Washington Consensus

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The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury. [1] The term was first used in 1989 by English economist John Williamson. [2] The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy.

Contents

Subsequent to Williamson's use of the terminology, and despite his emphatic opposition, the phrase Washington Consensus has come to be used fairly widely in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach (sometimes described as market fundamentalism or neoliberalism). In emphasizing the magnitude of the difference between the two alternative definitions, Williamson has argued (see § Origins of policy agenda and § Broad sense below) that his ten original, narrowly defined prescriptions have largely acquired the status of "motherhood and apple pie" (i.e., are broadly taken for granted), whereas the subsequent broader definition, representing a form of neoliberal manifesto, "never enjoyed a consensus [in Washington] or anywhere much else" and can reasonably be said to be dead.

Discussion of the Washington Consensus has long been contentious. Partly this reflects a lack of agreement over what is meant by the term, but there are also substantive differences over the merits and consequences of the policy prescriptions involved. Some critics take issue with the original Consensus's emphasis on the opening of developing countries to global markets, and/or with what they see as an excessive focus on strengthening the influence of domestic market forces, arguably at the expense of key functions of the state. For other commentators, the issue is more what is missing, including such areas as institution-building and targeted efforts to improve opportunities for the weakest in society.

History

Original sense: Williamson's Ten Points

The concept and name of the Washington Consensus were first presented in 1989 by John Williamson, an economist from the Institute for International Economics, an international economic think tank based in Washington, D.C. [3] Williamson used the term to summarize commonly shared themes among policy advice by Washington-based institutions at the time, such as the International Monetary Fund, World Bank, and U.S. Treasury Department, which were believed to be necessary for the recovery of countries in Latin America from the economic and financial crises of the 1980s.[ citation needed ]

The consensus as originally stated by Williamson included ten broad sets of relatively specific policy recommendations: [1]

  1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
  2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  3. Tax reform, broadening the tax base and adopting moderate marginal tax rates;
  4. Interest rates that are market determined and positive (but moderate) in real terms;
  5. Competitive exchange rates;
  6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  7. Liberalization of inward foreign direct investment;
  8. Privatization of state enterprises;
  9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
  10. Legal security for property rights.

Origins of policy agenda

Although Williamson's label of the Washington Consensus draws attention to the role of the Washington-based agencies in promoting the above agenda, a number of authors have stressed that Latin American policy-makers arrived at their own packages of policy reforms primarily based on their own analysis of their countries' situations. Thus, according to Joseph Stanislaw and Daniel Yergin, authors of The Commanding Heights , the policy prescriptions described in the Washington Consensus were "developed in Latin America, by Latin Americans, in response to what was happening both within and outside the region." [4] Joseph Stiglitz has written that "the Washington Consensus policies were designed to respond to the very real problems in Latin America and made considerable sense" (though Stiglitz has at times been an outspoken critic of IMF policies as applied to developing nations). [5] In view of the implication conveyed by the term Washington Consensus that the policies were largely external in origin, Stanislaw and Yergin report that the term's creator, John Williamson, has "regretted the term ever since", stating "it is difficult to think of a less diplomatic label." [4]

A 2010 paper by Nancy Birdsall, Augusto de la Torre, and Felipe Valencia Caicedo likewise suggests that the policies in the original consensus were largely a creation of Latin American politicians and technocrats, with Williamson's role having been to gather the ten points in one place for the first time, rather than to "create" the package of policies. [6]

In Williamson's own words from 2002:

It is difficult even for the creator of the term to deny that the phrase "Washington Consensus" is a damaged brand name (Naím 2002). Audiences the world over seem to believe that this signifies a set of neoliberal policies that have been imposed on hapless countries by the Washington-based international financial institutions and have led them to crisis and misery. There are people who cannot utter the term without foaming at the mouth.

My own view is of course quite different. The basic ideas that I attempted to summarize in the Washington Consensus have continued to gain wider acceptance over the past decade, to the point where Lula has had to endorse most of them in order to be electable. For the most part they are motherhood and apple pie, which is why they commanded a consensus. [7]

Broad sense

Williamson recognizes that the term has commonly been used with a different meaning from his original prescription; he opposes the alternative use of the term, which became common after his initial formulation, to cover a broader market fundamentalism or "neoliberal" agenda. [8]

I of course never intended my term to imply policies like capital account liberalization (...I quite consciously excluded that), monetarism, supply-side economics, or a minimal state (getting the state out of welfare provision and income redistribution), which I think of as the quintessentially neoliberal ideas. If that is how the term is interpreted, then we can all enjoy its wake, although let us at least have the decency to recognize that these ideas have rarely dominated thought in Washington and certainly never commanded a consensus there or anywhere much else... [7]

