Sunday, September 30, 2007

The Post-Washington Dissensus

This is a quite interesting article. As Bello details some of the alternatives they sound little better than the original Wasington Consensus if not worse.

Foreign Policy in Focus
September 24

Walden Bello*

When two studies last year detailed how the World Bank's research
unit had been systematically manipulating data to show that neo-
liberal market reforms were promoting growth and reducing poverty in
developing countries, development circles were not shocked. They
merely saw the devastating findings of a study by American University
Professor Robin Broad and a report by Princeton University Professor
Angus Deaton and former International Monetary Fund chief economist
Ken Rogoff as but the latest episode in the collapse of the so-called
Washington Consensus.

Taking off from Margaret Thatcher's famous remark, partisans of this
development model during its heyday the 1980s and early 1990s claimed
that the alternative to the Washington Consensus was TINA -- that is,
"There is no alternative." The Washington Consensus broke with
economic strategies involving heavy participation by government and
positioned the unfettered market as the driver of development.

Imposed on developing countries in the form of "structural
adjustment" adjustment programs funded by the International Monetary
Fund (IMF) and the World Bank, the Consensus reigned until the late
1990s, when the evidence became clear that on all key criteria of
development -- sustained growth, poverty reduction, and reduce
inequality -- it simply was not delivering. By the first half of
this decade, the Consensus had undergone a process of unraveling,
although neo-liberalism remained the default mode for many economists
and technocrats that had lost confidence in it, simply out of inertia.

The former adherents of the Consensus have gone off in divergent
directions. Despite frequent references to it, there is, in fact, no
"Post-Washington Consensus."

Mindful of the failures of the Washington Consensus, the IMF and the
World Bank are now promoting what Nobel laureate Joseph Stiglitz has
disdainfully described as the "Washington Consensus Plus" approach,
that is, that market reforms, while crucial, are not enough.
Financial reforms, for instance, must be "sequenced," if we are to
avoid such debacles as the Asian financial crises, which even the
Fund now admits was due to massive capital inflows into countries
that liberalized without strengthening their "financial
infrastructure." Mindful of the Russian descent into the hell of
mafia capitalism in the 1990s, the two institutions also now talk
about the importance of accompanying market reform with institutional
and legal reforms that can enforce private property and contracts.
Other accompaniments of market reforms are "good governance" and
policies to "develop human capital" such as female education.
This mix of market and institutional reforms were consolidated in the
first years of this decade in the so-called Poverty Reduction
Strategy Papers (PRSP's). In contrast to what one analyst has
described as the "bare knuckle neo-liberalism" of structural
adjustment programs, PRSPs were not only more liberal in content but
in process: they were supposed to be formulated in consultation with
"stakeholders," including civil society organizations.
Despite its icing of institutional reforms, the core of the PRSP cake
remains the same macroeconomic fundamentals of trade liberalization,
deregulation, privatization, and commercialization of land and
resources at the heart of structural adjustment programs. And
community consultation has been limited to well-resourced, liberal
non-governmental organizations rather than broad-based social
movements. PRSPs indeed are simply second generation structural
adjustment programs that seek to soften the negative impact of
reforms. As IMF Managing Director Rodrigo Rato has admitted, the
purpose of institutional reforms is "to make sure that the fruits of
growth are widely shared and the poorest people are protected from
the costs of adjustment" in order to prevent people from being
"tempted to give up on orthodox economic policies and structural

A second successor to the Washington Consensus is what one might call
the "neoconservative neo-liberalism." This approach is essentially
the development policy of the Bush administration. The inspiration
for this strategy was provided by the famous 2000 report of a
congressional commission on multilateral institutions headed by
conservative academic Alan Meltzer, which proposed a radical slimming
down of the World Bank. It supports-at least rhetorically--debt
relief for the poorest countries on the ground that they won't be
able to pay the debt and seeks a shift from loans to grants.
However, debt relief and grant aid are conditioned on how governments
perform in terms of liberalizing their markets and privatizing their
industries, land, and natural resources. Indeed, the main reason for
preferring grants is that, in contrast to loans channeled through the
World Bank, grants, as Undersecretary of State John Taylor put it,
"can be tied more effectively to performance in a way that longer-
term loans simply cannot." Moreover, grants would allow pro-market
reforms and aid policy generally to be more directly coordinated with
Washington's security objectives and with the agenda of US
corporations. Compared to the original Washington Consensus,
neoconservative neoliberalism is less doctrinaire, but in an
illiberal direction, ready, as it is, to let the market play second
fiddle to power.

