exclusively in the hands of the bosses … and if workers organized a protest movement or adopted an attitude in defense of their rights, they were left out of the law and exposed to the bosses’ response and the police repression. … A group of capitalists, characterized the most by its continued, bloody opposition to workers’ vindications, has plotted an unthinkable maneuver to neutralize the steps that had been adopted to stop the rise in the cost of living … and counteract the effects of inflation. May 1st, 1945.
… we need arms, brains, capital. But capital that is humanized in its function, which puts the public’s welfare before a greedy interest in individual profit. I express my strongest rejection to the God of unproductive and static gold, to the cold and calculating super capitalism that harbors in its metallic gutters Shylock’s infamous sentiments. May 1st, 1947.
In the year 1943 our economy was in the hands of foreign capitalist consortia because, until 1943, those consortia were those that paid a vile price to producers, gathered, exported, transported and sold to foreign consumers the produce of Argentine work. It cannot be doubted that most of the profits went to such intermediation. March 5th, 1950.
There might remain some former exploiter of human labor, who cannot conceive an Argentine nation socially fair, … or some old lawyer of foreign companies who might yearn for the times of the Bembergs, when treason was also profitable… May 1st, 1950.
300 families in our country, for example, put together their capital and enslaved 17 million Argentines. August 9th, 1950.
We are in favor that a man might enrich himself working, but we oppose that he might do so defrauding or taking advantage of other people’s weaknesses. We want (…) that each Argentine has prosperity and good fortune within reach, but we do not accept that to obtain them he would commit crimes against other Argentines or against the community that we all are a part of. March 5th, 1952.
On some occasions, as in the reference to industrialist Otto Bemberg above, Perón names specific members of the elite. In one case members of the elite are described as themselves guilty of exploiting other capitalists. The example is
The monopoly, be it called … Bunge y Born, Dreyfus, etc. … was the one doing the gathering … the poor producer received six pesos and this intermediary octopus received thirty or forty for what somebody else had produced … When this is organized properly, the small farmer will produce, transport, gather, sell; and the product will go exclusively to him and not for the “smart one”, who constitutes a tumor that was placed in the middle. August 9th, 1950.
Yet in some of these same speeches he distinguishes between local and foreign capitalists and justifies the behavior of the former. This is often mentioned in the context of speeches with a strong nationalist component.
When I have said that there was excessive exploitation, I have not blamed our bosses, because I know full well that our bosses were themselves exploited from the other side (…) That is why we have bought the railroads and everything else concerning public services (…) May 12th, 1950.
Appropriate government policy
These descriptions of the state of affairs in Argentina at the time naturally lead to the justification of a set of interventionist policies adopted to address these problems. Interestingly, in these portions of his speeches, the announced policies are not only linked to the solution of the set of economic problems uncovered, but Argentine identity (i.e., the “type” of person who would implement these policies) are. There is a connection to identity in that there are (apparently discreet) categories of people that take certain actions, so that when these actions change, identity also changes, which appears inherently desirable (for a model of identity see Akerlof and Kranton 2005). It is as if people who are able to defy their exploiters and stand up for their rights (and cannot be fooled into accepting compromise solutions) are “true” Argentines.
The speeches provide several examples of the interventionist policies that match the needs created by Perón’s description of the main problems faced by Argentina. These include,
We implement, in a loyal and sincere fashion, a social policy designed to give workers a human place in society, we treat him as a brother and as an Argentine. October 15th, 1944.
No man should earn less than what he needs to live. … We said that there is a line for life determined by the minimum essential wage, and those below that line were the submerged; and that in our country there could not be “submerged”; everyone had to be “emerged”. October 21st, 1946.
If we have intervened in some (enterprises) it has been because we had to somehow (avoid) the constant outflow of national wealth. (…) not only we respect private activity, but we also help and protect it. The only thing we don’t want is a return to the old age of monopolistic consortia of exploitation. We want that men work (…) as they see fit but we do not want that it takes place at the expense of the consumer or the producer. We want that he who produces wealth may place it without pressure or exploitation of any type. February 7th, 1950.
The Estatuto del Peón, might not be to the liking of some exploiters-without-conscience, (…) who have been upset at the possibility that I might defend with more enthusiasm the perfecting of the human race than that of Argentine bulls or dogs. March 5th, 1950.
One of the barriers to national unity was undoubtedly the injustices committed by the capitalist oligarchy exploiting workers with the complicity of the authorities … in charge of distributive justice…. A people with an immense majority of slaves cannot be free, just as a free people can never be subjugated. … I am not exaggerating when I say that in 1943 there were slaves in the Argentine Republic. May 1st, 1950.
Today, May 1st, the La Prensa newspaper … will be handed over to the workers … This newspaper, which exploited its workers and the poor during years, which was a refined instrument of all foreign and national exploitation, which represented the crudest form of treason to the motherland, will have to purge its sins serving the working people. May 1st, 1951.
The government is committed to enforcing price controls, even if that means hanging them all. … They have a right to earn, but they don’t have a right to steal. May 1st, 1952.
This simplified overview of Perón’s speeches suggests to us that an important component of Peronist beliefs is that others determine our welfare. This suggests two changes to the standard formulation in economics, where agents are assumed to derive income from individual effort or from luck (which is beyond anyone’s control). The first is that other players can affect an individual’s income (local elites, foreign countries). The second is that labor relations have a non-monetary dimension, which we interpret as an influence of fairness in people’s welfare (and not just income). Given these beliefs, there is a role for government in ensuring that workers are treated with dignity (“humanize capital”), which we interpret as some reassurance that firms are behaving with some reasonable amount of concern for workers’ well-being.
