How to Save the UK from Collapse: Lessons from Argentina

The UK urgently needs to learn from Javier Milei, before it's too late.

We take a break from FFF Associate Luke Lucas writing for our monthly What is Happening in Argentina series to bring you a guest article on Argentina by economist Robert Marstrand.

Robert Marstrand is an investment analyst and previously was an international corporate strategy director for a major global investment bank. He lives in Buenos Aires and writes OfWealth by Rob Marstrand on Substack for private investors who seek a better understanding of the global investment world.

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I am the mole within the state, destroying it from the inside.

Javier Milei, the 59th President of Argentina

There is a great deal of ruin in a nation.

Adam Smith, Scottish philosopher and political economist

People in rich countries should never assume that things will stay the same forever. Over the past fifty years or more, Argentines have learnt this to their cost.

The United Kingdom remains one of the most affluent countries in the world, for now.

This result was built on centuries of capitalism that steadily raised living standards, as technology advanced and productivity improved. The capitalist system also provided the means to fund public services such as education and healthcare, as well as defence.

At the global scale, the UK is in a privileged position held by a relatively small group of successful countries. The United Nations classifies just 36 nations (18%) as “developed economies”, out of a total nation count of 195. British citizens are among the lucky 17% of the global population that’s fortunate enough to live in high-income countries.

But for decades, the UK has pursued policies that are taking it down a rocky road that will inevitably lead to economic ruination. Just because many other developed countries are making similar mistakes is no excuse. The clock is ticking.

The UK needs its own chainsaw

What should be done?

Not least, British people and policymakers can learn from Argentina’s painful economic past. This is a country that converted itself from rich to poor, all of which was self-inflicted.

I’ve lived in Buenos Aires for the past eighteen years, meaning I’ve experienced a lot of the problems and uncertainty first-hand. I see plenty of parallels with the UK’s current direction of travel.

The good news is that it’s not too late to reverse the UK’s course on the path to poverty. The bad news is that time is running out before things get really serious.

A particular problem is that the economic ruin of a nation is usually a slow journey that lasts many decades. This means that it’s easy to miss the accumulating signs of impending doom.

The rot sets in, consolidates, and then takes over. Once the host is sufficiently weakened, it no longer has the strength to deal with major crises. Such crises include severe recessions, financial meltdowns, pandemics, and the impact of wars (even foreign ones).

By my reckoning, the UK is about three decades into the process of fiscal self-destruction, driven by the creeping bloat and waste of big government. Basically, that’s since the Labour Party took power in 1997, shortly followed by rocketing public spending.

The country is now edging towards a fiscal cliff. Once it starts to fall off, the decline will be rapid and brutal.

Argentina provides both the historical warning for how this could happen, and the template to ensure that it doesn’t.

“Long live freedom, dammit!”

After decades of decline, the current Argentine government is taking radical steps to turn things around. That’s under the leadership of President Javier Milei, who came to power in December 2023.

His government is almost certainly the most pro-capitalist government in the world, combined with having the conviction to pare back the state to the minimum size practicable. That said, Argentina still remains a very long way from actually being the most capitalist economy.

Milei’s reforms so far have been fast and radical. But the statist rot runs really deep, and there is still a vast amount to do. Nonetheless, this is Argentina’s big chance to turn things around.

If Milei can win a second four-year term as president in 2027, then there will be a chance for past reforms to really bear fruit, and for even more radical reforms to be enacted.

Milei has been described as many things. What he is not is “far right”, just in case any confused British journalists happen to be reading. I can assure you that there are no “brown shirts” marching through Buenos Aires in jackboots.

He is also not a clone of Donald Trump. Milei is an academic economist of the Austrian school, with many books to his name. He is most definitely against trade protectionism and tariffs and is committed to balancing the budget.

Milei describes himself as “anti-collectivist”, which means he’s against any form of big-state government, be it socialist, communist, fascist, or globalist.

Philosophically, he’s an anarcho-capitalist, which is an ideology of free-wheeling capitalism, and no state government at all. But he’s also a pragmatist who operates in the real world of nation-states and current conditions. Which means that he’s arrived at being a “minarchist” in practice. That means cutting the state back to a bare minimum.

In summary: a small state, maximum freedom for citizens, and pro-business and pro-markets.

In effect, when it comes to economic and fiscal policy, Milei is what I call “Thatcher on steroids”. In fact, he has publicly praised Margaret Thatcher’s past economic policies on several occasions.

Milei’s dreadful inheritance

Milei inherited an Argentine economy that was on the brink of a hyperinflationary meltdown that would have plunged almost all Argentines into deep poverty.

This was caused by large fiscal and financial deficits funded by vast central bank money printing.

