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Introduction: From the Washington Consensus Towards a New Gobal Governance

Narcís Serra, Shari Spiegel, and Joseph E. Stiglitz

in The Washington Consensus Reconsidered: Towards a New Global Governance

The point of departure for this book is the Washington Consensus — the set of views about effective development strategies that have come to be associated with the Washington-based institutions: the ... More

The point of departure for this book is the Washington Consensus — the set of views about effective development strategies that have come to be associated with the Washington-based institutions: the IMF, the World Bank, and the US Treasury. This introductory chapter briefly discusses the origins of the Washington Consensus and how its meaning has changed and been interpreted. It then goes on to outline the chapters in the book.Less

Failures of the East Asian Development Model: An Overview

Yung Chul Park

in Economic Liberalization and Integration in East Asia: A Post-Crisis Paradigm

East Asian countries were showing many structural strains and rigidities prior to the crisis, partly due to cosmetic reform efforts. Four critical failures are identified: benign neglect of the ... More

East Asian countries were showing many structural strains and rigidities prior to the crisis, partly due to cosmetic reform efforts. Four critical failures are identified: benign neglect of the conflicts between government mechanism and the democratic polity and market liberalization, the inability to restructure the financial system, the closed and non-transparent corporate sector, and focus on an export-led development strategy.Less

Market and State

Yujiro Hayami and Yoshihisa Godo

in Development Economics: From the Poverty to the Wealth of Nations

The question of what kind of institutional set-up would be appropriate for promoting economic development is approached in terms of combination between market and state. The traditional debates on ... More

The question of what kind of institutional set-up would be appropriate for promoting economic development is approached in terms of combination between market and state. The traditional debates on the choice of development strategy between free trade and infant industry protection is examined with reference to the historical experiences of developed economies as well as recent confrontations between import substitution industrialization and the IMF-World Bank structural adjustment policies. The nature and significance of market failures versus government failures are illustrated in terms of comparisons between the Latin American Debt Crisis in the 1880s and the Asian Financial Crisis in the 1990s. The choice of the market versus the state, as well as growth versus equity, is discussed in reference to the changing paradigms in the IMF-World Bank.Less

How can Low-Income Countries Accelerate their Catch-Up with High-Income Countries? The Case for Open-Economy Industrial Policy

Robert H. Wade

in Good Growth and Governance in Africa: Rethinking Development Strategies

A senior British civil servant working on economic issues declared in late 1930 (as the Great Depression ground on), “If I leave the office on Saturday feeling confident that in the past week I have ... More

A senior British civil servant working on economic issues declared in late 1930 (as the Great Depression ground on), “If I leave the office on Saturday feeling confident that in the past week I have done no harm, then I am well content.” The descendants of this breed of “do no harm” civil servants and its neoclassical economist counterpart forged the Washington Consensus world view about appropriate development policy in the 1980s, which has dominated “global policy” on development ever since. In post-war East Asia, however, civil servants and economists espoused a more activist role of the state, as in the slogan displayed in the entrance to the Industrial Development Bureau in Taipei (Republic of China): “The most important thing in life is to have a goal, and the determination to achieve it.” This essay examines the economic arguments against and for a more activist role of the state in giving directional thrust to the economy, and presents some considerations to guide the institutionalization of such a role.Less

Neoliberal Worlds

Jamie Peck

in Constructions of Neoliberal Reason

This chapter examines the range of popular and academic meanings of neoliberalism, including its associations with the ‘Washington Consensus’ and with ‘Thatcherism’, as a prelude to proposing a ... More

This chapter examines the range of popular and academic meanings of neoliberalism, including its associations with the ‘Washington Consensus’ and with ‘Thatcherism’, as a prelude to proposing a political-economic definition of the phenomenon. Emphasis is placed on the uneven development of neoliberalism across geographical space and the temporal evolution of neoliberal ideology and practice. Neoliberalism has not diffused in an invariant form, but instead has developed in a geometric fashion, through the increasing global interpenetration of its contextually specific ‘local’ forms. The ontology of neoliberalism is presented here in terms of an evolving web of relays, routines, and relations of market-oriented political practices. In turn, this calls for a methodological strategy which draws attention, simultaneously, to the ‘connective tissues’ of the neoliberalization process and its conjuncturally specific manifestations. An adequate analysis of neoliberalism must therefore entail an historical geography of the phenomenon.Less

Towards a New Paradigm of Development *

Joseph Stiglitz

in Making Globalization Good: The Moral Challenges of Global Capitalism

Building on his 1998 Prebisch lecture, presented at UNCTAD in Geneva, the author focuses on the form and content of a new (i.e. post Washington Consensus) paradigm of development, the role of ... More

