Friday, February 10, 2006

Goodbye Washington Consensus, Hello Washington Confusion?

Goodbye Washington Consensus, Hello Washington Confusion?

Dani Rodrik, of Harvard University, points out that the neoliberal prescription of free markets, privatization, and non-interference has been a great failure for developing nations. India and China have done vastly better with their own prescriptions.


Genius said...

People confuse what they want with what is.

Having said that I suggest we dont get to excited over how effective well managed fascism, lack of free speach and repression (let alone eugenics) is in developing countries and how this disproves the washington consensus.
generally hte washington consensus is good for hte world in general and may be good for individual countries.

Besides what parts of the consensus do we really disagree with?

I suggest
> Fiscal policy discipline - good for the world - generally good for governments
>Redirection of public spending toward education, health and infrastructure investment - good for the world - good for the country
> Tax reform – Flattening the tax curve: - bad for the world - unclear for the country, depends on other factors
> Interest rates that are market determined and positive (but moderate) in real terms - good for the world, may be good for the country (it is tempting to do stupid things)
> Competitive exchange rates - generally good for the world bad for country - generaly fixing your ex rate allows you to leach (but again it is tempting to do stupid things like fight battles you can't win).
> Trade liberalization – good for hte world bad in some products for hte country
> Openness to foreign direct investment -good for the world good for the country
> Privatization of state enterprises -
depends on the industry
> Deregulation
good for all
> Legal security for property rights
generally good

It all depends a bit on how smart the country is if itt's government is stupid (like let's say zimbabwae) it cant beat mindlessly following hte washington consensus - if it is very smart (eg china) it can beat it easily and ad all sorts of things to it. Having said that China generally seems to be moving in the direction of the WC in most of these areas....

Sarai said...

I see what you mean Genius, however I would have to disagree with your position particularly regarding deregulation as being good for all. Sure at one point in time this may indeed be the case, however, for the time being Latin American countries and other developing states need to maintain some form of regulation in their markets in order to be able to compete. It's the same thing we saw happen during the transition of the Eastern European economies from Socialist to Capitalist. The ones that took a more gradual approach are the ones that ultimately did best.

In fact this was one of the EU's appraoches to the former Yugoslav states - open up your markets amongst yourselves in preparation for the real competition.

For so many states that followed the Washington Consensus step by step it didn't work out as well as expected. We have to remember that these states are still young, and the first thing that they must adress is their own domestic stability at a political, social and economic level. This is perhaps the fundamental problem with the Washington Consensus - it outlines things backwards.