Peronism and the American democrats: differences in survey data on beliefs and values
Given Perón’s continued influence on political and economic events even after the 1955 coup, it is of interest to provide at least some evidence on the later evolution of Peronist beliefs and values, and to place them in comparative perspective (for example, by comparing them to American beliefs as a benchmark). The approach we follow is to focus on a snapshot of the public’s interpretation of Peronism at a later date. Unfortunately, continued survey data from different periods are unavailable. However, we have data on beliefs and voting pertaining to the 1990s from a comparative survey that contains data for the US and Argentina (and other countries). Of course, the 1990s was a period where both the US and Argentina are ruled by two politicians, Menem and Clinton, that are elected on a platform that is on the left of the political spectrum but who end up implementing reforms that are more consistent with centrist/conservative values. Of course, there are some differences: in the case of the US this happens only after there are mid-term electoral losses and mainly involve welfare reforms and the dropping of some of the less popular initiatives such as healthcare reform, whereas in the case of Menem the departures were larger and made from the start of the term. They also involved a complex relationship with the labor movement, which was an important early supporter of Menem (see Murillo 2001, Levitsky 2003 and Etchemendy and Palermo 1998, for discussions; on policy reversals in Latin America during this period, see Stokes 2001).
Our interest in comparisons with the US comes from a hypothesis “explaining” Peronism as the Argentine version of the American democrats (given that they are supported by similar demographic and socio-economic groups). A similar point is often made with respect to Peronism and the British Labour Party. Cross-country survey data on people’s opinion about elements of capitalism is available from the World Values Survey. Coordinated by Ronald Inglehart, the 1995–97 wave asks adults (older than 18) in over 50 countries several questions of interest. In the US, the data are obtained from a representative sample of individuals age 18 and older through face to face interviews. In Argentina, sampling was limited to the urbanized central portion of the country, where about 70% of the population is concentrated.Footnote 13
Importantly for our purposes, the survey contains data on (self-reported) voting, allowing us to derive measures of vote intention, or at least political sympathy, towards the main parties in the country, including Peronists. Thus, we first divide the sample in Argentina into two groups: between those that declare to vote for Peronists and those that declare to want to vote for other groups. The precise question asked is: “If there were a national election tomorrow, for which party on this list would you vote? Just call out the number on this card.” Then a card with “1. Partido Justicialista, 2. Union Civica Radical, 3. Frepaso, 4. Modin and 7. Blank ballot” is shown. Peronists are those answering 1, while non-Peronists are those answering 2, 3 and 4. In the US, a similar procedure allows us to determine two subsamples: Republicans and democrats.
We then used a measure of income to divide the sample into two categories (rich and poor). The question asked was “Here is a scale of incomes. We would like to know in what group your household is, counting all wages, salaries, pensions and other incomes that come in. Just give the letter of the group your household falls into, before taxes and other deductions.” Then, a scale with 10 groups, corresponding to the income deciles in the country, is shown (this scale is different in each country). We classify as poor those in the lowest five categories. Table 1 shows that 69% of Peronists, whereas 59% on non-Peronists, report incomes that are in the lowest five categories (see Benoît and Dubra 2011, who show that it is not necessarily irrational for a majority of people to rank themselves in the bottom half of a distribution). In the US, within those admitting a preference for voting a particular group, we note that within those that prefer the democrats, 42% declare to be in the lowest 5 deciles, while only 29% of Republicans find themselves there. This broadly corresponds to the idea that Peronists and democrats share a similar base of support (at least in the limited sense that they have more support amongst the poor than the opposition). Table 1 also shows results using educational attainment and reaches a similar conclusion.Footnote 14 These results echo the conclusion of a Peronist politician who declared upon looking at an electoral map, “progress compromises us, education kills us”. In auxiliary tests (not reported) we tried self-reported social class and reached similar results: Peronists and democrats seem to represent similar groups in their societies (the poor and those with low educational attainment).Footnote 15
Given our interest in the role of beliefs, it is relevant to see if these similarities extend to beliefs about the role of luck and other economic issues. Given that we do not take a position of the relative importance of each belief in determining Peronist ideology, we do not construct formal tests and so our results are only illustrative. The classic belief concerns the role of luck (versus effort) in the generation of income. The question usually used to capture this belief is “Why, in your opinion, are there people in this country who live in need? Here are two opinions: Which comes closest to your view? 1. They are poor because of laziness and lack of will power, 2. They are poor because society treats them unfairly”. The results are summarized in Table 2.
The main pattern is that the whole electorate in Argentina seems to be on the left of the political spectrum, as most people seem to believe that poverty is the result of luck (or that society treats them unfairly) rather than laziness. However, in relative terms the Peronists seem to exhibit a pattern closer to the one of the Republicans instead of the democrats. Indeed, the biggest proportion of believers in laziness as a source of poverty takes place amongst Peronists and the Republicans. The ratio of believers in Laziness (39%) to believers in an unfair society (61%) in the Peronist sub-sample is 0.64, whereas amongst non-Peronists it is 20–80%, for a ratio of 0.25. On the other hand, the percentage of believers in laziness (unfair society) amongst the democrats is 49% (51% respectively), whereas amongst the Republicans is much higher 75–25%. Focusing on the ratios of laziness to unfairness, the democrats have a ratio of 0.96, whereas that for the Republicans is 3.
As another illustration, Table 2 considers the question “Generally speaking, would you say that this country is run by a few big interests looking out for themselves, or that it is run for the benefit of all the people?” with answers “1. Run by a few big interests, and 2. Run for all the people”. Again, we find that the two groups in Argentina (Peronists and non-Peronists) tend to give the answer that is presumably on the left of the political spectrum (Run by a few big interests), but the relative position of Peronists in Argentina is more like the relative position of Republicans than of democrats.