Building on his 1998 Prebisch lecture, presented at UNCTAD in Geneva, the author focuses on the form and content of a new (i.e. post Washington Consensus) paradigm of development, the role of national governments, civil society, and international agencies in helping to promote such development; and the ways in which the appropriate strategies, policies, and processes may best be conceived and delivered. The first main part of the chapter describes a broader vision for the future course of development, based on a transformation of society. The second explains that not only the Washington Consensus but also earlier development paradigms failed because they viewed development too narrowly; this section includes a brief outline of some of the key factors––including recent events in East Asia and the Russian Federation––that have helped in a realization of the inadequacies of the old approaches. The third section outlines what may be regarded as the key principles of a development strategy based on a holistic concept of development, and the fourth identifies the major components of such a development strategy. The chapter concludes with some general observations, focusing on the importance of a full and fair participation in the global economy in furthering development based on the new paradigm presented.Less

Introduction: Post-Soviet, Post-Social?

Stephen J. Collier

in Post-Soviet Social: Neoliberalism, Social Modernity, Biopolitics

This introductory chapter provides a background of neoliberalism. During the 1990s, the Russian case and the battles over “transition,” the Washington Consensus, shock therapy, and structural ... More

This introductory chapter provides a background of neoliberalism. During the 1990s, the Russian case and the battles over “transition,” the Washington Consensus, shock therapy, and structural adjustment, stood as emblems of the neoliberal project's grandiose transformative ambition—and catastrophic failure. However, the dynamics of this period proved to be both contingent and temporally circumscribed, bracketed roughly by Soviet breakup in 1991 and the devaluation of 1998. Ten years beyond the collapse of the Washington Consensus—and with the luxury of a broadened and perhaps historically deepened perspective—the Russian case provides a good site for revisiting the legacy of an important and distinctive form of social government, and for asking how neoliberal reforms propose to reshape it.Less

Labour Market Institutions and Income Inequality: What are the New Insights after the Washington Consensus?

Rolph van der Hoeven and Catherine Saget

in Inequality Growth and Poverty in an Era of Liberalization and Globalization

Looks at some of the labour market outcomes of recent economic reforms. The extent to which labour market institutions affect the relationship between reform policies and income inequality remains ... More

Looks at some of the labour market outcomes of recent economic reforms. The extent to which labour market institutions affect the relationship between reform policies and income inequality remains controversial. Some see labour market institutions as a hindrance to more efficient development and growth, while others argue that without proper labour market institutions an economy cannot progress. Labour market policies, regulations, and institutions have at least three goals: improving allocative efficiency (matching supply and demand); improving dynamic efficiency (increasing the quality of the labour force); and improving or maintaining a sense of equity and social justice among labour force participants. These different goals inform the discussion throughout the chapter, which is organized as follows: after an introduction, the second section touches briefly on some theoretical aspects of labour markets and reform policies; the third reviews trends in labour market changes in terms of informalization of employment, wage shares in national income, and wage inequality; the fourth reviews some general trends in labour market policies that have typically been implemented under the Washington Consensus, namely, a decline in minimum wages, shifts in the bargaining power of unions, and a reduction in employment protection; the final section offers conclusions on whether or not labour market policies reduce income inequality.Less

The Lure of Development Models

Robert Springborg

in Development Models in Muslim Contexts: Chinese, 'Islamic' and Neo-liberal Alternatives

For more than half a century, the United States and the Soviet Union provided the political economy models for the developing world. However, in the end the Soviet model was relegated to the dustbins ... More

For more than half a century, the United States and the Soviet Union provided the political economy models for the developing world. However, in the end the Soviet model was relegated to the dustbins of history and the ‘Washington Consensus’ was replaced by an emerging alternative model — the Beijing Consensus, which gained popularity not only because of its economic power but because it served as a counterbalance to American and Western influence. This book examines the development models in Muslim majority countries. In order to gain perspective on the relative attractiveness and impacts of development models in the Muslim world, and of the Chinese model, it is appropriate to compare receptivity to that model in other regions. To this end, the book includes separate chapters on the Chinese model in Latin America and Africa, both of which are permeated by the Chinese model of development. This book begins by examining the Chinese model. It then discusses Muslim majority countries and the role played by the Chinese model in these countries. The book ends with a discussion of the centrality of governance to development of Third World countries.Less

Beyond Scandinavia: Washington Consensus to Market Corruption

Avner Offer and Gabriel Söderberg

in The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn

This chapter reveals that Scandinavia was but a sideshow in a larger plot in which market-liberal advocates strove to capture the command of policy worldwide with the ‘Washington Consensus’. Their ... More

This chapter reveals that Scandinavia was but a sideshow in a larger plot in which market-liberal advocates strove to capture the command of policy worldwide with the ‘Washington Consensus’. Their doctrines are viewed here from three aspects: internal validity, empirical performance, and unintended consequences. In brief, these doctrines were inconsistent, failed repeatedly, and engulfed the public domain in a miasma of corruption, in developed countries as well as ‘emerging’ ones. The reason, the chapter argues, is that these doctrines were founded on deficient models of reality. The Nobel Prize played a part in all of this, if only a minor one.Less