More specifically, Williamson argues that the first three of his ten prescriptions are uncontroversial in the economic community, while recognizing that the others have evoked some controversy. He argues that one of the least controversial prescriptions, the redirection of spending to infrastructure, health care, and education, has often been neglected. He also argues that, while the prescriptions were focused on reducing certain functions of government (e.g., as an owner of productive enterprises), they would also strengthen government's ability to undertake other actions such as supporting education and health. Williamson says that he does not endorse market fundamentalism, and believes that the Consensus prescriptions, if implemented correctly, would benefit the poor. [9] In a book edited with Pedro-Pablo Kuczynski in 2003, Williamson laid out an expanded reform agenda, emphasizing crisis-proofing of economies, "second-generation" reforms, and policies addressing inequality and social issues. [10]

As noted, in spite of Williamson's reservations, the term Washington Consensus has been used more broadly to describe the general shift towards free market policies that followed the displacement of Keynesianism in the 1970s. In this broad sense the Washington Consensus is sometimes considered to have begun at about 1980. [11] [12] Many commentators see the consensus, especially if interpreted in the broader sense of the term, as having been at its strongest during the 1990s. Some have argued that the consensus in this sense ended at the turn of the century, or at least that it became less influential after about the year 2000. [6] [13] More commonly, commentators have suggested that the Consensus in its broader sense survived until the time of the 2008 global financial crisis. [12] Following the strong intervention undertaken by governments in response to market failures, a number of journalists, politicians and senior officials from global institutions such as the World Bank began saying that the Washington Consensus was dead. [14] [15] These included former British Prime Minister Gordon Brown, who following the 2009 G-20 London summit, declared "the old Washington Consensus is over". [16] Williamson was asked by The Washington Post in April 2009 whether he agreed with Gordon Brown that the Washington Consensus was dead. He responded:

It depends on what one means by the Washington Consensus. If one means the ten points that I tried to outline, then clearly it's not right. If one uses the interpretation that a number of people—including Joe Stiglitz, most prominently—have foisted on it, that it is a neoliberal tract, then I think it is right. [17]

After the 2010 G-20 Seoul summit announced that it had achieved agreement on a Seoul Development Consensus, the Financial Times editorialized that "Its pragmatic and pluralistic view of development is appealing enough. But the document will do little more than drive another nail into the coffin of a long-deceased Washington consensus." [18]

Impact

According to a 2020 study, the implementation of policies associated with the Washington Consensus significantly raised real GDP per capita over a 5- to 10-year horizon. [19]

Context

Many countries have endeavored to implement varying components of the reform packages, with implementation sometimes imposed as a condition for receiving loans from the IMF and World Bank. [11] The results of these reforms are much debated. Some critics focus on claims that the reforms led to destabilization. [20] Some critics have also blamed the Washington Consensus for particular economic crises such as the Argentine economic crisis, and for exacerbating Latin America's economic inequalities.[ citation needed ] Criticism of the Washington Consensus has often been dismissed as socialism and/or anti-globalism. While these philosophies do criticize these policies, general criticism of the economics of the consensus is now more widely established, such as that outlined by US scholar Dani Rodrik, Professor of International Political Economy at Harvard University, in his paper Goodbye Washington Consensus, Hello Washington Confusion?. [21]

Williamson has summarized the overall results on growth, employment and poverty reduction in many countries as "disappointing, to say the least". He attributes this limited impact to three factors: (a) the Consensus per se placed no special emphasis on mechanisms for avoiding economic crises, which have proved very damaging; (b) the reforms—both those listed in his article and, a fortiori, those actually implemented—were incomplete; and (c) the reforms cited were insufficiently ambitious with respect to targeting improvements in income distribution, and need to be complemented by stronger efforts in this direction. Rather than an argument for abandoning the original ten prescriptions, though, Williamson concludes that they are "motherhood and apple pie" and "not worth debating". [7] Both Williamson and other analysts have pointed to longer term improvements in economic performance in a number of countries that have adopted the relevant policy changes consistently, such as Chile (below).

As Williamson has pointed out, the term has come to be used in a broader sense to its original intention, as a synonym for market fundamentalism or neo-liberalism. In this broader sense, Williamson states, it has been criticized by people such as George Soros and Nobel Laureate Joseph E. Stiglitz. [9] The Washington Consensus is also criticized by others such as some Latin American politicians and heterodox economists such as Erik Reinert. [22] The term has become associated with neoliberal policies in general and drawn into the broader debate over the expanding role of the free market, constraints upon the state, and the influence of the United States, and globalization more broadly, on countries' national sovereignty.[ citation needed ]

"Stabilize, privatize, and liberalize" became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counseled. [21]

Dani Rodrik, Professor of International Political Economy, Harvard University in JEL on December 2006

While opinion varies among economists, Rodrik pointed out what he claimed was a factual paradox: while China and India increased their economies' 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 privatization, 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. [23] 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". [21]

Rodrik's account of Chinese or Indian policies during the period is not universally accepted. Among other things those policies involved major turns in the direction of greater reliance upon market forces, both domestically and internationally. [24]

In a book edited with Pedro Pablo Kuczynski in 2003, John Williamson laid out an expanded reform agenda, emphasizing crisis-proofing of economies, "second-generation" reforms, and policies addressing inequality and social issues. [10]

