Did the Washington Consensus Fail?

November 6, 2002

Let me remind you of the ten reforms that I originally presented as a summary of what most people in Washington believed Latin America (not all countries) ought to be undertaking as of 1989 (not at all times):

1. Fiscal Discipline. This was in the context of a region where almost all the countries had run large deficits that led to balance of payments crises and high inflation that hit mainly the poor because the rich could park their money abroad.

2. Reordering Public Expenditure Priorities. This suggested switching expenditure in a pro-poor way, from things like indiscriminate subsidies to basic health and education.

3. Tax reform. Constructing a tax system that would combine a broad tax base with moderate marginal tax rates.

4. Liberalizing Interest Rates. In retrospect I wish I had formulated this in a broader way as financial liberalization, and stressed that views differed on how fast it should be achieved.

5. A Competitive Exchange Rate. I fear I indulged in wishful thinking in asserting that there was a consensus in favor of ensuring that the exchange rate would be competitive, which implies an intermediate regime; in fact Washington was already beginning to subscribe to the two-corner doctrine.

6. Trade Liberalization. I stated that there was a difference of view about how fast trade should be liberalized.

7. Liberalization of Inward Foreign Direct Investment. I specifically did not include comprehensive capital account liberalization, because that did not command a consensus in Washington.

8. Privatization. This was the one area in which what originated as a neoliberal idea had won broad acceptance. We have since been made very conscious that it matters a lot how privatization is done: it can be a highly corrupt process that transfers assets to a privileged elite for a fraction of their true value, but the evidence is that it brings benefits when done properly.

9. Deregulation. This focused specifically on easing barriers to entry and exit, not on abolishing regulations designed for safety or environmental reasons.

10. Property Rights. This was primarily about providing the informal sector with the ability to gain property rights at acceptable cost.

.. Some of the most vociferous of today’s critics of what they call the Washington Consensus, most prominently Joe Stiglitz (whose recent book, for example, specifically endorses gradual trade liberalization and carefully done privatization), do not object so much to the agenda laid out above as to the neoliberalism that they interpret the term as implying.

..  A decade ago many countries, especially in Latin America, were attempting to implement an agenda much closer to what I meant by the Washington Consensus than to what Joe Stiglitz means by it.

.. the Washington Consensus was excessively narrow. It consisted in accelerating growth without worsening income distribution, which was as much as I judged official Washington would subscribe to in 1989.1 If one regards poverty as an affront to human dignity, then one will care not simply about the level and growth of income but about its distribution as wel

 

 

State-run economies increasingly adore the free market

Angela Merkel warned against growing government intervention in international trade: “If we are of the opinion that things are simply not fair, then we have to seek multilateral answers and not pursue a unilateral protectionist course where we isolate ourselves.” She was largely defending the Washington Consensus , a catchall term that suggests politics and economics ought to inhabit separate spheres. This is the orthodoxy upon which the current international order is based.

But that consensus is coming apart because, more than ever, state-led capitalism works — and it is here to stay. China’s consolidation of its state-owned enterprises (SOEs), Russia’s oligarch-led economy, the proliferation of sovereign wealth funds (SWFs) and growing government intervention in the West are clear indicators of state-led capitalism’s success.

.. Moscow is able to use these corporations for political ends: threatening gas supplies to keep European governments compliant, for instance, or directing energy revenue to finance military development.

.. The Sovereign Wealth Fund Institute reports that there are dozens of SWFs, including 24 created in the past decade, which collectively control more than $7 trillion in assets.

.. SWFs are an important feature of today’s global economic landscape; governments also use them as agents of statecraft. SWFs in the Persian Gulf region, for instance, are investing in Russia because of concerns about America’s regional staying power, and they are deepening ties with Muslim countries in Southeast Asia to ensure export markets and potentially to facilitate counter-radicalization initiatives.

 .. And in the United States, President Trump has bragged that he personally influences firms’ decisions about where to place their factories.
.. This is a dramatic reversal of the trend from two decades ago.

.. But a number of factors led to skepticism about free markets. One was the underwhelming developmental effect of SAPs and liberalization.

A further blow to the neoliberal model was a series of financial disasters caused by unrestricted flows of capital, notably the 1997 Asian financial crisis and the 2008 global financial crisis.
Perhaps the factor that has most undermined neoliberalism’s attractiveness, though, is the persistent power of countries with state-led economies, such as China and Russia.
.. We are not seeing a “universalization of Western liberal democracy” and free-market capitalism, as Francis Fukuyama predicted

The Deep State Hiding in Plain Sight

Mike Lofgren, a congressional staff member for 28 years, joins Bill Moyers to talk about what he calls Washington’s “Deep State,” in which elected and unelected figures collude to protect and serve powerful vested interests. “It is how we had deregulation, financialization of the economy, the Wall Street bust, the erosion or our civil liberties and perpetual war,” Lofgren tells Moyers.

  •  Wall Street provides second careers for people like David Patreus who went to a Wall Street Buyout firm as a second career.
  • The vast majority of Generals seem to end up on the boards of the Military contractors.
  • Silicon Valley has become part of the Surveillance State, voluntarily.
  • What is the ideology: it is a form a corporatism, that steers clear of social issues, but the Washington Consensus
    • deregulation,
    • outsourcing,
    • deindustrialization,
    • financialization,
    • american exceptionalism-boots on the ground everywhere, perpetual war
  • Parts of the Deep State are fracturing
    • Silicon Valley is protesting the NSA
    • The Tea Party is protesting the Deep State