Washington Consensus
Encyclopedia
The term Washington Consensus was coined in 1989 by the economist John Williamson
to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries
. These policies were advocated by Washington, D.C.-based institutions such as the International Monetary Fund
(IMF), World Bank
, and the US Treasury Department. 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.
Subsequently to Williamson's work, the term Washington Consensus has commonly come to be used in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach (sometimes described, typically pejoratively, as market fundamentalism
or neoliberalism
). The term Washington Consensus is also sometimes used in a historical sense to refer to the era when, as some authors suggest, the policy prescriptions involved (whether interpreted in the broad or narrow sense of the term) were especially influential. Williamson himself has argued (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), but that the broader neoliberal manifesto "never enjoyed a consensus [in Washington] or anywhere much else" and can by now 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, in face of the contrast between the broader and narrower definitions outlined above (there has been much debate, but less consensus, over the success or failure of countries that are variously claimed to have embraced (or rejected) the key recommendations of the consensus, however defined). But there are also substantive differences involved. Some of the critics discussed in this article take issue, for example, with the 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 reviewed below, the point at issue is less what is included in the Consensus than what is missing, including such areas as institution-building and targeted efforts to improve opportunities for the weakest in society. Despite these areas of controversy, a great many writers and development institutions would by now accept the more general proposition that, rather than any single "one size fits all" formula, strategies need to be tailored to the specific circumstances of individual countries.
, an economist
from the Institute for International Economics
, an international economic think tank
based in Washington, D.C. http://www.miami.com/mld/miamiherald/business/special_packages/business_monday/13527922.htm?source=rss&channel=miamiherald_business_monday 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 Latin America from the economic and financial crises of the 1980s.
The consensus as originally stated by Williamson included ten broad sets of relatively specific policy recommendations:
Although Williamson's formulation emphasizes 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." 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). 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."
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.
In Williamson's own words from 2002:
(or neoliberal) agenda.
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. 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 (Kuczynski and Williamson, 2003).
The term Washington Consensus has been used to capture 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.
Many commentators see the consensus as having been at its strongest during the 1990s, particularly if interpreted in the broader sense of the term. Some have argued that the consensus ended at the turn of the century, or at least that it became less influential after about the year 2000.
More commonly, commentators have suggested that the Consensus survived until the time of the 2008–2009 global financial crisis.
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.
These included former British Prime Minister Gordon Brown
, who following the 2009 G-20 London summit
, declared "the old Washington Consensus is over". Williamson was asked by the Washington Post in April 2009 whether he agreed with Gordon Brown that the Washington Consensus was dead. He responded:
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."
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?.
The institutions that formed the consensus started softening their insistence on these policies in the 2000s largely due to political pressures surrounding globalization, but any reference of these ideas as a consensus essentially ended in the wake of the 2008 global financial crisis, as market fundamentalism lost favour. Though, it should be noted, that most of the core specific policies are still generally regarded favourably, but the policies have come to be viewed as not preventing nor alleviating acute economic crises. This is perhaps most notable in the work of the IMF with South Korea to create a new sort of intervention program to the one that South Korea was forced to accept during the Asian Financial Crisis of the late 1990s. That intervention, which was heavily grounded in the Washington Consensus, was hailed at the time for stopping the "Asian Contagion" but eventually the program came to be seen more skeptically.
Williamson himself 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". 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 himself 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
. The Washington Consensus is also criticized by others such as some Latin American politicians and heterodox economists
such as Erik Reinert. 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
.
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. 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".
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.
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.
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.
A separate agenda—only tangentially related to the Washington Consensus as framed by Williamson—concerns various programs for multilateral trade liberalization, whether at the global (WTO) or regional level, including the North American Free Trade Agreement
(NAFTA) and DR-CAFTA agreements.
George H.W. Bush began to draw up a US-Mexican-Canadian free trade
proposal that came to be known as the North American Free Trade Agreement
(NAFTA). NAFTA was later signed into law by Bush's successor, President Bill Clinton
, and the three North American countries agreed to gradually phase out or sharply reduce tariff
s on each other's goods, a policy perfectly in line with the ideals of the Consensus. President George W. Bush
continued to support NAFTA, and his administration negotiated a similar agreement known as the Dominican Republic-Central America Free Trade Agreement
(DR-CAFTA) with the Dominican Republic
and Central America, which was approved by the United States Congress
in 2005.
Proponents of NAFTA and DR-CAFTA point out that they promote profit
s of corporations in the participating countries and are a boon to US consumers, providing them with less-expensive foreign goods. Critics, who include figures coming both from a section of the political left (specifically including allies of the trade union
movement and the anti-globalisation left, such as Ralph Nader
) and from part of the right (especially the nationalist
/nativist tradition embodied by Patrick J. Buchanan), accuse the agreements of crippling the working class
of the United States by promoting the relocation of production to cheaper labor markets in Mexico, and allege that such shifts have in addition resulted in the exploitation
of Mexican laborers. Conversely, large quantities of subsidized agricultural goods from the United States flooded the markets of many nations that were economically dependent on farming.
Empirical studies have found the quantitative impact of these trade agreements on the US economy to be far smaller than predicted by either advocates or critics.
While a Democratic
president, Bill Clinton, signed NAFTA and a Republican
president, George W. Bush, signed CAFTA, the United States Congress's subsequent support of these agreements has been more partisan
. Most Republicans favor the agreements and most Democrats either oppose the agreements or call for their amendment—e.g., to add stronger provisions on environmental protection
and labor rights
.
The policies were originally conceived largely as a conservative response to crises in Latin America, but as of 2010, several Latin American countries are 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, have, in practice, adopted the bulk of the policies included in Williamson's list, even though they criticize the market fundamentalism that these are often associated with. Also critical of the policies as actually promoted by the IMF
have been some US economists, such as Joseph Stiglitz and Dani Rodrik
, who 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.
The critique laid out in The World Bank's study Economic Growth in the 1990s: Learning from a Decade of Reform (2005) 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.
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). More than a decade into the transition, some of the former communist countries, especially parts of the former Soviet Union, had still not caught up to their 1990 levels of output. Many Sub-Saharan Africa
n'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", came crashing down in 2002.
Among other results of the recent global financial crisis has been a strengthening of belief in the importance of local development models as more suitable than programmatic approaches. Some elements of this school of thought were summarized in the idea of a "Beijing Consensus
" which suggested that nations needed to find their own paths to development and reform.
, 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 barrier
s 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.
Anti-globalization
critics further claim that First World countries impose what the critics describe as the consensus's neoliberal
policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery
. They argue that the Washington Consensus has not, in fact, led to any great economic boom in Latin America, but rather to severe economic crises and the accumulation of crippling external debt
s that render the target country beholden to the First World.
