Sunday, June 10, 2018

Maybe the Washington Consensus Wasn't So Bad

The mere mention of the "Washington Consensus" is all you need to get anti-globalization types foaming at the mouth over American imperialism, corporate globalization, and other sorts of unmentionables. Even I am no fan of the standard recipe of liberalization, deregulation, and privatization. Especially after Joseph Stiglitz released his polemic Globalization and Its Discontents, the term has been associated with quite negative connotations. Indeed, some have even mooted the existence of a more LDC-friendly "Beijing Consensus." If I can make money off it, I'll even write an "IPE Zone Consensus" for you (quote your price and send me an e-mail ;-)

Seriously, though, the Financial Times has a very fine article revisiting this familiar Asian financial crisis-era terrain, from Suharto signing another bailout package for Indonesia to America's perceived dominance at key multilateral economic institutions like the IMF. The article cleverly contrasts "market-friendly" prescriptions made then by Americans (and also the laissez-faire Brits) compared to now, when these very same countries are following a new recipe of, er, de-liberalization (e.g., short-sale bans), re-regulation (new housing overseers galore), and nationalization (Northern Rock, AIG). Why, maybe it's the [sigh] "Paulson Consensus."

Is it hypocrisy that rich countries don't administer the same medicine they gave to destitute LDCs a decade ago, preferring an easier route not involving belt-tightening and other unpalatable measures? I have my own opinion, though you can probably answer this for yourselves. Nevertheless, this loosey-goosey bailout festival is making me think that, yes, the Washington Consensus had some virtues--although this may not have been communicated very well at all. Here is the FT revisiting it in a side feature, though I highly encourage you to read the entire article:
The package of reforms that runs from opening up trade to liberalising capital flows is typically labelled the “Washington Consensus”. But as the originator of the phrase wearily points out, this is something of a caricature.John Williamson of the Peterson Institute for International Economics in Washington invented the expression in 1989 to describe the standard set of 10 policy prescriptions for Latin American countries that emanated from the International Monetary Fund, the World Bank and the US Treasury. But the deregulation of financial markets and the free flow of capital, widely blamed for making developing countries vulnerable to financial crisis, were not on the list.Mr Williamson says most of the to-do items are relatively uncontroversial and have been implemented even by centre-left governments such as that of Luiz Inácio Lula da Silva in Brazil: competitive exchange rates, fiscal discipline, property rights and shifting spending from general subsidies towards investment in infrastructure, education and health. “There is a lot more consensus around issues like trade liberalisation than there is about following a particular model of rapid financial deregulation,” he says. “The expression ‘Washington consensus’ got a bad press.”
Lula is a "Washington Consensus" follower? Perhaps not in the ideological sense, but his reforms do have elements to its that are eerily familiar. Among other things, trade before capital liberalization. Heck, maybe Bush 'n' Brown should re-read their John Williamson before issuing more "get out of jail [nearly for] free" cards.

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