What was the role of Argentine economic elites in the process of fiscal decision-making between 1920 and 1945?Footnote 1 To what extent did the most affluent and powerful industrialists and rural entrepreneurs shape taxation policies? Between 1920 and 1945 Argentina's fiscal system was thoroughly overhauled. Traditional sources of income based on customs revenues were replaced by new taxes, including an income tax. Several progressive measures were implemented during the 1930s. These new policies might have had a redistributive impact and affected the profits and social position of businessmen. Just as with any changes in the government's revenue sources, such as alterations to the customs tariff in earlier years, economic elites perceived themselves as ‘naturally’ implicated in the process of designing taxation policy after the First World War. They had to have their say.
This article explores the ways in which businessmen attempted to influence taxation policies, and it will highlight some unknown aspects of the history of taxation in twentieth-century Argentina. By doing so, it helps to define the relationship between the state and economic elites in Argentina during the first half of the twentieth century. The leverage of economic elites in Argentine politics has been a major concern for historians and social scientists. In particular, the social origins of political representatives have attracted significant attention.Footnote 2 Nonetheless, we do not have a detailed historical analysis showing how the relationship between state agencies and the associations which represented economic elites functioned in practice. This article aims to explore this topic.
From the 1920s, the growing social and economic complexity of Argentina led the state and the country's economic elites to seek each other's cooperation. In response to growing state intervention in the economy and, later, to the economic crisis of the early 1930s, advisory councils mushroomed in Argentina. This has been seen as symptomatic of the failure of political parties to represent economic interests and as a weakness of Argentine democracy.Footnote 3 However, in order to assess this apparent weakness with accuracy it is necessary to know how these councils actually worked. Both Argentine politicians and Argentine businessmen attempted on several occasions to solve taxation problems by means of a corporatist instrument, in the form of an ad hoc advisory council made up of representatives of business interest groups and politicians or bureaucrats. These councils had two main features: first, the absence of workers' representatives demonstrated the weakness of labour organisations or their reluctance to participate; second, the deliberations of the taxation councils were irrelevant for the implementation of policies. In fact, while different administrations between 1920 and 1945 attempted to appease the feelings of economic elites, they believed that state agencies and bureaucracies were better equipped to take essential decisions on tax affairs. At the same time, too close cooperation with the state through participation in different ad hoc channels, such as committees and advisory councils, brought some risks for the economic elites. First, their traditional suspicions of a powerful state made them fear that corporatist institutions might become a tool for increased control by the state. Second, committees and advisory councils might become an arena for working class representatives to be heard. In the end, the state did not lose its capacity to shape taxation policies for most of the period.
In the aftermath of the First World War most Western societies were haunted by social conflicts and economic disarray that were the result not only of the war but also the product of a dramatic transition towards mass democracy. Stability became a major goal for those in power.Footnote 4 In Argentina the achievement of stability was based upon parliamentarianism and implicit agreements, and not on experimentation with alternative systems of representation or on the ascendancy of representatives of interest groups. Congress was severely criticised for its ‘paralysis’ during the 1920s and for its fraudulent electoral origins during the 1930s. Nonetheless, as this analysis will demonstrate, it played a fundamental role in the implementation of important tax reforms.Footnote 5 Congress maintained its capacity to shape taxation policy almost intact, and businessmen's lobbies had to compete with the commitments of congressmen to other – larger – constituencies.Footnote 6
Argentine fiscal decision-making solutions during the first half of the twentieth century were also the result of a process of path dependence. Nineteenth-century republican liberalism was firmly rooted among Argentine elites – in fact it was a kind of national ideology – and any alternative mode of representation, such as a chamber composed of professionals or trade associations seemed suspicious to the country's rulers. Moreover, Argentina's political liberalism was traditionally characterised by a relative governmental distrust for the market's capacity to assign resources efficiently without the help of the state.Footnote 7 The possible activism of interest groups as a reaction against a laissez faire policy was likely to be milder in Argentina than elsewhere, therefore, because the laissez faire attitude itself had always been weak. The Unión Industrial Argentina (UIA) and the Sociedad Rural Argentina (SRA), which represented the most powerful industrialists and landowners respectively, were prestigious associations, but their political organisation and leverage was relatively modest.Footnote 8 Most importantly, there was a strong tradition of distrust between the economic elites and the state. At least until 1914, the Argentine economy boomed on the basis of agrarian exports to European markets. The very economic success of the country reinforced social consensus. However, economic elites felt that the state was becoming inaccessible. Increasingly, the state became more autonomous and powerful, and the possibilities of controlling it more remote. Mutual distrust between the state and the economic elites largely explains the complicated process of negotiations over tax policy.
This article thus offers an empirical perspective on the relationship between the state and economic elites in Argentina. Nonetheless, a theoretical caveat is needed here. While I do not consider the state to be merely an arena for the resolution of disputes among interest groups or the instrument of a dominant class, I do not believe in its permanent autonomy beyond the scope of power relationships and conflicts either.Footnote 9 As demonstrated by the evolution of Argentina in the second half of the twentieth century, autonomy has a price.
