Electronics Manufacturing Lunacy in Argentine Patagonia

Argentina continues as the laughing stock of economists everywhere, subsidizing electronics manufacturing at the bottom of the world:

Over the past three years, Argentina has added nearly 10,000 jobs on assembly lines that turn out TVs by Samsung Electronics Co., notebooks by Lenovo Group and cell phones by Nokia Corp. And plant workers earn around $2,500 a month, plus ample benefits—topflight salaries by Argentine standards….

“It gets real cold here, but there are lots and lots of jobs,” says 25-year-old Alejandro Cisterna, who came from Buenos Aires province and found work repairing machinery for Digital Fueguina, which assembles Samsung products. With a salary nearly double what he would have earned back home, Mr. Cisterna has quickly bought a car and a host of electronic toys.

But 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….

Argentine consumers have to pay dearly for products made in Tierra del Fuego. A Sony 32-inch LCD television costs about $800 in Buenos Aires—around twice as much as in neighboring Chile, where an increasing number of Argentines go to shop because of its low taxes on imports.

Argentine government officials respond that they are trying to create jobs, and tech fans will just have to sacrifice for the broader national interest. “You can’t base an entire economic policy on the tyranny of consumers,” says Juan Ignacio Garcia, Tierra del Fuego’s secretary for industry.

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.

Related post:
Programming at the Bottom of the World

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