Posted at 10.15.2018
It can be argued that 1989 was a great 12 months for world history. The fall of the Berlin Wall membrane marked the start of the end of the Eastern bloc. This provided surge to Francis Fukuyama to dispute about the "end of background. " The apparent triumph of capitalism has resulted in changes in the economic policy followed since then, involving all the countries of the world.
The new financial plan, known as Washington Consensus», consisted of a package deal of 10 structural change aiming to achieve full liberalization of global markets from any regulations which been around until then. The approval of this framework by international organizations and by the government authorities of the world, were almost unanimous. The economical policy followed basically the rules of the international organizations to achieve the goals laid down by the so-called "Washington Consensus. " This research aims to raised understand the ideology of "Washington Consensus", by studying its ideological theoretical track record, how it is organized and functioned. Also by examining the criticism received from various institutions and finally its empirical practice through various good examples.
Ideological framework and function of "Washington Consensus"
The issue around the word "Washington Consensus" was created in 1989 by John Williamson (Williamson (2004b)). The word was introduced at a time when the sovereignty of Keynesian economical theory had collapsed - following the problems of the mid '70s and the obvious inability of Keynesianism to handle it, neoliberalism (marketed by the Reagan and Thatcher government authorities in the U. S. and Britain, respectively) have become the new orthodoxy.
The purpose of Williamson was to codify that part of the neo-liberal evaluation and policy proposals have become commonly accepted in the idea of development and especially in the circles of major development companies (largely the IMF and World Lender) based in Washington. Consequently, the term "Washington" identifies influential circles and corporations located in Washington. And the term "consensus" identifies that area of the neo-liberal prescriptions have grown to be broadly accepted.
There is another dimensions to the physical term "Washington Consensus". Such policy prescriptions were created mainly to the economies of Latin America in the 90s, but spread somewhere else in the producing and least growing world. Again matching to Williamson (2000, s. 251), the term identifies "the cheapest common denominator of insurance plan advice resolved by the Washington-based corporations in Latin America since 1989. Williamson (1990, 2000, s. 252-3) summarizes these coverage prescriptions in ten suggestions:
1) Enforce Fiscal Discipline
2) Redirection of general population spending priorities to other areas.
3) release of taxes reforms that could reduce the percentage duty burden and broaden the duty base.
4) Release rates
5) Competitive Exchange Rate
6) Trade Liberalization
7) liberalization of FDI inflows
8) Privatization of state-owned enterprises
9) deregulation of monetary activities
10) Make a protected climate in terms of property rights
The theoretical foundations of these proposals can be discovered easily. It really is usual analysis promoted by the neo-liberal economic theory. Economies in turmoil because of the existence of barriers to the free play of market pushes. The obstacles result from the bloated Keynesian interventionist status and its expansionist and redistributive insurance policies that distort the information and market alerts. The solution, regarding to neo-liberal order, could be the withdrawal of status from the economy and restoring the unimpeded working of the market. We should therefore impose fiscal willpower on the actions of federal government and a go back to balanced costs (instead of the Keynesian deficits and expansionary budget). Limited open public spending now should be directed towards areas that would cover the costs (perhaps through the imposition of compensatory payments) and support entrepreneurship in the private sector alternatively than used to pay for general public works and redistributive guidelines. Then, the tax system should be reformed so as not to struck hard corporate income and incomes of the upper layers, which are believed to be the engine unit of the market. Finally, the limited general public costs could be satisfied with fewer taxes. Moreover, the working of the financial system must be free of the shackles of government and rights and allowed the free play of market causes. Consequently, the speed should be determined pretty much competitive. The drawback of the talk about of the current economic climate also requires the privatization of all activities and businesses were run and possessed by their state, reduce to a minimum all state rules and provide sufficient assurance that you will see no violations of any rights property (as experienced happened recently with the nationalizations, etc). With the introduction of second technology of neoliberal theories, which stressed the openness of economies, the previous set of insurance plan proposals, supplemented by three others that were targeted at liberalizing international trade, capital activities and financial activities. As a result, protective measures should be removed and establish free trade. I also got to ensure the free motion of international capital investment. And previous in the series but not in importance is the fact international economic ventures and, primarily, the speed of the currency should be decided according to advertise rules alternatively than state plans.
