Haunted by the Washington Consensus

In 1989, British economist John Williamson christened what would become the defining intellectual export of the era of globalization: the Washington Consensus. Initially a reference to the policies adopted to address macroeconomic turmoil in Latin America, the term quickly turned into a canonical ‘Ten Commandments’ of development.

For at least twenty years afterward, evangelists of the “consensus”—the World Bank, the International Monetary Fund (IMF), and the U.S. Treasury Department (all headquartered in Washington)—would preach orthodoxy with a quasi-religious zeal. The end of the Cold War meant that the gospel could be taken to newly decolonized countries as well as to post-communist ‘transition economies’.

Three and a half decades later, we have sufficient evidence to assess the record of the Washington Consensus. One clear conclusion is that this one-size-fits-all approach has often amplified macroeconomic events (such as the 1997 Asian financial crisis) and reduced developing economies to sweatshop locations. These countries found themselves in a race to the bottom as they tried to beat each other on labor costs – which meant lower wages and less job safety. Tragedies such as the 2013 Rana Plaza collapse, which killed 1,134 people and injured another 2,000, became all but inevitable. Moreover, none of these countries has ever been a success story. The “development miracles” that policymakers and academics now fetishize—Japan, South Korea, Taiwan, Singapore, China, India—all deviated from the Washington Consensus by making government an active participant in development.

Since the 2008 global financial crisis, many countries in the Global North have faced what used to be considered “Third World Problems”: declining growth, rampant inequality, failing institutions, a fractured political consensus and anti-globalization sentiments. The bright red line that the Washington Consensus was supposed to draw between developed and developing countries has become increasingly blurred.

In 2009, British Prime Minister Gordon Brown – following the example of influential economists such as Joseph E Stiglitz and Dani Rodrik – declared the Washington Consensus dead. It is true that its lifespan coincided with the creation of the Human Development Index; the Millennium Development Goals and their successor, the Sustainable Development Goals; the Barcelona development agenda; the Beijing Consensus; the Seoul Development Consensus; and even experiments with new measures such as gross national happiness. But none of these frameworks have proven particularly resilient.

Indeed, the specter of the Washington Consensus continues to haunt us. Global climate negotiations could not be more important for the future of the planet and human civilization. But whenever the issue of climate finance comes up, developing countries are subjected to the same kind of demeaning treatment that the Washington Consensus once prescribed. Even as criticism of ‘the China model’ mounts, the hype about India continues to be stubbornly framed in terms of the possibility of India becoming the ‘next China’. And despite widely accepted criticism of gross domestic product as a measure of economic development, it still sets the terms for policy debates.

What would it ultimately take to exorcise the ghost? One of the explanations for why “the West and the rest” diverged historically – from Max Weber Economy and society to Jared Diamond’s Guns, Germs, and Steel – the most influential hypothesis focused on “institutions.” Douglass Northern institutions, Institutional change and economic performanceHernando de Sotos

The mystery of capitaland Why Nations Fail by Daron Acemoglu and James Robinson all make a compelling case that the development of an economy depends on formal and informal rules, norms and structures.

The balance of power in the world is rapidly shifting. The Global South is already the place where most people in the world live; and thanks to the younger population, the future of the world lies here. By 2023, the concept of the Global South and its potential role in global leadership was considered mainstream. To navigate this new world, we will have to answer questions that the old consensus has pushed aside.

For example, is there more than one route to growth and development? Is there a way to reinvent or restructure the global economy now that it has become a source of widespread discontent? Do some of the Global South’s core characteristics – such as its relatively more communal cultures – make it better suited for a leadership role in the current era? And most importantly: what is actually the purpose of development?

The writer is Associate Professor of Empirical Legal Studies at the University of Cambridge ©Project Syndicate, 2024

First print: June 7, 2024 | 11:59 PM IST