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A Post-Washington Consensus?

Colin Parkins

Over the last few years, the World bank has attempted to restore its reputation by offering a limited self-criticism of the neoliberal policies favoured during the 1980s. A malicious mind would be tempted to say that the World Bank is simply adapting to the new rhetoric of the Clinton White House. However that may be, neither the IMF, hidden behind monetary professionalism, nor the GATT-WTO, ever opaque and shielded by the 'commercial secrets' of the transnationals which dominate its clientele, have followed suit. Again malicious tongues might be tempted to comment that this double language is also that of the White house and that officials from the various institutions have simply distributed the work in this spirit. Amin (1997) p 14 What remains of modernisation theory is the language as a myth or an ideology of social action. The language serves as an excuse for the absence of a theory capable of confronting the problems of disaccumulation, economic and social regression and atavistic religious and military revivalism. Petras and Morley (1990) p59

Introduction In 1990 John Williamson coined the term the Washington consensus to describe a specific package of reforms that 'most of official Washington though would be good for Latin American countries [and which] could be summarized in ten propositions: Fiscal discipline A redirection of public expenditure priorities towards fields offering high economic returns and the potential to improve income distribution, such as primary health care, primary education and infrastructure. Tax reform (to lower marginal rates and broaden the tax base). Interest rate liberalization. A competitive exchange rate. Trade liberalization. Liberalization of FDI inflows. Privatisation. Deregulation (in the sense of abolishing barriers to entry and exit). Secure property rights.' (Williamson 1999a) This he took to be the distilled wisdom of the Regan-Thatcher era; policy initiatives that had survived the passing of their more bug-eyed proponents and gained widespread acceptance among what Paul Krugman later defined as 'the network of opinion leaders centred in the world's de facto capital the International Monetary Fund, think tanks, politically sophisticated investment bankers, worldy finance ministers, all those who meet each other in Washington and collectively define the conventional consensus wisdom of the moment' (quoted in Raghavan (1996) p 14). To Williamson's chagrin, the term subsequently gained a much more negative spin as it became the common shorthand for market fundamentalism in general, though whether you see

any real distinction between these two uses depends on how much credence you give to the non-ideological, technocratic credentials he claims for himself and his colleagues. In either case the provenance of the ideas is clear. The Washington consensus was a product of the counterrevolution in development economics (Toye, 1993) that itself grew out of the successful neoliberal offensive against Keynesianism in the 1970s, and found it's most practical expression in the Structural Adjustment Programmes (SAPs) imposed on large swathes of the Third World during the 1980s and 1990s. As such it has long been the object of criticism from outside the charmed circle of global policy makers, where SAPs are associated with 'a sharp increase in unemployment, a fall in the remuneration of work, an increase in food dependency, a grave deterioration of the environment, a deterioration in healthcare systems, a fall in admissions to educational institutions, a decline in the productive capacity of many nations, the sabotage of democratic systems, and the continued growth of external debt.' (Amin 1997, p13). Recently, though, the Washington consensus has come under fire from within. The intellectual charge has been led by Joe Stiglitz, the World Bank's Chief Economist until the end of last year, who claimed to detect 'an emerging post-Washington consensus consensus' (Stiglitz 1998a) around the belief that the recent policy had focused too narrowly on pursuing economic growth through the deregulation of markets and the consequent need for a 'new paradigm for development' (Stiglitz 1998b). Stiglitz has now paid for his radicalism, having allegedly been forced out by the US Treasury Secretary Lawrence Summers, as the price of agreeing to a second term for James Wolfensohn as President of the World Bank (Tavernier, 2000), and if the idea of a post-Washington consensus was no more than the personal position of an intellectual who is seen as something of a maverick within the financial establishment, the story would presumable end there. But his intervention has come in the midst of other shifts in policy and rhetoric within and around the International Financial Institutions. The aftermath of the Asian crisis and calls for a new financial architecture are still reverberating, in the shape of statements about the need to govern globalisation. Poverty eradication has risen up the agenda in the World Bank, and even the IMF, and has been incorporated into the debt management process through a reorientation of the Highly Indebted Poor Countries initiative around locally defined poverty reduction strategies. The idea of 'social capital', with its implication that markets have to be seen as socially embedded, appears to have become a key concept in the discourse of the World Bank. References to a new development paradigm have become commonplace in official speeches. While the tenth session of the UNCTAD in February this year ended with its Secretary General, Rubens Ricupero, citing Stiglitz's intervention as the basis his call for what amounts to a renewed international social democratic consensus (Ricupero, 2000). There are indications, therefore, that a post-Washington consensus may be emerging, or at the very least becoming an important subject of debate within global policy making circles. If so, what does it look like and what are its implications? The rest of this paper will address these questions in turn. What? As a critique Stiglitz's intervention focuses on two points. He suggests firstly that while the Washington consensus correctly emphasised the need for macroeconomic stability, trade liberalisation and getting prices right, it's policies were sometimes misguided in these areas, and it failed to recognise the need for complementary measures to ensure sound financial regulation and an effective role for the state in areas such as human capital formation and technology transfer, all of which are essential for 'making markets work'. Secondly he suggests that it confused means (privatisation and trade liberalisation and a nominal increase in GDP) with ends (a more sustainable, equitable and democratic growth which would bring about a general increase in well-being). This critique is wrapped in a plea for humility on the part of economists who should recognise that the world is more complicated than could be captured in the simplistic analysis of the Washington consensus; that they therefore do not have all the answers, and that in any case development involves trade-offs and therefore real political choices that cannot be resolved by the technocratic intervention.