All these ideas were already more developed as orthodoxy in developed countries in the 80s. The Washington Consensus targeted at presenting these ideas in growing and least developed countries. Matching to Williamson, it seems that there was some kind of global apartheid, under which developing countries originated from another world that allowed those to reap the benefits of (a) inflation (to allow them to collect taxes and increase investment) (b) the main role of the state of hawaii at the beginning of industrialization and (c) the substitution of imports. The Washington Consensus directed to break this differentiation.
However, there is a strong criticism against the plans of Washington Consensus. These criticisms result from the orthodox economics (Atkinson, 1999), Rodrik ( 2003) and especially from a stream associated with the work of J. Stiglitz (1998) as well as Marxist political economy (Fine (2001) and Shaikh (2003)). An important point in this controversy was the very definition of the word "Washington Consensus". For nearly all critics of the term was synonymous with liberalism and a blind market fundamentalism. Williamson (2000) made a feeble try to protect his term that it had not been his intention to define the word so near neoliberalism. He said that he simply codified the word "consensus" within the major corporations in Washington which it was a technocratic version, free of ideological and political motives. He also stated that the "Washington Consensus" had not been even a insurance policy prescription, but simply a set of insurance policies Reform, which supports the prior view and agrees that through the introduction of the term both of these coincided (Williamson (2000).
Despite his quarrels he cannot contest that the "Washington Consensus" has a particular ideological and politics qualifications: that of neo-conservative guidelines of the previous quarter of the 20th century. Furthermore, the Washington Consensus may not represent a simple set of policy proposals. It really is clearly a backbone which a building is made. This is accepted even by Williamson when he argues that there are three big ideas behind the Washington Consensus: macroeconomic self-control, market current economic climate and the beginning of current economic climate (at least on trade and foreign direct investment ). The macroeconomic self-discipline of "Washington Consensus" is a specific type and has specific priorities that distinguish it from other types of macroeconomic policies. It certainly has nothing in connection with either Keynesian macroeconomic plans, macroeconomic plans or other more radical guidelines. In virtually all cases resulted in implemented demanding austerity finances and procedures that preferred the richest and worsened the positioning of the low social strata. The same thing applies with regards to the pressure on both the adoption of the concept of market overall economy and the thought of checking the market. The first originates from the neoconservative get of the overall economy of the role of the state and the alleged lack of ability to properly control the economy. The next gets the same source as the first and complemented by the fact that it will lead to increased competition and therefore will ultimately advantage consumers. The "Washington Consensus" is a course dictating a policy prescription and even, numerous reform programs imposed - willingly or unwillingly - in the less developed or growing countries.
There is also an strong debate about if the Washington Consensus has marketed the introduction of expanding and least developed economies or not. Today there is a widespread belief that it failed and led to crisis and misery.
After the first many years of implementation of guidelines and reforms of the "Washington Consensus" has been a growing feeling among friends and between enemies, having failed in its pledges. More specifically, since the past due 90s onwards, the "Washington Consensus" was facing serious issues on various issues, which but not contained in the stated aims, but it is critical to the development process. It had been criticized for failing woefully to organize a process of adjustment "human face" and thus to cause cultural unrest. Furthermore, it was criticized for failing to make significant improvement in the growth rates of developing economies, especially in development. Series of studies claim that its regulations have led to increased poverty and inequality both between developed and expanding countries and least developed economies and within countries. Additionally, the apparent inability of growing and least developed economies to catch up with the tempo of economic expansion in developed countries and perhaps increasing the gap between them, was attributed to the policies that were motivated by the "Washington Consensus".
For almost everyone who behave critically, claim for the inability of the "Washington Consensus" to handle issues of poverty and inequality. "Washington Consensus" theory was that poverty and inequality problems were trivial problems, which just about would be taken out once the market was absolve to work, undisturbed by the obstacles of ineffective status intervention. Specifically, it was considered that if the local markets were free from any obstacles, then the free activity of capital, domestically, but especially internationally provides all the incentives and efficiency essential for a sustainable development (Kozul-Wright & Rayment (2004).
