This article derails from the usual topics covered in this publication.
As an Argentine, I couldnāt help but write about the historic opportunity we have to change as a country and society, improving the situation for the longer term and finally escaping from almost a century of decadence after being one of the greatest world economies in the decades before. That is the Argentine Paradox.
Note Iām not an economist or sociologist; I write from my own independent thinking.
I will explain why we should adopt more capitalist-oriented policies and abandon āsocialismā and āsocial justiceā through the lens of fragility and antifragility. I will first analyze the concepts and comparisons and then translate them to Argentinaās history and context.
The Concepts
Nassim Nicholas Taleb's concept of "antifragility" describes systems that benefit and grow stronger from shocks, volatility, or stresses, as opposed to fragile systems that break down when exposed to similar conditions. He introduced the term in his book "Antifragile: Things That Gain from Disorder," offering a framework for understanding how different systems respond to stress, volatility, and shocks.
Argentina is an excellent example of how we could go from fragility to a more antifragile system as a country with huge potential.
Fragility describes systems vulnerable to external pressures, deteriorating or breaking down when faced with stressors. Fragile systems are harmed by unpredictability and tend to be rigid, unable to adapt to changing circumstances without suffering damage.
I find it intriguing that up until Taleb's concept, we didnāt have a term to describe the opposite of fragility. Robustness is often confused since something robust is resistant to shocks but stays, at best, the same after them.
In contrast, antifragility goes beyond that point. Antifragile systems benefit from shocks and unpredictability, growing more robust and capable in the face of volatility. Theyāre characterized by adaptability, flexibility, and the capacity to thrive in chaos and uncertainty. This concept applies to the physical realm and economic, biological, and organizational systems.
Nature provides many examples of antifragility. For example, your body uses outside stressors to generate defenses and improve your immune system. Small shocks also contribute to self-improvement: you donāt stay the same after them; you improve.
We can also look at this in layers, for example, with evolution. Individual organisms live and die, passing on improvements through their genes to the next generation. The individual must live, suffer stressors, and die (we could look at this as a āsmallā stressor at a macro level) for the species (and life overall) to thrive.
The distinction between fragility and antifragility illuminates why some entities flourish under pressure while others collapse. It invites us to design systems to enhance their ability to adapt, evolve, and improve through chaos and stressors rather than merely attempting to resist and stay unchanged. Understanding this dynamic offers valuable insights into managing risk, fostering innovation, and navigating our unpredictable world.
Weāll first examine two ways of organizing different aspects of a society and its economy, socialist-oriented and capitalism-oriented, through the lens of fragility vs. antifragility, respectively. Note that I added the term āorientedā to avoid being tied to the original concepts and to refer more to real-world applications rather than textbook descriptions from now on.
Centralization vs. Decentralization
Socialism often involves centralized, government-based planning and control over economic and social activities. Centralized systems can become fragile because they rely on the correctness of a small set of decisions or predictions. When these decisions are wrong, the impact is widespread and problematic to correct quickly. Thereās a single point of failure: when the centralized power fails, everything else does.
Capitalism advocates decentralized decision-making, where individuals and businesses operate freely within a market. This decentralization allows for multiple parallel experiments and solutions to emerge, making the system more adaptable and able to recover or benefit from failures or shocks.
Also, individuals specialize and trade goods and services using a shared currency system that allows us to organize our lives:
The problem is that money is not really a thing at all but a social technology: a set of ideas and practices which organize what we produce and consume, and the way we live together. When it comes to money itself ā rather than the tokens that represent it, the account books where people record it, or the buildings such as banks in which people administer it ā there is nothing physical to look atā¦ But currency is not itself moneyā¦ Coins and currency, in other words, are useful tokens to record the underlying system of credit accounts and to implement the underlying process of clearing [these accounts].
It allowed us to exit from a barter-based system into an easy way to make our products and services countable in a standard way we all understand.
Response to Volatility
Socialist systems may attempt to shield society from economic volatility through regulations, subsidies, and control mechanisms that force individuals to behave in a certain way. While these measures can provide short-term stability, they may also prevent the system from adapting to underlying economic realities, leading to long-term fragility.
Price controls are classic examples of governments forcing market behavior without considering non-intended consequences, like producers being unable to make their products because of the imposed pricing structure, thus leading to scarcity. Or, in more extreme cases of textbook socialism, governments have tried to control production means directly, with catastrophic results such as the USSR famines caused by collectivization.