Speaking at a fundraiser for the James A. Baker III Institute for Public Policy in November 2018, Barack Obama acknowledged that globalization and the policies associated with the Washington Consensus exacerbated economic inequality which helped fuel the rise of the alt-right. [25]

Macroeconomic adjustment

The widespread adoption by governments of the Washington Consensus was to a large degree a reaction to the macroeconomic crisis that hit much of Latin America, and some other developing regions, during the 1980s. The crisis had multiple origins: the drastic rise in the price of imported oil following the emergence of OPEC, mounting levels of external debt, the rise in US (and hence international) interest rates, and—consequent to the foregoing problems—loss of access to additional foreign credit. The import-substitution policies that had been pursued by many developing country governments in Latin America and elsewhere for several decades had left their economies ill-equipped to expand exports at all quickly to pay for the additional cost of imported oil (by contrast, many countries in East Asia, which had followed more export-oriented strategies, found it comparatively easy to expand exports still further, and as such managed to accommodate the external shocks with much less economic and social disruption). Unable either to expand external borrowing further or to ramp up export earnings easily, many Latin American countries faced no obvious sustainable alternatives to reducing overall domestic demand via greater fiscal discipline, while in parallel adopting policies to reduce protectionism and increase their economies' export orientation. [26]

Criticism

As of the 2000s, several Latin American countries were led by socialist or other left wing governments, some of which—including Argentina and Venezuela—have campaigned for (and to some degree adopted) policies contrary to the Washington Consensus policies. Other Latin American countries with governments of the left, including Brazil, Chile and Peru, in practice adopted the bulk of the policies included in Williamson's list, even though they criticized the market fundamentalism that these are often associated with.

Ssome US economists, such as Joseph Stiglitz and Dani Rodrik, have challenged what are sometimes described as the 'fundamentalist' policies of the IMF and the US Treasury for what Stiglitz calls a 'one size fits all' treatment of individual economies. According to Stiglitz the treatment suggested by the IMF is too simple: one dose, and fast—stabilize, liberalize and privatize, without prioritizing or watching for side effects. [27]

The reforms did not always work out the way they were intended. While growth generally improved across much of Latin America, it was in most countries less than the reformers had originally hoped for (and the "transition crisis", as noted above deeper and more sustained than hoped for in some of the former socialist economies). Success stories in Sub-Saharan Africa during the 1990s were relatively few and far in between, and market-oriented reforms by themselves offered no formula to deal with the growing public health emergency in which the continent became embroiled. The critics, meanwhile, argue that the disappointing outcomes have vindicated their concerns about the inappropriateness of the standard reform agenda. [28]

Besides the excessive belief in market fundamentalism and international economic institutions in attributing the failure of the Washington consensus, Stiglitz provided a further explanation about why it failed. In his article "The Post Washington Consensus Consensus", [29] he claims that the Washington consensus policies failed to efficiently handle the economic structures within developing countries. The cases of East Asian countries such as Korea and Taiwan are known as a success story in which their remarkable economic growth was attributed to a larger role of the government by undertaking industrial policies and increasing domestic savings within their territory. From the cases, the role for government was proven to be critical at the beginning stage of the dynamic process of development, at least until the markets by themselves can produce efficient outcomes.[ citation needed ]

The policies pursued by the international financial institutions which came to be called the Washington consensus policies or neoliberalism entailed a much more circumscribed role for the state than were embraced by most of the East Asian countries, a set of policies which (in another simplification) came to be called the development state. [29]

The critique laid out in the World Bank's study Economic Growth in the 1990s: Learning from a Decade of Reform (2005) [30] shows how far discussion has come from the original ideas of the Washington Consensus. Gobind Nankani, a former vice-president for Africa at the World Bank, wrote in the preface: "there is no unique universal set of rules.... [W]e need to get away from formulae and the search for elusive 'best practices'...." (p. xiii). The World Bank's new emphasis is on the need for humility, for policy diversity, for selective and modest reforms, and for experimentation. [31]

The World Bank's report Learning from Reform shows some of the developments of the 1990s. There was a deep and prolonged collapse in output in some (though by no means all) countries making the transition from communism to market economies (many of the Central and East European countries, by contrast, made the adjustment relatively rapidly). Academic studies show that more than two decades into the transition, some of the former communist countries, especially parts of the former Soviet Union, had still not caught up to their levels of output before 1989. [32] [33] A 2001 study by economist Steven Rosefielde posits that there were 3.4 million premature deaths in Russia from 1990 to 1998, which he party blames on the shock therapy imposed by the Washington Consensus. [34] Neoliberal policies associated with the Washington Consensus, including pension privatization, the imposition of a flat tax, monetarism, cutting of corporate taxes, and central bank independence, continued into the 2000s. [35] Many Sub-Saharan African's economies failed to take off during the 1990s, in spite of efforts at policy reform, changes in the political and external environments, and continued heavy influx of foreign aid. Uganda, Tanzania, and Mozambique were among countries that showed some success, but they remained fragile. There were several successive and painful financial crises in Latin America, East Asia, Russia, and Turkey. The Latin American recovery in the first half of the 1990s was interrupted by crises later in the decade. There was less growth in per capita GDP in Latin America than in the period of rapid post-War expansion and opening in the world economy, 1950–80. Argentina, described by some as "the poster boy of the Latin American economic revolution", [36] came crashing down in 2002. [31]