As Ben Fine (1999) has pointed out, the intellectual foundations for this critique lie, on the one hand, in 'the new Keynesian economics' which focuses on the microfoundations of macroeconomics and in particular on market failures caused by imperfect information; an area in which Stiglitz has been a leading voice for many years. And on the other hand, at least implicitly, in the growing literature that identifies social capital as the key to successful development; social capital being defined by the World Bank as 'the networks and relationships that both encourage trust and reciprocity, and shape the quality and quantity of a society's social interactions' (World Bank (1999, p18). Though it also has similarities with the claim by the UNDP that human development should be the aim of policy and the work of social reformist economists such as Amartya Sen who argue that the promotion of human rights and human capacities should be essential development goals (Elson, 1997; Sen, 1997). But Stiglitz goes beyond simple critique to argue for a new consensual, participatory form of development strategy, defined through dialogue among donors, the state and civil society, that will serve as a catalyst for society-wide social change. Such a strategy must simultaneously develop the private sector, the state, the community, the family and the individual, in a coherent, interrelated way, by setting priorities and providing the necessary resources, economic management, knowledge, sectoral planning, and social and organisational capital. In other words, it is a strategy that is 'owned' by, and therefore get 'deep into' society as a whole, rather than one that imposes technocratic economic solutions from the outside. But it is also one that is clearly designed to supplement the market and move society in a definite direction, This is clear from the guiding vision of development that underlies the analysis: Development represents a transformation of society, a movement from traditional relations, traditional ways of dealing with health and education, traditional methods of production, to more "modern" ways. For instance a characteristic of traditional societies is the acceptance of the world as it is; the modern perspective recognises change, it recognises that we as individuals and societies can take actions that, for instance, reduce infant mortality, extend lifespans, and increase productivity. Key to these changes is the movement to "scientific" ways of thinking [...] All societies are a blend [but] in less advanced societies [traditional] sectors predominate. Indeed, one characteristic of many less developed countries is the failure of the more advanced sectors to penetrate deeply into society, resulting in what many have called "dual" economies in which more advanced production methods may co-exist with very primitive technologies. [...] The changes that are associated with development provide individuals and societies more control over their own destiny. Development enriches the lives of individuals by widening their horizons and reducing their sense of isolation. It reduces the afflictions brought on by disease and poverty, not only increasing lifespans but improving the vitality of life. Given this definition of development it is clear that a development strategy must be aimed at facilitating the transformation of society, in identifying the barriers to, as well as potential catalysts for, change. Stiglitz (1998b) Paradoxically, then, the largely unacknowledged intellectual foundations of Stiglitz's new paradigm are to be found in the once hegemonic, but now widely discredited, ideas of modernisation theory. The context for this apparent contradiction is a long standing bifurcation in development theorising between analyses of uneven development, and the nature of change taking place within the Third World, and policy based analyses. The standard history of the first identifies a succession of dominant paradigms in which, having been hegemonic throughout the late 1950s and 1960s, modernisation theory then comes under sustained criticism within an increasingly radicalised academia and is replaced by dependency theory; until this and other forms of radical analysis run into an impasse in the mid 1980s, in part because of their inability to offer practical solutions to underdevelopment (Booth, 1985). However this picture of successive paradigms is somewhat diluted by the fact that more orthodox forms of Marxist analysis provided a durable critical counterpoint to these dominant theories from the 1960s onwards, while modernisation theory itself staged something of a recovery in the 1980s (So, 1990). The history of the second line of analysis takes in the formulation of broadly Keynesian growth theories, development planning models and Latin American structuralism, that together