A third distinctive successor to the Washington Consensus,
neostructuralism, moves, in contrast, in a more liberal direction.
This is an approach associated with the Economic Commission for Latin
America (CEPAL) that produced the structuralist theory of
underdevelopment in the 1950s under the leadership of the venerable
Argentine economist Raul Prebisch. According to neostructuralism,
neoliberal policies have simply been too costly and
counterproductive. In fact, there is no trade-off between growth and
equity, as the neoliberals claim, but a "synergy." Less inequality
in fact would enhance, not obstruct, economic growth by increasing
political and macroeconomic stability, boosting the saving capacity
of the poor, raising educational levels, and expanding aggregate
demand. The neostructuralists thus propose progressive transfer
payment policies that redistribute income in ways that increase the
human capital or productivity of the poor, including higher spending
for health, education, and housing programs. These are the kinds of
programs associated with what the Mexican polemicist Jorge Castaneda
has called the "Good Left" in Latin America, meaning the governments
of Lula in Brazil and the Concertacion alliance in Chile.
Being focused on managing transfer payments to protect and upgrade
the capacity of the poor, the neostructuralist approach does not
interfere with market forces in production, unlike the policies of
the "Bad Left" (meaning Hugo Chavez and friends) that intervene in
production, markets, and wage policies. The neostructuralists also
embrace globalization, and they say that a key objective of their
reforms is to make the country more globally competitive. Because
they simultaneously allegedly alleviate income disparities, upgrade
the capacity of the poor, and make the work force more globally
competitive, neostructuralist reforms are said to hold out the
prospect of making globalization more palatable, if not popular.
Neostructuralists proudly proclaim that their approach is the "high
road" to globalization, in contrast to the "low road" of the
The problem is that neostructuralist reforms have led to what one
of its most thoughtful critics, Chilean economist Fernando Leiva,
calls the "heterodox paradox," that is, in the quest for systemic or
comprehensive competitiveness, the carefully crafted neostructuralist
policies have actually led to "the politico-economic consolidation
and regulation of neoliberal ideas and policies." In the end,
neostructuralism, like the Washington Consensus Plus approach, does
not fundamentally reverse but simply mitigate the poverty and
inequality-creating core neoliberal policies. The Lula government's
targeted anti-poverty program may have reduced the ranks of the
poorest of the poor but institutionalized neoliberal policies
continue to reproduce massive poverty, inequality, and stagnation in
Latin America's biggest economy.

The more than residual attachment to neoliberalism of
neostructuralism is less evident in the case of what we might call
global social democracy, an approach that has become identified with
people such as economist Jeffrey Sachs, sociologist David Held, Nobel
laureate Joseph Stiglitz, and the British charity Oxfam. Unlike the
three previous approaches, this perspective acknowledges the fact
that growth and equity may be in conflict, and it ostentatiously
places equity above growth. It also fundamentally questions the
central thesis of neoliberalism: that for all its problems, trade
liberalization is beneficial in the long run. Indeed, Stiglitz says
that in the long run, trade liberalization may in fact lead to a
situation where "the majority of citizens may be worse off."
Moreover, the global social democrats demand fundamental changes in
the institutions and rules of global governance such as the IMF, WTO,
and the Trade Related Intellectual Property Rights Agreement
(TRIPs). David Held, for instance, calls for the "reform, if not
outright abolition, of the TRIPs Agreement," while Stiglitz, says
that "rich countries should simply open up their markets to poorer
ones, without reciprocity and without economic or political
conditionality." Also, "middle-income countries should open up their
markets to the least developed countries, and should be allowed to
extend preferences to one another without extending them to the rich
countries, so that they need not fear that imports might kill their
nascent industries."
The global social democrats even see the anti-globalization
movement as an ally, with Sachs thanking it "for exposing the
hypocrisies and glaring shortcomings of global governance and for
ending years of self-congratulation by the rich and powerful." But
globalization is where the global social democrats draw the line.
For, like classical neoliberalism, the Washington Consensus Plus
school, and neostructuralism, global social democracy sees
globalization as necessary and fundamentally sound and, if managed
well, as bringing benefits to most.
Indeed, the global social democrats see themselves as saving
globalization from the neoliberals. This is all the more important
because, contrary to an assumption that was gospel truth just a few
years ago -- the globalization was irreversible -- the global social
democrats worry that contemporary globalization is, in fact, in
danger of being reversed, and they hold up as a cautionary tale about
the consequences of such a development the turbulent reversal of the
first wave of globalization after 1914.
To Sachs, Held, and Stiglitz, the benefits of globalization
outstrip the costs, and what the world needs is a social democratic
or "enlightened globalization" where global market integration
proceeds but is one that is managed fairly and is accompanied by a
progressive "global social integration." The aim, as Held puts it, is
to "provide the basis for a free, fair, and just world economy,"
where the "values of efficient and effective global economic
processes...function in a manner commensurate with self-
determination, democracy, human rights, and environmental

