Some elements of Peronist beliefs and tastes

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.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.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).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.).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.

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.

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.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.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.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).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.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’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.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.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.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).

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.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.

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.

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.

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).

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).

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.

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.

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.

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.

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.

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.

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.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.

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).