Monthly consumer price inflation peaked at 25.5% in December 2023, the month that Milei took office, and was still accelerating. Backwards-looking annual inflation peaked at 289% in April 2024.

The country has no excuse for being relatively poor. It’s the eighth-largest country in the world, one place behind India. Yet it has a modest population of 48 million, similar to the size of Spain.

It’s rich in farmland, fishing grounds, oil & gas, copper and lithium. The vast majority of its people are of European descent - Spanish, Italian, British, German, French, etc. Their ancestors moved there to build a better life. The country should be as wealthy as places like Australia or Canada.

When those immigration waves happened, Argentina was a rich country, relative to most others. The grandeur of the Congress building and much of the historic architecture in Buenos Aires and elsewhere is a testament to that. The capital was once known as “the Paris of the South”.

But decades of absurd economic policies caused a severe decline. The rot really started under President Juan Domingo Peron, who first took office in 1946. This was the start of Peronism, a relentless political movement that adapts to the winds of change and keeps coming back.

Peronism has been variously described as quasi-fascism or populist socialism over the years, but some things have stayed consistent.

These include rank populism to garner votes (e.g. heavily subsidised energy bills and public transport), big government, an authoritarian streak, political patronage (jobs for the boys and girls), economic interventionism (such as trade protectionism and tariffs, heavy capital controls, price controls), heavy regulation, and deep-seated corruption.

The result has been severe dysfunction. To give an example, an astonishing 40% or so of workers are employed on the black market for cash. Most businesses can’t survive without breaking the rules. It’s a truly broken system.

The long economic decline has been defined by periods of relative stability punctuated by severe financial and economic crises, such as debt defaults, sudden currency implosions, and hyperinflations. Each crisis pulled the country a peg or two lower.

The initial decline was relatively slow until about the 1960s, or around two decades after Peron first took power. But the country really started going off a cliff from the 1970s onwards.

Over time, this has gutted the affluent middle class, which used to be large and the envy of neighbouring countries. I’ve met plenty of people who survived only by steadily liquidating the assets that they inherited from their better-off parents.

Poverty rates increased from mid-single digits in the 1960s to more than 50% by the time Milei came along. Around 10% of the population struggled to afford food in a country that produces enough for at least five times its own population. This is an insane situation.

In my 18 years here, I’ve calculated that the Argentine peso has lost 99.8% of its value relative to the US dollar. Just imagine trying to save for your future in such an environment. This is why most ordinary Argentines focus on survival from month to month, with little long-term planning possible.

Investment virtually stopped, vast amounts of capital were sent to offshore havens to escape the hands of the grasping state, and the wealthy emigrated in their droves to places without annual wealth taxes, such as neighbouring Uruguay. (Take note anyone who is pushing the idea of wealth taxes in the UK...)

Thatcher on steroids

Milei famously campaigned with a chainsaw held aloft. This symbolised his intention to slash back the bloated state.

He warned that fixing things would take years, and it would be hard at first for a lot of people. Despite this alarming honesty, or perhaps because of it, fed-up Argentines decided to give him a chance.

After the presidential inauguration ceremony, Milei walked out onto the steps of the grand congress building and declared to the crowd and media, “No hay plata” (There is no money.) In other words, he was refreshingly honest with the Argentine people, which is rare in political leaders anywhere.

Due to Argentina’s electoral system and constitutional limits on presidential power, Milei doesn’t have a free hand to pursue reforms. Despite this, and along with some political horse trading with moderate opposition parties, he has already achieved much through legislation and presidential decrees.

The first and most important step was to balance the budget. Despite a fiscal deficit of around 5% of GDP, Milei achieved this in month one. Initially, this was done by bringing infrastructure spending to a dead halt. An extreme but necessary measure in the circumstances. It was followed by deep cuts to the state monster.

Federal-level public sector staff levels are down around 20%, including cuts of more than 30% to the equivalent of the civil service, and the trimming continues. The initial chainsaw has been replaced with a scalpel.

To achieve this, whole non-essential ministries, departments, and other publicly-funded bodies have been shut down or merged. And guess what? Life goes on.

The country has been running a small budget surplus since January 2024, as it gets to grips with its inflation, maturing debt repayments, and restoring freedoms to an economy full of artificial distortions. Monthly inflation was 2.1% in May and about 30% over the past year, which is still high by international standards. But it’s on a continuing disinflationary trend.

Aside from slashing waste, stopping the money printing, and controlling inflation, Milei’s economic reforms have focused on aggressive deregulation and progressive tax cutting. But the balanced budget remains “non-negotiable”, as Milei frequently reminds everyone. So the tax cuts have to be phased.

The biggest tax cuts have been to the huge tariffs on both imports of goods and on exports of things like crops (yes, really, which destroyed investment). But other taxes are coming down as well. Eventually, swathes of taxes are likely to be abolished completely.

