The Washington Consensus - Case Study Example

Post-Washington Consensus Policies and it`s relevance with the Modern World As a consequence to the demise of cold-war era, there emerged a network on indebted states. Also, Latin American states during the 1990`s were also in dire need of some kind of economical assistance (Stiglitz 1998). Thus, in such a scenario the US had to emerge as a savior for the developing world. The Washington Consensus was a product of the conference paper written in 1989 to draft a policy aiming at the relief of the developing states. The Washington Consensus incorporated around ten policy lines to be implemented at microeconomic as well as macroeconomic level to be adopted by these developing states, especially the Latin American states and the ex-communist bloc, to help them come out of the dire economic crisis. The main idea behind the propagation of the ideals behind Washington Consensus implied that there would be fre flow of capital across borders, including the free flow of services along with the goods, increasing market efficiency by monitoring and assistance via International Financial Institutions i.e. the IMF (International Monetary Fund). However, during the 1990`s the definition and the context of the Washington Consensus was revised, and consequently what is now being termed as the “Post-Washington Consensus” was deemed as a product of this development. As opposed to the earlier definition, where the ideals of Washington Crisis were being adopted for the well-being of the developing states, the ideals now being implemented were rather aimed at dictating biased policies on the part of the IFI`s with the sole purpose of maintaining their status quo which is now being rejected by the mainstream intellectual community in the developing world. The Post-Washington Consensus must policies must be replaced by a progressive set of policies, considering the needs and economic feasibility of the developing world. Also, instead of imposing the neo-liberal policies on the Global South, the states must be left with an option to adopt a set of policies more suitable to their socio-economic setup. The Post-Washington Consensus was inherently flawed in understanding the basic economic structure of the developed states, and adopting generic measures for intrinsically complex state of affairs governing in each setup (Jomo & Fine 2006). Thus, the tools and techniques being applied in this context failed to produce desired results, and thus the wave of disappointment amongst the economically weaker states was instigated. Also, instead of coming off as industrially developed nations, these states turned into indebted states with an even worse economic setup derailing the other socio-economic indicators as well. Consequently, these foreign ideals lost political support amongst the developed state and the internal chaos and conflicts now further failed the Post-Washington Consensus from producing any positive results(Fine, Lapavitsas & Pincus 2001) . The Washington Consensus was a policy imperative to be adopted by the developed world, more specifically the post communist bloc and the Latin American states. The Consensus was aiming at providing relief to the crisis-hit states within the developing world to recover their economy. Policies included steps to ensure liberalization, privatization and macro as well as micro-stability in compliance with the policies advocated by the IFI`s (Middlebrook 2012). The ten policies to be implemented under the Washington Consensus included reforms in fiscal policies, restructuring of public spending subsidies, expansion of tax base, and adoption of market determined interest rates, trade liberalization i.e. opening markets for imports and exports across borders, Liberalization of FDI (Foreign direct investments), privatization, deregulation reforms and protection of property rights. Moreover, the strategy behind implementation of these ideals was based around minimal state control over the financial assets, i.e. minimal role of the government in the economic affairs (Birdsall & Fukuyama 2011). In other words, this model completely contrasted with that of the development state adopted by East Asian states, and adopting the western capitalist notions under strict supervision by the IFI`s. Post Washington consensus lies on the fact that market forces tend to be self regulatory i.e. government intervention is unnecessary for the economic well-being of the state since the market itself decides how to function (Arrebola 2011). There is a crucial concern especially with respect to developing countries where the social equilibrium lags far behind and the definition of market efficiency would have to be debated. Market efficiency implies that that supply and demand are in equilibrium and the market forces giving maximum output. It ignores the perspective that whether or not distributional justice is being done or not, since this