A significant body of economists and policy-makers argues that what was wrong with the Washington Consensus as originally formulated by Williamson had less to do with what was included than with what was missing. [37] This view asserts that countries such as Brazil, Chile, Peru and Uruguay, largely governed by parties of the left in recent years, did not—whatever their rhetoric—in practice abandon most of the substantive elements of the Consensus. Countries that have achieved macroeconomic stability through fiscal and monetary discipline have been loath to abandon it: Lula, the former President of Brazil (and former leader of the Workers' Party of Brazil), has stated explicitly that the defeat of hyperinflation [38] was among the most important positive contributions of the years of his presidency to the welfare of the country's poor, although the remaining influence of his policies on tackling poverty and maintaining a steady low rate of inflation are being discussed and doubted in the wake of the Brazilian Economic Crisis currently occurring in Brazil. [39]

These economists and policy-makers would, however, overwhelmingly agree that the Washington Consensus was incomplete, and that countries in Latin America and elsewhere need to move beyond "first generation" macroeconomic and trade reforms to a stronger focus on productivity-boosting reforms and direct programs to support the poor. [40] This includes improving the investment climate and eliminating red tape (especially for smaller firms), strengthening institutions (in areas like justice systems), fighting poverty directly via the types of Conditional Cash Transfer programs adopted by countries like Mexico and Brazil, improving the quality of primary and secondary education, boosting countries' effectiveness at developing and absorbing technology, and addressing the special needs of historically disadvantaged groups including indigenous peoples and Afro-descendant populations across Latin America.[ citation needed ]

Anti-globalization movement

Many critics of trade liberalization, such as Noam Chomsky, Tariq Ali, Susan George, and Naomi Klein, see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies. The prescribed reductions in tariffs and other trade barriers allow the free movement of goods across borders according to market forces, but labor is not permitted to move freely due to the requirements of a visa or a work permit. This creates an economic climate where goods are manufactured using cheap labor in underdeveloped economies and then exported to rich First World economies for sale at what the critics argue are huge markups, with the balance of the markup said to accrue to large multinational corporations. The criticism is that workers in the Third World economy nevertheless remain poor, as any pay raises they may have received over what they made before trade liberalization are said to be offset by inflation, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy. [41]

Despite macroeconomic advances, poverty and inequality remain at high levels in Latin America. About one of every three people—165 million in total—still live on less than $2 a day. Roughly a third of the population has no access to electricity or basic sanitation, and an estimated 10 million children suffer from malnutrition. These problems are not, however, new: Latin America was the most economically unequal region in the world in 1950, and has continued to be so ever since, during periods both of state-directed import-substitution and (subsequently) of market-oriented liberalization. [42]

Some socialist political leaders in Latin America have been vocal and well-known critics of the Washington Consensus, such as the late Venezuelan President Hugo Chávez, Cuban ex-President Fidel Castro, Bolivian President Evo Morales, and Rafael Correa, President of Ecuador. In Argentina, too, the recent Justicialist Party government of Néstor Kirchner and Cristina Fernández de Kirchner undertook policy measures which represented a repudiation of at least some Consensus policies. [43]

Proponents of the "European model" and the "Asian way"

Some European and Asian economists suggest that "infrastructure-savvy economies" such as Norway, Singapore, and China have partially rejected the underlying Neoclassical "financial orthodoxy" that characterizes the Washington Consensus, instead initiating a pragmatist development path of their own [44] based on sustained, large-scale, government-funded investments in strategic infrastructure projects: "Successful countries such as Singapore, Indonesia, and South Korea still remember the harsh adjustment mechanisms imposed abruptly upon them by the IMF and World Bank during the 1997–1998 'Asian Crisis' […] What they have achieved in the past 10 years is all the more remarkable: they have quietly abandoned the Washington Consensus by investing massively in infrastructure projects […] this pragmatic approach proved to be very successful". [45]

Argentina

The Argentine economic crisis of 1999–2002 is often held out as an example of the economic devastation said by some to have been wrought by application of the Washington Consensus. Argentina's former Deputy Foreign Minister Jorge Taiana, in an interview with the state news agency Télam on August 16, 2005, attacked the Washington Consensus. There never was a real consensus for such policies, he said, and today "a good number of governments of the hemisphere are reviewing the assumptions with which they applied those policies in the 1990s", adding that governments are looking for a development model to guarantee productive employment and the generation of real wealth. [46]

Many economists, however, challenge the view that Argentina's failure can be attributed to close adherence to the Washington Consensus. The country's adoption of an idiosyncratic fixed exchange rate regime (the convertibility plan), which became increasingly uncompetitive, together with its failure to achieve effective control over its fiscal accounts, both ran counter to central provisions of the Consensus, and paved the way directly for the ultimate macroeconomic collapse. The market-oriented policies of the early Menem-Cavallo years, meanwhile, soon petered out in the face of domestic political constraints (including Menem's preoccupation with securing re-election). [47]

