Argentina's Warning to America

By MARY ANASTASIA O'GRADY, WSJ

Less than one month into Barack Obama's presidency, Argentine president and hardcore Peronist Cristina Kirchner gave this assessment of his government: "I don't know if Obama has read Perón, but let me tell you, it sure seems like it."

Mrs. Kirchner was speaking to union members of the newly nationalized Aerolineas Argentinas, and she confessed she felt "contenta." All around the world governments were intervening in their economies as if to "copy" the model that Argentina had been using since 2003, when her husband Néstor first became president. Her reasons for linking Mr. Obama with one of the most notorious corporatists of the 20th century went like this: "The other day I heard the president of the most powerful country on earth say that, in technical and financial terms, the unions are not part of the problem, but rather, part of the solution, and that he wants large prosperous unions together with large, prosperous businesses."

Those observations came to mind last week as Big Labor seemed to be taking over the "Occupy Wall Street" project, which already has Mr. Obama's sympathy and support from the Democratic Congressional Campaign Committee. So far the protests have been mostly a sideshow. But serious union influence could change that, bringing to the fore the ultimate political question of our time: Will the U.S. continue to lead the world in openness, individual liberty and tolerance, or will Americans trade their freedom in exchange for subsidies, entitlements and protection from competition?

On this, the experience of Mrs. Kirchner's Argentina is instructive. It abandoned free markets, ostensibly in the interest of social justice. The predictable result has been greater injustice, more poverty, and increasing concentration of wealth and power in the hands of the political class and its friends. Efforts to make the economy competitive have repeatedly been defeated even as the standard of living declined.

Argentina tests the theory that democracies have a built-in capacity to correct the overreach of government. Not only has it been unable to extricate itself from the black hole of corporatism, it is getting sucked in further. The nation now looks ready to re-elect Mrs. Kirchner next Sunday. Some voter surveys have her winning the largest majority vote in 30 years. Her closest rival, a socialist, trails with a scant 15% popularity.

Argentines also will be voting for one-third of the seats in the Senate and half of the seats in the lower house. Polls suggest that Mrs. Kirchner will have coattails. Her party, Frente para la Victoria (Front for Victory), is expected to fall just short of a simple majority in the house, but if she wins big, that could change. In the Senate, her party's control is considered secure.

This is troubling because Mrs. Kirchner likes to call the shots, and she already has a firm political grip on the judiciary. Her arbitrary use of power rarely has been checked. Credible charges of corruption in her government aren't seriously investigated. The central bank is no longer independent, and private-sector economists now put annualized inflation at 24%. The free press is also at risk. It struggles against self-censorship in a climate of government threats and intimidation. If Mrs. Kirchner next controls Congress, it is unlikely that any aspect of Argentine pluralism will be secure.

Nevertheless, Argentines will re-elect her and not without reason. Labor has always been the stronghold of Peronism and that loyalty continues. Local producers may dream of ridding themselves of "voluntary" price controls imposed by the government, but the depreciating currency has kept them competitive abroad, and they like their government subsidies. Farmers have been riding a boom in dollar-priced exports. Even the famous "piqueteros," bands of left-wing activists who block roadways and paralyze cities to demand social justice, have a symbiotic relationship with this government: Satisfying their "moral outrage" requires greater government intervention, so they are a useful tool for Mrs. Kirchner. Think about that the next time someone tells you that Occupy Wall Street is a liability for Mr. Obama.

There has also been a sharp rise in protectionism. High tariffs aside, the government now restricts import licensing on some 600 products in an effort to force companies to move production inside the country. The BlackBerry, from Research in Motion, is now made in Tierra del Fuego at a cost, according to the Economist magazine, of 15 times more than in Asia.

The Argentine daily Clarin has reported that the government has impounded 1.6 million imported books in its quest to revive the local publishing industry. If an importer can't bring production to Argentina, it must find something to export at equal value so that it will not create a trade deficit. No word yet on when Mrs. Kirchner will start knitting her own sweaters with home-spun wool.

In the first three quarters of this year, net capital outflows totaled $17.2 billion, outstripping the $16.4 billion that fled the country during the same period in 2008, in the midst of the financial crisis. Translation: The smart money understands where Mrs. Kirchner is taking the country even if voters do not. Americans take note.