How Washington Consensus Brought a New Era of Economies? Is it sustainable for today's environment of economics?
The term "Washington Consensus" was coined by the US economist "John Williamson" in 1989.
The policy was adopted by Washington-based institutions those are International Monetary Fund and World Bank to improve economic performance in "Latin American Countries".
These policies center around fiscal discipline, market-oriented domestic reforms, and openness to trade and investment.
The policy reforms include ten propositions which are called Williamson's points:
1. Fiscal discipline to maintain a reasonable fiscal deficit relative to GDP.
2. A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care primary education, and infrastructure.
3. Improving the tax infrastructure by implementing lower-margin taxes to expand the tax base.
4. Liberalising Interest Rates that should be determined by the market to create a positive influence towards the investment.
5. Introduction of the competitive exchange rate.
6. Liberalising the trade infrastructure by eliminating unnecessary duties on goods.
7. Privatisation (Privatising government-owned loss-making companies or partly privatizing government-owned companies under PPP models)
8. Deregulation: In the sense of abolishing barriers to the exit and entry of goods and people.
9. Liberalisation of FDI inflows
10. Secure property rights to provide an amicable environment to business houses and to provide security to their investments.
However, in the coming times, the term became synonymous with neo-liberalism(in Latin America), market fundamentalism(the term was given by George Soros), and even globalization(after the disintegration of the USSR) across the world. It has often been used to describe an extreme and dogmatic commitment to the belief that "Markets can handle everything".
Is Washington Consensus the right step to improve the world economy?
The name of Washington Consensus has often been mentioned as being somewhat unfortunate, especially by its creator. John Williamson, says that audiences the world over seem to believe that this signifies a set of neo-liberal politics that have been imposed on hapless countries by the Washington Based Institutions(IMF, WB) and have led them to crisis and misery. These Washington-based institutions are supposed to work neutrally in the favor of hapless countries' institutes but they are sometimes influenced by American Policies and Other influential American institutions.
The creator also expressed his disagreement with some of the prescribed rules because he thought some of the rules need to be changed on time to time basis to counter conservative ideas that feed neo-liberal trade ideologies.
Neoliberalism is a policy model that encompasses both politics and economics. Neoliberalism is dangerous for today's world, It favors private enterprise and seeks to transfer the control of economic factors from the government to the private sector.
The Washington institutes favor this policy because it favors the free market without any government intervention. It reduces the power of the country's executive power over its own economy.
The effect of neoliberalism and Washington Consensus was often associated with the leadership of Margaret Thacher of the United Kingdom and Ronald Regan of the United States.
Does that really mean the "Washington Consensus" is dying or already dead because the world is moving away from globalization and moving towards self-reliance?
The upsurge of progressive economic proposals over the past few years in the face of austerity measures, stagnating living standards, and gross inequality has shaken the world economic outlook. Vision for a fair and sustainable new global economy is less abundant. Globalization has become a source of contention for groups ranging from the far right to the far left.
The idea of the Washington Consensus, along with neoliberalism, was propagated by the IMF and World Bank through their rescue plan, which they provided to countries following the disintegration of the USSR; their ideology is still true today.
Their policy benefitted the rich countries, especially the United States but the burden of their policy has been borne by the people of the Global South. India is one of the prominent example in this case. India was bankrupt in 1991, they had only a few billion to import their crude oil because India is a crude oil importing nation then India approached the International Monetary Fund for dollars. At that moment IMF forced India to open its economy to the world and that forced India to implement LPG(liberalization, privatization, globalization) policy.
It aided US companies in investing in India in order to manipulate the Indian manufacturing base and gain open access to the market because India was and still is the world's second most populous country.
One recent attempt at rethinking global economic governance comes from former Greek finance minister Yanis Varopufakis and his colleagues. They advocate resurrecting alternative proposals advanced by John Maynard Keynes at the 1944 Bretton Woods conference. Bretton Wood conference lays the foundation stone of America's financial supremacy all over the world by implementing the dollar as a global currency.
However, dollar hegemony is under threat today because a new geopolitical scenario is redrawing the global financial market in the aftermath of Covid mayhem and Russia's special military operation against Ukraine.
Indian Rupee is gaining ground after its implementation in 35 countries. India is buying cheap Russian oil in the face of steep western resistance using its own currency.
Some countries, such as Hungary, are moving away from the influence of the United States. This is posing a serious challenge to the Washington Consensus' dominance because the crisis has created tensions in the food and energy markets, forcing countries to manipulate their own economies in order to provide subsidies to those in need.
Now the sustainability of this policy. If the Washington Consensus would have been sustainable then it would not increase the negative effects like poverty and inequality. Also, the G7 Resilience panel would never demand a radically different relationship between the public and private sectors to create a sustainable, equitable, and resilient economy.
If the Washington Consensus had been so reliable and sustainable, it would not have brought the world economy to its knees twice, once in 2008 and again in 2020. Now world leaders are looking for an alternative.
The alternative is the recently proposed “Cornwall Consensus”. Whereas the Washington Consensus reduced the role of the state in the economy and advocated for an aggressive free-market agenda of deregulation, privatization, and trade liberalization, the Cornwall Consensus would reverse these imperatives. It allows us to build societal goals, build international solidarity, and reform global governance in the interest of the common good.
The Cornwall Consensus also proposes that we shift from reacting to market failures to proactively shaping and creating the types of markets required in a green economy. It would substitute pre-distribution for redistribution. The state would oversee mission-driven public-private partnerships aimed at building a more resilient, sustainable, and equitable economy.