In October 1998, the IMF invited Argentine President Carlos Menem, to talk about the successful Argentine experience, at the Annual Meeting of the Board of Governors. [48] President Menem's Minister of Economy (1991–1996), Domingo Cavallo, the architect of the Menem administration's economic policies, specifically including "convertibility", made the claim that Argentina was at that moment, "considered as the best pupil of the IMF, the World Bank and the USA government":

On the second semester of 1998 Argentina was considered in Washington the most successful economy among the ones that had restructured its debt within the Brady's Plan framework. None of the Washington Consensus' sponsors were interested in pointing out that the Argentine economic reforms had differences with its 10 recommendations. On the contrary, Argentina was considered the best pupil of the IMF, the World Bank and the USA government. [49]

The problems which arise with reliance on a fixed exchange rate mechanism (above) are discussed in the World Bank report Economic Growth in the 1990s: Learning from a Decade of Reform, which questions whether expectations can be "positively affected by tying a government's hands". In the early 1990s there was a point of view that countries should move to either fixed or completely flexible exchange rates to reassure market participants of the complete removal of government discretion in foreign exchange matters. After the Argentina collapse, some observers believe that removing government discretion by creating mechanisms that impose large penalties may, on the contrary, actually itself undermine expectations. Velasco and Neut (2003) [50] "argue that if the world is uncertain and there are situations in which the lack of discretion will cause large losses, a precommitment device can actually make things worse". [51] In chapter 7 of its report (Financial Liberalization: What Went Right, What Went Wrong?) the World Bank analyses what went wrong in Argentina, summarizes the lessons from the experience, and draws suggestions for its future policy. [52]

The IMF's Independent Evaluation Office has issued a review of the lessons of Argentina for the institution, summarized in the following quotation:

The Argentine crisis yields a number of lessons for the IMF, some of which have already been learned and incorporated into revised policies and procedures. This evaluation suggests ten lessons, in the areas of surveillance and program design, crisis management, and the decision-making process. [53]

Mark Weisbrot says that, in more recent years, Argentina under former President Néstor Kirchner made a break with the Consensus and that this led to a significant improvement in its economy; some add that Ecuador may soon follow suit. [54] However, while Kirchner's reliance on price controls and similar administrative measures (often aimed primarily at foreign-invested firms such as utilities) clearly ran counter to the spirit of the Consensus, his administration in fact ran an extremely tight fiscal ship and maintained a highly competitive floating exchange rate; Argentina's immediate bounce-back from crisis, further aided by abrogating its debts and a fortuitous boom in prices of primary commodities, leaves open issues of longer-term sustainability. [55] The Economist has argued that the Néstor Kirchner administration will end up as one more in Argentina's long history of populist governments. [56] In October 2008, Kirchner's wife and successor as President, Cristina Kirchner, announced her government's intention to nationalize pension funds from the privatized system implemented by Menem-Cavallo. [57] Accusations have emerged of the manipulation of official statistics under the Kirchners (most notoriously, for inflation) to create an inaccurately positive picture of economic performance. [58] The Economist removed Argentina's inflation measure from its official indicators, saying that they were no longer reliable. [59]

In 2003, Argentina's and Brazil's presidents, Néstor Kirchner and Luiz Inacio Lula da Silva signed the "Buenos Aires Consensus", a manifesto opposing the Washington Consensus' policies. [60] Skeptical political observers note, however, that Lula's rhetoric on such public occasions should be distinguished from the policies actually implemented by his administration. [61] This said, Lula da Silva paid the whole of Brazil's debt with the IMF two years in advance, freeing his government from IMF tutelage, as did Néstor Kirchner's government in 2005.[ citation needed ]

Subsidies for agriculture

The Washington Consensus as formulated by Williamson includes provision for the redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment. This definition leaves some room for debate over specific public spending programs. One area of public controversy has focused on the issues of subsidies to farmers for fertilizers and other modern farm inputs: on the one hand, these can be criticized as subsidies, on the other, it may be argued that they generate positive externalities that might justify the subsidy involved.[ citation needed ]

Some critics of the Washington Consensus cite Malawi's experience with agricultural subsidies, for example, as exemplifying perceived flaws in the package's prescriptions. For decades, the World Bank and donor nations pressed Malawi, a predominantly rural country in Africa, to cut back or eliminate government fertilizer subsidies to farmers. World Bank experts also urged the country to have Malawi farmers shift to growing cash crops for export and to use foreign exchange earnings to import food. [62] For years, Malawi hovered on the brink of famine; after a particularly disastrous corn harvest in 2005, almost five million of its 13 million people needed emergency food aid. Malawi's newly elected president Bingu wa Mutharika then decided to reverse policy. Introduction of deep fertilizer subsidies (and lesser ones for seed), abetted by good rains, helped farmers produce record-breaking corn harvests in 2006 and 2007; according to government reports, corn production leapt from 1.2 million metric tons in 2005 to 2.7 million in 2006 and 3.4 million in 2007. The prevalence of acute child hunger has fallen sharply and Malawi recently turned away emergency food aid.[ citation needed ]