Against these proceeds from the assumption of market fundamentalism, most experts review implies that over the last twenty years of the 20th hundred years after the execution of plans of "Washington Consensus" and the structural changes that are implied there was an apparent increase in poverty and inequality (Chossudovsky, 1997). Critics from the stream of Marxist political overall economy bring about these phenomena in the class aspect of the 'Washington consensus', ie it is a couple of policies promoted by the capitalist interests and additional the pursuits of big imperialist powers. Some orthodox critics dispute that the advocates of the "Washington Consensus" treat only the so-called traditional causes of inequality (such as amount of human population in these territories, the domination of natural resources, unequal usage of education, and metropolitan bias (rates guidelines, allocation of public spending and investment, etc. ). For the coffee lover, while such traditional factors were clearly in charge of the collection of a few high-income seen in the past due 50s and 70s, and in keeping these inequalities greatly over the next two decades, they cannot (with the possible exception in a few regions of educational inequality) describe the widespread upsurge in inequality that occurred during the twenty years of execution of the "Washington Consensus" procedures.
Critics of the "Washington Consensus"
Two main streams can be recognized on the critical evaluation of the "Washington Consensus". The first comes from the neo-classical financial theory but also evaluate the negative impact of the "Washington consensus" and also questions of the analytical construction. This stream is the discussion of "post-Washington consensus. "The second stream originates from the Marxist and radical politics overall economy, which not only assesses the negative impact of the "Washington consensus", but also moving to a totally different analytical and ideological route.
The position of "Post-Washington Consensus" brought up by Joseph Stiglitz in 1998 which is the most ambitious try to solve the issues of the "Washington consensus" within the dominant economical theory. What distinguishes it from other critiques of the "Washington consensus" based on the dominant economic theory is that it is markedly critical of days gone by and that is dependant on a varied analytical methodology - certainly within the framework of neoclassical financial theory - that of "economicinformation. For Stiglitz (1989), there is ideal information, as it assumes the prominent neoclassical view. Instead, there are asymmetries of information that permit the existence of business deal costs and market imperfections. Consequently, the definition of free market expands and the arguments about the necessity for state involvement in order to mitigate these strengthened. That is directly against the "Washington Consensus", where in fact the condition is not considered as a corrective power. Contrasted well with the old Keynesian insurance policies of massive federal intervention. Early on opposition to the Keynesian "Washington Consensus" often accept the terms of the last debate, ie put the state towards the marketplace and favored point out intervention based on either inappropriate price, picking winners, or guiding the private sector through public spending. Instead, the Stiglitz (199e, p. 25) can't be a return to old Keynesian guidelines, but the talk about should focus only on what he telephone calls basic principles, particularly economic insurance policies, appropriate regulation, industrial policy, social security, basic education, health, infrastructure, law and order, protect the surroundings. That question is not whether the condition should or shouldn't interfere throughout the market, but rather the question is how to get involved. The main argument is that the condition is not ability against the marketplace but complementary market.
In this choice analytical approach is based on the "New Economics of Development" (Nobel Award (2001)) and "Post-Washington Consensus, emphasizing the history and corporations. Through its focus on the institutions attempting to revive the social sizing in the analysis as a means to address and possibly correct the imperfections. They also try to differentiate themselves from the old-style Keynesian statism.
For Stiglitz (1994, 1998a, 1998b) the "Washington Consensus" fails because the mere liberalization of market segments is not sufficient for normal function, specifically in producing countries. The existence of information asymmetries that prevent marketplaces from successfully allocate resources, and lack of included and effective institutional systems to mitigate these asymmetries are the causes of inability. Consequently, development insurance plan must purpose not and then marketplaces but also to establishments. In this value, "Post-Washington Consensus" discuss the same plan with its forerunner but with some critical modifications. The removal of restrictions and adjustments on market segments and international capital range of motion, privatization should be achieved via an orderly and gradual process, taking into account the precise historical and communal situations. An important part of this process is the creation of new institutional regulatory frameworks that can guide, right and control the market. In addition, more space will be given to the exercise of discretion and the exercise of effective policies. Above all, Stiglitz rejects the unitary concentrate of the "Washington Consensus" to fight inflation and put as main concern the stabilization of creation and advertising of long-term progress (through training, technology copy and various other channels are overlooked by the Washington Consensus). Finally, it stresses the role of the economic climate (which considers the "brain" of the current economic climate) and argues that the target should be considered a liberalized economic system but properly regulated and efficiently.
In this light the "Washington Consensus" is a vehicle for the pursuit of imperialist domination by the developed capitalist economies (and mostly the U. S. ) on growing and least developed countries. Each one of these policies promote the precise interests of these economies, marketed by the so-called globalization.
