2 min read.Updated: 20 Apr 2021, 10:52 PM ISTLivemint
The West’s once-favourite prescription for economic policy, drawn from the advice of JohnWilliamson, is clearly dead. Long may a new consensus live that addresses today’s challenges
Two events this month, one tragic and the other routine, might hold some keys to the future of the world economy and globalization. The sad news first: Last week came word of international economist John Williamson’s demise. He had worked with governments, multilateral institutions, educational institutes and think-tanks. During his stint at the (now Peterson) Institute for International Economics, he organized a conference in 1990 on the Latin American debt problem, and came up with a 10-point structural reform programme for these economies, a road-map to achieve the “standard economic objectives" of growth, low inflation, a viable balance of payments and equitable income distribution. His paper, advocating such policy measures as deficit control and state investment in health and education, also speculated that these had a broad consensus among various policy pillars in and around Washington DC, which promptly earned it the nickname ‘The Washington Consensus’. Over time, though, the moniker took a life of its own and became short-hand for neoliberalism, or an economic-policy set that championed free markets and minimal state participation. The policies advocated by the International Monetary Fund (IMF) and World Bank, especially the IMF’s egregious structural adjustment programmes in Southeast Asia after the region’s 1997 balance-of-payments crisis, were also force-fitted into the Washington Consensus rubric. Williamson spent many years trying to correct the misconceptions and distortions of what he favoured, though his other popular coinages—such as a ‘crawling peg’ for exchange rate management and the ‘doctrine of immaculate transfer’ for the balance of trade—did not arouse quite the same passions.
The IMF and World Bank, upbraided in the past for imposing excessive austerity on borrowing nations and foisting market-led policies as one-size-fits-all solutions, have moved far from what was mistakenly seen as a hardline consensus. Presenting the IMF’s Global Policy Agenda for its spring meeting this year, its managing director Kristalina Georgieva asked national governments to spend freely on public health and education, and provide fiscal support to minimize the loss of lives and livelihoods, apart from urging greater cooperation between countries. In short, increasing state involvement is taboo no longer, nor viewed as anathema to growth and development.
The neoliberal agenda, as imagined by some laissez-faire advocates, is clearly outdated today. A new consensus would therefore be required that can balance the roles that both markets and states play. The enduring lesson of the past century is that domination by either is a sure-fire recipe for disaster. The emerging consensus should strive for a clear demarcation of roles, responsibilities and ethical concerns, with a definite role for independent regulators, answerable to a bipartisan mix of legislators. The Washington Consensus (in whatever form) may have ceded way to a new order, but there are additional complexities clouding the horizon: Climate change and rising inequality (both between and within countries). Any new consensus must, on a priority basis, address these two concerns. Left unattended, these could wreak havoc on the global economy and worsen inequities in unacceptable ways. Throw in fresh geopolitical concerns arising from unbridled wars for digital supremacy, or a raging issue like vaccine nationalism, and the new consensus has its work cut out. Unlike the past, it should apply equally to both rich and poor nations.