In a commentary on the Malawi experience prepared for the Center for Global Development, [63] development economists Vijaya Ramachandran and Peter Timmer argue that fertilizer subsidies in parts of Africa (and Indonesia) can have benefits that substantially exceed their costs. They caution, however, that how the subsidy is operated is crucial to its long-term success, and warn against allowing fertilizer distribution to become a monopoly. Ramachandran and Timmer also stress that African farmers need more than just input subsidies—they need better research to develop new inputs and new seeds, as well as better transport and energy infrastructure. The World Bank reportedly now sometimes supports the temporary use of fertilizer subsidies aimed at the poor and carried out in a way that fosters private markets: "In Malawi, Bank officials say they generally support Malawi's policy, though they criticize the government for not having a strategy to eventually end the subsidies, question whether its 2007 corn production estimates are inflated and say there is still a lot of room for improvement in how the subsidy is carried out". [62]

Alternative usage vis-à-vis foreign policy

In early 2008, the term "Washington Consensus" was used in a different sense as a metric for analyzing American mainstream media coverage of U.S. foreign policy generally and Middle East policy specifically. Marda Dunsky writes, "Time and again, with exceedingly rare exceptions, the media repeat without question, and fail to challenge the "Washington consensus"—the official mind-set of US governments on Middle East peacemaking over time." [64] According to syndicated columnist William Pfaff, Beltway centrism in American mainstream media coverage of foreign affairs is the rule rather than the exception: "Coverage of international affairs in the US is almost entirely Washington-driven. That is, the questions asked about foreign affairs are Washington's questions, framed in terms of domestic politics and established policy positions. This invites uninformative answers and discourages unwanted or unpleasant views." [65] Like the economic discussion above the foreign policy usage of the term has less to do with what is included than with what is missing.

A similar view, though by a different name, is taken by Fairness & Accuracy in Reporting (FAIR), a progressive media criticism organization. They note "Official Agendas" as one of nine 'issue areas' [66] they view as causing 'What's Wrong With the News?" They note: "Despite the claims that the press has an adversarial relationship with the government, in truth U.S. media generally follow Washington's official line. This is particularly obvious in wartime and in foreign policy coverage, but even with domestic controversies, the spectrum of debate usually falls in the relatively narrow range between the leadership of the Democratic and Republican parties." [67]

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Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Proponents argue that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors. However, they also reduce trade and adversely affect consumers in general, and harm the producers and workers in export sectors, both in the country implementing protectionist policies and in the countries protected against.

In economics, shock therapy is the sudden release of price and currency controls, withdrawal of state subsidies, and immediate trade liberalization within a country, usually also including large-scale privatization of previously public-owned assets.

John H. Williamson is a British-born economist who coined the term Washington Consensus. He served as a senior fellow at the Peterson Institute for International Economics from 1981 until his retirement in 2012. During that time, he was the project director for the United Nations High-Level Panel on Financing for Development in 2001. He was also on leave as chief economist for South Asia at the World Bank during 1996–99, adviser to the International Monetary Fund from 1972 to 1974, and an economic consultant to the UK Treasury from 1968 to 1970. He has also been an economics professor at Pontifícia Universidade Católica do Rio de Janeiro (1978–81), University of Warwick (1970–77), Massachusetts Institute of Technology, University of York (1963–68) and Princeton University (1962–63).

<i>Globalization and Its Discontents</i> 2002 non-fiction book by Joseph E. Stiglitz

Globalization and Its Discontents is a book published in 2002 by the 2001 Nobel laureate Joseph E. Stiglitz.

Market fundamentalism, also known as free-market fundamentalism, is a term applied to a strong belief in the ability of unregulated laissez-faire or free-market capitalist policies to solve most economic and social problems.

Structural adjustment programs (SAPs) consist of loans provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experienced economic crises. The purpose is to adjust the country ’s economic structure, improve international competitiveness, and restore its balance of payments.

International economics is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and transaction.

Latin American debt crisis financial crisis

The Latin American debt crisis was a financial crisis that originated in the early 1980s, often known as La Década Perdida, when Latin American countries reached a point where their foreign debt exceeded their earning power, and they were not able to repay it.

Fiscal adjustment

A fiscal adjustment is a reduction in the government primary budget deficit, and it can result from a reduction in government expenditures, an increase in tax revenues, or both simultaneously.

Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measures may be economy-wide, sector-specific, or industry specific. They may apply to all flows, or may differentiate by type or duration of the flow.

Mark Weisbrot American economist

Mark Alan Weisbrot is an American economist and columnist. He is co-director with Dean Baker of the Center for Economic and Policy Research (CEPR) in Washington, D.C. Weisbrot is President of Just Foreign Policy, a non-governmental organization dedicated to reforming United States foreign policy.

