The Washington Consensus
September 19th 2010 04:56
Winston Churchill: "Democracy is the best platform for economic development, except for whatever the hell it is they are doing in China at the moment.''
In 1989, America did a huge favour to the Third World by creating, and making available gratis to anyone in need of it, a blueprint for economic progress for underdeveloped nations. They called it the Washington Consensus.
It was in effect a 10-pronged economic plan laid out by by John Williamson, a US economist noted for his opposition to capital liberalisation. The blueprint was what Williamson considered should constitute a standard reform package for crisis-wracked developing countries.
It can be summed up as "stabilise, privatise and liberalise".
And there it was, primed, polished and ready to go just as the emerging super-economies-in-waiting, China, Brazil and India, were moving into a position where they would need it. What good fortune for them!
All of which led to a surprise for the Americans: China, Brazil and India ignored the Washington Consensus and went their own way, developing an economic model tailored to their own situation. In Brazil, their model became known as the Brasilia Consensus. The Chinese called theirs the Beijing Consensus. They copied the style of name, but little else.
So what was wrong with the American version that it should be so snubbed? And have the Brazilians or Chinese re-signposted the rocky path out of poverty and into the promised land of economic strength? Have the Chinese, indeed, finally answered Winston Churchill's famous lament that, "It has been said that democracy is the worst form of government except all the others that have been tried"?
Williamson's Washington Consensus has attracted rather more negative responses than positive. It has been attacked by some heavyweight names, including George Soros and Nobel Economics Laureate Joseph Stiglitz, by a swathe of Latin American politicians, and by pretty much every heterodox economist with a megaphone.
Objective criticism has followed the attempts by many countries which did implement components of the Washington Consensus reform package due to unclear results. One school of thinking claimed that the reforms, which were supposed to help stabilise economies, in fact led to destabilisation.
Things got really ugly when the Washington Consensus was directly blamed for the Argentine economic crisis of 1999–2002, for exacerbating rather than ameliorating Latin America's economic inequalities, and for being part of the evil axis which was socialism and/or anti-globalism. It didn't help when Harvard University's respected Professor of International Political Economy, Dani Rodrik, a scholar not associated with any of the above philosophies, published a paper entitled, "Goodbye Washington Consensus, Hello Washington Confusion".
Perhaps the final word of criticism should go to John Williamson himself, who has summarised the overall results on growth, employment and poverty reduction in many countries as "disappointing, to say the least". He attributed this limited impact to three factors: the Consensus did not emphasise mechanisms for avoiding economic crises; the reforms were incomplete; and the reforms were insufficiently ambitious in terms of improving income distribution.
In his paper, Professor Rodrik drew some fascinating comparisons with other models. Pointing to the processes being seen in India and China, he claims there is a factual paradox in that, while China and India moved to increase economic reliance on free market forces to a limited extent, their general economic policies remained the exact opposite to the Washington Consensus' main recommendations.
Both had high levels of protectionism, no privatisation, extensive industrial policies planning, and lax fiscal and financial policies through the 1990s. Had they been dismal failures they would have presented strong evidence in support of the recommended Washington Consensus policies. However they turned out to be successes.
According to Rodrik: "While the lessons drawn by proponents and skeptics differ, it is fair to say that nobody really believes in the Washington Consensus anymore. The question now is not whether the Washington Consensus is dead or alive, it is what will replace it."
It is a fair bet that, should North Korea or Zimbabwe, for example, acquire a benevolent leader, and should she cast around for guidance in starting the economic recovery process, she will be tempted to look very closely at the Beijing Consensus.
A detailed report on the Beijing Consensus by China watcher and former foreign editor of Time magazine, Joshua Cooper Ramo, suggests the Beijing Consensus is evolving, with "new attitudes to politics, development and the global balance of power".
This is being driven, he says, by a "ruthless willingness to innovate, a strong belief in sovereignty and multilateralism, and a desire to accumulate the tools of 'asymmetric power projection'."
Ramo argues that China offers hope to developing countries after the collapse of the Washington consensus, providing a more equitable paradigm of development that countries from Malaysia to Korea are following. His report, he says, "captures the excitement of a country where change, newness and innovation are rebounding around journal articles, dinner conversations and policy-debates with mantra-like regularity".
They never said nice things like that about the Washington Consensus.
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