Consequently, Shaikh (2004) disagrees with the view that trade and financial liberalization promotes progress, like the "Washington Consensus" consider. As an empirical observation, the economies that are now developed in the past have used systematically protectionist trade and dynamic financial policies to do this position and, oftentimes, still follow today. Also, as even supporters of orthodox economical accept (Rodrik 2001) shows that political liberalization will not lead to higher rates of monetary growth. Subsequently, the pressure for liberalization mementos developed countries versus developing countries by prohibiting the second option to follow the road of the ex -. Shaikh, also argues that these unfortunate policies result from the incorrect orthodox theory of "comparative costs" and argues that an approach based on classical theory of "competitive benefits" is analytically and empirically superior.
Similarly, Fine (2002) criticized the "Washington Consensus" since it deliberately neglects the critical aspects of the development process to promote the neoliberal reforms that promote the hobbies of dominating capitalist economies. Fine argues that "Washington consensus" is part of the same "imperialist" effort by the orthodox economics to colonize the areas (as the idea of economic growth), which as yet remained inaccessible areas.
On plan issues, the Marxist economists dispute that markets are not one factor for stability and equality, but instead are factors of instability which free competition is increasing poverty and inequality. This is especially true for financial liberalization and international capital range of motion, which - as reaffirmed by the experience of the 90s - has increased the financial instability within the country and caused the balance of obligations crises. Furthermore, the increased need for financial factors absorbs resources that could have increased productivity and employment and rises in non-productive manner yields of money market agents. Finally, they claim that unbridled competition leads to the concentration and centralization of capital and thus the creation of national and international monopolies, which impose their pursuits on the poorest and least developed economies. Eventually, this technique contributes to increasing disparities between your economies, in contrast to the orthodox values. In terms of domestic market, the policies of the "Washington Consensus" lead to a negative income syndication (for the advantage of the wealthier classes) since shed the burden of adjustment on the poorer classes and systematically rot the bargaining power of employees (through increased wage overall flexibility, reduce regulatory frameworks that protect labor and the declining real minimum income). The negative income distribution is compounded even further with the privatization (which makes it costly to provide general public services) and the erosion of the redistributive role of the state of hawaii (through the retrograde changes in duty and cuts in public spending).
These problems were highlighted for dialogue and emphasis was given to them in the mid 90s after a series of crises in the developing world: the 1994-5 Mexican so-called "crisis of Tequila», the Asian crisis of 1997, the so-called Russian "vodka problems "of 1997-9, the Brazilian turmoil of 1998 and finally the Argentinian turmoil of 2000. In all these conditions, the insurance plan prescriptions of the 'Washington consensus' blamed as these crises have took place while these countries apply their insurance policies and structural reforms. A typical feature of all these situations that resulted in exchange rate crises. However, additionally it is true that every case had its own special characteristics.
In the first circumstance of Mexico, the issues caused by wanting to open the overall economy and to create economical liberalization. This led to the collapse of the peso and the deterioration (in terms of ranking) of the Mexican arrears. Mexico was the first country to sign the Flexible Credit Line of IMF, which cooperated with the united states Treasury for financing of 30 billion given in 1995. Due to the reforms imposed, the amount of Mexicans living below poverty exceeded by 50% and the minimum amount wage fell by 20%. In case the Asian turmoil was caused by initiatives to adjust to a global environment consistent with the requirements of the "Washington Consensus" and together to reform the inner structure of economies from the Asian development model on the prescription of "Consensus Washington. The crisis was again in the form of the exchange rate turmoil and led to the abrupt abandonment of these reforms. The Russian case is different because it originates from the transition of your centrally planned economy to a market economy. The plan reforms through adjustment shock, opening the overall economy and the growing need for financial sector, managed to get vulnerable to infectious disease effects of the Asian turmoil. This induced the collapse of the currency markets, continuous devaluation of the ruble, and lastly the suspension of convertibility. The Brazilian case was the try to introduce economic liberalization made boomerang leading to the turmoil. The imposition of willpower by redirecting open public expenditure to other sectors and reform the taxes system to the standards of the "Washington Consensus" demolished the Brazilian financial and tax revenue-raising system. This again resulted in an exchange rate crisis. Finally, the situation of Argentina, covering all features meals "Washington Consensus". It began with an ambitious plan to bring the budget, trade and economic reform, and proceeded to make a currency board to keep up a set exchange rate of the peso against the dollar, ie the connection of the peso to the U. S. dollars on a one to one. These reforms have created serious problems in the economy and led to the most significant sovereign debt default in modern background.