The Areópago and the ‘Corporatist Moment’ in the 1920sFootnote 10
In 1916 the Radical Party won the first truly democratic elections in the country and defeated the dominant conservative forces. The conservative regime that ended in 1916 had aroused not only opposition from those who argued for the opening of political opportunities to other sectors, but also the distrust of the economic elites who felt themselves neglected by an increasingly autonomous state. Therefore, though without a great deal of enthusiasm, the large landowners and other sectors of the upper classes did not resent the democratic changes introduced in the nation after 1912.Footnote 11
However, the first democratic government, led by Hipólito Yrigoyen, increased the existing trend towards the autonomy of the state and disappointed the business classes. A second Radical administration, under the presidency of Marcelo T. de Alvear (1922–28), tried to soothe the concerns of economic elites. In 1923 the Minister of Finance, Rafael Herrera Vegas, announced a major fiscal reform that would modify customs tariffs and would introduce, for the first time in the country's history, an income tax. But the minister did not want to present his ambitious plan as an imposition, and he therefore invited the principal economic interests in the country to participate in drafting the new proposals. The government created several advisory commissions presided over by Alejandro Bunge, chairman of the Bureau of National Statistics and representing the Ministry of Economy, and composed of Guillermo Padilla, Victor Valdani, Mariano de Excurra, D. E. Rubbens and Antonion L. Lanusse, who respectively represented the Buenos Aires Stock Exchange (or Bolsa), the SRA, the UIA, and the Argentine Confederation of Commerce, Industry and Production (CACIP).Footnote 12
The advisory commissions were also Alejandro Bunge's personal project. A self-educated economist, Bunge had been drafting economic policy proposals for a decade and his prominent position as chairman of the National Bureau of Statistics and recognised intellectual, as Director of the prestigious Revista de Economía Argentina, allowed him to drive his project forward.Footnote 13 Influenced by German economists and by diverse Catholic thinkers, Bunge aimed to develop a national industry based on protective tariffs and to shape economic policies following corporatist lines.
There are two remarkable features of these advisory councils: the selection of the associations who were represented, and the way in which they functioned. The choice of the SRA, UIA and CACIP was an obvious one as far as the question of power was concerned, but by choosing those organisations and not others the government was giving legitimacy to the representational monopoly that these associations claimed and, therefore, establishing a solid basis for a corporatist non-competitive arrangement.
At the same time the functioning of the commission showed the government's desire to control the process. The Socialist Party satirised the commission and nicknamed it the Areópago, warning about its anti-democratic character because it implied a shift of power from Congress to the capitalists.Footnote 14 Nonetheless, in practice such an outcome was not so obvious. From the very beginning, representatives of the government opened every meeting by presenting their proposals and obtaining approval of them from representatives of the associations. Alejandro Bunge, presiding over the advisory commission on taxation, presented his own drafts for laws on complex issues such as inheritance tax, the distribution of income between the national government and the provinces, and income tax.Footnote 15 Due to the short time that elapsed between their meetings in August and the discussion that took place in Congress in August-September 1923, the role expected of the advisory councils was merely to endorse the executive's proposals. Bunge's activism became essential for the continued functioning of the councils. However, it is likely that due to the autonomous procedures of the government, business representatives came to understand that their effort was purposeless and their enthusiasm waned.Footnote 16
The Areópago rested on a fragile basis. Its continuity depended largely on the decision of the government. When Víctor Molina replaced Herrera Vegas as Minister of Finance, one of his first measures was to abolish the advisory commission.Footnote 17 Molina brought his own project of financial reform and income tax, and regarded the advisory commissions as an obstacle. Molina's decision to dispense with advice from the economic elites, along with his plan to reduce the level of protectionism, aroused widespread criticism. The UIA stated that suppression of the commission was a ‘step backward’.Footnote 18 Both La Nación and the Revista de Economía Argentina echoed the discontent of the entrepreneurs:
When the cooperation of the economic interests began to give results the change of minister suddenly brought a halt to those activities and rapidly turned down the ideas that were suggested a little earlier. The collaboration of the producer organisations (gremios productivos) was suppressed, the attempt to support national work and industries was abandoned, and a remarkable reduction in the import duties applied to goods equivalent to those produced in the country was proposed.Footnote 19
Some of the business associations demanded a return to the advisory commissions, and the feeling of being neglected by the government increased among the self-named fuerzas vivas during the second half of the 1920s.Footnote 20 The need for business elites to have a deeper influence on economic policies was widely discussed. The most widespread opinions were that economic elites did not pay enough attention to politics and politicians neglected economic issues. The ‘productive classes’, it was argued, should play a major role in the economic decisions taken by the government. Thus the president of the UIA, Luis Colombo, exhorted all the economic elites to defend their interests more actively:
And as long as the political parties do not understand the need to modify their systems and listen and pay attention to those who work for the fatherland's wealth, it will be necessary for the fuerzas vivas, through their representative institutions, to reflect upon the urgent necessity of collective actions to protect the capital which creates sources of life and the worker who complements it.Footnote 21
A greater involvement of the fuerzas vivas in the economic policy-making process implied the creation of some type of corporatist arrangement. In 1928, an article with the suggestive title of ‘Economic Disarray: The Necessity of Creating a National Economic Council’ was published in La Nación. The author stated:
And following the salutary example of governments that have decided to study their economic problem with theoretical and apolitical impartiality – without the influence of local politicking (politiquería), creating bodies independent from the chambers of the legislature, where the country's ‘fuerzas vivas’ are truly represented … Let's follow the example of Germany, Italy and Spain, inspired by one of the salutary teachings of Soviet Russia. Let's found a National Economic Council or Economic Advisory Council, as the French call it.Footnote 22