isn’t the concern of a capitalist. Thus, with states with low social index deem to forgo high risks of chaos if market efficiency is the only desired criteria of economic well being. The wealth may just be saturated amongst a narrow wealthy class, but the economic indicators would still be showing signs of success. Though during the early 1990`s, it was being observed that strict government intervention led to collapse of states, rather dominions but given the needs of the time, the states must be given an open choice to choose their policy options(Phillips & Higgott 1999). The strong bias against the capability of the government to perform economic function irrespective of the state structure must be abandoned to suit the current needs of the time. Moreover, the capitalist economic model implying that the invisible hand will itself lead to market efficiency alongside the minimal role of government doesn’t usually work well with states in the early development stages. The Post-Washington Consensus ignores the proposition that the model works in the absence of externalities or other unforeseen market turbulences (Estevadeordal & Taylor 2008). Also, in order for the model to work it is inherently essential that the state has a fair share of industrial capital and trained labor, also freedom to produce any kinds of goods they want. In case of the current capitalist model, that doesn’t seem to be the case. The developing states lack the advanced industrial capital to produce market competitive goods, and to further add insult to injury, the IFI`s impose certain barriers on the developing states to produce certain processed goods which negates the principle of equity and the capital inflow is towards the Global North (Vestergard 2009). Owing to that, there is now a strong opposition to the neo-liberal principles governing the IFI`s and the Global Markets, and to resolve the conflicts, the states must be given an open choice on whether or not they should adopt the consensus. Given the aforementioned scenario, the developing blocs have been affected immensely by the Post-Washington Consensus. Africa, for instance, saw drastic loss in capital after trade liberalization in agricultural products (Aksoy 2012). They weren’t foreseeing comparative advantage on hands of other countries on these agricultural goods which resulted in the collapse in prices and increased debts. The increased debts were, however, a result of interest rate markets where borrowing solely depended on these interest rates which led towards increased debts(Schweickert & Thiele 2004). Similarly, Latin America as a bloc also suffered immensely owing to the Washington Consensus, which is the sole reason why most of the opposition to the model started coming from Latin America. Countries including Bolivia are one of those countries who were the first ones to adopt the model, and yet they are the ones still suffering immensely (Haque 2009). Also, countries like Mexico were extremely cautious while adopting the consensus, as they were considerate of the inflation rate alongside their fiscal policies, but their economy still collapsed, acting as a wakeup call for the advocates. However, during that time, those advocating for the consensus in US and sitting in the IFI`s implored that issues of transparency and corruption are the sole factors behind the collapse, and so, they tightened the policies to ensure accountability, yet it didn’t work. Moreover, another big question-mark on the post-Washington consensus was posed when considerably developed states in the East Asia suffered the same fate as that of the developed world. Despite high national saving accounts, their economies saw a collapse in the capital. If the model isn’t even working in developed nations with high technical expertise and industrial complex, the expectations from the model to work on underdeveloped nations are far from being rational. In other words, the East Asian states are said to be the most transparent and yet modern states in the world, and yet the model failed (MacDonald & Ruckert 2009). This is yet another instance which proves that applying a model on the global economy on the mere basis of theory was a huge mistake. For instance, the model suggests strongly against excessive protectionism, but at the same time it fails to practically address the issue with reference to the state with high unemployment rate. Practical evidence indicates clearly that the model works backwards for states with such kind of issues. Thus, an open choice must be placed before the states to choose their economic policies without any external pressure depending on their internal setup. Moreover, another great debate surrounding the global politics has is related to the transparency and accountability of the International Financial Institutions themselves. The policies are quite biased and a certain bloc favoring the developed nations in the one designing and