Not surprisingly, over the years the Argentina military has become an economic powerhouse, in land, labor, and capital. The army is one of the biggest landowners in Argentina. By 1983, there were 153,000 soldiers in uniform, and military spending comprised 12 percent of the national budget. Each branch of the armed forces owns or controls a domain of large state enterprises. The air force writ runs to aircraft production, the national airlines, air insurance, and travel agencies. The navy presides over a complex including a merchant fleet, shipyards, weapons research and production.
The army has the big kid on the block, drily denominated the General Directorate of Military Factories, known as FM. FM was Argentina's first state-owned heavy industry, born of the vision of General Manuel Savio, who saw Argentina's industrial incapacity as a grave weakness that the army could greatly reduce. The Great Depression cut Argentina off from its traditional source of capital imports, Great Britain. The Second World War confirmed that the British would no longer be in a position to supply Argentine needs for arms or capital investments. This development could lead to disastrous consequences if Argentina were drawn into the war, especially since the Government's pro-Axis sympathies led the United States to embargo arms shipments to Argentina while generously supplying archrival Brazil.
Although free-market conservatives controlled the Congress, by 1941 Argentina's disquieting isolation earned their consent to the creation of FM. The law creating FM called for research and development of Argentine industrial and mineral capabilities to ensure the ability to mobilize industry onto a wartime footing. Once established, Argentina's newly developed strategic industries would be divested to the private sector.
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| Location of FM factories & establishments |
Somehow expansion, not divestiture, became the norm. For all their talk of free enterprise, the military governments after Perón had little desire to reduce their own economic influence by giving away FM installations. Philosophically, officers felt more at home with the statist solution; vital tasks should be left to the government on national security grounds. This began in the military sphere, with arms factories, but in time it spread throughout the economy, sometimes on the flimsiest grounds. "Telephones. Yes. Lines of communication. Better let the army have a hand in the National Telephone Company." And so on. The boards of directors of state enterprises provided an excellent source of retirement income for ex-officers.
Vested military interests in continued state ownership became an enormous obstacle to privatization plans. Even Martínez de Hoz, the great free marketeer, could not cajole (let alone force) the military to surrender to the free market. "We couldn't privatize," complained one former economics ministry official from the Process. "As they say, the army has everything on the ground, the navy everything in the water, the air force everything in the air." Civilian governments generally lacked the free market instinct, as well as the political clout, to attack this bastion of military privilege.
So military enterprises grew and grew. By the 1980s, they employed over 40,000 and billed some $1.5 billion in sales annually. In its strong years, FM comprised 5 percent of gross domestic product. It operated fourteen military factories directly, producing weaponry, explosives, chemicals, steel, electrical conductors. It maintained a hammerlock on the mining sector. But FM's direct activities tell only a part of the story; it also holds large shareholdings in other companies and mixed state-private enterprises, especially in the fields of steel and petrochemicals production. That included 99.9 percent of the shares of Somisa, Argentina's largest steel company.
FM progressed far beyond Savio's wildest dreams, perhaps beyond his wildest fears. Its mandate grew apace with its scale. In addition to supplying for war, FM became charged with the task of stimulating industrial development in low profit or long lead-time industries. FM historians cite Robert McNamara to justify this approach; the former secretary of defense had said that "security is development and without development there can be no security." So FM expansion into the private sector helped prepare military factories for quick wartime mobilization, by keeping them fully-occupied producing consumer goods in peacetime. With this strained logic, FM became a producer of armchairs, subway cars, hunting arms, and ammunition. Seventy percent of total sales went to the private sector; 98 percent of the receipts of the giant Zapla steel furnaces in Jujuy Province came from the private sector.
Through their own companies and influence over other state enterprises, the armed forces squatly occupied an important segment of the internal market. This afforded enormous influence over Argentine economics and politics. Through this complex, the military controlled budgets and jobs; it could favor some concerns by investing in them and squeeze out others by competing with them. Its weight in the corridors of political power gave it a leg up in getting a hold of government funds. Since the state contributed half of the national total in fixed capital investment, it became prudent in private companies to appoint a well-connected, retired officer to the board of directors. The military companies themselves also directed substantial revenues to the armed forces.
Inevitably, military production ran up the diseconomics of scale typical of unwieldy state enterprises. Until 1980, FM received substantial government subsidies and tax breaks. This favoritism encouraged inefficiency in FM enterprises, while stacking the deck against private enterprises who could not successfully enter the market due to the monopoly competition. According to National Deputy Alvaro Alsogaray, FM poured "hundreds of millions of dollars" into Hipasam S.A. to mine iron ore in northern Patagonia, an investment "that will never produce any benefit." Duplication of effort is the rule; the army and the navy each produce their own gunpowder, as well as a host of other products.
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| Vigilance & Air Control Radar Project |