Nonetheless, this ‘corporatist moment’ did not go beyond the declarations of the more militant leaders of the business associations. Parliamentary structures still fulfilled important roles. In fact, the main concern of the businessmen participating in the Aerópago was not the proposed income tax, but customs tariffs. Since the end of the nineteenth century, Argentine manufacturers and other interest groups had demanded the creation of a Junta Permanente de Aforos (Permanent Valuation Commission), made up of the various business associations, which would design a stable and favourable system of import duties. However, the entrepreneurs' petition failed, and they focused their efforts on lobbying in the national Congress, where the final decision on customs duties was taken, without the formal intervention of any corporative representative. Both rural and industrial entrepreneurs had political influence over the legislators, but the final outcome was as much the result of the fiscal necessities of the state as of the pressure from business. In 1922 the government created the Junta Permanente de Aforos, although this institution never obtained approval from Congress. This does not mean that entrepreneurs' claims were not heeded. In 1923, the avalúos, the official valuations that were the base of Argentine ad valorem tariff, were increased by 60 per cent by the national Congress. This increase satisfied both the traditionally pro-protectionist stance of the UIA and the Sociedad Rural which, due to a difficult economic situation, had recently adopted a more favourable view on protectionism.Footnote 23 In 1924 the government of Alvear, led by Minister of Finance Víctor Molina, attempted to repeal the legislation of 1923 and initiate a process of tariff reductions. However, the Senate defeated the executive's proposals and in the Chamber of Deputies the government was unable to gather enough support to override the Senate's vote.Footnote 24 Thus, Herrera Vegas's Aerópago was unnecessary as long as Congress remained open to the lobbying of private interests.Footnote 25
Moreover, despite the feeling of being neglected, corporatism was a risky business for economic elites. The government had demonstrated its autonomy and, particularly during the first administration of Yrigoyen, it had shown itself willing to cooperate with some sectors of the labour movement.Footnote 26 Corporatist arrangements might mean the incorporation of organised labour in active economic politics. In fact, even the friendly Herrera Vegas (as far as the interests of the economic elites were concerned) showed his disagreement with the absence of labour representatives in the advisory commission of 1923. In a letter addressed to the major business association, the minister complained: ‘I regret I could not obtain the extension of cooperation to more specific interests and direct representation for the worker and producer. However, as this [endeavour] is a beginning that aims to create a permanent policy, I hope … it will incorporate new forms of representation’.Footnote 27
As previously mentioned, Luis Colombo, the president of the UIA after 1926, demanded a greater involvement of the business classes in politics and hence began to address the issue of representation. Nonetheless, his view was not based upon a language of class. In his view business representatives had to be involved in politics in order to protect both capital and labour, but the latter was not called to participate. Entrepreneurs, embedded in a paternalistic rhetoric, claimed to represent the entire world of trabajo and their right to represent all the ‘producers’. When the reform that would introduce the income tax was discussed in the Aerópago, the UIA presented itself as the advocate of the working class:
The UIA understands that … it would be inconvenient to burden the less affluent classes, that is, the working classes. If we consider that present taxes place a heavier burden on labour than on capital (los actuales impuestos recargan en mayor proporción al trabajo que al capital) it would be necessary not to surpass a just limit.
But this proposition was deliberately ambiguous. Immediately after this passage, the manufacturers' representative stated:
Finally, the UIA thinks it is necessary that the public authorities should be seriously concerned about establishing a difference between income derived from capital and [income derived] from work (renta producida por el capital y por el trabajo). We cannot maintain that a merchant's or an industrialist's profits are comparable to those which originate in bank deposits, bonds, mortgages, etc.Footnote 28
Merchants, industrialists and rural producers thus considered themselves to be the genuine representatives of Argentine trabajo. Footnote 29
It is probable that the exclusion of labour representatives was not only the result of hostility from the entrepreneurs; trade unionists themselves might feel uneasy about participating in this kind of political arrangement due to the predominance of syndicalist and anarchist ideas.Footnote 30 Nonetheless, in contrast to the business class, radical politicians used words like work (trabajo) and producers (productores) in the narrowest and the least ambiguous sense. This, together with the recent memories of Yrigoyen's pro-labour policies and the absence of a significant challenge from below, did not, therefore, encourage the economic elites to accept a more inclusive political position.
Molina's proposal for a broad fiscal reform, including an income tax, eventually failed. But its failure was not related to the absence of cooperation from the economic elites who demonstrated an ambiguous attitude towards the income tax and were prepared to tolerate it under certain conditions. The income tax also meant a centralisation of fiscal resources and therefore provoked the reaction of the interior provinces. The interior provinces that most resented the process of centralisation of income were over-represented in the Senate in comparison to their population and were, therefore, able to prevent further discussions of the proposal.Footnote 31 Thus it was the strong resilience of the parliamentary structures rather than the influence of business interests that resulted in the defeat of the minister's proposal.
The Implementation of the Income Tax in 1932
In September 1930 a coup d’état led by General Uriburu toppled the democratic government of Hipólito Yrigoyen and opened the period of political instability that would characterise Argentina's political life for the remainder of the century. Uriburu was the most conspicuous representative of a group of civilian and military men who wished to reform the political system of the nation following the corporatist authoritarian models offered by Primo de Rivera in Spain or Mussolini in Italy. However, despite achieving the presidency of the Republic, the ‘corporatist’ sector was a minority within the coalition that overthrew Yrigoyen, and Uriburu's programme failed. In February 1932 the constitutional order was restored.