provided the intellectual foundation for the post war development project; the basic needs, redistribution-with-growth and New International Economic Order strategies, that were each in their different way responses to the evident failure of that project during the 1970s, and the neoliberal tidal wave that washed all this away at the start of the 1980s (Williamson 1999b). Clearly there are crossovers between these two lines, if only because the record of the second is part of the subject matter of the first. In particular a mainstream constellation of ideas can be identified in the 1950s and 1960s in which modernisation theory provided a wider intellectual framework for both cold war US policy and mainstream development economics. Nevertheless the self-sufficiency of orthodox economic analysis and the development policy establishment meant that the intellectual eclipse of modernisation theory in the 1970s caused barely a ripple in the formulation of practical development policies. It was rather the failure of the post war project to bring about a radical transformation in the fortunes of the Third World, and then the neoliberal intellectual revolution in advanced capitalist countries combined with the debt crisis, that caused first a shift towards more ameliorative forms of international development policy and then a sea change in which adjustment and stabilisation became the primary concerns. It is for this reason that Stiglitz can claim that his back-to-the-future approach is new and suggest that previous development strategies have failed because of their exclusive concentration of economics. The post-Washington consensus is therefore a combination of things: a third-way type challenge to neoliberalism on the basis of innovative mainstream economic analysis, combined with an attempt to incorporate the fundamental ideas of modernisation theory into the heart of development policy making on the basis of 1990s participatory rhetoric. And in this second sense it is an attempt to revive the largely dormant idea that development is about producing a real transformation through interventionist policies. So what? According to the protagonists, the stakes in this emerging debate are high. John Williamson claims that the Washington consensus was 'an attempt to summarise the policies that were widely viewed as supportive of development at the end of two decades when economists had become convinced that the key to rapid economic development lay [...] in the set of economic policies that [a country] pursued' (Williamson, 1999a), while Joe Stiglitz has also made clear his belief in the power of economic ideas (Stiglitz 1995). And this belief also seems to be shared by good many critics of the Bretton Woods institutions who attribute the destructive effects of their policies to the fact that they are in thrall to a particular form of economic dogma (George & Sabelli, 1994). From this point of view Stiglitz's intervention could be seen as a step in the direction of significant reform. At the very least it is part of a more general movement towards something a situation similar to that before the debt crisis, in which Washington policy making circles are giving greater priority to the amelioration of the worst effects of global capitalism (Camdessus, 2000). However, the world is clearly not made and unmade by conscious policy decisions taken in Washington or anywhere else. It is made and unmade, above all, by the dynamics of a global capitalist system that shows no prospect of developing, or allowing the development of, the Third World in anything other that highly uneven and distorted ways (Sklair, 1994). Nor does the perspective provided by modernisation theory hold out any prospect of understanding those dynamics and therefore the causes of poverty and uneven development. The two central criticisms made in the 1960s and 1970s were that it assumed a unilinear development path down which all societies would follow in a more or less orderly way something that, apparently unknown to Stiglitz, later versions have rejected, firstly by redefining modernisation as a conflictual process and then identifying various paths to modernity (Randall & Theobald, 1985; So, 1990) and that it assume development was an essentially internal process that took place in solely national context. In this respect, perhaps the most striking feature of Stiglitz's analysis is the absence of any discussion of globalisation. A second, possibly more fruitful, way of evaluating the emergence of a post-Washington consensus is therefore to ask what it signifies rather than what it impact it might have. Or to put this another way, why a space has now opened up for an intervention such as Stiglitz's and why

it has found an echo among others within Washington policy making circles. The most immediate explanation lies in the havoc caused by the Asian crisis, and the IMF's response to it, which appears to have provoked a real difference of opinion within those circles and in the process allowed the longstanding complains of opposition groups about unregulated markets and one-size-fits-all policy solutions to invade the pages of the financial press and the agendas of G7 ministers. But this has to be seen in the context of, on the one hand, the limited shifts in policy, and much great shifts in rhetoric, within developed industrialised countries that are associated with the third way, and, on the other hand, the long term failure of SAPs to achieve their declared aims. In this latter respect, the post-Washington consensus can be seen as a successor to other waves of policy fashion, such as a concern with governance, that were designed to close the gap between the prescriptions of institutions like the World Bank and the real world.


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