Worthy of their higher?

The libertarian government insists that any industrial policy is taboo and made the point on Industry Day midweek by sending nobody above the undersecretary level. But what are the RIGI incentive scheme for major investments and the Super RIGI if not industrial policies favouring with their tax breaks the sectors spearheading export-led growth such as energy, mining and now hi tech? As with public works, President Javier Milei seems to be throwing out the baby with the bathwater, identifying both with their dysfunctional Kirchnerite incarnations and almost celebrating the tailspinning decline of the products of the protectionism fostered so boisterously and disruptively by his idol Donald Trump.

All this leaves the manufacturers celebrating their day last Wednesday between a rock (Rocca?) and a hard place. They cannot enjoy an openly hostile government kicking away the props from under their artificial structures, giving the strong a free ride while taxing the weak. Yet the almost uninterrupted two decades of Kirchnerism preceding the advent of Milei are not such ancient history as to create much nostalgia in industrial and establishment circles. As they were reminded by Chamber of Commerce president and Council of the Americas co-host Mario Grinman at last month’s symposium, that régime was “an omnipresent and oversized state blocking the growth of most companies and burdening the country in general” while sacrificing export markets to fill supermarket shelves.

If industrial policy is anathema to Milei, so is incomes policy as running counter to all his anarcho-capitalist principles and yet there was a clumsy lurch towards an incomes policy on the eve of the Minimum Wage Council meeting late last month. The Labour Department proposed a seven-digit minimum wage (grossing 1.07 million pesos with net pay of 865,000) in order to revive sagging consumer markets, while at the same time resisting any increase in the official mínimum wage figure of 376,600 pesos so tenaciously that it will not even be creeping up beyond 400,000 pesos until the end of the year. White man speak with forked tongue, one might think – the explanation for this confused proposal is that “minimum wage” means two different things, the pay floor for collective wage bargaining in the private sector and the official figure as set by the Minimum Wage Council.

Apart from all their other grievances, the employers marking Industry Day last Wednesday were thus being saddled with the onus of reviving the economy via this seven-digit collective wage bargaining floor and thus sparing the government the adverse consequences of its tight money. Yet had the Labour Department been more consistent in proposing a millionaire minimum wage across the board instead of just for the formal private sector, the fiscal consequences would have been truly catastrophic, going far beyond placing a chainsaw lid on state employee pay. The pension floor is pegged at 82 percent of the minimum wage so defining the latter as 1.07 million pesos would imply a minimum pension in the region of 850,000 pesos when it is just below half a million for this month (always including the 70,000-peso bonus). Given that pensions are almost 40 percent of the budget, a 70-percent increase would not only have blown the fiscal surplus sky-high but would have created a stratospheric deficit to beggar that of Trump.

Yet millionaires are not always millionaires when it comes to pesos – the seven-digit wage floor proposal might look generous when measured against a mínimum wage of 376,600 pesos (even when made by the public sector at the expense of the private sector) but already during the collective bargaining season back in April every single agreement set the wage floor above the proposed figure (with the exception of maintenance workers, just below at 1.06 million pesos), often comfortably above with shop workers at the bottom of the heap with 1.16 million pesos. In this context what looks like a pay booster proposal to revive a sluggish economy could also be interpreted as restraint against wage-push inflation.

The proposal also falls between two stools when it comes to the ‘grieta’ rift commanding far less attention in Argentina than the political divide – a workforce divided almost half and half between formally registered employees and workers in the underground economy. Not only do the former already have a wage floor well above the government figure but their average pay doubles it at 2.12 million pesos according to official data – the Labour Department proposal thus seems totally irrelevant, if not insulting. But the average in the underground economy is estimated at 820,000 pesos and even lower in the PyME small and medium-sized companies accounting for almost 80 percent of that workforce at 702,000 pesos. Even the gig economy giants might face a crisis if confronted with an overnight 20-plus percent pay increase while 40-plus percent would be positively ruinous for PyMEs already hit by slumping sales.

Yet the underlying cause of the problems of deficient pay is the trade-off between full employment and productivity. Argentina has almost always given priority to the former over the latter (except perhaps in the last decade of the past century) and this has conspired against growth – declining productivity has led to resorting to inflation as the substitute for economic stimulus with a Keynesian logic only now being questioned by Milei. But this syndrome is not being corrected as much as might be expected under the Milei Presidency – the government seems so grateful that unemployment has not risen dramatically despite drastic austerity that they apparently settle for the falling productivity and job quality accompanying the relatively stable employment levels. If Luis Caputo were not far more the finance minister he was under the Mauricio Macri Presidency than the economy minister of his nominal designation, the government might start paying more attention to industrial policy, incomes policy, education, infrastructure and a whole bunch of things beyond balancing the Budget now due in mid-month.