The new constitutional government had to deal with two major issues. The first was the future role of the Radical Party. When the political groups that held power in 1932 realised that, in spite of the seemingly universal dislike that Yrigoyen's former administration had aroused, the Radicals would turn out to be unbeatable in the elections, they decided to have recourse to the proscription of the main Radical leader, the former president Marcelo T. de Alvear, and later to political fraud.Footnote 32 Thus, the return to parliamentary life was characterised by the peculiar absence of the most popular party.
Secondly, the government had to deal with the world economic crisis. In the years that followed the government would try out different measures to help the country recover from the crisis and maintain its credibility in international financial markets. This was a learning process during which the government increased its intervention in the economy as well as its expertise regarding the possible results of that intervention. Moreover, the government was aware that it had the support of the economic elites, landowners and industrial entrepreneurs alike, and it tried to maintain an amicable relationship with both groups throughout the 1930s.
Part of this strategy was to call upon the cooperation of economic elites to design the strategies to weather the crisis. Thus in October 1932, the government appointed a Junta Consultiva Honoraria (Honorary Advisory Committee) in charge of dealing with financial matters. The committee was a mixture of technocrats and representatives of business interest groups.Footnote 33 Its tasks and capacities, however, were not fully defined and very soon a conflict with the government erupted. One of the issues that the Advisory Committee had to deal with was the utilisation of the so-called ‘Patriotic Loan’.Footnote 34 Some members of the committee, in the face of the depression of economic activity and the fall in prices, proposed to use the money obtained through the loan to pay off the government's overdraft with the Banco de la Nación. That would put an end to the tight financial conditions that the crisis had imposed on the Banco de la Nación and allow the ‘means of payment’ to be increased, in other words an inflationary project to facilitate economic recovery. The government rejected this possibility and provoked an internal crisis within the Advisory Committee. This crisis was surrounded by a public discussion on the issue.Footnote 35
The rationale behind the expansionary policies proposed by the Advisory Committee was the depression of the rural sector: ‘At present, agriculture, the livestock industry, commerce and other industries demand, as an urgent requirement, the aid of banking credit in order to fulfil their tasks and carry out the final operations connected to harvesting’.Footnote 36 Despite this, it is not possible to interpret the conflict between the government and the Advisory Committee as a reaction of the economic elites, and particularly of the rural sector, towards unfavourable policies. The disagreement between the government and the committee provoked the resignation of some of its members, but the representatives of the business associations did not resign or complain about the economic direction of the state. The conflict was the result of a disagreement over financial matters between the Minister of Finance and his group and the economists who participated in the Committee, rather than a political conflict between the government and the business representatives.
Both the corporatist apparatus and the inflationary policies, in fact, were parts of an agenda defended by a group of intellectuals and economists who had been marginalised from the political decision-making process, namely Alejandro Bunge's team. In 1930 Bunge had given Uriburu's regime an unambiguous blessing and obtained a privileged situation for the promotion of his projects.Footnote 37 In January 1931 President Uriburu authorised the creation of a National Commission for the Stimulation of Industry with the participation of major business interests.Footnote 38 The new institution was first tried out in the province of Santa Fe, under Bunge's supervision as the new Secretary of the Treasury and Public Works. The economist made a significant speech entitled ‘The Corporate Interests’ at the opening ceremony for activities of the Santa Fe Commission:
It would be useless, however, to attempt to carry out the vast plan of economic reconstruction that should be restarted in the nation and the provinces, if [we] insist on not keeping loyal and effective contacts with the representatives of work, production, and commerce.Footnote 39
The return to constitutional life in 1932, however, excluded Bunge from political power. He was one of the few unorthodox economists who proposed to issue money as a response to the economic constraints, and the Revista de Economía Argentina was sympathetic towards the opinions of those who defended inflationary policies.Footnote 40 But the economic elites seemed not to be concerned about this alternative to the crisis. It is true, as Tulio Halperín Donghi has asserted, that inflationary responses to critical circumstances were not absent from the tradition of landowners in Argentina.Footnote 41 The business members of the Advisory Committee in fact voted in favour of the proposal to cancel the debt due to the Banco de la Nación.Footnote 42 But the opposition of the government to this did not provoke a major outburst among them. In 1932 the administration was showing sufficient support for the business classes to gain their trust. Moreover, governmental policy towards monetary expansion was prudent rather than inflexible, and it slowly started to increase the supply of money and the availability of banking credit.Footnote 43
A second important task of the Advisory Committee was to study the income tax law that would be implemented for the first time in 1932. To what extent did economic elites influence the making of the new tax? The income tax proposal was more favourable to business interests than that of 1924, and it was accompanied by a manifest commitment of the new governments (the provisional one ruled by Uriburu and then the administration of the General Justo, the first president to be elected after the coup) to reduce public expenditure and continue payments on the foreign and domestic debt. It is, therefore, not surprising that the fuerzas vivas contributed sympathetically to the ‘Patriotic Loan’ requested by the national government in May 1932.Footnote 44 Moreover, both the provisional government and the first elected government showed a great determination to reform the fiscal structure as an unavoidable measure to overcome the crisis. In the presidential elections of 1931, both the main candidates included the introduction of income tax as part of their programme.Footnote 45 By now Argentine economic elites probably perceived the income tax as a fait accompli, as a result of the usual reproduction of European models in the country.
