Monday, February 27, 2012

Quote of the day

Juan Ignacio Garcia, Tierra del Fuego's secretary for industry:
"You can't base an entire economic policy on the tyranny of consumers." 
The quote comes via this Wall Street Journal article on Argentina's nonsensical use of tax policy to encourage manufacturing in Tierra del Fuego, which is perhaps akin to Washington promoting manufacturing in some of the more remote areas of Alaska. More on this bit of economic insanity: 
Most economists, techies and consumers are critical of the program, saying it misdirects public funds toward an uncompetitive economic sector while forcing consumers to pay higher prices for less cutting-edge products. The fiscal benefits for Tierra del Fuego manufacturers, including exemptions from the income tax, value-added tax, and import taxes on parts, will cost the Argentine treasury about $1.3 billion, according to the 2012 budget, or around $100,000 for every plant job created. 
Eduardo Levy Yeyati, an economist at Torcuato di Tella University in Buenos Aires, says the subsidies effectively amount to a transfer of income from Argentina's internationally competitive farmers, who are heavily taxed for their exports, to the less competitive industrial sector. 
The Tierra del Fuego workers "insert tab A into slot B and apply a sticker saying 'Made in Tierra del Fuego,'" says Mariano Amartino, a tech consultant and blogger. The bulk of the parts are imported from Asia. Argentina produces some plastic TV frames, as well as memory modules, but the latter are made in central Argentina, not Tierra del Fuego. Much of the remaining domestically produced content consists of packaging material, user manuals and screws. 
...Contributing heavily to Tierra del Fuego's high operating costs are logistical hurdles that would make corporate-efficiency experts tear their hair out. Components are shipped from Asia to Buenos Aires and then usually trucked—Argentina's rail system is in tatters, and the port in Ushuaia is often overwhelmed—the 1,900 miles to Tierra del Fuego. Trucks then carry the finished goods back north, over icy, potholed roads, to Buenos Aires. The entire process, from ordering a product to stocking it on Argentine store shelves, takes three months, says Edgardo Rodriguez, industrial manager of the Digital Fueguina plant.
In other words, by allocating resources away from Argentina's more productive sectors towards manufacturing in this South American icebox, Argentina's government is actively making the country poorer than it would otherwise be. It seems American politicians aren't the only ones with a strange fixation on the manufacturing sector.

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