Anne Osborn Krueger American economist

Anne Osborn Krueger is an American economist. She was the World Bank Chief Economist from 1982 to 1986, and the first deputy managing director of the International Monetary Fund (IMF) from 2001 to 2006. She is currently the senior research professor of international economics at the Johns Hopkins School of Advanced International Studies in Washington, D.C. She also is a senior fellow of Center for International Development and the Herald L. and Caroline Ritch Emeritus Professor of Sciences and Humanities' Economics Department at Stanford University.

The concertina model, sometimes referred to as the concertina rule or "concertina method", is an international trade liberalisation strategy, which consists of removing the highest tariffs first. Amiti traces this "idea back to Meade who concluded that the welfare gains will be larger if tariffs on those goods with the highest tariffs are reduced first. This result was formalized by a number of authors, including Bertrand and Vanek (1971) and Falvey (1988) for a small, open, perfectly competitive economy."

Mario Blejer Argentine central banker

Mario J. Blejer is an Argentine economist and was President of the Central Bank of Argentina.

Barcelona Development Agenda

The Barcelona Development Agenda is a statement of development principles formulated as a response to the prevailing Washington Consensus development model. Resulting from the collaboration of economists from both developing and developed countries at the 2004 Universal Forum of Cultures in Barcelona, Spain, the Barcelona Development Agenda outlines seven lessons learned from previous policy failures and successes, and presents them as priorities for future economic reforms. The principles emphasize a balance of market and government economic roles, flexible economic tools, and an increased role for sustainability and equity in governance.

Stephany Griffith-Jones economist

Stephany Griffith-Jones is an economist specialising in international finance and development, with emphasis on reform of the international financial system, specifically in relation to financial regulation, global governance and international capital flows. She is currently financial markets director at the Initiative for Policy Dialogue, based at Columbia University in New York and associate fellow at the Overseas Development Institute. Previously she was professorial fellow at the Institute of Development Studies at Sussex University. She has held the position of deputy director of International Finance at the Commonwealth Secretariat and has worked at the United Nations Department of Economic and Social Affairs and in the United Nations Economic Commission for Latin America and the Caribbean. She started her career in 1970 at the Central Bank of Chile. Before joining the Institute of Development Studies, she worked at Barclays Bank International in the UK. She has acted as senior consultant to governments in Eastern Europe and Latin America and to many international agencies, including the World Bank, the Inter-American Development Bank, the European Commission, UNICEF, UNDP and United Nations Conference on Trade and Development. She was also a member of the Warwick Commission on international financial reform. She has published over 20 books and written many scholarly and journalistic articles. Her latest book, edited jointly with José Antonio Ocampo and Joseph Stiglitz, Time for the Visible Hand, Lessons from the 2008 crisis, was published in 2010.