The project, which became law in 1932, was a slightly modified version of Herrera Vegas's 1923 proposal. This project, as has been shown, had been prepared by a commission made up of representatives of the fuerzas vivas.Footnote 46 Yet to interpret this as an unambiguous victory of the economic elites' influence and as a proof of their capacity to shape taxation policy would be misleading. The Minister of Finance of the provisional government, Enrique Uriburu, stated repeatedly that the introduction of an income tax was a necessity to solve the crisis and that, as was traditional, Congress was responsible for its implementation. In the Fourth National Conference organised by CACIP, the Minister made the opening speech and stated: ‘Without equilibrium in the budget the exchange rate cannot improve. All sacrifices must be accepted in order to achieve both goals’.Footnote 47
The first elected government of President Justo was committed to fiscal reform, even without the support of the Advisory Committee. The presidential message of 1931 underlined what would be the mission of the newly formed Congress: ‘We must utilise our fiscal system … once the Congress has been called, whereas it is the Congress's task to orientate taxes towards direct taxes and vote the income tax’.Footnote 48
In 1932 the limits of the corporatism that had been attempted were apparent. The Advisory Committee, created that very year, did not show itself to be an alternative arena for economic policy-making. A discussion of the budget – and therefore over the level of income tax, which was included in every annual budget – was among its responsibilities. Yet, significantly, members of the Advisory Committee complained in 1932:
From an early date the Committee gave this point [the 1933 budget] the importance it deserves. Nonetheless, these proposals have been marred. To establish our opinion we needed, moreover, knowledge about the 1933 proposals and, as will be obvious, a reasonable amount of time, which the Committee in fact did not have between the time that the Executive Power completed its proposals and the point at which they were submitted to Congress.Footnote 49
Moreover, the government implemented new taxes that did not have a favourable reception among certain entrepreneurs. Thus, the new impuesto a las transacciones (a consumption tax that particularly affected manufactures) was rejected by the UIA, who claimed that it was acting to protect all kinds of Argentine producers: ‘The common feelings in all the spheres of national work (trabajo nacional) are passive resistance, silent protest, a spirit of clear rejection’.Footnote 50
The very functioning of the Advisory Committee and the disregard of the government for its decisions was not a surprise. By criticising the government's rejection of the monetary policy solicited by the committee, La Nación, citing as a source some of the committee members, underlined the power that the Minister of Finance wielded within it:
Although it is true that the Minister of Finance did not preside at the meeting at which the payment to the Banco de la Nación was discussed, it is nonetheless true that he considered the matter with members of the Committee and that he did not conceal his opinion …
If the Minister has resolved to do what he thinks is best in financial matters in order to prevail in the end, what is the object of the Advisory Committee? Why has the Government requested the collaboration of those who were considered capable of advising by reason of their knowledge and experience?Footnote 51
Corporatist solutions were therefore not easy to implement and, as in the case of the Areópago of the mid-1920s, the government tried to harmonise its wish to control the decision-making process and its attempt to court the economic elites' business associations. Moreover, despite the paternalistic approach to workers traditionally displayed by Argentinean entrepreneurs, corporatist solutions to taxation problems might sooner or later involve the participation of labour. The perspective for conservative politicians was slightly different from that of the economic elites. Although the electoral system was manipulated, obtaining democratic legitimisation was a major concern for the ruling parties during most of the 1930s. The conservative Senator Sánchez Sorondo, proposing a reform of the income tax in 1934, emphasised the participation of all the major economic interest groups in politics:
Politics is more and more the art of finding governmental solutions – strongly related to the nation's future – to the conflict of interests … Our policy is the ranchers' policy, the farmers' policy, the merchants' policy, the industrialists' policy, the rural workers' policy and the factory workers' policy. To do politics is to cooperate in the [construction of] social harmony.Footnote 52
The Crisis of 1942–43
During most of the 1930s, indeed until 1942, the economic elites and the national government maintained a fluid relationship. The main novelty of the economic policies of the 1930s was the growing intervention of the state in economic life. Revealingly enough, the business class displayed a positive attitude towards this phenomenon. Although the entrepreneurs did not favour a retreat from the old laissez-faire rhetoric, they did not look with suspicion, either, on the changing role of the state. The upper classes could not help but perceive the sympathetic attitudes of the government towards their requirements. The very participation of business representatives in the different bodies created to deal with economic policies, such as the Comisión de Fomento Industrial (Commission for Industrial Development), or even the Central Bank and the corporation in charge of the transport system in the city of Buenos Aires, reinforced the convergence between the government and the economic elites.Footnote 53
This vision could easily be found in the publication of the Buenos Aires Bolsa, the voice of the most affluent businessmen in the nation: ‘The Bolsa has always opposed any state intervention that could damage the freedom of commerce … but it also understands that in order to face the terrible present moment, full of uncertainties, in which the basic rules of economic science have been subverted … we have to try new factors and methods’.Footnote 54 But above all, state intervention was positive because it was devised in such a way as to take care of the economic elites' interests: ‘We must point out that the national government has been active in all the difficult moments of the industries, by trying through (the creation of) organisations and by any kind of measures to favour the producers’.Footnote 55
Nonetheless, the traditional process of decision-making, in which the government held the leading role and Congress maintained its prerogative to mould the most important economic policies, survived.Footnote 56 Economic policy-making, as a result of the crisis and of new practices such as the manipulation of multiple exchange rates or the more complex fiscal system, became a sophisticated field of expertise and in that area representatives of the business interest groups could not compete with the economists of the Ministry of Finance. It would take a decade for the associations representing the economic elites to learn the new concepts and to produce alternative and sophisticated projects by themselves. Furthermore, the favourable policies approved by both the executive and the legislature made any challenges to their policies pointless.