Many of the policy prescriptions (e.g., the privatization of state industries, tax reform, and deregulation) are criticized as mechanisms for ensuring the development of a small, wealthy, indigenous elite in the Third World who will rise to political power and also have a vested interest in maintaining the local status quo of labor exploitation.
Some specific factual premises of the critique as phrased above (especially on the macroeconomic side) are not accepted by defenders, or indeed all critics, of the Washington Consensus. To take a few examples, inflation in many developing countries is now at its lowest levels for many decades (low single figures for very much of Latin America). Workers in factories created by foreign investment are found typically to receive higher wages and better working conditions than are standard in their own countries' domestically-owned workplaces. Economic growth in much of Latin America in the last few years has been at historically high rates, and debt levels, relative to the size of these economies, are on average significantly lower than they were several years ago.
Despite these 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.
Some socialist political leaders in Latin America are vocal and well-known critics of the Washington Consensus, such as Venezuela
n President Hugo Chávez
, Cuba
n ex-President Fidel Castro
, Bolivia
n President
Evo Morales
, and Rafael Correa
, President of Ecuador
. In Argentina
, too, the recent Peronist party government of Néstor Kirchner
undertook policy measures which represented a repudiation of at least some Consensus policies (see Continuing Controversy below).
Others on the Latin American left take a different approach. Governments led by the Socialist Party of Chile
, by Alan García in Peru
, by Tabaré Vázquez
in Uruguay
, and by Lula
in Brazil, have in practise maintained a high degree of continuity with the economic policies described under the Washington Consensus (debt-paying, protection to foreign investment, financial reforms, etc.). But governments of this type have simultaneously sought to supplement these policies by measures directly targeted at improving productivity and helping the poor, such as education reforms and subsidies to poor families conditioned on their children staying in school.
and post-Keynesian
critics of the Consensus have argued that the underlying policies were incorrectly laid down and are too rigid to be able to succeed. For example, flexible labor laws were supposed to create new jobs, but economic evidence from Latin America is inconclusive on this point. In addition, some argue that the package of policies does not take into account economic and cultural differences between countries. Some critics have argued that this set of policies should be implemented, if at all, during a period of rapid economic growth and not—as often is the case—during an economic crisis.
Moisés Naím
, chief editor of Foreign Policy
, has made the argument that there was no 'consensus' in the first place. He has argued that there are and have been major differences between economists over what is the 'correct economic policy', hence the idea of there being a consensus was also flawed.
, 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. http://www.telam.com.ar/especial_xx04.asp
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 ("convertibility"), 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).
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. 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":
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) "argues 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". In the 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.
The IMF's independent evaluation office has issued a review of the lessons of Argentina for the institution, summarized in the following quotation:
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. 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.
The Economist has argued that the Néstor Kirchner administration will end up as one more in Argentina's long history of populist governments. 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. 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.
In 2003, Argentina's then-President Néstor Kirchner and Brazilian President Lula da Silva signed the "Buenos Aires Consensus", a manifesto in opposition to the policies of the Washington Consensus. Skeptical political observers note, however, that Lula's rhetoric on such public occasions should be distinguished from the policies actually implemented by his administration. This said, Lula da Silva paid the whole of the Brazilian debt with the IMF two years in advance, freeing his government from IMF tutelage, as did Néstor Kirchner's government in 2005.
, 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. 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.
In a commentary on the Malawi experience prepared for the Center for Global Development
, 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".
and underemployment
. Chile has been offered as an example of a Consensus success story, and countries such as El Salvador
and Uruguay have also shown some positive signs of economic development. Brazil, despite relatively modest rates of aggregate growth, has seen important progress in recent years in the reduction of poverty.
Joseph Stiglitz has argued that the Chilean success story owes a lot to state ownership of key industries, particularly its
copper
industry, and currency intervention
s stabilizing capital flows. Many other economists, though, argue that Chile's economic success is largely due to its combination of sound macroeconomics and market-oriented policies (though the country's relatively strong public institutions, including one of the better public school systems in the region, also deserve some credit).
There have been claims of discrepancies between the Washington Consensus as propounded by Williamson, and the policies actually implemented with the endorsement of the Washington institutions themselves. For example, the Washington Consensus stated a need for investment in education, but the policies of fiscal discipline promoted by the International Monetary Fund have sometimes in practice led countries to cut back public spending on social programs, including such areas as basic education. Those familiar with the work of the IMF respond that, at a certain stage, countries near bankruptcy have to cut back their public spending one way or another to live within their means. Washington may argue for enlightened choices among different public spending priorities, but in the last analysis it is domestically-elected political leaders who ultimately have to make the tough political choices.
), has been explicit that the defeat of hyperinflation
was among the most important positive contributions of recent years to the welfare of the country's poor. Nor have these countries in practice reversed their more open orientation to global trade and international investment in favor of a return to the policies of autarchy pursued between the 1950s and 1980s.
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. This includes improving the investment climate and elimination of 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.
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." 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." 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’ 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."
Analysis and critiques
John Williamson (economist)
John Williamson, born 1937, is an economist and coined the term Washington Consensus. He is a critic of capital liberalization and the bipolar Exchange rate....
to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries
Developing country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
. These policies were advocated by Washington, D.C.-based institutions such as the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF), World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, and the US Treasury Department. 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.
Subsequently to Williamson's work, the term Washington Consensus has commonly come to be used in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach (sometimes described, typically pejoratively, as market fundamentalism
Market fundamentalism
Market fundamentalism is a pejorative term applied to a strong belief in the ability of laissez-faire or free market economic views or policies to solve economic and social problems....
or neoliberalism
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
). The term Washington Consensus is also sometimes used in a historical sense to refer to the era when, as some authors suggest, the policy prescriptions involved (whether interpreted in the broad or narrow sense of the term) were especially influential. Williamson himself has argued (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), but that the broader neoliberal manifesto "never enjoyed a consensus [in Washington] or anywhere much else" and can by now 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, in face of the contrast between the broader and narrower definitions outlined above (there has been much debate, but less consensus, over the success or failure of countries that are variously claimed to have embraced (or rejected) the key recommendations of the consensus, however defined). But there are also substantive differences involved. Some of the critics discussed in this article take issue, for example, with the 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 reviewed below, the point at issue is less what is included in the Consensus than what is missing, including such areas as institution-building and targeted efforts to improve opportunities for the weakest in society. Despite these areas of controversy, a great many writers and development institutions would by now accept the more general proposition that, rather than any single "one size fits all" formula, strategies need to be tailored to the specific circumstances of individual countries.
