Washington Consensus
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The Washington Consensus is a set of policies believed to be the formula for promoting economic growth in Latin America (although not for all countries). It was first presented by John Williamson from the Institute for International Economics in 1989.
The consensus included reforms that should be undertaken from 1989 (these reforms were also summarized by the World Bank in its year 2000 Poverty Report):
- Fiscal policy discipline
- Redirection of public spending toward education, health and infrastructure investment
- Tax reform - Flattening the tax curve: Lowering the tax rates on proportionaly high tax brackets (typically above median income), and raising the tax rates on the proptionally low tax brackets (typically below median income); lowering the marginal tax rate.
- Interest rates that are market determined and positive (but moderate) in real terms
- Competitive exchange rates
- Trade liberalization - replacement of quantitative restrictions with low and uniform tariffs
- Openness to foreign direct investment
- Privatization of state enterprises
- Deregulation - abolition of regulations that impede entry or restrict competition, except or those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions
- Legal security for property rights
Anti-globalization and anti-capitalist critics argue that the consensus' neoliberal policies have been imposed on economically vulnerable countries and have in fact led them to crisis instead of overcome it. Some leftist critics of trade liberalization, such as Noam Chomsky and Naomi Klein, see it as a way of throwing open the labor market of an underdeveloped economy to exploitation by a more developed economy. Many of the other reforms (e.g. privatization of state industries, tax reform, and deregulation) are thus seen as mechanisms for ensuring the development of a local monied elite who will then have a vested interest in maintaining the local status quo. Other more moderate commentators argue that it was not the policies themselves, but the extreme speed at which they were implemented which caused the damage.
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NAFTA and DR-CAFTA
In the 1990s, President George H. W. Bush began to draw up a U.S.-Mexican-Canadian free-trade proposal that came to be known as the North American Free Trade Agreement (NAFTA.) NAFTA was later signed into law by Bush's successor, President Bill Clinton, and the three North American countries agreed to gradually phase out or sharply reduce tariffs on foreign goods, a policy perfectly in line with the ideals of the Consensus. Current President George W. Bush continues to support NAFTA, and his administration is currently negotiating a similar agreement known as the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the Dominican Republic and Central America.
Proponents of NAFTA and DR-CAFTA claim that they promote economic growth in developing countries and are a boon to American consumers, providing them with less-expensive foreign goods. Critics from left and right accuse the agreements of crippling the American working class by promoting the relocation of production to cheaper labor markets in Mexico, and allege that such shifts have resulted in the exploitation of Mexican laborers. Anti-globalization critics tend to emphasize the latter, while conservative critics such as Pat Buchanan tend to emphasize the former.
Support for the agreements in the U.S. Congress and the executive branch has been bipartisan, with Democratic President Clinton having signed NAFTA and current Republican President Bush pushing for DR-CAFTA. Anti-globalization critics claim that the agreements only enjoy such widespread support amongst Washington politicians because they seek to appease corporate sponsors of their individual campaigns.
Current progress
Most Latin American countries continue to struggle with high poverty, unemployment, and underemployment, though Chile has been a Consensus success story, and countries such as El Salvador and Uruguay have shown some positive signs of economic development.
Countries that have implemented market reforms following Washington Consensus
- Bolivia
- Chile
- Colombia
- Costa Rica
- Dominican Republic
- Ecuador
- El Salvador
- Guatemala
- Honduras
- Mexico
- Nicaragua
- Paraguay
- Peru
- Uruguay
- Zambia
Countries with governments currently opposed to Washington Consensus
External links
- Diversity in Development: Reconsidering the Washington Consensus (Jan Joost Teunissen and Age Akkerman (eds.), December 2004, book, pdf) (http://www.fondad.org/publications/diversity/contents.htm)
- Did the Washington Consensus Fail? (by John Williamson) (http://www.iie.com/publications/papers/williamson1102.htm)
- The Washington Consensus as Policy Prescription for Development (World Bank) (http://info.worldbank.org/etools/bspan/PresentationView.asp?PID=1003&EID=328)
- What Should the World Bank Think about the Washington Consensus? (by John Williamson) (http://www.worldbank.org/research/journals/wbro/obsaug00/pdf/(6)Williamson.pdf)
- Fabian Global Forum for Progressive Global Politics: The Washington Consensus (by Adam Lent) (http://www.fabianglobalforum.net/knowledge/article023.html)
- The Economics of Empire - Notes on the Washington Consensus (by William Finnegan) (http://www.mindfully.org/WTO/2003/Economics-Of-EmpireMay03.htm)de:Washington Consensus