Table 3 considers several beliefs that are relevant to understanding Peronists beliefs and values. One theme emerging from this table when looking at the absolute level of their answers, is that Argentines tend to be more on the “left” of the political spectrum (consistent with Di Tella and MacCulloch 2009). More interesting, they all point out in a similar direction in relative terms: the Peronists (relative to the opposition) tend to look like the Republicans (relative to the democrats). In all cases the ratio in Argentina and in the US are on the same side of 1. Take for example, the idea that workers should follow instructions at work. We split answers into two groups, those answering “they should” on the one hand, and those that answer either “it depends” or “they should be convinced first” on the other hand. The majority of republican voters (77 versus 23% of them, or in a proportion 3.35–1), perhaps not surprisingly, tend to answer that workers should follow instructions. Democrats have a similar position, but less intense (the proportion 58/42 is just under 1.4–1). So, in relative terms, Republicans are somewhat more likely to agree with this statement.
In Argentina most people disagree with this statement, as reflected by both Peronists and non-Peronists having ratios that are lower than one, consistent with respondents being on the left. However, the ratio for Peronists (0.81 = 45/55) is somewhat higher than that for non-Peronists (0.51 = 34/66), suggesting that in relative terms, Peronists are more likely to agree with the idea that workers should follow orders than non-Peronists, which is surprising given Peronist’s affinity with labor causes, at least as detected in Perón’s speeches.
The rest of Table 3 investigates a number of other beliefs and values appearing in Perón’s speeches. For example, he discusses competition on his speech of March 5, 1952: “Progress and individual prosperity cannot be based rationally in the harming of others because that unleashes an egoist and merciless struggle, which cancels all cooperation, destroys solidarity and ends in dissociation”. The beliefs covered in the Table include those related to the role of luck versus effort in the determination of income, and the role of others in affecting individual fates (already discussed), as well as those related to feminism (jobs for men), authoritarian views (respect for authority), materialism (less emphasis on money), honesty (acceptable to cheat), competition (competition is harmful) and economic organization (ownership of business). In all cases, the answers given by Peronist voters (relative to those given by the opposition) are similar to the answers given by Republicans (relative to the democrats).
In brief, the evidence from the 1990s suggests that the opposition to Peronism is on the ideological left, even though they are on higher income and educational achievement than the Peronists. If it is true that the opposition to Peron came from the conservatives, then it is plausible to conclude that Peronism has experienced less ideological change than the rest of the country.
A model of labor market exploitation based on altruistic preferences
The previous sections highlight the role of several elements that are non-standard in economic models. Two that are of particular interest to us are the idea that there is something more to market transactions in the labor market than just the exchange of work for money. There is also the possibility of exploitation, connected to firm owners who do not care about the welfare of their workers. The speech of August 9, 1950 is typical. Note that the part where Perón states “Workers confronted the situation but the result was several thousand men dead. The oligarchs were all home doing the ‘five o’clock tea’.” he says “five o’clock tea” in English, which serves to stress the contrast between the fate of workers whose life is in danger with that of employers who are oblivious to their predicament and more preoccupied with engaging in a social practice that is the norm in England. Accordingly, the model we develop is one where there is the possibility of worker exploitation by “unkind” elites, and Perón’s punishment of these elites provides increases in worker total utility through an emotional (non-material) channel.
The model in this section is an adaptation of the model in Di Tella and Dubra (2013) to labor markets. It stresses the idea that a policy that may not be optimal under “standard” models (that ignore emotions), may become optimal if workers experience anger when they are exploited, and the government knows it. To make our point, we introduce emotions in the form of worker anger at perceptions of insufficient firm altruism (as in Levine, 1998 and Rotemberg, 2008) in the textbook version of Salop (1979).
There are n workers, each characterized by a parameter x interpreted as either a
- 1.
“preferred variety, preferred workplace”; this can represent
- (a)
A taste for working in one industry over another.
- (b)
A cost of re-converting the workers’ human capital to another industry.
- 2.
“location parameter; how far away do I live from my workplace”.
For each worker, his location is drawn from a uniform distribution on the circle of circumference 1. There are m evenly distributed firms along the circle (there are m firms, but we use b = 1/m as the relevant parameter measuring concentration); firms are of one of two types, altruistic or selfish. Workers can supply either one unit of labor, or 0; this binary choice is a simplification, which is in line with the indivisibilities postulated in Hansen (1985). Individuals’ gross utility of not working is s; when they work, if they have to travel a distance x (or they are x away from their preferred job) and they receive a pay of w, their net surplus is w−tx−s (i.e., they have a transport cost of t per unit of distance traveled).
In addition to these material costs, the worker may become angry with the firm for which he works. There are several reasons why incorporating emotions in this setup makes sense. First, simple introspection tells us that we don’t always do what is best from a narrowly defined “economic” perspective. Second, a large body of literature has shown in the laboratory that individuals don’t always maximize the amount of money they receive (even when the choices don’t involve effort), and that emotions play a significant role. This reaction has been modeled as a preference for fair outcomes, as in Levine (1998) and Rotemberg (2008), who show how the introduction of a reciprocal altruism term in the utility function can explain quite well the seemingly paradoxical evidence from ultimatum games (see also Fehr and Schmidt 1999 inter alia). Finally, a third motivation to include emotions in our model of the labor market is that Perón’s speeches contain several direct references to the effect of Peronist policies on emotions. For example, he states:
What is the social economy? It is a change in the old system of exploitation, not like the communists want, but in a gentler form. The capitalist regime is an abuse of property. The communist solution is the suppression of property. We believe the solution is not the suppression of property but rather the suppression of the abuse of property. … We are not involved in a social ordering that will take the country into a fight, but rather to calmness. June 24th, 1948.