Original sense of the term: Williamson's ten points
The concept and name of the Washington Consensus were first presented in 1989 by John WilliamsonJohn Williamson (economist)
John Williamson, born 1937, is an economist and coined the term Washington Consensus. He is a critic of capital liberalization and the bipolar Exchange rate....
, an economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
from the Institute for International Economics
Institute for International Economics
The Peter G. Peterson Institute for International Economics , formerly the Institute for International Economics, is a private, non-profit, and nonpartisan think tank focused on international economics, based in Washington, D.C. It was founded by C...
, an international economic think tank
Think tank
A think tank is an organization that conducts research and engages in advocacy in areas such as social policy, political strategy, economics, military, and technology issues. Most think tanks are non-profit organizations, which some countries such as the United States and Canada provide with tax...
based in Washington, D.C. http://www.miami.com/mld/miamiherald/business/special_packages/business_monday/13527922.htm?source=rss&channel=miamiherald_business_monday 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 Latin America from the economic and financial crises of the 1980s.
The consensus as originally stated by Williamson included ten broad sets of relatively specific policy recommendations:
- Fiscal policyFiscal policyIn economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
discipline, with avoidance of large fiscal deficits relative to GDP; - Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary educationEducationEducation in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
, primary health carePrimary health carePrimary health care, often abbreviated as “PHC”, has been defined as "essential health care based on practical, scientifically sound and socially acceptable methods and technology made universally accessible to individuals and families in the community through their full participation and at a cost...
and infrastructureInfrastructureInfrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
investmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
; - Tax reformTax reformTax reform is the process of changing the way taxes are collected or managed by the government.Tax reformers have different goals. Some seek to reduce the level of taxation of all people by the government. Some seek to make the tax system more progressive or less progressive. Some seek to simplify...
, broadening the tax base and adopting moderate marginal tax rates; - Interest rateInterest rateAn interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s that are market determined and positive (but moderate) in real terms; - Competitive exchange rateExchange rateIn finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
s; - 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 tariffTariffA tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s; - Liberalization of inward foreign direct investmentForeign direct investmentForeign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
; - PrivatizationPrivatizationPrivatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
of state enterprises; - DeregulationDeregulationDeregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
: 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 institutionFinancial institutionIn financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s; - Legal security for property rights.
Although Williamson's formulation emphasizes 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
Joseph Stanislaw
Joseph Stanislaw is a financial adviser on international markets and politics. He is also the co-founder and former president of Cambridge Energy Research Associates, an energy research consultancy that was acquired in 2004 by IHS Energy....
and Daniel Yergin
Daniel Yergin
Daniel Howard Yergin is an American author, speaker, and economic researcher. Yergin is the co-founder and chairman of Cambridge Energy Research Associates, an energy research consultancy. It was acquired by IHS Inc...
, 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." 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). 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."
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.
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 LulaLuiz Inácio Lula da SilvaLuiz Inácio Lula da Silva , known popularly as Lula, served as the 35th President of Brazil from 2003 to 2010.A founding member of the Workers' Party , he ran for President three times unsuccessfully, first in the 1989 election. Lula achieved victory in the 2002 election, and was inaugurated as...
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.
Broad sense of the term
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 fundamentalismMarket fundamentalism
Market fundamentalism is a pejorative term applied to a strong belief in the ability of laissez-faire or free market economic views or policies to solve economic and social problems....
(or neoliberal) agenda.
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...
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. 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 (Kuczynski and Williamson, 2003).
The term Washington Consensus has been used to capture the general shift towards free market policies that followed the displacement of Keynesianism
Post-war displacement of Keynesianism
The Post-war displacement of Keynesianism was a series of events which from mostly unobserved beginnings in the late 1940s, had by the early 1980s led to the replacement of Keynesian economics as the leading theoretical influence on economic life in the developed world...
in the 1970s. In this broad sense the Washington Consensus is sometimes considered to have begun at about 1980.
Many commentators see the consensus as having been at its strongest during the 1990s, particularly if interpreted in the broader sense of the term. Some have argued that the consensus ended at the turn of the century, or at least that it became less influential after about the year 2000.
More commonly, commentators have suggested that the Consensus survived until the time of the 2008–2009 global financial crisis.
Following the strong intervention
2008–2009 Keynesian resurgence
In 2008 and 2009, there was a resurgence of interest in Keynesian economics among policy makers in the world's industrialized economies. This has included discussions and implementation of economic policies in accordance with the recommendations made by John Maynard Keynes in response to the Great...
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.
These included former British Prime Minister Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
, who following the 2009 G-20 London summit
2009 G-20 London summit
The 2009 G-20 London Summit is the second meeting of the G-20 heads of state in discussion of financial markets and the world economy, which was held in London on 2 April 2009 at the ExCeL Exhibition Centre. It followed the first G-20 Leaders Summit on Financial Markets and the World Economy, which...
, declared "the old Washington Consensus is over". 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.
After the 2010 G-20 Seoul summit
2010 G-20 Seoul summit
The 2010 G20 Seoul Summit was the fifth meeting of the G-20 heads of government, to discuss the global financial system and the world economy, which took place in Seoul, South Korea on November 11–12, 2010...
announced that it had achieved agreement on a Seoul Development Consensus
Seoul Development Consensus
The Seoul Development Consensus for Shared Growth is a set of principles and guidelines set up to assist the G20 nations and other global actors in working collaboratively with less developed countries in order to boost their economic growth and to achieve the UN's Millennium Development Goals...
, 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."
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. The results of these reforms are much debated. Some critics focus on claims that the reforms led to destabilization. Some critics have also blamed the Washington Consensus for particular economic crises such as the Argentine economic crisis (1999–2002), and for exacerbating Latin America's economic inequalities. Criticism of the Washington Consensus has often been dismissed as socialismSocialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
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
Dani Rodrik
Dani Rodrik is a Turkish economist and Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University, teaching in the School's MPA/ID Program. He has published widely in the areas of international economics, economic development, and...
, Professor of International Political Economy at Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
, in his paper Goodbye Washington Consensus, Hello Washington Confusion?.
The institutions that formed the consensus started softening their insistence on these policies in the 2000s largely due to political pressures surrounding globalization, but any reference of these ideas as a consensus essentially ended in the wake of the 2008 global financial crisis, as market fundamentalism lost favour. Though, it should be noted, that most of the core specific policies are still generally regarded favourably, but the policies have come to be viewed as not preventing nor alleviating acute economic crises. This is perhaps most notable in the work of the IMF with South Korea to create a new sort of intervention program to the one that South Korea was forced to accept during the Asian Financial Crisis of the late 1990s. That intervention, which was heavily grounded in the Washington Consensus, was hailed at the time for stopping the "Asian Contagion" but eventually the program came to be seen more skeptically.
