4/11/2024 - Economy and Finance

The cart before the horse

By Horacio Gustavo Ammaturo

The cart before the horse

The saying "putting the cart before the horse" is used to describe a situation in which things are done in the wrong order or backwards from how they should be done. It is a metaphor that suggests that one is attempting to move forward on something without first having prepared or performed the steps necessary for it to succeed. In other words, it is a reminder of the importance of following the proper process and not rushing into actions.


The concept was introduced by William Shakespeare in his play "King Lear", a tragedy that deals with the events that occur in the king's family when he decides to divide his kingdom among his three daughters by virtue of who shows him the most affection, something that turns out to be wrong because the two who despise him feign their affection to gain access to the goods, while the one who truly loved him, as a result of her honesty, ends up being disinherited.


Betrayal, madness, suffering and death are the sequence of events in this book, consequences of having done things in the wrong order, without following the right process and acting hastily.


Clearly Argentina is on the way to a radical change in its social and economic model.


It is not the purpose of this document to make a value judgment on which is better or more sympathetic, the point is to analyze the ways in which changes can be made and how they are being made.


What is the change?


Beyond moral or philosophical questions, the change goes beyond an omnipresent State, the main employer, the largest debtor of the financial system, the largest consumer of inputs, the investor of first instance and the one who fixes margins and guides consumption, towards one reduced to its smallest possible expression, as proclaimed by libertarians and anarcho-capitalists.


To move from the State that solves everything and where there is a need there is a right, to another, in which private individuals must settle things among themselves. The State is superfluous and only hinders. The needs are the result of people's circumstances, mostly due to their own responsibilities and clumsiness or lack of capacity, therefore each one must solve their own issues.


What alternatives exist to make the change?


Without going into detail on what are the concrete measures to be taken, at this point we will analyze the form and timing in which they could be applied.


In this sense we find:


  • To first make reforms to reduce the State, i.e., that it ceases to be the main employer, debtor, regulator, principal or contractor,


  • Simultaneously carry out reforms that gradually reduce state intervention while regulatory changes are made to encourage private activity to compensate for the role that the public sector releases.


  • To begin with reforms that will strengthen private activity, that will allow new economic activities to be initiated, more people to be hired, long-term investment projects to be financed and border conditions to be improved in order to provide predictability to investors.


Having already passed the first hundred days of the new government, we observe that it has gone for the first alternative.


Each of them has its advantages and difficulties.


The first one represents a leap into the void because, although changes in the role of the public sector can be made, there is no guarantee that the private sector will do its part; moreover, it will hardly do so if the investment conditions and legal frameworks are the same as before. Much less if the modifications are made without the necessary political consensus that would provide a framework of sustainability over time.


There is an enormous risk of remaining halfway, that is, without employers and unemployed, without investment and with excess liquidity if the State cancels its debt in local currency without a private sector that can absorb it with profitable investment projects, something that could accelerate the inflationary process due to the search for foreign currency to safeguard the purchasing power of money.


On the other hand, if the reforms are carried out simultaneously, generating agreements between the factors of power so that the changes are supported by the majority, the challenge would then be to surgically manage the advance of the private sector in the spaces left by the public sector. Although this is possible, it seems very difficult for the private sector, both local and international, which demands sustained signals over time. Argentina has repeatedly defaulted on its contracts.


This change of course could also represent a breach of contracts, that is why it is necessary to show first and ask for it later.


The third way, that which proposes first accommodating legislation and issues that encourage private activity, such as incentives for hiring new personnel, tax reductions or credits for long-term investment, all in an environment of monetary stability would allow a smoother and more orderly transition for the change of model. A public sector that encourages private development, which requires resources, while discouraging permanence and activity within the State. The risk of this model is the possible overheating of the economy when both sectors are active and sustained.


However, growth crises are more bearable and easier to solve than sustained recession.


Therefore, going back to the beginning of the note, it is more prudent and productive for the horse to go ahead of the cart because it is difficult for it to move forward on one side or behind the other.


It is essential to do things in the right order, following the right processes and without acting rashly to avoid the consequences that King Lear went through, betrayal, madness, suffering and death.


Beware of false opportunistic sycophants and listen to those who truly love the country, who are the vast majority of citizens who are putting their backs into it, losing the purchasing power of their income, liquefying their savings, accompanying the increases in tariffs, worried about the continuity of their jobs, leaving a country model, to enter another, which for now is uncertain.


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horacio gustavo ammaturo

Horacio Gustavo Ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

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