If a worker is angry, we must subtract from his utility a term λ(π + p−w), where p is the productivity of the worker in the firm, and π is the profit the firm obtains from the other workers. This term is just a “spite” term: when angry, the worker dislikes the firms making a profit, and he is angrier when he contributes to those profits. What triggers anger is that the individual rejects the hypothesis that the firm is altruistic.
In this market, firms choose wage levels (i.e., it is not a competitive market) w and get in exchange a product of p per worker, so when total employment is E its profits are (p−w)E. If the firm is not altruistic, that is all there is in the firmsʼ utility (utility = profits). If the firm is altruistic, its utility is profits plus a term that depends on the utility of the worker. The altruistic firm has a cost of α if worker utility is lower than a certain level (this level is exogenous for this model, but can come from learning, adaptation, history, etc.) We call the threshold τ; we will set it to be the utility the worker would obtain in a “fairly competitive” labor market (see below).
In what follows, and without loss of generality, we normalize t = 1 and all other parameters are just “normalized by t”. This normalization is completely general. We also assume (without loss of generality) that the number of workers is n = 1.
Equilibrium
We will analyze a signaling game, in which firms, when choosing a wage level, signal their type. An equilibrium in this setting is a triplet [e(w,x;μ),w(θ);μ(w)] where:
-
e(·) is an “employment” decision strategy (the same for all workers; we are looking at symmetric equilibria) as a function of wage w, tastes x (or distance) and beliefs μ (of whether the firm is altruistic or not) into {0,1}, where a = 1 means “work” and a = 0 means “donʼt work”;
-
w(·) is a function that maps types into wages (one wage for each type; the same function for all firms);
-
μ(·) is a function that maps wages into [0,1], such that μ(w) is a number that represents the probability that the worker assigns to the firm being altruistic.
-
e is optimal given x, w and μ; w is optimal given e (and other firms playing w); μ is consistent (it is derived from Bayesʼ rule whenever possible).
We will focus on equilibria, where beliefs are of the sort “I reject the firm is altruistic if its wage w is such that w < w*” for some w* (it may be a target wage). We are ruling out (for example) equilibria in which the worker rejects that the firm is altruistic if the firm pays a wage w > w* (i.e., the worker comes to believe the firm is selfish even if it is paying a wage above the “target” wage; which would be of course unnatural); in standard signaling models, beliefs like these may still be part of an equilibrium, because in equilibrium one does not observe wages w > w*, and so the consistency condition (that beliefs be derived from Bayes rule) places no constraint on beliefs.
Oligopoly
In this section, we characterize the pooling equilibria in an oligopoly. Of course, there may be separating equilibria too. But we focus the analysis of pooling equilibria for four reasons.
-
1.
The first is “analytic”: we want to know whether the set of parameters for which there exists a pooling equilibrium shrinks as the number of firms decreases; since there is no anger in pooling equilibria, this would establish that the “chances” of anger appearing are larger when there is less competition.
-
2.
The second reason for focusing on pooling equilibria is “historic”: in Perón’s speeches there is a reference to the possibility that capitalism works well in some circumstances (for example, there is a reference to this “calmness” in the speech of May 1st, 1945). This “benchmark” case, from which the local elites have departed, is represented as a pooling equilibrium.
-
3.
The third is to avoid making choices that would need to be made, and that, however, we resolved them, would leave some readers unsatisfied. Take for example, the following. In a separating equilibrium, workers are angry at some firms; when they are, the optimal wage by the firms is higher (than if they are not); this leads to a larger material utility for workers. This leaves us with the conundrum that selfish firms are giving to their employees a higher material utility, and yet they are angry. This begs the question: are workers (in reality, not in the model) angry because the firm is selfish, or because the firm acts in ways that harms its employees? Put differently, would you be angry at somebody you know is nasty, but is temporarily pretending to be nice (not because he is trying to change, but just to avoid some punishment)? Psychological research has not answered this question in a satisfactory manner yet.
-
4.
The final reason is tractability: in a separating equilibrium, when there are many firms, the patterns of combinations of firms becomes complicated (a selfish firm surrounded by two selfish firms, or by one selfish and one altruistic, or by two altruistic, etc.; similarly for an altruistic firm and its neighbors). In ex-ante terms, though, each firm does not know whether its neighbors will be of one kind or the other.
Pooling equilibria
Our first step is to find the necessary conditions under which a wage w o is part of a pooling equilibrium, in which workers attain their target level of utility. Consider a firm which maximizes profits in a deviation from a pooling equilibrium with wage w o (we are not including a utility cost of the deviating firm, since we assume for the time being that the equilibrium is such that workers attain their target utility level τ). If the firm increases its wage, workers wonʼt be angry. In that case, labor supply is given by the sum of all (unit) supplies of workers who are closer to the deviating firm than the two types of workers (one to each side) who are indifferent between working for the firm we are analyzing and working for its neighbor:
Profits are then
When the firm maximizes this expression, we obtain an optimal wage of
For the firm not to want to deviate from w o, it must be the case that this optimal wage is lower than w o, or equivalently
In other words, if the oligopoly wage is too low, the firms are better off increasing their wage, and so workers will not punish them (by getting angry). If the firm lowers its wage, consumers become angry, and labor supply is given by the condition that
In that case, profits are
For the firm not to want to deviate and offer the optimal wage in this deviation,
it must be the case that profits in the equilibrium are larger than these deviation profits. Formally,
Notice that when λ = 0 (the standard Salop case), we obtain from (1) and (2)
Equations (1) and (2) provide two constraints to the equilibrium wage w o. The third and final restriction is that for a given τ, as we decrease the number of firms, the wage must also increase to achieve the target utility. Worker utility (in a pooling equilibrium with wage w o) is the number of firms, 1/b, times the total utility of workers hired by each firm:
This utility is larger than τ if and only if
We now present one important result: as competition decreases (enough), anger is more likely. The following proposition shows that as competition decreases, a pooling equilibrium is less likely. But since pooling equilibria have no anger, and separating equilibria do (in expected terms there will be some selfish firms), when pooling equilibria disappear, anger appears.