Williamson himself has summarized the overall results on growth, employment and poverty reduction
Poverty reduction
Poverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life....
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". 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 himself has pointed out, the term has come to be used in a broader sense to its original intention, as a synonym for market fundamentalism
Market fundamentalism
Market fundamentalism is a pejorative term applied to a strong belief in the ability of laissez-faire or free market economic views or policies to solve economic and social problems....
or neo-liberalism. In this broader sense, Williamson states, it has been criticized by people such as George Soros
George Soros
George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
and Nobel Laureate Joseph E. Stiglitz
Joseph E. Stiglitz
Joseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences and the John Bates Clark Medal . He is also the former Senior Vice President and Chief Economist of the World Bank...
. The Washington Consensus is also criticized by others such as some Latin American politicians and heterodox economists
Heterodox economics
"Heterodox economics" refers to approaches or to schools of economic thought that are considered outside of "mainstream economics". Mainstream economists sometimes assert that it has little or no influence on the vast majority of academic economists in the English speaking world. "Mainstream...
such as Erik Reinert. The term has become associated with neoliberal
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
policies in general and drawn into the broader debate over the expanding role of the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
, constraints upon the state
Sovereign state
A sovereign state, or simply, state, is a state with a defined territory on which it exercises internal and external sovereignty, a permanent population, a government, and the capacity to enter into relations with other sovereign states. It is also normally understood to be a state which is neither...
, and the influence of the United States, and globalization more broadly, on countries' national sovereignty
Sovereignty
Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided...
.
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
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
, no privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
, 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".
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.
In a book edited with Pedro Pablo Kuczynski
Pedro Pablo Kuczynski
Pedro Pablo Kuczynski Godard , better known simply as PPK, is a Peruvian public administrator, economist, and politician that participate in the policy of his country....
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.
Macroeconomic adjustment
The widespread adoption by governments of the Washington Consensus was to a large degree a reaction to the macroeconomicMacroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
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
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
, 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.
Trade liberalization
The Washington Consensus, as framed by Williamson, envisaged a largely unilateral process of trade reform, by which countries would lower their non-tariff (especially) and tariff barriers to imports. Many countries, including the majority of those in Latin America, have indeed undertaken significant unilateral trade liberalization over subsequent years, opening their economies to greater import competition while simultaneously increasing the share of exports in their GDP (in parallel, Latin America's share in global trade has also increased).A separate agenda—only tangentially related to the Washington Consensus as framed by Williamson—concerns various programs for multilateral trade liberalization, whether at the global (WTO) or regional level, including the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA) and DR-CAFTA agreements.
NAFTA and DR-CAFTA
As regards regional trade liberalization within the Americas, in the early 1990s, US PresidentPresident of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
George H.W. Bush began to draw up a US-Mexican-Canadian free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
proposal that came to be known as the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA). NAFTA was later signed into law by Bush's successor, President Bill Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
, and the three North American countries agreed to gradually phase out or sharply reduce tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s on each other's goods, a policy perfectly in line with the ideals of the Consensus. President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
continued to support NAFTA, and his administration negotiated a similar agreement known as the Dominican Republic-Central America Free Trade Agreement
Dominican Republic-Central America Free Trade Agreement
The Dominican Republic – Central America Free Trade Agreement, commonly called DR-CAFTA, is a free trade agreement . Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA...
(DR-CAFTA) with the Dominican Republic
Dominican Republic
The Dominican Republic is a nation on the island of La Hispaniola, part of the Greater Antilles archipelago in the Caribbean region. The western third of the island is occupied by the nation of Haiti, making Hispaniola one of two Caribbean islands that are shared by two countries...
and Central America, which was approved by the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 2005.
Proponents of NAFTA and DR-CAFTA point out that they promote profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
s of corporations in the participating countries and are a boon to US consumers, providing them with less-expensive foreign goods. Critics, who include figures coming both from a section of the political left (specifically including allies of the trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
movement and the anti-globalisation left, such as Ralph Nader
Ralph Nader
Ralph Nader is an American political activist, as well as an author, lecturer, and attorney. Areas of particular concern to Nader include consumer protection, humanitarianism, environmentalism, and democratic government....
) and from part of the right (especially the nationalist
American nationalism
American nationalism refers to nationalism among the people of the United States. Nationalism is the correct and recognized term for the associated ideology and political movements, within the present United States, and during its history.-Origins:...
/nativist tradition embodied by Patrick J. Buchanan), accuse the agreements of crippling the working class
Working class
Working class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...
of the United States by promoting the relocation of production to cheaper labor markets in Mexico, and allege that such shifts have in addition resulted in the exploitation
Exploitation
This article discusses the term exploitation in the meaning of using something in an unjust or cruel manner.- As unjust benefit :In political economy, economics, and sociology, exploitation involves a persistent social relationship in which certain persons are being mistreated or unfairly used for...
of Mexican laborers. Conversely, large quantities of subsidized agricultural goods from the United States flooded the markets of many nations that were economically dependent on farming.
Empirical studies have found the quantitative impact of these trade agreements on the US economy to be far smaller than predicted by either advocates or critics.
While a Democratic
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
president, Bill Clinton, signed NAFTA and a Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
president, George W. Bush, signed CAFTA, the United States Congress's subsequent support of these agreements has been more partisan
Partisan (political)
In politics, a partisan is a committed member of a political party. In multi-party systems, the term is widely understood to carry a negative connotation - referring to those who wholly support their party's policies and are perhaps even reluctant to acknowledge correctness on the part of their...
. Most Republicans favor the agreements and most Democrats either oppose the agreements or call for their amendment—e.g., to add stronger provisions on environmental protection
Environmental protection
Environmental protection is a practice of protecting the environment, on individual, organizational or governmental level, for the benefit of the natural environment and humans. Due to the pressures of population and our technology the biophysical environment is being degraded, sometimes permanently...
and labor rights
Labor rights
Labor rights or workers' rights are a group of legal rights and claimed human rights having to do with labor relations between workers and their employers, usually obtained under labor and employment law. In general, these rights' debates have to do with negotiating workers' pay, benefits, and safe...
.
Criticisms of the Washington Consensus policies
Most criticism has been focused on trade liberalization and the elimination of subsidies, and criticism has been particularly strident in the agriculture sector. Though, in nations with substantial natural resources, criticism has tended to focus on privatization of industries exploiting these resources.The policies were originally conceived largely as a conservative response to crises in Latin America, but as of 2010, several Latin American countries are 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, have, in practice, adopted the bulk of the policies included in Williamson's list, even though they criticize the market fundamentalism that these are often associated with. Also critical of the policies as actually promoted by the IMF
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
have been some US economists, such as Joseph Stiglitz and Dani Rodrik
Dani Rodrik
Dani Rodrik is a Turkish economist and Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University, teaching in the School's MPA/ID Program. He has published widely in the areas of international economics, economic development, and...
