The State and Industry
The state played a minor role in Argentina's economy until the 1930s. As table 5.1 shows, its share of total investment stayed at around 11 percent until World War I then rose somewhat during the war years because of the drastic drop in private investment (caused by the withdrawal of foreign capital). After the war, the state's role receded again and remained low until the depression. The state then assumed a more active role because of the economic crisis. The establishment of government regulatory boards for meat and farm products, the growth in YPF'S activities, and the military's assumption, through Fabricaciones Militares, of certain types of defense-related production combined to increase state investment to unprecedented levels. In the late 1940s, under Perón, it rose to 35 percent of the total. It seems, therefore, that Argentina's early industrialization falls into three phases. The first, which lasted until World War I, was characterized by the leadership of foreign capital. The second, which stretched from the end of World War I to 1943, saw domestic private capital in the vanguard. The third, which began with the revolution of June 1943 and ended approximately with the overthrow of Perón in 1955, was a period of state leadership.
The expansion of the state's economic role was linked to the greater importance accorded to industry. During the depression, falling exports restricted Argentina's ability to import finished products, even though the demand for them remained high. Consequently, local industry was encouraged to meet that demand. Such was the logic of the import-substitution strategy of the 1930s: a far cry from the old days when the governing elites, imbued with the ideas of free trade and comparative advantage, viewed local industry with disdain.
As applied by the old estanciero elite, the law of comparative advantage taught the futility of industrializing Argentina. After all, the country had a temperate climate, adequate rainfall, and vast stretches of fertile soil, all of which made it ideally suited to grazing