Capitalist philosophies argue against market interference, suggesting that exposure to volatility forces businesses and individuals to adapt, innovate, and become more resilient. Creative destruction in free markets is seen as a way to ensure that resources are allocated to their most efficient uses, fostering an antifragile environment and incentivizing individuals to provide better value at the best possible price to supply demands instead of forcing them. When incentivized (instead of forced), individuals are motivated to behave in favor of themselves and society. They will try to do so, adding value for a profit and using their resources efficiently.
Innovation and Adaptation
In socialist models, the state's role in directing the economy and redistributing resources can sometimes stifle innovation and entrepreneurship due to bureaucratic hurdles and disincentives for risk-taking. This resistance to change can make the system more fragile, based on the premise that the government āknows betterā and should be entitled to manage and decide many aspects of individual life.
Capitalist approaches aim to create a fertile ground for innovation and entrepreneurial ventures by reducing state intervention. The freedom to experiment, fail, and succeed is crucial for developing antifragile societies that adapt and evolve through challenges. People are empowered to create, run, and work in businesses.
Resource Allocation
Socialism relies on the premise that a central authority can effectively allocate resources according to societal needs. However, this assumes the planners' perfect knowledge and benevolence, a scenario often criticized for being unrealistic and potentially leading to inefficiencies and fragility.
Through the mechanism of price signals and private ownership, capitalism argues that resources are more effectively allocated by those with the most knowledge of their use, not assuming a central government authority is more capable than anyone else outside of it of running certain companies, deciding prices, and distributing resources that were forcefully obtained through taxes and that the government didnāt own or generate.
This distributed decision-making process is more antifragile. It can quickly correct misallocations through market feedback, improving its efficiency with time, and learning and adapting through errors.
According to Milton Friedman, there are four ways to spend money:
Spending your money on yourself. Youāll always strive to make the most bang for your buck here. For example, looking for furniture for your home.
Spending your money on someone else. You may strive for the best prices, but not necessarily the best value or quality. An example of this could be a gift you make to someone.
Spending someone elseās money on yourself means looking for the best quality, not necessarily the best price. An example here could be charging an expensive dinner on your corporate card.
Spending someone elseās money on someone else. The worst possible combination: you wonāt look for the best value or price. Most government spending falls into this category, using taxpayerās money on the population.
The underlying idea is that we are naturally self-serving. And thatās one of capitalism's major advantages: it doesnāt fight human nature. On the contrary, it incentivizes people to do what already makes the most sense to them naturally, without the need to force them, as has been the case in many socialist-oriented economies such as Argentinaās for decades.
Order and Control
Socialism often views order as something that should be deliberately constructed. It emphasizes the state's role in creating equitable outcomes through planning and redistribution. This perspective assumes that with enough information and the right policies, governments can steer societies toward desired outcomes, reducing inequalities and providing for the needs of all citizens.
On the other hand, capitalism sees order as an emergent property of free interactions among individuals. It argues that spontaneous order arises from the decentralized decisions of individuals acting in their own interests, coordinated by the market's invisible hand. Adam Smith understood the randomness of potential outcomes through this concept. And that is key in an unpredictable world.
The fragilista mistakes the economy for a washing machine that needs monthly maintenance, or misconstrues the properties of your body for those of a compact disc player. Adam Smith himself made the analogy of the economy as a watch or a clock that once set in motion continues on its own. But I am certain that he did not quite think of matters in these terms, that he looked at the economy in terms of organisms but lacked a framework to express it. For Smith understood the opacity of complex systems as well as the interdependencies, since he developed the notion of the āinvisible handā.
Nassim Nicholas Taleb, Antifragile: Things That Gain From Disorder
Capitalists caution against the danger of believing that any group of planners can possess enough knowledge to manage complex societal systems effectively. Thereās always a random component.
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Freedom and Individual Rights
The socialist framework often prioritizes collective rights and outcomes over individual freedoms, arguing that certain liberties can be justifiably curtailed to achieve broader social goals like equality and security, including support for redistributive policies aiming to level societal playing fields, even limiting economic freedoms.
Capitalism places a premium on individual liberty and private property as the highest societal values, arguing that freedom is both an inherent right and the foundation of a prosperous and adaptable society. Capitalists advocate for minimal state intervention, believing that protecting individual rights fosters innovation, resilience, and a dynamic response to challenges.
Economic Freedom Promotes Human Development
A strong case in favor of individual liberty, and particularly economic freedom, can be made by analyzing countries with the highest economic freedom indexes. These tend to be the most developed, offering a better quality of life.
People with economic freedom tend to have more freedom in all other aspects of their lives. People without it are much more susceptible to vulnerabilities, exploitation by politicians, and dependence on their governments: they need assistance to live. Itās hard to argue that economic freedom is the baseline freedom.
Empiric evidence of success is on the side of economic freedom; there certainly are correlations between the Economic Freedom Index and the Human Development Index, and studies confirm this across multiple countries and continents.