, who have challenged what are sometimes described as the ‘fundamentalist
Market fundamentalism
Market fundamentalism is a pejorative term applied to a strong belief in the ability of laissez-faire or free market economic views or policies to solve economic and social problems....
’ 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.
The critique laid out in The World Bank's study Economic Growth in the 1990s: Learning from a Decade of Reform (2005) 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
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, 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
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
's new emphasis is on the need for humility, for policy diversity, for selective and modest reforms, and for experimentation.
The World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
'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
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...
to market economies (many of the Central and East European countries, by contrast, made the adjustment relatively rapidly). More than a decade into the transition, some of the former communist countries, especially parts of the former Soviet Union, had still not caught up to their 1990 levels of output. Many Sub-Saharan Africa
Sub-Saharan Africa
Sub-Saharan Africa as a geographical term refers to the area of the African continent which lies south of the Sahara. A political definition of Sub-Saharan Africa, instead, covers all African countries which are fully or partially located south of the Sahara...
n'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
Uganda
Uganda , officially the Republic of Uganda, is a landlocked country in East Africa. Uganda is also known as the "Pearl of Africa". It is bordered on the east by Kenya, on the north by South Sudan, on the west by the Democratic Republic of the Congo, on the southwest by Rwanda, and on the south by...
, Tanzania
Tanzania
The United Republic of Tanzania is a country in East Africa bordered by Kenya and Uganda to the north, Rwanda, Burundi, and the Democratic Republic of the Congo to the west, and Zambia, Malawi, and Mozambique to the south. The country's eastern borders lie on the Indian Ocean.Tanzania is a state...
, and Mozambique
Mozambique
Mozambique, officially the Republic of Mozambique , is a country in southeastern Africa bordered by the Indian Ocean to the east, Tanzania to the north, Malawi and Zambia to the northwest, Zimbabwe to the west and Swaziland and South Africa to the southwest...
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
Per capita
Per capita is a Latin prepositional phrase: per and capita . The phrase thus means "by heads" or "for each head", i.e. per individual or per person...
GDP in Latin America than in the period of rapid post-War expansion and opening in the world economy, 1950-80. Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, described by some as "the poster boy of the Latin American economic revolution", came crashing down in 2002.
Among other results of the recent global financial crisis has been a strengthening of belief in the importance of local development models as more suitable than programmatic approaches. Some elements of this school of thought were summarized in the idea of a "Beijing Consensus
Beijing Consensus
Beijing Consensus is a term that represents an alternative economic development model to the Washington Consensus of market-friendly policies promoted by the IMF, World Bank and U.S. Treasury, often for guiding reform in developing countries...
" which suggested that nations needed to find their own paths to development and reform.
Anti-globalization movement
Many critics of trade liberalization, such as Noam ChomskyNoam Chomsky
Avram Noam Chomsky is an American linguist, philosopher, cognitive scientist, and activist. He is an Institute Professor and Professor in the Department of Linguistics & Philosophy at MIT, where he has worked for over 50 years. Chomsky has been described as the "father of modern linguistics" and...
, Tariq Ali
Tariq Ali
Tariq Ali , , is a British Pakistani military historian, novelist, journalist, filmmaker, public intellectual, political campaigner, activist, and commentator...
, Susan George
Susan George (political scientist)
Susan George is a well-known Franco-American political and social scientist, activist and writer on global social justice, Third World poverty, underdevelopment and debt. She is a fellow and president of the board of the Transnational Institute in Amsterdam...
, and Naomi Klein
Naomi Klein
Naomi Klein is a Canadian author and social activist known for her political analyses and criticism of corporate globalization.-Family:...
, 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 barrier
Trade barrier
Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...
s allow the free movement of goods across borders according to market forces
Market Forces
Market Forces is a science fiction novel by Richard Morgan, first published in 2004.Set in 2049 in the wake of a global economic downturn called the Domino Recessions, it follows up-and-coming executive Chris as he plunges into the profitable field of Conflict Investment...
, but labor is not permitted to move freely due to the requirements of a visa
Visa (document)
A visa is a document showing that a person is authorized to enter the territory for which it was issued, subject to permission of an immigration official at the time of actual entry. The authorization may be a document, but more commonly it is a stamp endorsed in the applicant's passport...
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
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...
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
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy.
Anti-globalization
Anti-globalization movement
The anti-globalization movement, or counter-globalisation movement, is critical of the globalization of corporate capitalism. The movement is also commonly referred to as the global justice movement, alter-globalization movement, anti-globalist movement, anti-corporate globalization movement, or...
critics further claim that First World countries impose what the critics describe as the consensus's neoliberal
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
. They argue that the Washington Consensus has not, in fact, led to any great economic boom in Latin America, but rather to severe economic crises and the accumulation of crippling external debt
External debt
External debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such...
s that render the target country beholden to the First World.
Many of the policy prescriptions (e.g., the privatization of state industries, tax reform, and deregulation) are criticized as mechanisms for ensuring the development of a small, wealthy, indigenous elite in the Third World who will rise to political power and also have a vested interest in maintaining the local status quo of labor exploitation.
Some specific factual premises of the critique as phrased above (especially on the macroeconomic side) are not accepted by defenders, or indeed all critics, of the Washington Consensus. To take a few examples, inflation in many developing countries is now at its lowest levels for many decades (low single figures for very much of Latin America). Workers in factories created by foreign investment are found typically to receive higher wages and better working conditions than are standard in their own countries' domestically-owned workplaces. Economic growth in much of Latin America in the last few years has been at historically high rates, and debt levels, relative to the size of these economies, are on average significantly lower than they were several years ago.
Despite these 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.
Some socialist political leaders in Latin America are vocal and well-known critics of the Washington Consensus, such as Venezuela
Venezuela
Venezuela , officially called the Bolivarian Republic of Venezuela , is a tropical country on the northern coast of South America. It borders Colombia to the west, Guyana to the east, and Brazil to the south...
n President Hugo Chávez
Hugo Chávez
Hugo Rafael Chávez Frías is the 56th and current President of Venezuela, having held that position since 1999. He was formerly the leader of the Fifth Republic Movement political party from its foundation in 1997 until 2007, when he became the leader of the United Socialist Party of Venezuela...
, Cuba
Cuba
The Republic of Cuba is an island nation in the Caribbean. The nation of Cuba consists of the main island of Cuba, the Isla de la Juventud, and several archipelagos. Havana is the largest city in Cuba and the country's capital. Santiago de Cuba is the second largest city...
n ex-President Fidel Castro
Fidel Castro
Fidel Alejandro Castro Ruz is a Cuban revolutionary and politician, having held the position of Prime Minister of Cuba from 1959 to 1976, and then President from 1976 to 2008. He also served as the First Secretary of the Communist Party of Cuba from the party's foundation in 1961 until 2011...