After the Cold War: The Age of ‘Soft Power’

David Ellwood

in The Shock of America: Europe and the Challenge of the Century

The chapter provides an overview of European responses to the surging economy, cultural inventiveness, and self-confidence of post Cold War America. It suggests that from this perspective, strong ... More

The chapter provides an overview of European responses to the surging economy, cultural inventiveness, and self-confidence of post Cold War America. It suggests that from this perspective, strong parallels can be seen between the 1920s and the 1990s: the prevalence of markets over states, the shift from interdependence to globalisation, swelling consumerism and hedonism — and critical responses of intellectuals on both sides of the Atlantic to these trends — the onward march of US economic progress while Europe floundered. The chapter describes the anxiety of European élites to emulate the latest American models of growth, including their neo-liberalism and technological inventiveness (the era of Internet starts here, paralleling Hollywood's surge in the 1920s), and their difficulty in doing so. It also recounts the rise of polls on attitudes to America in Europe and elsewhere, and what these polls could and could not do for America's image in the world.Less

Introduction and Overview: Economic Transformation and Learning, Industrial, and Technology Policies in Africa

Akbar Noman and Joseph E. Stiglitz

in Industrial Policy and Economic Transformation in Africa

Africa's development exeperience and its controversies; the case for industrial policies and an overview of the volume.

A Homeownership Consensus?

Nancy H. Kwak

in A World of Homeowners: American Power and the Politics of Housing Aid

In an era of explosive urban poverty and declining congressional support for American bilateral aid programs in the early 1970s, the World Bank took a more active role, beginning in Senegal and ... More

In an era of explosive urban poverty and declining congressional support for American bilateral aid programs in the early 1970s, the World Bank took a more active role, beginning in Senegal and moving subsequently to Tanzania, Zambia, Indonesia, the Philippines, and more. Bank officials shared common goals of privatization, strengthened mortgage institutions, and owner-occupied homeownership, but like those managing earlier US aid programs, they bumped up against innumerable practical difficulties as well as objections from residents. Tensions between homeownership-as-ideology and homeownership-as-practice continued to dominate the story of housing aid, this time for the World Bank, and well into the twenty-first century.Less

Growth Diagnostics *

Ricardo Hausmann, Dani Rodrik, and Andrés Velasco

in The Washington Consensus Reconsidered: Towards a New Global Governance

Most well-trained economists would agree that the standard policy reforms included in the ‘Washington Consensus’ have the potential to be growth-promoting. What the experience of the last fifteen ... More

Most well-trained economists would agree that the standard policy reforms included in the ‘Washington Consensus’ have the potential to be growth-promoting. What the experience of the last fifteen years has shown, however, is that the impact of these reforms is heavily dependent on circumstances. This chapter argues that this calls for an approach to reform that is much more contingent on the economic environment. It is possible to develop a unified framework for analyzing and formulating ‘growth strategies’ which is both operational and based on solid economic reasoning. The key step is to develop a better understanding of how the nature of the binding constraints on economic activity differs from setting to setting. This understanding can then be used to derive policy priorities accordingly, in a way that would use the scarce political capital of reformers efficiently. The methodology that it proposed here can be conceptualized as a decision tree. The first questions concern what keeps the level of domestic investment and entrepreneurship low. At each node of the decision tree, the kind of evidence that would help answer the question one way or another is discussed. The chapter draws on the experience of three specific countries: El Salvador, Brazil, and Dominican Republic. Aside from providing a useful manual for policy makers, this approach has the advantage that it is broad enough to embed all existing development strategies as special cases. It can therefore unify the literature and help settle prevailing controversies.Less

South African Post-Apartheid Policies Towards Industrialization: Tentative Implications for Other African Countries

Nimrod Zalk

in Good Growth and Governance in Africa: Rethinking Development Strategies

Economic theory and empirical-historical evidence demonstrate the unsubstitutable role that industrialization plays in the economic development process. As Africa's largest and most industrialized ... More

Economic theory and empirical-historical evidence demonstrate the unsubstitutable role that industrialization plays in the economic development process. As Africa's largest and most industrialized economy: post-apartheid economic policy choices in South Africa are reviewed with a view to identifying tentative policy implications for other African countries seeking to industrialize. Since the introduction of democracy in 1994, South Africa has broadly followed Washington Consensus macroeconomic and trade policies. This has led to moderate growth, but based on unsustainable private-credit fueled consumption with the production side of the economy largely “pushed back” to areas of static comparative advantage, an ever-larger current account deficit and very high unemployment. African countries should be circumspect about liberalizing trade, particularly in their manufacturing sectors. They should develop industrial policies which nurture nascent manufacturing capabilities and develop new ones. For resource-rich countries taxation of resource rents represent an opportunity to finance industrial diversification and infrastructure. Macroeconomic management to prevent damaging currency appreciation through “Dutch disease” is critically important.Less