ResearchGate published a study examining the effect of economic freedom on the Human Development Index (HDI) in European transition economies. Findings revealed economic freedom's significant and positive impact on the HDI, suggesting that economic freedom contributes positively to human development across various dimensionsā.1
Another study on JSTOR investigated the impact of economic freedom on human development across various countries. It drew upon previous research that observed a positive correlation between economic freedom and aspects of human development, indicating a beneficial effect of economic freedom on societal well-being. 2
One study published in PLOS ONE investigated the nexus between economic freedom, inclusive growth, and financial development, mainly focusing on developing countries, providing insights into the role of economic freedom in fostering a socio-economic environment conducive to technological and innovative advancement and promoting long-term economic growth. This one even quantifies different aspects of societies that improved according to how much they scaled on the Economic Freedom Index. 3
Another study featured in MDPI's Mathematics journal explored the impact of various aspects of freedomāincluding economic, press, civil freedom, and political rightsāon sustainable economic development in European countries. The findings underscored the positive effects of civil liberties and economic and press freedom on economic growth. 4
Responding to Change and Uncertainty
Socialist policies often aim to shield individuals and communities from the disruptive effects of economic changes and uncertainties through social safety nets, job guarantees, and controls on economic activity. While these can provide short-term stability, they may also inhibit adaptation and make societies less responsive to evolving circumstances.
Capitalist philosophy suggests that exposure to change and uncertainty, while potentially disruptive, drives progress and adaptation. By embracing volatility as a catalyst for innovation, societies can become more antifragile, better surviving and thriving amidst challenges. Capitalism argues for a society where individuals and businesses are free to experiment, fail, and adapt, leading to systemic resilience and continuous improvement.
All Systems Have Flaws
But some have fewer flaws than others.
Weāve seen many examples in history of different ways to organize societies. Thereās no perfect answer, and there probably will never be one, but capitalism has undoubtedly been the most successful we have made as a species.
Since the introduction of capitalism during the Renaissance in the 15th and 16th centuries and after the industrial revolutions, the world GDP per capita has grown exponentially. Up to the 1700s, most of the population lived in poverty.
Argentina's economic history is marked by cycles of prosperity and crisis, illustrating the "Argentine paradox," where early 20th-century development was followed by a relative decline compared to other developed economies. Argentinaās GDP per capita went from one of the largest and fastest-growing in the world to having 60% of an impoverished population.
In the 43 years leading up to 1914, GDP had grown at an annual rate of 6%, the fastest recorded in the world. The country was a magnet for European immigrants, who flocked to find work on the fertile pampas, where crops and cattle were propelling Argentinaās expansion. In 1914 half of Buenos Airesās population was foreign-born.
The country ranked among the ten richest in the world, after the likes of Australia, Britain and the United States, but ahead of France, Germany and Italy. Its income per head was 92% of the average of 16 rich economies. From this vantage point, it looked down its nose at its neighbours: Brazilās population was less than a quarter as well-off.
Since the start of the ādeclineā in the 30s, Argentina has defaulted on its debt multiple times, faced hyperinflation, and experienced severe currency devaluations. Political instability has significantly affected its economic decline despite its fertile lands and agricultural advantages. The military junta in 1930 marked the end of seven decades of civilian constitutional government, leading to one of the most unstable macroeconomic periods in the country's history.
After Juan PerĆ³n, the government pursued import substitution from the 1930s to the 1970s aimed at industrial self-sufficiency through government-incentivized or directly owned businesses.
This approach, characterized by a preference for state intervention and redistribution over market freedoms and financial efficiency, has contributed significantly to the country's economic fragility.
One aspect of these policies that continues to find support among many in Argentina is the implementation of price controls. This has lots of failed precedents. The book "Forty Centuries of Wage and Price Controls: How Not to Fight Inflation" offers lots of evidence, illustrating the ineffectiveness of such measures from the Roman Empire to modern times. The authors detail numerous instances where governments attempted to regulate prices or wages to control inflation or reduce cost-of-living pressures. These interventions consistently failed to achieve their intended outcomes, often exacerbating the problems they were designed to solve.
Price controls, artificially fixing the price of goods and services below their market value, tend to lead to shortages, reduce the quality of products, discourage investment, and stifle innovation. In the context of Argentina, this history repeats itself.
Reflecting on this widespread evidence, it becomes clear that strategies to combat inflation and economic instability through price controls are historically counterproductive. Moving towards a freer economy that allows market forces to dictate prices and wages offers a viable path out of the cycle of fragility that has characterized Argentina's economic policy for decades.