, Bolivia
Bolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...
n President
President of Bolivia
The President of Bolivia is head of state and head of government of Bolivia. According to the current Constitution, the president is elected by popular vote to a five year term, renewable once...
Evo Morales
Evo Morales
Juan Evo Morales Ayma , popularly known as Evo , is a Bolivian politician and activist, currently serving as the 80th President of Bolivia, a position that he has held since 2006. He is also the leader of both the Movement for Socialism party and the cocalero trade union...
, and Rafael Correa
Rafael Correa
Rafael Vicente Correa Delgado born is the President of the Republic of Ecuador and was the president pro tempore of the Union of South American Nations. An economist educated in Ecuador, Belgium and the United States, he was elected President in late 2006 and took office in January 2007...
, President of Ecuador
Ecuador
Ecuador , officially the Republic of Ecuador is a representative democratic republic in South America, bordered by Colombia on the north, Peru on the east and south, and by the Pacific Ocean to the west. It is one of only two countries in South America, along with Chile, that do not have a border...
. In Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, too, the recent Peronist party government of Néstor Kirchner
Néstor Kirchner
Néstor Carlos Kirchner was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007. Previously, he was Governor of Santa Cruz Province since 10 December 1991. He briefly served as Secretary General of the Union of South American Nations ...
undertook policy measures which represented a repudiation of at least some Consensus policies (see Continuing Controversy below).
Others on the Latin American left take a different approach. Governments led by the Socialist Party of Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
, by Alan García in Peru
Peru
Peru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean....
, by Tabaré Vázquez
Tabaré Vázquez
Tabaré Ramón Vázquez Rosas is a former President of Uruguay. A physician by training, he is a member of the leftist Frente Amplo coalition . Vázquez was elected president on October 31, 2004, took office on March 1, 2005, and relinquished the office on March 1, 2010...
in Uruguay
Uruguay
Uruguay ,officially the Oriental Republic of Uruguay,sometimes the Eastern Republic of Uruguay; ) is a country in the southeastern part of South America. It is home to some 3.5 million people, of whom 1.8 million live in the capital Montevideo and its metropolitan area...
, and by Lula
Luiz Inácio Lula da Silva
Luiz Inácio Lula da Silva , known popularly as Lula, served as the 35th President of Brazil from 2003 to 2010.A founding member of the Workers' Party , he ran for President three times unsuccessfully, first in the 1989 election. Lula achieved victory in the 2002 election, and was inaugurated as...
in Brazil, have in practise maintained a high degree of continuity with the economic policies described under the Washington Consensus (debt-paying, protection to foreign investment, financial reforms, etc.). But governments of this type have simultaneously sought to supplement these policies by measures directly targeted at improving productivity and helping the poor, such as education reforms and subsidies to poor families conditioned on their children staying in school.
Neo-Keynesian criticisms
Neo-KeynesianNew Keynesian economics
New Keynesian economics is a school of contemporary macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of New Classical macroeconomics.Two main assumptions define the New...
and post-Keynesian
Post-Keynesian economics
Post Keynesian economics is a school of economic thought with its origins in The General Theory of John Maynard Keynes, although its subsequent development was influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor and Paul Davidson...
critics of the Consensus have argued that the underlying policies were incorrectly laid down and are too rigid to be able to succeed. For example, flexible labor laws were supposed to create new jobs, but economic evidence from Latin America is inconclusive on this point. In addition, some argue that the package of policies does not take into account economic and cultural differences between countries. Some critics have argued that this set of policies should be implemented, if at all, during a period of rapid economic growth and not—as often is the case—during an economic crisis.
Moisés Naím
Moisés Naím
-External links:****...
, chief editor of Foreign Policy
Foreign Policy
Foreign Policy is a bimonthly American magazine founded in 1970 by Samuel P. Huntington and Warren Demian Manshel.Originally, the magazine was a quarterly...
, has made the argument that there was no 'consensus' in the first place. He has argued that there are and have been major differences between economists over what is the 'correct economic policy', hence the idea of there being a consensus was also flawed.
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 Deputy Foreign Minister Jorge TaianaJorge Taiana
Jorge Enrique Taiana is an Argentine Justicialist Party politician, formerly Foreign Minister in the government of President Cristina Fernández de Kirchner, after occupying the same post during the previous government of Néstor Kirchner...
, in an interview with the state news agency Télam
Télam
Télam is the Argentine national news agency founded in 1945. It provides news and information to about 300 subscribers, including government entities and national and international media. It operates as a state enterprise...
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. http://www.telam.com.ar/especial_xx04.asp
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 ("convertibility"), 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).
In October 1998 the IMF invited Argentine President Carlos Menem
Carlos Menem
Carlos Saúl Menem is an Argentine politician who was President of Argentina from 1989 to 1999. He is currently an Argentine National Senator for La Rioja Province.-Early life:...
, to talk about the successful Argentine experience, at the Annual Meeting of the Board of Governors. President Menem's Minister of Economy (1991–1996), Domingo Cavallo
Domingo Cavallo
Domingo Felipe "Mingo" Cavallo is an Argentine economist and politician. He has a long history of public service and is known for implementing the Convertibilidad plan, which fixed the dollar-peso exchange rate at 1:1 between 1991 and 2001, which brought the Argentine inflation rate down from over...
, 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":
The problems which arise with reliance on a fixed exchange rate mechanism (above) are discussed in the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
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
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
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) "argues 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". In the chapter 7 of its report (Financial Liberalization: What Went Right,What Went Wrong?) the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
analyses what went wrong in Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, summarizes the lessons from the experience, and draws suggestions for its future policy.
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.
Mark Weisbrot
Mark Weisbrot
Mark Weisbrot is an American economist, columnist and co-director, with Dean Baker, of the Center for Economic and Policy Research in Washington, D.C. As a commentator, he contributes to publications such as New York Times, the UK's The Guardian, and Brazil's largest newspaper, Folha de S...
says that, in more recent years, Argentina under former President Néstor Kirchner
Néstor Kirchner
Néstor Carlos Kirchner was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007. Previously, he was Governor of Santa Cruz Province since 10 December 1991. He briefly served as Secretary General of the Union of South American Nations ...
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. 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.
The Economist has argued that the Néstor Kirchner administration will end up as one more in Argentina's long history of populist governments. 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. 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.