Proposition 1
There is a critical n* such that for all n′ > n ≥ n*, the set of pooling wages is smaller when there are n firms than when there are n′. That is, as competition decreases, anger is more likely.
Proof
Define b* so that Eqs. (3) and (1) hold with equality and are equated:
Let n* = 1/b*. For b* > b the set of equilibrium wages is increasing in b (decreasing in n) because: Eq. (3) is not binding; the slope of (2) is smaller (in absolute value) than the slope of (1).□
The plot below illustrates the three constraints on w o imposed by Eqs. 1–3. The wage w o must lie between the two loci with negative slopes (the flatter one is Eq. 2 and the steeper, 1) which arise from the firms’ incentives not to deviate. The wage must also lie above the positively sloped constraint (Eq. 3 that arises from the condition that fewer firms imply higher wages if workers are to obtain their target utilities).
Next, we present another relevant result, connecting the productivity of firms, the rise in anger and the possible subsequent regulation. This result provides a potential explanation for why people in less developed countries do not like capitalism. If productivity is lower and more volatile in LDCs, that would explain why capitalists and capitalism are not popular.
Proposition 2
When productivity decreases, or when it becomes more volatile, anger is more likely.
Proof
When productivity decreases, the two loci of Eqs. (2) and (1) move downwards by the amount of the decrease in productivity. Since Eq. (3) is unchanged, the set of pooling equilibrium wages shrinks.
A larger volatility in productivities makes it more likely that a low (pooling breaking) cost will happen, and then the selfish firms will reveal themselves as such, and anger will arise. □
An interesting point to note is that higher variability in productivity in LDCs could be the consequence of higher regulations to begin with: firms in sectors with a comparative advantage could have higher worker productivities, while firms in protected sectors lower productivities (even considering government regulations to protect them). In a sense, then, Peronism, by introducing distortions, generates anger towards capitalists and perpetuates the beliefs that Peronism fostered.
The next result illustrates another obvious feature of the rise in anger: when for some exogenous reason workers become “captive” of one particular firm, anger is more likely. The mechanism is as one would expect: when workerʼs labor elasticity of supply decreases, local monopolies have an incentive to lower wages. The temptation may be large enough that an anger-triggering wage decrease may be profitable. In countries with concentrated industries, like Argentina, and with little inter-industry mobility, workers do not have mobility, and so elasticity of supply is lower.
We model this increase in captivity by changing the cost of re-converting to another industry, while keeping rivalʼs wages fixed. The reason for this assumption is simple: if it is suddenly harder for workers employed in firm i to work in firm i − 1 or i + 1, those firms will keep their wages fixed: if they did not wish to attract the marginal worker before the change in re-conversion costs, they donʼt want to after, so there is no incentive to raise wages; if firm i-1 did not want to lower its wage before the change in costs, they donʼt want to do so after, since the incentives of the marginal worker working for them have not changed. As will become transparent in the proof, an equivalent way of modeling this is assuming that the two neighbors of the firm being analyzed move farther away, as if there had been a decrease in the number of firms.
Proposition 3
Assume that, for a given parameter configuration, there is a pooling equilibrium with a wage of w o . If the cost of re-converting to firms i − 1 or i + 1 increases from 1 to t > 1, but the cost to firm i remains constant, the firm’s incentives to decrease its wage increase. There is a threshold t* such that if t ≥ t*, firm i lowers its wage and workers become angry.
Proof
When the cost of converting to firms i − 1 and i + 1 increases to t, the supply faced by firm i (after an anger-triggering decrease in wage) and its profits, are
and the optimal wage and profit are
Notice that in the equation for the optimal wage, an increase in t is equivalent to an increase in b: a fall in the number of firms. For large enough t, these profits exceed the oligopoly profit, and the firm lowers its wage, causing anger. QED
In the above proposition we have assumed that workers continue to make inferences based on the equilibrium prior to the shock. Although one could argue that a new equilibrium (one with fewer firms or with higher t) should be the benchmark, we believe that keeping the old equilibrium beliefs is also plausible. In addition, the case of fewer firms also leads to more anger, as established by Proposition 1.
The previous proposition may be particularly relevant for the rise of Peronism and Peronist beliefs. In a time of rising speed of technological change, the cost of re-converting to other industries also rises. Hence, we may view the ascent of Perón as a consequence of the increasing exploitation by firms that had gained more power over their workers.
Any wage w o in the range determined by Eqs. (1) and (2) can be part of a pooling equilibrium if we choose τ or α appropriately. Note that if the firm is altruistic and it lowers its wage enough, there could be a utility cost of providing workers with a very low level of utility. Since we found necessary conditions, we focused only on the incentives of the selfish firm. When we want to build an equilibrium with a wage w o within the range we have just identified, we need to take into account this utility cost for the altruistic firm. But choosing τ or α low enough, any one of these wages is part of an equilibrium. We do not elaborate, because the construction is simple.
A brief discussion of policies in this model
The model above describes a pooling equilibrium in an oligopoly without anger. Although consumers are not angry, anger can arise if for whatever reason the pooling equilibrium is broken. In particular, the scenario we have in mind is that the arrival of Peron coincided with the rise in anger that led to a separating equilibrium, and the rise in anger.Footnote 16
In this model there are three channels through which regulation (setting minimum wages and making a transfer to the firm) affects welfare. First, there is the standard channel: a minimum wage larger than market wages, but still below productivity increases total welfare by attracting workers to the firm (to produce something worth p at a cost in terms of lost leisure and transportation cost of less than p). A second, quite direct and simple channel is through the reduction in anger: since an increase in wages lowers firms’ profits, and total anger depends on the size of profits, a rise in wages reduces anger and increases welfare. Finally, any channel that reduces anger (whether it increases wages or not) induces workers to start working, and that further increases welfare. The second channel does not depend on individuals changing behavior; this third channel arises because workers re-optimize. Imagine for example, a policy that keeps wages at their pre-policy levels, but “expropriates” the profits from the firm (through a fine, for example). In that case, in the standard model, welfare would be unchanged. In the current model, welfare increases for two reasons: first, each worker who was employed is happier, but some who were not working will now enter the workforce and become available at the fined firm.
