Haunted by the Washington Consensus: Revisiting Global Economic Ideals

The specter of the Washington Consensus continues to loom over global economic discourse, prompting a reevaluation of prevailing ideals. Critics argue that the consensus, marked by neoliberal policies, exacerbated inequality and instability. Revisiting these principles is essential for crafting more equitable and sustainable economic frameworks worldwide.

Boston Brand Media brings you the Washington Consensus consistently overlooked such inquiries, and its lingering influence continues to hinder the development of a new paradigm rooted in cultural contexts and human cognition.

In 1989, British economist John Williamson coined the term that would come to define the intellectual landscape of the globalization era: The Washington Consensus. Originally conceived to describe the policies implemented to address macroeconomic challenges in Latin America, it swiftly evolved into a set of fundamental principles for development.

For at least two decades thereafter, advocates of the consensus—namely, the World Bank, the International Monetary Fund (IMF), and the US Treasury, all based in Washington—promoted these orthodoxies with fervent dedication akin to religious fervor. The conclusion of the Cold War facilitated the dissemination of this gospel to newly decolonized nations and the post-communist "transition economies."

Three and a half decades later, we have sufficient evidence to evaluate the track record of the Washington Consensus. One notable observation is that its uniform approach often exacerbated macroeconomic crises, such as the 1997 Asian financial crisis, and relegated developing economies to mere sites for exploitative labor practices. These nations found themselves engaged in a race to the bottom, competing on labor costs by offering lower wages and compromising on occupational safety. Tragic incidents like the collapse of Rana Plaza in 2013, resulting in the deaths of 1,134 individuals and injuries to 2,000 others, became tragically foreseeable outcomes.

Furthermore, none of these countries emerged as success stories under the Washington Consensus framework. The "development miracles" celebrated by policymakers and academics—Japan, South Korea, Taiwan, Singapore, China, India—all deviated from the Washington Consensus by actively involving the government in the development process.

Since the 2008 global financial crisis, many countries in the Global North have been grappling with what were once considered "Third World problems": Sluggish growth, pervasive inequality, institutional failures, fractured political consensus, and rising anti-globalization sentiments. The stark division that the Washington Consensus once delineated between the developed and developing worlds has become increasingly blurred.

By 2009, UK Prime Minister Gordon Brown, following the lead of influential economists like Joseph E. Stiglitz and Dani Rodrik, declared the Washington Consensus dead. Indeed, its existence coincided with the establishment of the Human Development Index, the Millennium Development Goals and their successor, the Sustainable Development Goals, the Barcelona Development Agenda, the Beijing Consensus, the Seoul Development Consensus, and even experiments with alternative metrics like Gross National Happiness. However, none of these frameworks have proven particularly enduring.

Indeed, the legacy of the Washington Consensus continues to loom large. Global climate negotiations are paramount for the future of the planet and human civilization. Yet, when discussions turn to climate finance, developing countries often face the same demeaning treatment prescribed by the Washington Consensus. Even as criticisms of "the China model" gain traction, discussions surrounding India persistently revolve around its potential to emulate the success of China. Moreover, despite widespread recognition of the shortcomings of gross domestic product (GDP) as a measure of economic development, it still dictates the terms of policy discussions.

To finally rid ourselves of the ghost of the Washington Consensus, we must delve into the explanations for the historical divergence between the "West and the rest." Influential hypotheses, from Max Weber's "Economy and Society" to Jared Diamond's "Guns, Germs, and Steel," have focused on the role of institutions. Works such as Douglass North's "Institutions, Institutional Change and Economic Performance," Hernando de Soto's "The Mystery of Capital," and Daron Acemoglu and James Robinson's "Why Nations Fail" argue convincingly that a nation's development hinges on its formal and informal rules, norms, and structures.

As the balance of global power rapidly shifts, with the majority of the world's population residing in the Global South, and its younger demographic shaping the future, mainstream discourse in 2023 acknowledged the concept of the Global South and its potential for global leadership. Navigating this new landscape requires addressing questions that were sidelined by the old consensus.

For instance, is there more than one path to growth and development? Can we reimagine or restructure the global economy in response to widespread dissatisfaction? Do the communal cultures prevalent in the Global South make it better suited for leadership in the current era? Most importantly, what is the ultimate goal of development?

The Washington Consensus neglected such questions, hindering the emergence of a new development paradigm grounded in cultural contexts and human cognition. While the Seoul Development Consensus took a step toward pluralism, we now require a "Soul Consensus" that considers the psychic needs of ordinary people alongside the material needs of nations.

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Source: Business Standard