The outbreak of the Second World War altered this situation. The fall in exports and the income derived from import duties forced the government to deepen the fiscal reform. This led to several conflicts with representatives of the business classes. The most significant one was the result of a taxation reform launched in 1942, intended to reduce the fiscal imbalance. The government projected an increase in the higher rates of the income tax, the creation of an excess profits tax, and a flexible duty on exports, which was intended to fix a maximum price for export products and therefore created a surplus of income for the state.Footnote 57 Economic elites protested against the new proposals and launched a campaign aimed at their rejection in Congress. The entrepreneurs analysed the new reform in detail in several articles and manifestos. On the income tax reform they applauded the possibility of carrying over losses and profits from one year's accounts to the next, and also the increase in minimum taxable income. But they claimed that taxing incomes derived from industry or commerce in the same way as those derived from ‘capital’ (from investments in public bonds, bank deposits, etc.) did not make economic sense. Moreover, they argued that the increase in the higher rates was 100 per cent and the economic situation did not permit an attempt to raise rates to such a level.Footnote 58
One important issue was related to taxation of dividends and companies' profits. The entrepreneurs asked for an exemption for undistributed profits, or at least a minimum rate on them, on the grounds that these profits represented the capital accumulation required for future investments and therefore the economic bases of the nation's future welfare. This petition was obliquely linked to a new disposition in the law that forced the withholding agents (the firms) to retain 25 per cent of the dividends paid to nominee shareholders and those dividends paid abroad. This was a serious concern for the government, because the existence of unidentified shareholders opened the gates to a significant process of tax evasion.Footnote 59 Therefore, the objective of the entrepreneurs, in addition to the problems of efficiency that they mentioned, was to obtain compensation for the new burden on dividends.
A more pungent question surrounded the excess profits tax. Economic elites complained about what they perceived as a political objective in the new tax: ‘The new excess profits tax seems to propose that the state should pursue a goal of social and distributive justice … In fact, instead of arriving at that better social order, it creates a disorder because it provokes envy and promotes conflict among social classes’.Footnote 60 The government also recognised the social objective in its new legislation or at least used the rhetoric of social justice as a justification: ‘The project also pursues – and this is one of its main concerns – a more equitable distribution of the fiscal burden’.Footnote 61
The problem went beyond the distribution of wealth and affected the elites' ideas about power and fairness. In fact, as the government emphasised, the new rates were moderate.Footnote 62 The main concern of the business associations was not tax rates: ‘The country will not evade the taxes if they are just, necessary and clear in their goals and bases’.Footnote 63 The elite opposed the reform because it attacked some moral principles of fiscal justice which would alter the balance of power: ‘What is serious and certain is that this accumulation of laws is giving the ruling of the country to a new class, truly a state within the state, completely divorced from its problems … The country runs the risk that its ruling forces become subalterns (de una subalternización de sus fuerzas rectoras)’.Footnote 64 To solve the problem, the main business associations demanded the creation of an economic council that would allow them to participate in the process of fiscal decision-making.
The political crisis would dictate the rhythm of the conflict. In 1943 a new coup d’état ended the conservative period of ‘manipulated democracy’. The last constitutional government did not have time to approve the fiscal reform in Congress, but the new military authorities decided to carry it out themselves. The de facto government meant that the entrepreneurs would find new channels of communication with the executive. Unlike the 1930s, it was not easy for business associations to predict how the direction of the new authorities would affect their interests. In 1930 the UIA and the Sociedad Rural had showed their support for the uprising against Yrigoyen, and – realistically or not – expected favourable policies in exchange. In 1943 the situation was different. The coup d’état was the result of tensions within the government and within the army regarding the global situation and the role of Argentina, and there was little direct concern with economic policy-making. Moreover, the toppling of a government that, in spite of the recent disputes, had proved to be responsive to the economic elites' desires and the insistence of the new government that fiscal reform should be deepened, threw dark shadows on their future relations.
Thus, as far as taxation issues were concerned, the business associations regarded the new authorities with suspicion. Aware of this, the government attempted a strategy of appeasement and created the fiscal council that the business associations had requested, the Comisión Honoraria Asesora del Gobierno Nacional (Honorary Advisory Commission of the National Government, hereafter Comisión Honoraria), only one month after the coup, in July 1943.Footnote 65 The members of this Comisión Honoraria were Ernesto Aguirre, President of the Bolsa; José María Bustillo, president of the SRA; Eustaquio Méndez Delfino, President of the Centro de Consignatarios de Productos del País; Luis Colombo, President of UIA; Otto E. Frederking, President of the Asociación de Propietarios de Bienes Raíces; Nemesio de Olariaga, President of the Confederación de Asociaciones Rurales de Buenos Aires y La Pampa; Tomás Amadeo, President of the Cámara de Comercio Argentina; José Mazzei, representative of the CACIP; and Ernesto Mignaquy.