Intuition and some simple calculations show that in this model the appeal of fines to the firms and other “populist” policies increases relative to their appeal in a setting where anger plays no role (that is λ = 0). To illustrate, imagine that a policy with wage w and transfer T > 0 to the firm is slightly better in terms of total welfare (in a standard model with no anger) to the policy (w, T = 0). In the model with anger, when consumers are angry, the second policy that “beats on the firm” is preferred, since it reduces the amount of anger. This is an example of a policy that looks bad in a standard model (a bad “populist” policy), but that is potentially welfare enhancing when emotions are taken into account. Although we don’t claim that all of the bad Argentine policies are driven by attention to emotions, we believe that there is at least some truth to the idea that policies that are bad for long run material growth may be optimal when workers (or consumers more generally) are angry at certain business sectors.
Conclusion
A school of thought exemplified by Díaz Alejandro (1970, 1988) suggests that Argentina’s relative decline is associated with the abandonment of laissez faire in favor of interventionist policies (see also Cortes Conde 1997 and Taylor 1994). Since voters actively demand these policies, a paradox in this explanation is that individuals act rationally when it comes to goods markets, but irrationally when it comes to voting. In this article we describe a set of beliefs and values that makes Perón and his followers desire these policies, sometimes because of an incomplete understanding of their consequences, and sometimes because their objective exceeds the immediate material outcome (for example, they demand “fairness” in labor relations). In the latter case, voters are rational and demand “bad policies” (from the narrow perspective of maximizing material payoffs).
It is worth noting that a central observation in Argentina’s relative decline is that it was accompanied by a strong reduction in private investment: from the formidable rates of capital accumulation pre-1913 financed primarily by foreigners to the dismal later performance. Díaz Alejandro (1970) and Taylor (1994) have emphasized the low savings rate and the high relative price of capital goods pre 1960. Naturally, it is possible that the decline in investment is connected to the country’s populist tradition, which helped spread interventionist policies and fueled political instability. Argentina’s relative decline is visible in the 1930s and appears to accelerate in the 1970s. These two periods coincide with political instability: 1930 is the year of the first of several military coups and marks the beginning of the “infamous” decade that would set the stage for the first Perón administration; while the 1970s is marked by the armed conflict involving left wing guerrillas and the military (and paramilitary) forces which led to the military coup of 1976. Indeed, following Perón’s ascent to the labor secretary in 1943, Peronism has been the preeminent political force in the country, leading many to assume that no government could succeed without its explicit support. One reason for its enduring legacy is that Perón’s more interventionist policies were in tune with the times: after the 1930s, the increased presence of the State in the economy was the norm, both in Argentina and in other countries.
But there are other factors that have made Peronist policies attractive to voters for such a long period of time, even if they have contributed to its relative material decline. In this paper we focus on three elements that help us throw light on the nature of Peronist policies and their enduring significance. First, we study beliefs and values about the economic system present in Perón’s speeches during the period 1943–55. We emphasize that Perón is concerned with the income generating process, and note that Perón insists on the role of “others” and the possibility of exploitation. Indeed, whereas economists have emphasized the role of luck versus individual effort in the determination of income and how beliefs about their relative impact can affect the economic system (see, for example, Piketty 1995), it seems that Perón is focused on the influence of actors (elites, foreigners) and how they can willfully change the income of Argentines (as in Di Tella and MacCulloch 2009). This provides one possible explanation why the process of policymaking might be less a rational learning process, such as the one described in Buera et al. (2011), but instead an attempt to reveal intentions (which by their very nature are hard to verify) and a search for culprits. There are also a large number of references to the idea that labor relations can have non-monetary dimensions, and the speeches connect exploitation to this “non-material” dimension. This (trivially) explains why markets that are interpreted (and regulated) in this way may perform poorly (from a material standpoint).
Second, we study survey data for the 1990s on the beliefs of Peronist and non-Peronist voters in Argentina and Democrat and Republican voters in the US. While Peronists have low income and education relative to the opposition (so that they look like the US democrats), their beliefs and values suggest that Peronists are the Argentine equivalent of the Republicans. For example, whereas all respondents in Argentina tend to believe that the poor are unlucky rather than lazy, Peronists (just like Republicans in the US) are somewhat more inclined than the opposition (e.g., non-Peronists) to believe that the poor are Lazy. In other words, while the opposition to Perón during 1943–55 came from the conservatives, the opposition to Peronism in the 1990s comes from the left of the ideological spectrum. It is worth reiterating that in both periods, the Peronists seem to have lower income and educational achievement than the opposition. This suggests, at the very least, that the Peronists are changing less in terms of political ideology than the opposition.
Finally, given that the meaning and beliefs conveyed by Perón in his speeches are non-standard (for economists), we present a model formalizing the possibility that they are sub-optimal from a narrow material perspective, but that they may be associated with improved well-being (for example, they reduce anger at aspects of economic organization). In particular, we present a formal model of “exploitation” in the labor market where agents derive pleasure from treating well (badly) those that have behaved well (badly) towards them. Firms are of two types: one is a standard firm which might “exploit” the worker by paying him/her the minimum possible wage, whereas the other type “cares” for the worker. Even with few “altruistic” firms, the equilibrium might involve no exploitation, as long as there is sufficient amount of competition. With monopsony power, the “good” equilibria break down and there is scope for regulation that generates first order welfare gains (beyond Harberger triangles). We note that a firm might be exploiting workers even if it is paying the same wage as other firms, as long as workers believe this firm is doing it out of “unkindness” (formalized as reciprocal altruism).
