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  • The Washington Consensus is a set of 10 economic policy prescriptions considered

  • to constitute the "standard" reform package promoted for crisis-wracked

  • developing countries by Washington, D.C.–based institutions such as the

  • International Monetary Fund, World Bank, and the US Treasury Department. It was

  • coined in 1989 by English economist John Williamson. 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. Subsequent to Williamson's use of the

  • terminology, and despite his emphatic opposition, the phrase Washington

  • Consensus has come to be used fairly widely in a second, broader sense, to

  • refer to a more general orientation towards a strongly market-based

  • approach. In emphasizing the magnitude of the difference between the two

  • alternative definitions, Williamson himself has argued that his ten

  • original, narrowly defined prescriptions have largely acquired the status of

  • "motherhood and apple pie", whereas the subsequent broader definition,

  • representing a form of neoliberal manifesto, "never enjoyed a consensus

  • [in Washington] or anywhere much else" and can reasonably be said to be dead.

  • Discussion of the Washington Consensus has long been contentious. Partly this

  • reflects a lack of agreement over what is meant by the term, in face of the

  • contrast between the broader and narrower definitions But there are also

  • substantive differences involved over the merits and consequences of the

  • various policy prescriptions involved. Some critics take issue, for example,

  • with the original Consensus's emphasis on the opening of developing countries

  • to global markets, and/or with what they see as an excessive focus on

  • strengthening the influence of domestic market forces, arguably at the expense

  • of key functions of the state. For other commentators the issue is more what is

  • missing, including such areas as institution-building and targeted

  • efforts to improve opportunities for the weakest in society. Despite these areas

  • of controversy, a number of developmental institutions and

  • economists would by now accept the more general proposition that strategies best

  • work if they are specifically designed to the certain circumstances of the

  • individual countries. History

  • = Original sense: Williamson's Ten Points =

  • The concept and name of the Washington Consensus were first presented in 1989

  • by John Williamson, an economist from the Institute for International

  • Economics, an international economic think tank based in Washington, D.C.

  • Williamson used the term to summarize commonly shared themes among policy

  • advice by Washington-based institutions at the time, such as the International

  • Monetary Fund, World Bank, and U.S. Treasury Department, which were believed

  • to be necessary for the recovery of countries in Latin America from the

  • economic and financial crises of the 1980s.

  • The consensus as originally stated by Williamson included ten broad sets of

  • relatively specific policy recommendations:

  • Fiscal policy discipline, with avoidance of large fiscal deficits relative to

  • GDP; Redirection of public spending from

  • subsidies toward broad-based provision of key pro-growth, pro-poor services

  • like primary education, primary health care and infrastructure investment;

  • Tax reform, broadening the tax base and adopting moderate marginal tax rates;

  • Interest rates that are market determined and positive in real terms;

  • Competitive exchange rates; Trade liberalization: liberalization of

  • imports, with particular emphasis on elimination of quantitative

  • restrictions; any trade protection to be provided by low and relatively uniform

  • tariffs; Liberalization of inward foreign direct

  • investment; Privatization of state enterprises;

  • Deregulation: abolition of regulations that impede market entry or restrict

  • competition, except for those justified on safety, environmental and consumer

  • protection grounds, and prudential oversight of financial institutions;

  • Legal security for property rights. = Origins of policy agenda =

  • Although Williamson's label of the Washington Consensus draws attention to

  • the role of the Washington-based agencies in promoting the above agenda,

  • a number of authors have stressed that Latin American policy-makers arrived at

  • their own packages of policy reforms primarily based on their own analysis of

  • their countries' situations. Thus, according to Joseph Stanislaw and Daniel

  • Yergin, authors of The Commanding Heights, the policy prescriptions

  • described in the Washington Consensus were "developed in Latin America, by

  • Latin Americans, in response to what was happening both within and outside the

  • region." 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". 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:

  • = Broad sense = Williamson recognizes that the term has

  • commonly been used with a different meaning from his original prescription;

  • he opposes the alternative use of the term, which became common after his

  • initial formulation, to cover a broader market fundamentalism or "neoliberal"

  • agenda. I of course never intended my term to

  • imply policies like capital account liberalization, monetarism, supply-side

  • economics, or a minimal state, 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, 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. As noted, in spite of Williamson's

  • reservations, the term Washington Consensus has been used more broadly to

  • describe the general shift towards free market policies that followed the

  • displacement of Keynesianism in the 1970s. In this broad sense the

  • Washington Consensus is sometimes considered to have begun at about 1980.

  • Many commentators see the consensus, especially if interpreted in the broader

  • sense of the term, as having been at its strongest during the 1990s. Some have

  • argued that the consensus in this sense ended at the turn of the century, or at

  • least that it became less influential after about the year 2000. More

  • commonly, commentators have suggested that the Consensus in its broader sense

  • 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: 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

  • peopleincluding Joe Stiglitz, most prominentlyhave foisted on it, that it

  • is a neoliberal tract, then I think it is right.

  • 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." 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, and for

  • exacerbating Latin America's economic inequalities. Criticism of the

  • Washington Consensus has often been dismissed as socialism and/or

  • anti-globalism. While these philosophies do criticize these policies, general

  • criticism of the economics of the consensus is now more widely

  • established, such as that outlined by US scholar Dani Rodrik, Professor of

  • International Political Economy at Harvard University, in his paper Goodbye

  • Washington Consensus, Hello Washington Confusion?.

  • 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: the Consensus per se placed no special emphasis on mechanisms for

  • avoiding economic crises, which have proved very damaging; the reformsboth

  • those listed in his article and, a fortiori, those actually

  • implementedwere incomplete; and 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.

  • 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.

  • "Stabilize, privatize, and liberalize" became the mantra of a generation of

  • technocrats who cut their teeth in the developing world and of the political

  • leaders they counseled. 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. Macroeconomic adjustment

  • The widespread adoption by governments of the Washington Consensus was to a

  • large degree a reaction to the macroeconomic crisis that hit much of

  • Latin America, and some other developing regions, during the 1980s. The crisis

  • had multiple origins: the drastic rise in the price of imported oil following

  • the emergence of OPEC, mounting levels of external debt, the rise in US

  • interest rates, andconsequent to the foregoing problemsloss 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. 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 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.

  • A separate agendaonly tangentially related to the Washington Consensus as

  • framed by Williamsonconcerns various programs for multilateral trade

  • liberalization, whether at the global or regional level, including the North

  • American Free Trade Agreement and DR-CAFTA agreements.

  • Criticism Most criticism has been focused on trade

  • liberalization and the elimination of subsidies, and criticism has been

  • particularly strident in the agriculture sector. In nations with substantial

  • natural resources, though, criticism has tended to focus on privatization of

  • industries exploiting these resources. As of 2010, several Latin American

  • countries were led by socialist or other left wing governments, some of

  • whichincluding Argentina and Venezuelahave campaigned for policies

  • contrary to the Washington Consensus policies. Other Latin American countries

  • with governments of the left, including Brazil, Chile and Peru, in practice

  • adopted the bulk of the policies included in Williamson's list, even

  • though they criticized the market fundamentalism that these are often

  • associated with. 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