How Not To Desocialize: Argentina Edition – Analysis

By Benjamin Seevers

Argentina’s president-elect, Javier Milei, is set on implementing promarket policies, including a vast desocialization, or privatization, of the economy. The privatization of the Argentine airline industry is seemingly first on the agenda (along with privatization of state-owned media). Privatization is necessary, but above all else, it must be done correctly.

Aerolíneas Argentina, the state-owned airline, makes up 63 percent of the domestic airline market in the country. Furthermore, its profitability has been falling since 2020. The airline arose out of a government-directed merger of four local carriers in 1949. The government essentially promoted the creation of this airline company, thereby harming competition.

Through various tribulations, Aerolíneas was once “privatized” in 1991, but this privatization scheme was perceived as a failure in light of its financial problems. Consequently, the company was renationalized in 2008, and it has remained that way ever since.

Now Argentinians are stuck with a nationalized airline company that makes up a majority of the domestic airline market and has been directly bailed out by the national government since 2021 (looking at its profits and national government payments reveals that since 2021, its profits have been solely driven by government payments). The head of the aviation workers’ union has even stated that “this company doesn’t work without the contributions of the state.” This statement was intended to be a defense of state ownership but is an embarrassing omission of the company’s inefficiency. The taxpayers are being forced to prop up this company against their will. This must cease as soon as possible.

The answer is clear: privatization.

What if the company fails? Business failure is a feature of a free market system, not a bug. Failing enterprises do not deserve government support. If Aerolíneas must fail, then let it fail, and its assets will be liquidated and transferred to a superior airline company.

Furthermore, any and all regulations prohibiting competition in this market must be abolished. As Murray Rothbard proposes, privatization must coincide with deregulation and cutting taxes. All regulation and taxation on the airline industry must be eliminated. But this leaves the problem of what to do with Aerolíneas.

Milei’s solution is to hand over shares of the company to the workers, effectively making it a worker-owned company. Ironically, many labor leaders have criticized Milei’s plans, some even going as far to say that Milei “will have to literally kill us” if he wants to implement privatization. However, if Milei accomplishes privatization, the airline workers will be forced to bear the responsibility of the company, or they will sell their shares and move for greener pastures.

The question remains of whether devolving the ownership to workers is the best way to privatize. It may be the most expedient method in Argentina, a country where the labor movement dominates, but is it the correct way?

Rothbard seems to be a fan of this approach:

In a sense, abolishing government ownership of assets puts them immediately and implicitly into an unowned status, out of which previous homesteading can quickly convert them into private ownership. The homestead principle asserts that these assets are to devolve, not upon the general abstract public as in the handout principle, but upon those who have actually worked upon these resources: that is, their respective workers, peasants, and managers.

But government-owned land is not unhomesteaded. The government can be the first user of land, but when it does acquire property, its acquisition is offset by obligations it takes on by aggressing against taxpayers. The government does not really own assets because it has a moral obligation to immediately rectify the damage it has caused. Therefore, those whom governments aggress against have sole claim to government property.

Hans-Hermann Hoppe states in Democracy: The God That Failed, “The syndicalist privatization strategy applie[s] only in such cases where no identifiable previously expropriated private owner or heir of socialized factors of production exist[s]. If such an owner-heir could be identified, then he should be again installed as private owner.” To assign ownership to public employees when expropriated private property owners are identifiable is a “moral outrage,” says Hoppe.

Rothbard agrees with this, stating that there is a “fourth principle of privatization” that would require the government to “return all stolen, confiscated property to its original owners, or to their heirs.” This principle becomes difficult to implement when the government asset is an enterprise created through taxation. Privatization in this case is not simply the restoration of a definite land title. Furthermore, it is difficult when the original owner is not identifiable.

In the case of Argentina, original owners are identifiable: the Argentine taxpayer. In such a case, Hoppe suggests the following in regard to streets, which can then apply to all government enterprises:

The former taxpayers, in accordance with their amount of local, state, and federal taxes paid, should be awarded tradable property titles in local, state, and federal streets. They then can either keep these titles as an investment, or they can divest themselves of their street property and sell it, all the while retaining their unrestricted right-of-way.

Essentially, a joint stock company would be formed for the privatized enterprise. Each taxpayer would own a percentage share proportionate to their share of total tax revenue. However, there are some problems with this approach.

The bureaucracy would have to go through tax documents and calculate shares so that nobody is given less or more than they have a legitimate claim to. Consequently, there might be entire bureaus created to sort through this issue, creating a further burden on the taxpayer. This would be wholly unjustifiable. As Hoppe states, “To charge a victimized population a price for the reacquisition of what was originally its own would itself be a crime.” This method of privatization would give way to its own property rights abuses. This cannot be tolerated.

Furthermore, the joint stock company solution has potential to neglect actual justice. Imagine paying taxes your entire life and then you receive a certificate in the mail that gives you an infinitesimally small share in a variety of privatized government enterprises. Is this expected to rectify the transgressions against you? Absolutely not. Sure, you can sell the certificate, but what if nobody wants to buy it? It would seem you are out of luck. No, justice must go further than a simple share in a joint stock company.

To account for these problems, it is necessary to combine the joint stock company and syndicalist approaches. Let’s take the example of Milei’s airline privatization plan. First Milei should cease all government transfers to the Aerolíneas and eliminate all government-granted privileges. Most importantly, the company should not be pardoned of its willing participation in taxation and expropriation. Taxpayers should be free to make claims against the now private airline company.

Milei can give the company to the bureaucrats who currently run it just as he presently intends to, but private entities should be able to bring claims against it in civil court. They must back these claims with documentation—tax receipts, for example—and the taxpayer can be rewarded a payment, bond, or share in the company in proportion to the share of taxation the company is responsible for.

This approach is distinct from the solutions posited by Rothbard and Hoppe. It acknowledges that the taxpayers, not the public employees, hold legitimate claims to the company. However, it relegates the dividing of the company to the free market rather than the government. Initially, it will mirror the syndicalist solution, but it will quickly transform into a mixed system as taxpayers obtain payments, bonds, and shares from the company for rectification.

Following this approach, Aerolíneas should be cut off from the government altogether without caring how the former public employees organize the company, then make a legally binding order of some kind (perhaps an executive order) stating that the company’s expropriations of the taxpayer are no longer legally protected, allowing taxpayers to extract rectification from the now private company.

What are some key takeaways? Milei is right in trying to transfer Aerolíneas to the workers. Such a plan is quick and easy (assuming the Peronists can cooperate). However, without allowing taxpayers to extract rectification from Aerolíneas, this privatization plan is doomed to cause injustice from the start.

Regardless, any privatization plan is going to be preferable to the status quo. Milei should be encouraged even if his plans fall short of the ideal. In the words of Rothbard, “Mistakes made in the shift to freedom will tend to iron themselves out after a free market is established.”

Rothbard continues, “On the other hand, we must not make the mistake of blithely assuming that the costs or inefficiencies of this process may be disregarded. It would be preferable to come as close as possible to the optimum in the initial privatization.” This is precisely why it is necessary to criticize the shortcomings of Milei’s plan.

About the author: Benjamin Seevers is a economics PhD student at West Virginia University and holds a BA in economics from Grove City College. He was a 2023 Mises Summer Fellow. His research interests include private governance, public policy, and libertarian ethics. He blogs at Seevers Insights. 

Source: This article was published by the Mises Institute