The Consensus Evolves

in Behind the Development Banks: Washington Politics, World Poverty, and the Wealth of Nations

This chapter investigates the political and intellectual trends in the 1990s that contributed to the erosion of the original Washington Consensus and the expansion of policy-based lending into new ... More

This chapter investigates the political and intellectual trends in the 1990s that contributed to the erosion of the original Washington Consensus and the expansion of policy-based lending into new areas. The core of the Consensus survived a significant shift in Washington politics: the Democratic Clinton administration both endorsed policy-based lending and assumed market liberalization as the main object of reform. Governance reforms became more attractive as it became increasingly clear that the Baker Plan was failing to deliver its promised results. The Clinton Treasury disagreed vehemently with most of the Meltzer Commission's recommendations. The evolution of the Washington Consensus mattered for the multilateral development banks (MDBs) because Washington was remarkably good at getting its way. It is noted that the two core tenets of the Baker Plan survived through the George Bush Snr. and Clinton administrations and never encountered any serious opposition in Congress.Less

Accelerated development

Harry Blutstein

in The Ascent of Globalisation

When Robert McNamara was appointed to head the World Bank, he left behind the disastrous Vietnam War, which he had vigorously prosecuted for LBJ. This departure from the Johnson Administration ... More

When Robert McNamara was appointed to head the World Bank, he left behind the disastrous Vietnam War, which he had vigorously prosecuted for LBJ. This departure from the Johnson Administration enabled him to rehabilitate his reputation by leading a crusade to eradicate extreme poverty around the world. When he took over the bank in 1968, it had achieved little and its credibility suffered as the US exerted undue political influence over the bank to support its foreign policy. McNamara revived the fortunes of the World Bank by attracting funding from outside Washington and Wall Street, thereby reducing US influence and increasing funding to poverty reduction programmes. Sadly, his campaign was disrupted by the oil crises of the 1970s. As Third World debt soared, McNamara adopted a new strategy of structural adjustment loans. These loans encouraged developing countries to deregulate their economies, privatise state-owned enterprises and phase out subsidies on fuel, food and health. Such policies evolved into the Washington Consensus, a set of uncompromising neoliberal policies, which were enthusiastically pursued by his successors.Less

Global Assertion, Soft and Hard: The Washington Consensus (Latin America) and the Middle East (Iraq)

Atul Kohli

in Imperialism and the Developing World: How Britain and the United States Shaped the Global Periphery

This chapter analyzes America’s global assertion in the post–Cold War period. This assertion has followed both economic and military pathways. The imposition of the Washington Consensus on Latin ... More

This chapter analyzes America’s global assertion in the post–Cold War period. This assertion has followed both economic and military pathways. The imposition of the Washington Consensus on Latin American countries is an example of economic assertion. The United States was moved in this direction to first rescue highly indebted American banks and then to roll back statist models of economic development in the region. Economic benefits to the United States were considerable. Latin American countries experienced a lost decade of growth, followed by some resumption of growth, but were still mainly dependent on commodity exports. Hard militarism in the Middle East has been motivated by goals that were vaguer but included establishing primacy over an oil-rich region. The results have been at best, mixed. The war in Iraq was very costly. A half million Iraqis died. The benefits to the United States are not obvious and Iraq struggles to be a functioning state under American influence.Less

Some Foreseeable Disasters of the Global Economy: The High Cost of Neglecting Keynes’s Approach

Toshiaki Hirai, Maria Cristina Marcuzzo, and Perry Mehrling

in Keynesian Reflections: Effective Demand, Money, Finance, and Policies in the Crisis

The chapter revisits some foreseeable disasters of the recent history of the global economy, from the consequences of the failed attempt to construct a disciplinary international economic order based ... More

The chapter revisits some foreseeable disasters of the recent history of the global economy, from the consequences of the failed attempt to construct a disciplinary international economic order based on the Washington Consensus paradigm, to the current global crisis, which dramatically showed the vulnerability of the ‘Bretton Woods 2’ order and contributed to the widespread adoption in Europe of austerity programmes. It argues that the historical evolution of the international non–system since the collapse of the Bretton Woods regime can be regarded as the complete repudiation of the essence itself, and general philosophy, of John Maynard Keynes’s international economics. The chapter aims at demonstrating, conversely, that Keynes’s international macroeconomics is the result of the development of an extremely powerful ‘complexity approach’ to international economic relations, and that it still provides a mostly needed theoretical reference to construct, as Keynes himself would say, a ’sounder political economy between all nations’.Less