328 THE WEALTH AND POVERTY OF NATIONSinvestment; simple pillage is not an option. So with Argentina, which
saved litde and drew increasingly on foreign capital.* Some econo
mists contend that foreign capital hurts growth; others, that it helps,
but less than domestic investment. Much obviously depends on the
uses. In the meantime, no one is prepared to refuse outside money on
grounds of efficiency. The politicians want it and are willing to let the
dependency theorists wring their hands.
One economist attributes Argentina's low rate of savings to rapid
population growth and high rates of immigration—to which I would
add bad habits of conspicuous consumption. In any event, foreign cap
ital flows depended as much on supply conditions abroad as on Ar
gentine opportunities. During World War I, the British needed money
and had to liquidate foreign assets. Although remaining Argentina's
biggest creditor, they no longer played the growth-promoting role of
earlier decades. The United States and others picked up some of the
slack, but here, too, politics and the business cycle abroad called the
tune, so that Argentina found itself in intermittent but repeated diffi
culty both for the amount and terms of foreign investment and credit.
All of this promoted conflict with creditors, which led in turn to reac
tive isolationism—restrictive measures that only aggravated the strin
gency and dependency. When Argentine economists and politicians
denounced these circumstances and the misdeeds, real and imagined,
of outside interests, they only compounded the problem. To be sure,
cocoon economics helped shelter Argentina and other Latin American
economies from the worst effects of the Great Depression. Such is the
nature of cocoons. But it also cut them off from competition, stimuli,
and opportunities for growth.
Dependentista arguments have flourished in Latin America. They
have also traveled well, resonating after World War II with the eco
nomic plight and political awareness of newly liberated colonies. Cyn
ics might even say that dependency doctrines have been Latin
America's most successful export. Meanwhile they are bad for effort
and morale. By fostering a morbid propensity to find fault with every
one but oneself, they promote economic impotence. Even if they were
true, it would be better to stow them.
- Savings rates of 5 percent and under, compared to three times as much in Canada
and Australia—Taylor, "Three Phases," p. 28, Table 4.