In 2007 Crisitna Fernandez Kirchner (CFK) was elected President of Argentina. CFK was a charismatic populist who appealed to the suburban working class and rural poor (though she failed to win over the upper middle class elites in the larger cities of Buenos Aires and Rosario). She served as President until 2015.
Leading into the election, Argentina had suffered just a few economic troubles to say the least.
In order to make Argentina great, it was argued that Argentina needed to “go back to making things”. And so, the CFK Government banned the import of iPhones and BlackBerrys, toys, pharmaceuticals, tyres, fabrics, leather, farm machinery and automotive vehicles, and a list of about 400 other items. Those imports that were able to come into the county attracted an import tariff of between 30-40 per cent. If a company wanted to import something, they also had to be an exporter of something that was made in Argentina. All of this was done to “protect national production and Argentine jobs”.
As you might imagine, the Argentinian economy was changed overnight.
While some companies refused to play ball — to this day, you cannot buy an iPhone in Argentina unless you use an iPhone mule on the black market — others saw Argentina as a lucrative market they could not give up. Blackberry for instance agreed to set up a new operation in the remote Tierra del Fuego.
Notably, the “Land of Fire” lacked the skilled workforce and infrastructure necessary for BlackBerry’s operations, and energy costs were much higher than elsewhere in the country. But these were all secondary issues that could be overcome. The Argentine Government had a goal of cutting the share of foreign-produced mobile phones from 96 per cent to 20 per cent production within just two years. It invested $23 million into the BlackBerry venture and offered companies a suite of tax breaks to open up shop. Workers were attracted by wages that were triple what could be earned for similar work elsewhere in the country.
Within a couple of years, Tierra del Fuego had become a hot spot of manufacturing. Argentina produced its first “made in Argentina” Blackberry in 2011…
…it was two years of date, twice the cost of an American model, and no one wanted to buy it.
It wasn’t too long until everything started to unravel. Blackberry left Argentina just two years after. Argentina’s unemployment problems returned and inflation rocketed to 40 per cent. They are now in a recession.
Nothing in this story is new. There are examples of well-intentioned, but unsustainable protectionism are littered throughout history. It’s just the compactness and pace at which this story unravels which makes it such an attractive case study. It is a fantastic microcosm of what happens when you try and King Cnut economic forces and offers some powerful insights to our own policy environment.
A number of direct and indirect costs are incurred because of protectionism. Perhaps the biggest cost of protectionist policies relate to how it provides a distraction from a country’s comparative advantage.
A country has a comparative advantage when it can produce something at a lower (opportunity) cost than any other. Argentina clearly does not have a comparative advantage in the production of smartphones — BlackBerry had to spend 15 times more on labour to produce in Argentina than if they had produced their phones in Asia. It does however, seem to have a comparative advantage in wine and beef production.
While Argentina pursued smartphones, they neglected their wine, beef and tourism industries. Each of these are legitimate industries that could be leading the country’s economic growth. Instead the Argentine economy, once the darling of South America, is being compared to the Venezuela.
TALES FROM THE LONG TAIL 
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