Notes
- 1.
It would still be important to explain why the adherence to these policies in the late 1960s, when the costs were becoming increasingly clear. One possible answer is that there was insufficient trust between the private and public sectors to exchange vital information about Pareto improving policies. Di Tella and Dubra (2013) study how legitimacy of the private sector can positively influence policymaking through the exchange of information.
- 2.
They define populism as involving a belief in “no constraints”: The risks of deficit finance emphasized in traditional thinking are portrayed as exaggerated or altogether unfounded. According to populist policymakers, (monetary) expansion is not inflationary (if there is no devaluation) because spare capacity and decreasing long-run costs contain cost pressures and there is always room to squeeze profit margins by price controls. (Page 9.) This can be contrasted with other definitions of populism emphasizing the connection to socialism (e.g., Coniff 1982) or the one in Drake (1982), which focuses on political mobilizations, the emphasis on rhetoric and the use of symbols that “inspire” voters. It is interesting to note that those in charge of economic policy in Argentina were often less heterodox (as documented, for example, in de Pablo 1989).
- 3.
One of the Spanish words for “traitor” is “vendepatrias” (literally “seller of the motherland”). Acario Cotapos, a Chilean artist, once commented on the possibility of selling the motherland, adding “yes, and let’s buy something smaller, but closer to Paris”. Betrayal by the oligarchy during the decade prior to Perón’s first government is emphasized, for example, in Torres (1973) and Hernández Arregui (1973).
- 4.
Indeed, a small literature on the subject has claimed that Peronism is the local version of the American Democrats or the British Labour Party. However, we can investigate the beliefs of these Peronist voters with respect to the origins of income (e.g., luck vs effort) and compare them with those of American voters.
- 5.
For an alternative view of the investment performance, see Taylor (1998).
- 6.
There is, of course, a large literature on Argentina’s economic performance and on the role played by Peronism which is in no way summarized or reviewed in the short paragraphs offered here as context for the relatively narrow set of points we emphasize. For a description of economic policies under the 1946–55 Perón government, see Gerchunoff (1989). See also Díaz Alejandro (1970), Cortes Conde (1997), Waisman (1987), Halperin Donghi (1994), Gerchunoff and Llach (1998), inter alia.
- 7.
- 8.
Saiegh (2013) makes the reasonable point that, even during the early market-friendly phase following the passing of the liberal constitution in 1853/60, the security of some rights to property (for example, on public debt) depended on political considerations such as the extent of partisan control over the legislature.
- 9.
For example, while in exile in Madrid, Perón appears to have designated John William Cooke, a man who argued for “armed struggle” based on the Cuban model, as his main representative in the country. There is ample evidence of the armed group’s identification with Perón (see Baschetti 2004).
- 10.
One difference with fascism, for example, is that trade union leaders were closer (more loyal) to members of the union than to the government (perhaps in spite of Perón’s wishes). Also, there were attempts at constructing “Peronism without Perón” and instances of trade union leaders who were perceived to be quite independent of Perón (leading to the extreme view that Perón himself was involved in the killing of trade union leader Vandor). And, most importantly, large increases in the Labor share of GDP took place under Peronist administrations (for historical evidence and a comparison with Australia, see Gerchunoff and Fajgelbaum 2006). See also Germani (1962) and Lewis (1980) for interesting discussions.
- 11.
Federico Pinedo and Luis Duhau, together with Raul Prebisch, put in place the Plan de Acción Económica Nacional in 1933. They were influential in affecting foreign trade and in the creation of the Argentine Central Bank in 1935. Della Paolera and Taylor (1999) describe heterodox monetary policy after 1929, the change in beliefs and expectations following the shift in monetary regime and the relatively mild economic depression.
- 12.
There are several interesting cultural aspects of Peronism that we do not discuss, including the focus on one date (October 17th), when Peronism “starts”. For a discussion and several of the key details of the mass mobilization that took place during October 17th, 1945, see James (1988).
- 13.
Within this region, 200 sampling points were selected, with approximately five individuals being interviewed in each sampling point through multi-stage probability sampling. Regions include the nation’s capital, the greater Buenos Aires area, Córdoba, Rosario, Mendoza and Tucumán.
- 14.
The question asks “What is the highest educational level that you have attained?” and it provides as possible answers the (functional equivalent for each society) of “1. No formal education, 2. Incomplete primary school, 3. Complete primary school, 4. Incomplete secondary school: technical/vocational type, 5. Complete secondary school: technical/vocational type, 6. Incomplete secondary: university-preparatory type, 7. Complete secondary: university-preparatory type, 8. Some university-level education, without degree, 9. University-level education, with degree”.
- 15.
The question used reads “People sometimes describe themselves as belonging to the working class, the middle class, or the upper or lower class. Would you describe yourself as belonging to the: 1. Upper class, 2. Upper middle class, 3. Lower middle class, 4. Working class, 5. Lower class”.
- 16.
We refer the interested reader to Di Tella and Dubra (2014) for an analysis of the separating equilibria. Under certain parameter conditions (for example, when skills are not easily transferred in going from one firm to another), the oligopoly results in a series of local monopsonies. The discussion of policies in this section refers to such a situation.
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We thank Esteban Aranda for suggestions and exceptional research assistance, and Andrés Velasco for introducing us to Acario Cotapos. We also thank Juan Carlos Torre, Torcuato Di Tella, Lucas Llach, as well as participants at the Argentine Exceptionalism seminar in Cambridge 2009, for helpful comments and discussions. For support, Di Tella thanks the Canadian Institute for Advanced Research.