There are several problems with global social democracy's attachment
to globalization.
First of all, it is questionable that the rapid integration of
markets and production that is the essence of the globalization can
really take place outside a neoliberal framework whose central
prescription is the tearing down of tariffs walls and the elimination
of investment restrictions. Slowing down and mitigating this
inherently destabilizing process, not reversing it, is the global
social democratic agenda. That global social democrats have come to
terms with the fundamental tendency of global market forces to spawn
poverty and inequality is admitted as much by Sachs who sees social
democratic globalization as "harnessing [of] the remarkable power of
trade and investment while acknowledging and addressing limitations
through compensatory collective action."
Secondly, it is likewise questionable that, even if one could
conceive of a globalization that takes place in a socially equitable
framework, this would, in fact, be desirable. Do people really want
to be part of a functionally integrated global economy where the
barriers between the national and the international have
disappeared? Would they not in fact prefer to be part of economies
that are susceptible to local control and are buffered from the
vagaries of the international economy? Indeed, the backlash against
globalization stems not only from the inequalities and poverty it has
created but also the sense of people that they have lost all
semblance of control over the economy to impersonal international
forces. One of the more resonant themes in the anti-globalization
movement is its demand for an end to export-oriented growth and the
creation of inwardly-oriented development strategies that are guided
by the logic of subsidiarity, where the production of commodities
takes place at the local and national level whenever that is
possible, thus making the process susceptible to democratic regulation.

The fundamental problem with all four successors to the Washington
Consensus is their failure to root their analysis in the dynamics of
capitalism as a mode of production. Thus they fail to see that
neoliberal globalization is not a new stage of capitalism but a
desperate and unsuccessful effort to overcome the crises of
overaccumulation, overproduction, and stagnation that have overtaken
the central capitalist economies since the mid-seventies. By
breaking the social democratic capital-labor compromise of the post-
World War II period and eliminating national barriers to trade and
investment, neoliberal economic policies sought to reverse the long-
term squeeze on growth and profitability. This "escape to the
global" has taken place against the backdrop of a broader conflict-
ridden process marked by renewed inter-imperialist competition among
the central capitalist powers, the rise of new capitalist centers,
environmental destabilization, heightened exploitation of the South
-- what David Harvey has called "accumulation by dispossession" --
and rising resistance all around.
Globalization has failed to provide capital an escape route from its
accumulating crises. With its failure, we are now seeing capitalist
elites giving up on it and resorting to nationalist strategies of
protection and state-backed competition for global markets and global
resources, with the US capitalist class leading the way. This is the
context that Jeffrey Sachs and other social democrats fail to
appreciate when they advance their utopia: the creation of an
"enlightened global capitalism" that would both promote and
"humanize" globalization.

Late capitalism has an irreversible destructive logic. Instead of
engaging in the impossible task of humanizing a failed globalist
project, the urgent task facing us is managing the retreat from
globalization so that it does not provoke the proliferation of
runaway conflicts and destabilizing developments such as those that
marked the end of the first wave of globalization in 1914.

*Walden Bello is professor of sociology at the University of the
Philippines and senior analyst at the Bangkok-based research and
advocacy institute Focus on the Global South.


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