Monday, 13 May 2013

The Washington Consensus and democracy

By Carlos Fortin

A recent Guardian article by Walden Bello, comparing the neoliberal policies of the Pinochet dictatorship in Chile with those of Margaret Thatcher in Britain, prompted a debate in the Recovery with a Human Face blog about the Washington Consensus, its policy thrust and its impact on the economies of the countries which adopted it.

Bello's article squarely linked the Washington Consensus with free market fundamentalism, a point contested by Duncan Campbell of the ILO (writing in personal capacity). For Campbell, the Consensus ‘was not doctrine, but became doctrinaire through its misuse in political channels.  The core of the consensus, however, was economic wisdom, time- and context-specific, and the effort …  was for the common good’. Here he echoes the disclaimers of the inventor of the term Washington Consensus, economist John Williamson. Williamson, in a piece written in 1999, inveighs against the fact that the term has become synonymous with market fundamentalism, which he claims it was never intended to be.

Janine Berg, also of the ILO, replied to Campbell’s comment to say that “the ‘Consensus’ was an ideological pursuit based on shaky theoretical grounds”.  She was supported by Robert Wade, with reference to New Zealand’s Big Bang liberalization of 1984. 2
 
Although I agree with Duncan Campbell and John Williamson that the Washington Consensus is not necessarily an endorsement of the most extreme forms of market fundamentalism, its core ideas include:
  • privatisation
  • deregulation
  • liberalisation of imports and foreign direct investment inflows as well as of interest rates
  • a minimal role for the State in the economy.
As all of these beliefs  undoubtedly reflect the essence of neoliberalism, I therefore ultimately side here with Bello, Berg and Wade.

Perhaps more importantly, I believe the Washington Consensus shares with market fundamentalism an anti-democratic bias. Economic decision making is defined as a technical exercise, in which trained experts identify the "right" solutions and implement them, preferably in isolation from public debate, for the good of all. The crucial insight of political economy –that policy interventions always result in winners and losers - is thus negated. As Joseph Stiglitz puts it, this approach " tried to pretend that there were not trade-offs—a single set of policies made everyone better off—while the essence of economics is choice, that there are alternatives, some of which benefit some groups (such as foreign capitalists) at the expense of others, some of which impose risks on some groups (such as workers) to the advantage of others." 3

The clearest example is the notion –which has gained currency on the back of the Washington Consensus- that the independence of central banks is crucial for ensuring good monetary policy. To quote Stiglitz again, "central banks make decisions that affect every aspect of society, including rates of economic growth and unemployment. Because there are trade-offs, these decisions can only be made as part of a political process"4. The Washington Consensus advocates' insistence that it is a purely technocratic issue, is essentially an expression of their "lack of confidence in democratic processes" 5.

1 John Williamson, “What Should the World Bank Think About the Washington Consensus”, Speeches and Papers, Peterson Institute for International Economics, July 1999. At: http://www.iie.com/publications/papers/paper.cfm?ResearchID=351
2 Bello's article and the subsequent exchange are available at http://www.freelists.org/post/recoveryhf/Neoliberalism-and-the-Global-South
3 Joseph E. Stiglitz, Making Globalization Work. The Next Steps to Global Justice, New York and London, W.W. Norton Allen and Company, 2006, p.xv
4 Joseph E. Stiglitz, "Big Lies about Central Banking", Project Syndicate, 3 June 2003, at
http://www.project-syndicate.org/commentary/big-lies-about-central-banking
5 Stiglitz., Making Globalization Work, op.cit., p. 28

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