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2 Beyond the Washington
Consensus By Walden Bello
Development circles were not shocked last
year when two studies detailed how the World
Bank's research unit had been systematically
manipulating data to show that neo-liberal market
reforms were promoting growth and reducing poverty
in developing countries. They merely saw these
devastating findings, one by American University
Professor Robin Broad, the other by Princeton
University Professor Angus Deaton and former
International Monetary Fund (IMF) chief economist
Ken Rogoff, as
but
the latest episode in the collapse of the
so-called Washington Consensus. [1]
Partisans of this development model during
its heyday, the 1980s and early 1990s, borrowed
Margaret Thatcher's famous remark to claim that
the alternative to the Washington Consensus was
TINA - that is, "There is no alternative." The
Washington Consensus rejected economic strategies
involving heavy participation by government and
positioned the unfettered market as the driver of
development.
Imposed on developing
countries in the form of "structural adjustment"
programs funded by the IMF and the World Bank, the
Consensus reigned until the late 1990s, when the
evidence became clear that on all key criteria of
development - sustained growth, poverty reduction,
and reduced inequality - it simply was not
delivering. By the first half of this decade, the
Consensus had undergone a process of unraveling,
although neo-liberalism remained the default mode,
simply out of inertia, for many economists and
technocrats who had in fact lost confidence in it.
The former adherents of the Consensus have
gone off in divergent directions. Despite frequent
references to it, there is in fact no
"Post-Washington Consensus".
Washington
Consensus plus Mindful of the failures of
the Washington Consensus, the IMF and the World
Bank are now promoting what Nobel laureate Joseph
Stiglitz has disdainfully described as the
"Washington Consensus Plus" approach: market
reforms, while crucial, are not enough. Financial
reforms, for instance, must be "sequenced" if we
are to avoid such debacles as the Asian financial
crisis, which even the fund now admits was due to
massive capital inflows into countries that
liberalized without strengthening their "financial
infrastructure".
Mindful of the Russian
descent into the hell of mafia capitalism in the
1990s, the two institutions also now talk about
the importance of accompanying market reform with
institutional and legal reforms that can enforce
private property and contracts. Other
accompaniments of market reforms are "good
governance" and policies to "develop human
capital" such as female education.
This
mix of market and institutional reforms was
consolidated in the first years of this decade in
the so-called Poverty Reduction Strategy Papers
(PRSPs). In contrast to what one analyst has
described as the "bare-knuckle neo-liberalism" of
structural-adjustment programs, PRSPs were not
only more liberal in content but in process: they
were supposed to be formulated in consultation
with "stakeholders", including civil-society
organizations.
Despite its icing of
institutional reforms, the core of the PRSP cake
remains the same macroeconomic fundamentals of
structural adjustment: trade liberalization,
deregulation, privatization, and commercialization
of land and resources. And community consultation
has been limited to well-resourced, liberal
non-governmental organizations rather than
broad-based social movements. PRSPs indeed are
simply second-generation structural-adjustment
programs that seek to soften the negative impact
of reforms.
As IMF managing director
Rodrigo de Rato has admitted, the purpose of
institutional reforms is "to make sure that the
fruits of growth are widely shared and the poorest
people are protected from the costs of adjustment"
to prevent people from being "tempted to give up
on orthodox economic policies and structural
reforms".
Neo-conservative
neo-liberalism A second successor to the
Washington Consensus is what one might call
"neo-conservative neo-liberalism". This approach
is in essence the development policy of the
administration of US President George W Bush. The
inspiration for this strategy was the famous 2000
report of a congressional commission on
multilateral institutions headed by conservative
academic Alan Meltzer, which proposed a radical
slimming down of the World Bank.
It
supports - at least rhetorically - debt relief for
the poorest countries on the ground that they
won't be able to pay the debt, and seeks a shift
from loans to grants. However, debt relief and
grant aid are conditioned on how governments
perform in terms of liberalizing their markets and
privatizing their industries, land, and natural
resources. Indeed, as former under secretary of
the US Treasury John Taylor put it, this
proposal's main reason for preferring grants is
that grants "can be tied more effectively to
performance in a way that longer-term loans simply
cannot".
Moreover, grants would allow
pro-market reforms and aid policy generally to be
more directly coordinated with Washington's
security objectives and with the agenda of US
corporations. Compared with the original
Washington Consensus, neo-conservative
neo-liberalism is less doctrinaire, but in an
illiberal direction, ready as it is to let the
market play second fiddle to power.
Neo-structuralism A third
distinctive successor to the Washington Consensus,
neo-structuralism, moves, in contrast, in a more
liberal direction. This is an approach associated
with the Economic Commission for Latin America
that produced the structuralist theory of
underdevelopment in the 1950s under the leadership
of the venerable Argentine economist Raul
Prebisch. According to neo-structuralism,
neo-liberal policies have simply been too costly
and counterproductive. In fact, there is no
tradeoff between growth and equity, as the
neo-liberals claim, but a "synergy".
In
fact, less inequality would enhance, not obstruct,
economic growth by increasing political and
macroeconomic stability, boosting the saving
capacity of the poor, raising educational levels,
and expanding aggregate demand. The
neo-structuralists thus propose progressive
transfer-payment policies that redistribute income
in ways that increase the human capital or
productivity of the poor, including higher
spending for health, education, and housing
programs. These are the kinds of programs
associated with what the Mexican polemicist Jorge
Castaneda has called the "good left" in Latin
America, meaning the governments of Luiz Inacio
Lula da Silva in Brazil and the Concertacion
alliance in Chile.
Being focused on
managing transfer payments to protect and upgrade
the capacity of the poor, the neo-structuralist
approach does not interfere with market forces in
production, unlike the policies of the "bad left"
(meaning Hugo Chavez and friends) that intervene
in production, markets, and wage policies.
The neo-structuralists also embrace
globalization, and say that a key objective of
their reforms is to make the country more globally
competitive. Because they claim simultaneously to
alleviate income disparities, upgrade the capacity
of the poor, and make the workforce more globally
competitive, neo-structuralist reforms are said to
hold out the prospect of making globalization more
palatable, if not popular. Neo-structuralists
proudly proclaim that their approach is the "high
road" to globalization, in contrast to the "low
road" of the neo-liberals.
The problem is
that neo-structuralist reforms have led to what
one of their most thoughtful critics, Chilean
economist Fernando Leiva, calls the "heterodox
paradox". That is, in the quest for systemic or
comprehensive competitiveness, neo-structuralist
policies have actually led to "the
politico-economic consolidation and regulation of
neo-liberal ideas and policies". In the end,
neo-structuralism, like the Washington Consensus
Plus approach, does not fundamentally reverse but
simply mitigates the poverty- and
inequality-creating core neo-liberal policies.
While the Lula government's targeted anti-poverty
program may have reduced the ranks of the poorest
of the poor, its institutionalized neo-liberal
policies continue to reproduce massive poverty,
inequality, and stagnation in Brazil, Latin
America's biggest economy.
Global
social democracy The more-than-residual
attachment to neo-liberalism of neo-structuralism
is less evident in the case of what we might call
global social democracy, an approach that has
become identified
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