advocating policies. Also, though US itself is the strongest advocate of the Post-Washington Consensus, yet the US treasury itself ceases to undergo any reforms and still they want the same policies to be implemented on the less developed states (Snowdan 2002). More so, the Western Institutions themselves guised behind issues like 9/11 to avoid the disclosure of bank statements and stocks information. On the other hand, Scandinavia being one of the most transparent states, yet it faced the same fate as the rest of the states (Serra & Stiglitz 2008). Given the clear indication that the model of Post Washington Consensus is too biased and at the same time effecting the economies of the developing states negatively, it must be completely abandoned while there is still time in one`s hands. Conclusively, there is an emerging consensus on the belief that the Post-Washington Consensus is inadequate with the modern day needs of the market and state system. There are two main underlying presumptions for the dire rejection of the model. Firstly, as indicated via examples above too much reliance on the market fundamentals i.e. belief on the invisible hand isn’t working out as well as it was planned for mainly the developed world. Secondly, the model prescribes a very crucial role to the International Financial Institutions which is yet another recipe for disaster. Mainly because the policies being dictated by the institutions are biased and inadequate especially for the states with low income, high interest rate and an underdeveloped industrial base. Secondly, these institutions lack credibility and accountability themselves, and so when they advocate for such measures, the developing world poses certain questions. Thus, in the light of these arguments, it is best for the global economic market to completely denounce the Post-Washington Consensus, and drive the world towards a more equitable and just system, where a state can take its own decision. This way, even is the economy of a state collapses, the responsibility won`t lie with the IFI`s or Washington, rather that would be a stepping stone for the state itself. Also, the social indicators of the state may also rise to the standards even though national wealth may not be doing very well. Amongst the developing states, ethics and values are deemed as significant forces driving the social and political institutions, and one of the main reasons behind their failure is the effort to take away the traditions and norms. Thus, Post Washington Consensus must now be accepted as a failed model or rather an outdated mode, the experimentation period must now be replaced with a more accurate and less generic model suiting the needs of the developing world. Bibliography ARRÉBOLA RODRÍGUEZ, C.-A. (2011). From Washington Consensus to Post-Washington Consensus: consequences in transition economies. European Perspectives.3, 19-34. AKSOY, M. A. (2012). African Agricultural Reforms the Role of Consensus and Institutions. Washington, World Bank Publications. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=950616. BIRDSALL, N., & FUKUYAMA, F. (2011). The post-Washington consensus: development after the crisis. Foreign Affairs. 90, 45-53. ESTEVADEORDAL, A., & TAYLOR, A. M. (2008). Is the Washington Consensus dead? growth, openness, and the Great Liberalization, 1970s-2000s. Cambridge, Mass, National Bureau of Economic Research. http://papers.nber.org/papers/w14264. FINE, B., LAPAVITSAS, C., & PINCUS, J. (2001). Development policy in the 21st century: beyond the post-Washington consensus. London, Routledge. HAQUE, K. N. H. (2009). Multilateral Trade System as Manifestation of Post Washington Consensus. Rotterdam, Erasmus University. JOMO K. S., & FINE, B. (2006). The new development economics: after the Washington Consensus. New Delhi, Tulika Books. MACDONALD, L., & RUCKERT, A. (2009). Post-neoliberalism in the Americas: beyond the Washington consensus. Basingstoke, Palgrave Macmillan. MIDDLEBROOK, P. (2012). Building a "Fragile Consensus": Liberalisation and State Fragility. PHILLIPS, N., & HIGGOTT, R. A. (1999). Global governance and the public domain: collective goods in a 'post-Washington consensus' era. Coventry, University of Warwick. SERRA, N., & STIGLITZ, J. E. (2008). The Washington Consensus reconsidered: towards a new global governance. Oxford, Oxford University Press. SCHWEICKERT, R., & THIELE, R. (2004). From Washington to post-Washington?: consensus policies and divergent developments in Latin America and Asia. Kiel, Inst. für Weltwirtschaft. SNOWDON, B. (2002). Conversations on growth, stability and trade: an historical perspective. Cheltenham, UK, Edward Elgar Pub. STIGLITZ, J. E. (1998). More instruments and broader goals : moving toward the post Washington consensus. Helsinki, Finland, UNU/WIDER. VESTERGAARD, J. (2009). Discipline in the global economy?: international finance and the end of liberalism. New York, Routledge. Read More