In 2003, Argentina's then-President Néstor Kirchner and Brazilian President Lula da Silva signed the "Buenos Aires Consensus", a manifesto in opposition to the policies of the Washington Consensus. Skeptical political observers note, however, that Lula's rhetoric on such public occasions should be distinguished from the policies actually implemented by his administration. This said, Lula da Silva paid the whole of the Brazilian debt with the IMF two years in advance, freeing his government from IMF tutelage, as did Néstor Kirchner's government in 2005.
Subsidy for agriculture in Malawi
Some critics of the Washington Consensus cite Malawi's experience with agricultural subsidies as exemplifying perceived flaws in the package's prescriptions. For decades, the World Bank and donor nations pressed MalawiMalawi
The Republic of Malawi is a landlocked country in southeast Africa that was formerly known as Nyasaland. It is bordered by Zambia to the northwest, Tanzania to the northeast, and Mozambique on the east, south and west. The country is separated from Tanzania and Mozambique by Lake Malawi. Its size...
, 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. 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
Bingu wa Mutharika
Bingu wa Mutharika is a Malawi economist who is President of Malawi. He took office on 24 May 2004 after winning a disputed presidential election...
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.
In a commentary on the Malawi experience prepared for the Center for Global Development
Center for Global Development
The Center for Global Development is a non-profit think tank based in Washington, D.C. that focuses on international development. It was founded in November 2001 by former senior U.S. official Edward W. Scott, director of the Peterson Institute for International Economics, C. Fred Bergsten, and...
, 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".
Continuing controversy
Most Latin American countries continue to struggle with high povertyPoverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
and underemployment
Underemployment
Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...
. Chile has been offered as an example of a Consensus success story, and countries such as El Salvador
El Salvador
El Salvador or simply Salvador is the smallest and the most densely populated country in Central America. The country's capital city and largest city is San Salvador; Santa Ana and San Miguel are also important cultural and commercial centers in the country and in all of Central America...
and Uruguay have also shown some positive signs of economic development. Brazil, despite relatively modest rates of aggregate growth, has seen important progress in recent years in the reduction of poverty.
Joseph Stiglitz has argued that the Chilean success story owes a lot to state ownership of key industries, particularly its
Codelco
CODELCO is the Chilean state owned copper mining company formed in 1976 from the foreign owned copper companies that were nationalised in 1971. The headquarters are in Santiago and the seven-man board of directors is appointed by the President of the Republic...
copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
industry, and currency intervention
Currency intervention
Currency intervention is the buying or selling of currency by central banks in an attempt to manipulate the price of a particular currency.-Japanese Yen:From 1989 to 2003, the Japanese economy was suffering from a long deflationary period...
s stabilizing capital flows. Many other economists, though, argue that Chile's economic success is largely due to its combination of sound macroeconomics and market-oriented policies (though the country's relatively strong public institutions, including one of the better public school systems in the region, also deserve some credit).
There have been claims of discrepancies between the Washington Consensus as propounded by Williamson, and the policies actually implemented with the endorsement of the Washington institutions themselves. For example, the Washington Consensus stated a need for investment in education, but the policies of fiscal discipline promoted by the International Monetary Fund have sometimes in practice led countries to cut back public spending on social programs, including such areas as basic education. Those familiar with the work of the IMF respond that, at a certain stage, countries near bankruptcy have to cut back their public spending one way or another to live within their means. Washington may argue for enlightened choices among different public spending priorities, but in the last analysis it is domestically-elected political leaders who ultimately have to make the tough political choices.
Beyond the Washington Consensus
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. 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 recent Brazilian President (and leader of the Workers' PartyWorkers' Party (Brazil)
The Workers' Party is a democratic socialist political party in Brazil. Launched in 1980, it is recognized as one of the largest and most important left-wing movements of Latin America. It governs at the federal level in a coalition government with several other parties since January 1, 2003...
), has been explicit that the defeat of hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
was among the most important positive contributions of recent years to the welfare of the country's poor. Nor have these countries in practice reversed their more open orientation to global trade and international investment in favor of a return to the policies of autarchy pursued between the 1950s and 1980s.
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
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
-boosting reforms and direct programs to support the poor. This includes improving the investment climate and elimination of red tape
Red tape
Red tape is excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making...
(especially for smaller firms), strengthening institutions (in areas like justice systems), fighting poverty directly via the types of Conditional Cash Transfer
Conditional Cash Transfer
Conditional cash transfer programs aim to reduce poverty by making welfare programs conditional upon the receivers' actions. The government only transfers the money to persons who meet certain criteria...
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
Indigenous peoples of the Americas
The indigenous peoples of the Americas are the pre-Columbian inhabitants of North and South America, their descendants and other ethnic groups who are identified with those peoples. Indigenous peoples are known in Canada as Aboriginal peoples, and in the United States as Native Americans...
and Afro-descendant
Afro-Latin American
An Afro-Latin American is a Latin American person of at least partial Black African ancestry; the term may also refer to historical or cultural elements in Latin America thought to emanate from this community...
populations across Latin America.
An alternative usage of the term (2008) in connection with foreign policy
In early 2008, the term "Washington Consensus" was used in a different sense as a metric for analyzing American mainstream mediaMainstream media
Mainstream media are those media disseminated via the largest distribution channels, which therefore represent what the majority of media consumers are likely to encounter...
coverage of U.S. foreign policy
Foreign policy
A country's foreign policy, also called the foreign relations policy, consists of self-interest strategies chosen by the state to safeguard its national interests and to achieve its goals within international relations milieu. The approaches are strategically employed to interact with other countries...
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." According to syndicated columnist William Pfaff
William Pfaff
William Pfaff is an American author, op-ed columnist for the International Herald Tribune and frequent contributor to The New York Review of Books. He was born in Council Bluffs, Iowa, and is of German, English, and Irish origin...
, 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." 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’ 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."
See also
|
World Systems Theory The world-systems theory is a multidisciplinary, macro-scale approach to world history and social change.... Andre Gunder Frank Andre Gunder Frank was a German-American economic historian and sociologist who promoted "dependency theory" after 1970 and "World Systems Theory" after 1984... Immanuel Wallerstein Immanuel Maurice Wallerstein is a US sociologist, historical social scientist, and world-systems analyst... Poverty Reduction Strategy Paper Poverty Reduction Strategy Papers are documents required by the International Monetary Fund and World Bank before a country can be considered for debt relief within the Heavily Indebted Poor Countries initiative. PRSPs are also required before low-income countries can receive aid from most major... Structural adjustment Structural adjustments are the policies implemented by the International Monetary Fund and the World Bank in developing countries. These policy changes are conditions for getting new loans from the International Monetary Fund or World Bank, or for obtaining lower interest rates on existing loans... Beijing Consensus Beijing Consensus is a term that represents an alternative economic development model to the Washington Consensus of market-friendly policies promoted by the IMF, World Bank and U.S. Treasury, often for guiding reform in developing countries... Mumbai Consensus The Mumbai Consensus is a term used to suggest the potential for the spread in global influence of India, with a unique and people-centric approach to managing its economy which may be taken up continually by other developing nations in time... |
Sources
Development of the Washington Consensus model- Accelerated Development in Sub-Saharan Africa: An Agenda for Action, Eliot Berg, coord., (World Bank, 1981).