References

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  18. "G20 show how not to run the world". Financial Times . November 12, 2010. Retrieved November 12, 2010.(registration required)
  19. Grier, Kevin B.; Grier, Robin M. (September 8, 2020). "The Washington Consensus Works: Causal Effects of Reform, 1970-2015". Journal of Comparative Economics. doi:10.1016/j.jce.2020.09.001. ISSN   0147-5967.
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  22. Reinert, Erik S. (2000) The Underdevelopment of Mongolia in the 1990s—Why Globalisation is one Nation's Food and the Other Nation's Poison.
  23. Rodrik 2006 , pp. 3–5
  24. An overview of the origins of the Chinese reforms and their implementation over roughly the first decade of the reforms is provided by Harry Harding in China's Second Revolution: Reform after Mao. Brookings, 1987.
  25. Norton, Ben (December 21, 2018). "Obama Admits Bipartisan Capitalist 'Washington Consensus' Fueled Far-Right & Multiplied Inequality". The Real News . Retrieved December 31, 2018.
  26. See e.g., Patrice Franko, "The Puzzle of Latin American Development" (3rd edition, 2007), or Michael Read, "Forgotten Continent" (2007).
  27. Stiglitz, Joseph; Schoenfelder, Lindsey (2003). "Challenging the Washington Consensus" (PDF). The Brown Journal of World Affairs. 9 (2): 33–40. JSTOR   24590462. Archived from the original (PDF) on August 28, 2003.
  28. Rodrik 2006, p. 2
  29. 1 2 Joseph Stiglitz. "The Post Washington Consensus Consensus" (PDF). policydialogue.org. The Initiative for Policy Dialogue. Retrieved April 24, 2015.
  30. World Bank. Economic Growth in the 1990s: Learning from a Decade of Reform Washington, D.C., 2005.
  31. 1 2 World Bank, Economic Growth in the 1990s: Learning from a Decade of Reform, Washington, D.C., 2005
  32. Ghodsee, Kristen (2017). Red Hangover: Legacies of Twentieth-Century Communism. Duke University Press. p. 63. ISBN   978-0822369493.
  33. Milanović, Branko (2015). "After the Wall Fell: The Poor Balance Sheet of the Transition to Capitalism". Challenge . 58 (2): 135–138. doi:10.1080/05775132.2015.1012402. S2CID   153398717. So, what is the balance sheet of transition? Only three or at most five or six countries could be said to be on the road to becoming a part of the rich and (relatively) stable capitalist world. Many of the other countries are falling behind, and some are so far behind that they cannot aspire to go back to the point where they were when the Wall fell for several decades.
  34. Rosefielde, Steven (2001). "Premature Deaths: Russia's Radical Economic Transition in Soviet Perspective". Europe-Asia Studies . 53 (8): 1159–1176. doi:10.1080/09668130120093174. S2CID   145733112.
  35. Appel, Hilary; Orenstein, Mitchell A. (2018). From Triumph to Crisis: Neoliberal Economic Reform in Postcommunist Countries. Cambridge University Press. p. 3. ISBN   978-1108435055.
  36. Rodrik 2006 , pp. 3–4
  37. See, as examples representative of a much more extensive literature, e.g., Birdsall and de la Torre. Washington Contentious (2003); Kuczynski & Williamson (2003).
  38. https://web.archive.org/web/20040518120408/http://www.econ.puc-rio.br/gfranco/How%20Brazil%20Beat%20Hyperinflation.htm
  39. https://www.bloomberg.com/news/articles/2015-10-06/imf-says-brazil-economy-to-shrink-3-in-2015-on-political-crisis
  40. See, e.g., Birdsall and de la Torre, Washington Contentious (2003); de Ferranti and Ody, Key Economic and Social Challenges for Latin America (2006):
  41. Chomsky, Noam (1999). Profit over people: neoliberalism and global order. Seven Stories Press. ISBN   9781888363821. OCLC   39505718.
  42. Michael Read, "Forgotten Continent" (2007), page 156.
  43. Charlie Devereux and Raymond Colitt, Venezuelans’ Quality of Life Improved in UN Index Under Chavez. Bloomberg News May 7, 2013.
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  47. See, e.g., Perry and Serven, "The Anatomy of a Multiple Crisis" (2003); Mussa, "Argentina and the Fund" (2002); Blustein, "And the Money Kept Flowing In.... and Out" (2005).
  48. Menem, Carlos (October 1998). "Intervención del Excmo. Sr. CARLOS SAUL MENEM, Presidente de la REPUBLICA ARGENTINA, ante las Juntas de Gobernadores del Fondo Monetario Internacional y del Grupo del Banco Mundial en las deliberaciones anuales conjuntas" (PDF). IMF. Retrieved June 7, 2009.
  49. Cavallo, Domingo (2004). "Clase N° 6. Argentina hasta la crisis brasileña" (PDF). Harvard University. Retrieved June 7, 2009. Hacia el segundo semestre de 1998 Argentina era considerada en Washington la economía más exitosa de todas las que habían reestructurado su deuda en el marco del Plan Brady. Ninguno de los patrocinadores del "Consenso de Washington" se preocupaba por destacar que las reformas económicas de Argentina diferían de sus 10 recomendaciones. Por el contrario, Argentina era considerada como el "mejor alumno" del FMI, el Banco Mundial y el Gobierno de los EEUU.
  50. Velasco, Andres; Neut, Alejandro (2003). "Tough Policies, Incredible Policies?". doi: 10.3386/w9932 . S2CID   6764956.Cite journal requires |journal= (help) NBER Working Paper No. 9932. National Bureau of Economic Research, Cambridge, Massachusetts
  51. Economic Growth in the 1990s: Learning from a Decade of Reform, Washington: The International Bank for Reconstruction and Development / The World Bank, 2005, ch. 8
  52. Economic Growth in the 1990s: Learning from a Decade of Reform, Washington: The International Bank for Reconstruction and Development / The World Bank, 2005, ch. 7
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  54. Weisbrot, Mark, "Doing it their own way," International Herald Tribune, December 28, 2006
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  56. See, e.g., The Economist. April 12, 2006. Latin America—The return of populism.
  57. Argentina's Pension Plan Presses On, Driving Down Markets and the Peso
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  59. "Official statistics: Don't lie to me, Argentina". The Economist. February 25, 2012. Retrieved January 21, 2013.
  60. Massaldi, Julian, "Buenos Aires Consensus: Lula and Kirchner's agreement 'Against Neoliberalism'" Archived September 27, 2012, at the Wayback Machine , Znet, November 20, 2003
  61. See, e.g., Financial Times at following link: Left turn ahead? How flaws in Lula's plan could condemn Brazil to lag behind its peers (registration required).
  62. 1 2 New York Times, 2007 December 2, "Ending Famine, Simply by Ignoring the Experts"
  63. Vijaya Ramachandran (July 7, 2012). "Global Development: Views from the Center: The Value of Rejecting Expert Advice". cgdev.org. Center for Global Development. Retrieved April 24, 2015.
  64. Marda Dunsky, Pens and Swords: How the Mainstream Media Report the Israeli-Palestinian Conflict, 2008, Columbia University Press, ISBN   978-0-231-13349-4, p.36
  65. Vicki O'Hara, Reaction to the Greater Middle East Initiative, which encourages democracy in Arab countries, NPR/Morning Edition, March 23, 2004
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  67. Issue Area: Official Agendas fair.org

Sources

Primary sources

Secondary sources