Embracing economic and individual freedom could lay the groundwork for a more prosperous and stable economic future.
A History of Deficit
Argentina has a long history of budget deficit. Governments have long used two ways to finance increasing public spending that goes to corruption and a vast, inefficient state machine: debt and emission.
Both are tolls that sooner or later fall on peopleās shoulders. The first is a burden on future generations, and the second causes an inflationary tax on the people: it expands the monetary base, thus devaluating the currency held by the people to support further spending power for the government to maintain its inefficient functioning, corrupt businesses, and clientelism.
Even if it were for a good cause, which it clearly isnāt, it would still be wrong.
Of course, this could all be avoided if the government stopped spending more than it collects, thus ending with the budget deficit.
The current government is already moving in this direction, and theyāve established this as one of their main goals. Weāll have to wait and see how it goes.
Tax Pressure
Taxes in Argentina are crazy. A colossal government, as described, canāt sustain itself without putting tremendous pressure on its taxpayers, besides acquiring debt and irresponsibly emitting currency. The current fiscal pressure is above 100% if an Argentinian company pays all its taxes. Yes, you read that right. If you pay all your taxes, you lose your profits and then some more.
Thereās widespread evidence that proves that lowering taxes up to a certain point increases tax revenue. Itās called the Laffer Curve:
If Argentina lowered taxes, the government would promote economic freedom and growth while raising its revenue.
The Antifragile Opportunity
Javier Milei's electoral victory represents a potential paradigm shift towards embracing policies that could make Argentina more antifragile.
Many of these policies, which we analyzed in this article, could be applied in Argentina if the new government plays its cards right.
Milei's advocacy for deregulation and economic liberalization contrasts sharply with the historical preference for socialist-oriented practices. By reducing state intervention and fostering a competitive market environment, Argentina could build resilience, encourage innovation and adaptation in the face of economic shocks, facilitate collaboration between companies and workers, and create massive progress in the next decade.
The government presented a bill to Congress to improve Argentina's ranking in the Economic Freedom Index. The bill would boost Argentina's position from a lowly 144, which is near countries like Lesotho, Uganda, Nepal, and Belarus, to a much more respectable 55-50, which is closer to countries like Spain and France. However, the bill was eventually withdrawn after facing rejection. It's hard to tell how much development the country lost due to this decision. It's possible that the politicians who opposed the bill had other interests in mind.
Itās clear that Argentina's resilient, creative, and entrepreneurial population wants the government to leave them alone.
Challenges and Criticisms
Transitioning towards a more deregulated and market-oriented economy presents challenges, including managing the risks of rapid changes in the current fragile systems to migrate to more antifragile ones. Weāre currently seeing such a transition with fast shocks and high inflation that, despite decelerating from over 20% monthly to 15% and under, still makes middle and lower-class familiesā lives hard and will continue to do so for a while.
Itās the unfortunate consequence of decades of government irresponsibility and interventionist policies. Ultimately, āordinaryā people consistently pay for government mistakes. Many blame the current situation on a three-month-old government, although clearly, the causes come from decades of flawed policies partly explained here.
Another point of concern is that, although they seem to not care about the political consequences of making profound changes and lead with an agenda of beliefs rather than what measures best in polls, sometimes the members of the current government seem to be worried about unimportant ābattlesā that undermine the fundamental changes theyāre making without any added value. Fingers crossed, this wonāt get out of hand.
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The Argentine Paradox, influenced by socialist policies and political instability, offers critical lessons on the importance of embracing principles that promote antifragility and, thus, capitalism and individual freedom.
The election of Javier Milei presents a historic opportunity to redirect Argentina's trajectory toward greater resilience, adaptability, and sustainable growth.
By learning from our past and leveraging the potential for deregulation, ending clientelism and corruption, monetary responsibility, and a free economy, Argentina can aspire to recover from its economic difficulties and thrive in the face of future uncertainties.
We have all the human and natural resources to do so, and we face a historical challenge to return to being a prosperous country. It seems too complex a goal to achieve, but so did having a libertarian President.
Naanwaab, C. (2018). DOES ECONOMIC FREEDOM PROMOTE HUMAN DEVELOPMENT? NEW EVIDENCE FROM A CROSS-NATIONAL STUDY. The Journal of Developing Areas, 52(3), 196-197. JSTOR.
Odhiambo, N. M. (2020). Economic freedom, inclusive growth, and financial development: A heterogeneous panel analysis of developing countries. PLOS ONE.
Mohammadi, H., Shayanmehr, S., & Borrero, J. D. (2023). Does Freedom Matter for Sustainable Economic Development? New Evidence from Spatial Econometric Analysis. Mathematics, 11(1), 145. MDPI.