- After the Washington Consensus: Restarting Growth and Reform in Latin America, Kuczynski, Pedro-Paul, and John Williamson, eds., Washington, D.C., Institute for International Economics, 2003.
- The Spirit of Democratic Capitalism, by Michael Novak (1982).
- El Otro Sendero (The Other Path), by Hernando de Soto (1986).
- Toward Renewed Economic Growth in Latin America, by Bela Balassa, Gerardo M. Bueno, Pedro-Pablo Kuczynski, and Mario Henrique (Institute for International Economics, 1986).
- Latin American Adjustment: How Much Has Happened, edited by John Williamson (Institute for International Economics, 1990).
- The Macroeconomics of Populism in Latin America, edited by Rudiger Dornbusch and Sebastian Edwards (1991).
- Global Linkages: Macroeconomic Interdependence and Cooperation in the World Economy, by Jeffrey SachsJeffrey SachsJeffrey David Sachs is an American economist and Director of The Earth Institute at Columbia University. One of the youngest economics professors in the history of Harvard University, Sachs became known for his role as an adviser to Eastern European and developing country governments in the...
and Warwick McKibbinWarwick McKibbinWarwick McKibbin is an Australian Professor of Economics at the Australian National University who works across a wide range of areas in applied policy...
(1991). - World Development Report 1991: The Challenge of Development, by Lawrence Summers, Vinod Thomas, et al. (World Bank, 1991).
- "Development and the "Washington Consensus"", in World Development Vol 21:1239–1336 by John Williamson (1993).
- "Recent Lessons of Development", Lawrence H. Summers & Vinod Thomas (1993).
- Latin America's Journey to the Market: From Macroeconomic Shocks to Institutional Therapy, by Moises Naím (1994).
- Economistas y Politicos: La Política de la Reforma Económica, by Agustín Fallas-Santana (1996).
- The Crisis of Global Capitalism: Open Society Endangered, by George Soros (1997).
- Beyond Tradeoffs: Market Reform and Equitable Growth in Latin America, edited by Nancy Birdsall, Carol Graham, and Richard Sabot (Brookings Institution, 1998).
- The Third Way: Toward a Renewal of Social Democracy, by Anthony Giddens (1998).
- The Lexus and the Olive Tree: Understanding Globalization, by Thomas Friedman (1999).
- "Fads and Fashion in Economic Reforms: Washington Consensus or Washington Confusion?", by Moisés Naím (IMF, 1999).
- Washington Contentious: Economic Policies for Social Equity in Latin America, by Nancy Birdsall and Augusto de la Torre (Carnegie Endowment for International Peace and Inter-American Dialogue, 2001)
- "Did the Washington Consensus Fail?", by John Williamson (Speech at IIE, 2002).
- After the Washington Consensus, edited by Pedro-Pablo Kuczynski and John Williamson (Institute for International Economics, 2003).
- Implementing Economic Reforms in Mexico: The Washington Consensus as a Roadmap for Developing Countries by Terrence Fluharty (2007) http://ecommons.txstate.edu/arp/183/
Analysis and critiques
- http://ksghome.harvard.edu/~drodrik/Lessons%20of%20the%201990s%20review%20_JEL_.pdfDani RodrikDani RodrikDani Rodrik is a Turkish economist and Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University, teaching in the School's MPA/ID Program. He has published widely in the areas of international economics, economic development, and...
. Goodbye Washington Consensus, Hello Washington Confusion? Harvard University, January 2006] - The Commanding Heights: The Battle for the World Economy, by Daniel Yergin and Joseph Stanislaw (2002). PBS series and book that traces the debate between advocates of the Washington Consensus and their critics.
- The contentious Washington Consensus: reforming the reforms in emerging markets. by Carlos Santiso (2004). Review of International Political Economy 11(4).
- Stability with Growth: Macroeconomics, Liberalization, and Development (Initiative for Policy Dialogue Series C) ; by Joseph E. Stiglitz, Jose Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar; Oxford University Press 2006
- Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World, edited by Joan M. Nelson (1990).
- Latin American Political Economy in the Age of Neoliberal Reform and Democracy, Markets, and Structural Reform in Latin America, edited by William C. Smith, Carlos H. Acuña, and Eduardo A. Gamarra (North-South Center, 1994).
- Crisis and Reform in Latin America: From Despair to Hope, by Sebastian Edwards (1995).
- Politics, Social Change, and Economic Restructuring in Latin America, by William C. Smith and Roberto Patricio Korzeniewicz (North-South Center, 1997).
- Fault Lines of Democracy in Post-Transition Latin America, Felipe Agüero and Jeffrey Stark (1998).
- What Kind of Democracy? What Kind of Market? Latin America in the Age of Neoliberalism, by Philip D. Oxhorn and Graciela Ducatenzeiler (1998).
- Latin America Transformed: Globalization and Modernity, by Robert N. Gwynne and Cristóbal Kay (1999).
- The Internationalization of Palace Wars: Lawyers, Economists, and the Contest to Transform Latin American States, by Yves Dezalay and Bryant G. Garth (2002).
- From the "Washington" towards a "Vienna Consensus"? A quantitative analysis on globalization, development and global governance, by Arno Tausch and Christian Ghymers, Nova Science Publishers, Hauppauge, New York, 2006
- FONDAD: Diversity in Development: Reconsidering the Washington Consensus, edited by Jan Joost Teunissen and Age Akkerman (2004).
- The Washington Consensus as Policy Prescription for Development (World Bank)
- What Should the World Bank Think about the Washington Consensus?, by John Williamson.
- Fabian Global Forum for Progressive Global Politics: The Washington Consensus, by Adam Lent.
- The Economics of Empire - Notes on the Washington Consensus, by William Finnegan.
- Unraveling the Washington Consensus, An Interview with Joseph Stiglitz
- How the IMF Props Up the Bankrupt Dollar System
- The Scorecard on Development, 1960-2010: Closing the Gap? - Center for Economic and Policy ResearchCenter for Economic and Policy ResearchThe Center for Economic and Policy Research is a progressive economic policy think-tank based in Washington, DC, founded in 1999. CEPR works on Social Security, the US housing bubble, developing country economies , and gaps in the social policy fabric of the US economy.According to its own...
report, April 2011