Several aspects of this corporate body deserve to be discussed. First, labour representatives were absent. The reasons for this absence are difficult to establish. On the one hand, despite a considerable increase in the number of industrial workers since 1935, the rate of affiliation to trade unions was still low, and the conservative government prior to 1943 had kept workers' leverage at bay.Footnote 66 On the other hand, the power of the unions was not negligible, as Perón's success, based upon their support, would demonstrate.Footnote 67 However, taxation was beyond the scope of labour representatives, due both to the workers' lack of interest in the matter and to the opposition from the elites. When the peak business association addressed the government in 1942 to complain about the new taxation reforms, they argued that they spoke on behalf of ‘todo cuanto está vinculado al trabajo’ (everything that is linked to work) and demanded ‘the constitution of an Economic Council made of members of the government, members of the Congress, and the associations representing work (representativas del trabajo)’.Footnote 68 Among the latter, of course, trade unions were not contemplated. In fact, one of the complaints of the economic elites, particularly acute among industrialists, was related to their assumption that they belonged to the ‘working class’ rather than to the ‘capitalistic class’.Footnote 69 They considered that the income tax rates affected ‘industrial, commerce and pure labour incomes to the same degree as incomes derived purely from invested capital, thus obeying anti-economic criteria’.Footnote 70 In their view industry, commerce and labour represented the productive side of the economy and had to be treated with benevolence by the fiscal authorities, whereas those who obtained incomes from bonds, banks assets, and so on, were ‘purely capitalistic’ and deserved harsher treatment on account of their minor contribution to the welfare of the nation.
Second, in contrast to past attempts at constructing this kind of political institution, other business interest groups apart from the Rural Society, the UIA, and the CACIP obtained representation. This reflected the increased complexity of Argentina's civil society – and of its business classes, in this case – and also the government's desire to deal with organisations such as the Association of Real Estate Owners, which had been particularly combative during the previous decade over taxation issues.Footnote 71
By recognising a special status for the chosen associations, the government gave them a representative legitimacy: ‘Each of its members [referring to the Honorary Commission] … was designated because of the representation with which they were invested’.Footnote 72 To some extent, by empowering these associations the government was recognising the growing complexity of Argentine society and at the same time choosing certain interlocutors and ruling out others.
Nonetheless, this legitimacy conferred a degree of power that the government tried to offset by establishing strict working rules on the Comisión Honoraria.Footnote 73 Thus, the members of the Comisión
had to dispense information to and consult their respective institutions, given the nature of the mission and the importance of the problems that [the Commission] had to deal with, which required secrecy in its deliberations. The government understood it so, trusting its problems and concerns to the discretion of the members of the Commission. The members understood this as well and accepted the exercise of their delicate and honourable mission with that logical limitation.Footnote 74
This restriction might have created some limitations for the newest associations but it did not imply a major hindrance to the leverage of the traditional interest groups. Institutions such as the UIA or the Sociedad Rural had become highly hierarchical organisms, in which the agenda and decisions were taken in a vertical top-down fashion. Those individuals who did not consider themselves well represented by the associations, rather than challenging their structures, preferred, if opportunity and resources allowed, to establish their own interest groups.Footnote 75 The selection of the Sociedad Rural or the Unión Industrial reinforced their claims towards a monopolistic representation of their sectors. In fact, the tax proposals issued by the Comisión Honoraria strictly followed the programme of the traditional fuerzas vivas, demonstrating the influence of the SRA and UIA within the committee.
The conclusions offered by the Comisión Honoraria to the Minister of Finance showed interest in building a strong relationship with the state and recovering the fluid communications that had characterised relationships between government and businessmen during the 1930s. On taxation and the possible solutions to the fiscal constraints produced by the war, the interest groups followed the ideas developed during the 1930s by recognising the important role of the state in the economy and the obligation of supporting it: ‘[The Commission] considers that if the state has contributed to maintaining economic stability, all labour and productive sectors should contribute, not with an equivalent effort, but with one progressive and proportional to their volume of income, and never inferior to the burden that at present they bear.’Footnote 76 In other words, the economic elites recognised the important work accomplished by national governments during the 1930s and their commitment to continue paying taxes in order to maintain a similar kind of policy. At the same time, they criticised the income tax reform promoted by the previous administration because it widened the exemptions for incomes derived from salaries and for lower incomes. According to the Comisión Honoraria, there was a problem of lack of equity in the reform:
Neither the former Executive Power nor the Budget and Treasury Commission of the Honourable Chamber of Deputies understood it in that way. At the same time they projected an increase in rates for some income brackets and strong deductions for others, which alleviated the administration's tasks by eliminating the hard … task of monitoring the smallest (taxpayers) while reducing the burden of a great mass of taxpayers.Footnote 77
The Comisión Honoraria, therefore, proposed piecemeal adjustments to the income tax, postponing wholesale reform.