There are also incentives in place to foment large capital investments. As a result, oil & gas production is booming, and the country now has an energy surplus (net exports) after years in energy deficit. There are also large investments going into mining in under-exploited areas such as copper and lithium.

On the deregulation front, Milei’s government passed a jumbo deregulation bill early in its term. It also secured special powers from Congress for one year, allowing it to continue chipping away at the morass of regulations without further congressional votes.

Milei even created a whole new Ministry of Deregulation and State Transformation under Federico Sturzenegger. He created an email address and then a website where anyone could point out destructive and pointless regulations. His team were then set to work investigating and eliminating vast numbers of such petty rules. This would be a good idea to adopt in the UK.

Saving the UK

Milei inherited an Argentine economy that was in a far worse state than the UK has ever experienced, at least so far. Therefore, the UK doesn’t need quite such extreme medicine. But the basic model that’s required is the same, in my opinion.

The UK has a bloated government, too much public debt, an excessive budget deficit above 4% of GDP, a persistent trade deficit, far too many petty regulations, the longest and most complex tax code in the world, and an ageing population that progressively adds to the burdens of healthcare and state pensions over time.

Just to keep the house of cards standing, the country has already resorted to mass money printing (Quantitative Easing, or QE) twice, following the Global Financial Crisis and during the Covid pandemic.

The UK also has twin energy and food deficits, meaning it has to import a lot of both. Meanwhile, it pursues self-destructive policies that seek to reduce domestic production in both cases and increase food and energy insecurity. This is bonkers.

By contrast, Argentina is a resource-rich country that has still managed to self-destruct economically. Put another way, the UK is far weaker than Argentina when it comes to self-sufficiency. Which means its future decline could be far faster than Argentina’s past one.

This is what I believe the UK must do before it’s too late.

• Phase 1 - The Chainsaw (speed: fast): Slash wasteful public spending, focus on the essentials of government, and start mass deregulation. Timing: year 1.

Suggestions include immediately cutting civil service staffing by 5% across the board, trimming foreign “aid”, cutting funding and closing many of the 600+ quangos, restricting disability welfare to the genuinely disabled, merging/closing many foreign embassies. (You should see the size of the British Ambassadors’ residences in both Argentina and Uruguay...)

Deregulation is detailed and complex work. Hence, any government-in-waiting should prepare the legislation in advance to hit the ground running when the time comes. (As Milei’s government did.)

• Phase 2 - The Scalpel (speed: medium): Continued deregulation in finer detail, ongoing trimming of spending. Start radical tax simplification. Timing: years 2 and 3.

The aim should be to achieve a balanced budget or a small fiscal surplus (including interest costs). The debt will stop growing, and gilt yields will start to fall due to the lower risk for investors. In turn, borrowing rates for all types of lending will fall, including residential mortgages. This will start to stimulate the economy, along with the improved productivity from deregulation.

• Phase 3 - The Virtuous Circle of Growth (speed: slow): Maintain a balanced budget at all times, and progressively reduce taxes as the economy grows. The ratio of government debt-to-GDP will fall over time, reducing borrowing costs as confidence builds. Leaving more money in the hands of citizens and businesses by lowering taxes will stimulate private sector spending and investment. Timing: year 4 onwards.

Some of that probably sounds hard, and it would be met by huge resistance from various vested interests. Not least within the public sector itself.

But I’m convinced it’s all achievable. It’s just a question of having strong leadership that acts with conviction to drive through change.

The alternative is steady decline, periodic severe crises, and climbing poverty over time. Believing that “it couldn’t happen to us” is extremely naive.

Adam Smith said that “There is a great deal of ruin in a nation”. By which he meant that it takes a significant amount of mismanagement and a long time to really destroy a country’s prosperity, even with a concerted effort.

But every country can get there in the end. The UK is no different and is already well along the path.

Complacency is rife, but time is running out. The UK’s leaders and voters can learn a lot from Argentina, in terms of both its past road to ruin and Javier Milei’s current policies to reverse the decline and unlock growth.

Does it look likely that a future UK government will make the hard choices in time? I doubt it. People seem to prefer suffering self-destructive crises before being spurred to act.

I visit England around twice a year. The decline is obvious. But I hope that one day I’ll have cause for some renewed optimism about the UK’s future.

There’s still time to fix things, just about. But the clock is ticking.

Rob Marstrand grew up in Sussex, England. After university, he worked for a global investment bank during the 1990s and early 2000s, based in the City of London and Hong Kong. He has lived in Buenos Aires, Argentina, since 2008. These days, he writes OfWealth by Rob Marstrand on Substack for private investors who seek a better understanding of the global investment world.