Appendices
Appendix 1: Peron’s speeches quoted in the text
“Cuidaremos el factor brazo y haremos una Argentina de hombres libres”, 15 de octubre de 1944. Buenos Aires, 1944, Secretaría de Trabajo y Previsión, Difusión y Propaganda.
“Las reivindicaciones logradas por los trabajadores argentinos no podrán ser destruidas”, 1 de Mayo de 1945. Buenos Aires, 1945, sin datos de imprenta.
Discurso pronunciado en el Congreso de la Nación, 21 de Octubre de 1946, Habla Perón, Subsecretaría de Informes, Buenos Aires.
Discurso pronunciado en el Congreso de la Nación, al declarar inaugurado el período de sesiones, 1 de Mayo de 1947, Los Mensajes de Perón, Serie Azul y Blanca, Mundo Peronista Ed., Buenos Aires, 1952.
Manifestaciones del general Perón ante los representantes patronales de la Producción, Industria y Comercio de la Nación, 24 de Junio de 1948, Habla Perón, Subsecretaría de Informes, Buenos Aires.
“Perón, leal amigo de los trabajadores del campo”, 5 de Marzo de 1950, Subsecretaría de Informaciones de la Presidencia de la Nación.
Discurso pronunciado en el Congreso de la Nación, al declarar inaugurado el período de sesiones, 1 de Mayo de 1950, Los Mensajes de Perón, Serie Azul y Blanca, Mundo Peronista Ed., Buenos Aires, 1952.
“Economía y sindicalismo justicialista”, 24 de Mayo de 1950, sin datos de fecha de publicación ni de imprenta.
“La CGT escucha a Perón”, 9 de Agosto de 1950, sin datos ni de fecha ni de imprenta.
“Una etapa más en la ejecución de la doctrina peronista en el orden económico”, 7 de Febrero de 1950, Subsecretaría de informes de la presidencia de la Nación.
“Perón habla sobre la organización económica del país”, 12 de Mayo de 1950, sin datos ni de fecha ni de imprenta.
“Perón y Eva hablan en el Día de los Trabajadores”, 1 de Mayo de 1951, Presidencia de la Nación, Subsecretaría de Informaciones.
Discurso pronunciado el 5 de marzo de 1952, sin datos de imprenta ni de fecha.
Discurso pronunciado en el Congreso de la Nación, al declarar inaugurado el período de sesiones, 1 de Mayo de 1952, Los Mensajes de Perón, Serie Azul y Blanca, Mundo Peronista Ed., Buenos Aires, 1952.
Appendix 2: Definitions of variables used (form the world values survey)
Poor are lazy refers to the question: “Why, in your opinion, are there people in this country who live in need? Here are two opinions: Which comes closest to your view? 1. They are poor because of laziness and lack of will power, 2. They are poor because society treats them unfairly”. Group 1 is that answering option 1, while Group 2 is that answering option 2.
Run by a few big interests refers to the question: “Generally speaking, would you say that this country is run by a few big interests looking out for themselves, or that it is run for the benefit of all the people? 1. Run by a few big interests, 2. Run for all the people”. Group 1 is that answering option 1, while Group 2 is that answering option 2.
Workers should follow instructions refers to the question: “People have different ideas about following instructions at work. Some say that one should follow one’s superior’s instructions even when one does not fully agree with them. Others say that one should follow one’s superior’s instructions only when one is convinced that they are right. With which of these two opinions do you agree? 1. Should follow instructions, 2. Depends, 3. Must be convinced first.” Group 1 is that answering option 1, while Group 2 is that answering options 2 and 3.
Jobs for men refers to the question “Do you agree or disagree with the following statements? When jobs are scarce, men should have more right to a job than women. 1. Agree, Neither Agree nor Disagree, 3. Disagree”. Group 1 is that answering option 1, while Group 2 is that answering option 3.
More respect for authority refers to the question: “I’m going to read out a list of various changes in our way of life that might take place in the near future. Please tell me for each one, if it were to happen, whether you think it would be a good thing, a bad thing, or don’t you mind? Greater respect for authority. 1. Good, 2. Don’t mind, 3. Bad”. Group 1 is that answering option 1, while Group 2 is that answering option 3.
Less emphasis on money refers to the question: “I’m going to read out a list of various changes in our way of life that might take place in the near future. Please tell me for each one, if it were to happen, whether you think it would be a good thing, a bad thing, or don’t you mind? Less emphasis on money. 1. Good, 2. Don’t mind, 3. Bad”. Group 1 is that answering option 1, while Group 2 is that answering option 3.
Acceptable to cheat refers to the question: “Please tell me for each of the following statements whether you think it can always be justified, never be justified, or something in between, using this card. Cheating on taxes if you have a chance (scale 1–10 is shown with Never Justifiable below 1 and Always Justifiable below 10)”. Group 1 is that answering options 1 and 2, while Group 2 is those answering options 3, 4, 5, 6, 7, 8, 9 10.
Competition good refers to the question: Now I’d like you to tell me your views on various issues. How would you place your views on this scale? 1 means you agree completely with the statement on the left; 10 means you agree completely with the statement on the right; and if your views fall somewhere in between, you can choose any number in between. A scale is shown with a 1–10 scale with the words “Competition is good. It stimulates people to work hard and develop new ideas” below 1 and “Competition is harmful. It brings out the worst in people” below 10.
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Di Tella, R., Dubra, J. Some elements of Peronist beliefs and tastes. Lat Am Econ Rev 27, 6 (2018). https://doi.org/10.1007/s40503-017-0046-5
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Keywords
- Populism
- Altruism
- Exploitation
JEL Classification
- J42
- D64
- L4