The main issue in the taxation debate was the excess profits tax, and here economic elites obtained an important victory. The members of the Comisión wrote a new tax project eliminating the aspects of the former project that were considered most harmful. The main point was discussion about what was considered to be an extraordinary profit. In 1942 the excess profit was regarded as a fixed percentage over a supposed normal profit. In the proposal of the economic elites, the individual taxpayer would be able to choose a base year from a list of years before the war as the criterion for establishing a ‘normal’ profit.Footnote 78 In December 1943, Decree 18,230 established an excess profits tax that turned out to be an exact copy of the project elaborated by the Comisión Honoraria. Proudly, the members of the Comisión declared: ‘The work of the Commission has been described by the Minister of Finance as hard-working, patriotic, and conscientious, and its projects, as far as the taxation system is concerned … have been totally adopted’.Footnote 79
This last attempt at organising corporatist solutions to the dilemmas of economic policies shows some differences from the previous ones. For the first time the interest groups established a successful agenda, although one that reacted against the 1942 proposals. However, this outcome might have been the paradoxical product of an accumulation of insecurities. The new government did not yet have a clear political or economic line. It faced a difficult economic situation and inherited a legacy of conflict between the former administration and the country's economic elites over the key issue of taxation.Footnote 80 Consulting the entrepreneurs, therefore, seemed a logical course of action. However, uncertainty about its own position led the government to establish strict rules concerning the functioning of the Comisión Honoraria, although these did not prevent the economic elites from establishing the agenda. However, the business classes did not have any guarantee of their future position. The change of government might mean a change in the rules of the game and greater vulnerability for their interests. Adopting corporatist arrangements thus seemed a logical outcome, in the absence of parliamentary channels of communication with the administration.
Conclusions
As far as tax policies were concerned, the relationship between economic elites and the state between 1920 and 1945 was characterised by repeated attempts to involve private interests in the shaping of tax policies, in order to reinforce their legitimacy, and at the same time by mutual distrust between the state and business interest groups, which in the end hindered the development of a stable system of cooperation.
During the 1920s, the instability of export prices, a gloomy outlook for state finances, and a fear of the plebeian attitudes displayed by the Radical administrations produced what has been described here as a ‘corporatist moment’. Nonetheless, as soon as the uncertainties of international markets and working-class activism disappeared, the corporatist challenge waned. A distrust of democracy appeared among the economic elites, as a result of President Yrigoyen's flirtation with the popular classes, but this feeling was, to some extent, a new version of the elites' traditional concern about the autonomy of the state. The corporatist moment was also brief because of the persistence of the liberal political creed among Argentine politicians. The socialist criticism of the Areópago was an example of this.
The failure of Uriburu's corporatist projects in 1931 and the parliamentary solution to the important tax reform of 1932 are even more revealing of the state's attitude to the attempts by the economic elites to influence taxation outside the traditional parliamentary channels. The advisory council that should have dealt with the issue was disregarded by the executive and legislative powers alike. However, the return to parliamentary life and the failure of the timid attempts at establishing a corporatist decision-making process should not be understood as a failure of the business elites to influence the direction of fiscal policy. In fact, Congress was open to the political clout of the business interest groups and it ultimately controlled the autonomy of a traditionally powerful executive. Thus the legislators erased the minimum income chargeable on rural estates from the original project for the income tax law submitted by the military government in 1931. Moreover, Congressional approval legitimised the most unpopular policies, such as the cuts in state expenditure applied by conservative governments at the height of the depression. On the whole, the economic elites had solid reasons for distrusting a corporatist-style arrangement. Since 1880 the Argentine state had shown itself capable of asserting its influence over civil society, and therefore any bottom-up solution, such as those described by Philippe Schmitter as societal corporatism, hardly seemed conceivable.Footnote 81 Although suspicious about the role of democracy, the economic elites kept their faith in parliamentarianism almost intact. This had some risks because, although they were manipulated, elections maintained their basic function of providing the country with political representatives. In spite of their alliance with the fuerzas vivas, conservative deputies acknowledged their obligations to their constituencies.
The Comisión Honoraria of 1943 was the first success that the economic elites had in pushing their own tax agenda and shaping taxation policies. Their success was the result not only of mutual distrust between the business classes and the state, but also of economic uncertainties about the future. This arrangement had some interesting peculiarities. Although it is still a controversial subject, a considerable body of historical writing has shown that before he became president, Perón offered a general corporatist system to businessmen in the face of what was presumed to be the threat of revolution. However, the economic elites were suspicious and considered Perón's social policies more of a threat than the actual possibilities of major social turmoil.Footnote 82 Does this mean that the entrepreneurs were not prone to any corporatist arrangement of the process of political decision-making? In the absence of parliamentary intermediation, some corporatist bodies might have been useful, as the Comisión Honoraria of 1943 demonstrated. However, the main question was about representation. The businessmen were ready to adapt to a corporatist arrangement as long as this did not imply sharing the table with representatives of the workers. Unlike the European cases, the relative weakness of pressures from below in 1942–43 convinced Argentine entrepreneurs of their ascendancy over the working class and the irrelevance of their participation in the fundamental processes of economic policy.
The 1943 Comisión was also an attempt to minimise the uncertainty resulting from authoritarian rule, something that was almost new for the economic elite. This contradicts some insights from political theory. According to Schmitter, societal corporatist solutions, established from below, are more likely to work out in democratic systems, whereas state corporatist ones are more probable in authoritarian regimes.Footnote 83 Although the Comisión Honoraria of 1943 carried out its activities under a military government and was created by a governmental decree, it is difficult to consider it a government initiative. Its creation resulted from the pressure of the economic elites, and its functioning and outcomes responded to the wishes of the representatives of the business interest groups. This result underlines a permanent feature of the behaviour of Argentine economic elites during the first half of the twentieth century. While distrusting democracy, they seemed to prefer parliamentary solutions to traditionally inefficient corporatist arrangements, and they only promoted the latter as a check and balance to authoritarian rule. A political labyrinth emerged from this contradictory attitude.
