Washington Consensus
워싱턴 컨센서스
The ten economic policy prescriptions that the Washington-based International Monetary Fund (IMF), World Bank and US Treasury promoted in the 1980s and 1990s as the "standard" reform package for developing countries caught in the debt crisis. The English economist John Williamson named it in 1989. Alongside fiscal and monetary policies to cut budget deficits and inflation, it included market-oriented policies such as trade liberalisation, liberalisation of inward foreign direct investment, privatisation of state enterprises and deregulation. Despite Williamson's opposition, the phrase soon came to be widely used in a broader sense, for market fundamentalism or neoliberalism in general.
In depth
The phrase "Washington Consensus" was coined in 1989 by John Williamson, an economist at the Institute for International Economics in Washington (now the Peterson Institute). After the debt crisis that began with Mexico's moratorium of 1982, every statement on how to deal with it called on the debtors to "set their houses in order", "undertake policy reforms" or "submit to strong conditionality". Williamson set out what those phrases actually meant in Washington, as a baseline against which to measure how far each Latin American country had carried out the reforms urged on it. The paper was published in April 1990 as a chapter of Latin American Adjustment: How Much Has Happened?
The "Washington" of the paper is twofold: the political Washington of Congress and senior members of the administration, and the technocratic Washington of the international financial institutions such as the IMF and the World Bank, the economic agencies of the US government, the Federal Reserve Board and the think tanks. Washington, Williamson added, does not always practise what it preaches to foreigners.
Williamson's ten points were: (1) fiscal discipline, avoiding large fiscal deficits relative to GDP; (2) redirection of public spending from indiscriminate subsidies towards pro-growth, pro-poor services such as primary education, primary health care and infrastructure; (3) tax reform, broadening the base and adopting moderate marginal rates; (4) interest rates that are market-determined and positive but moderate in real terms; (5) competitive exchange rates; (6) trade liberalisation, removing quantitative restrictions such as licensing and protecting only through low and fairly uniform tariffs; (7) liberalisation of inward foreign direct investment; (8) privatisation of state enterprises; (9) deregulation, abolishing rules that impede market entry or restrict competition, except those justified on safety, environmental and consumer protection grounds and prudential oversight of financial institutions; (10) legal security for property rights.
The list makes sense against its background. The oil price shocks of the 1970s, mounting external debt and the rise in US and therefore international interest rates had cut much of Latin America off from new foreign credit in the 1980s. Decades of import substitution had left its economies unable to raise exports quickly. Unable either to borrow more or to earn more from exports, these countries saw no obvious alternative to cutting domestic demand through fiscal discipline while lowering protection and turning their economies towards exports. Many countries implemented parts of the package, sometimes as a condition of IMF and World Bank loans, and under the Brady Plan from 1989 debtors seeking debt reduction were in effect required to follow its guidelines. What structural adjustment loans actually demanded is covered in the entry on structural adjustment.
Where the prescriptions came from is itself disputed. The name draws attention to the Washington agencies, but a number of authors stress that Latin American policy-makers arrived at similar reform packages from their own analysis of their countries' situations. A 2011 study held that the ten points were largely the creation of Latin American politicians and technocrats, Williamson's role being to gather them in one place for the first time. Williamson himself regretted the word "Washington", which wrongly suggested policies that came from Washington and were imposed from outside. Yet in his 1990 paper he noted that some believed the US interest in continued receipt of debt service from Latin America had been important in Washington's support for austerity there in the 1980s.
The phrase soon took on two senses. The narrow sense is Williamson's ten points; the broad sense is the general shift towards free-market policy that followed the displacement of Keynesianism in the 1970s, market fundamentalism or neoliberalism. Williamson opposed the broad sense. He had consciously excluded capital account liberalisation, and he called monetarism, supply-side economics and a minimal state (getting the state out of welfare provision and income redistribution) the quintessentially neoliberal ideas, not his consensus; his 1990 paper already said that liberalising foreign financial flows was not regarded as a high priority. Hence the point that the Washington Consensus is not interchangeable with neoliberalism, although in common use the two often overlap.
Assessments of the results differ. A 2020 study found that policies associated with the Washington Consensus significantly raised real GDP per capita over five to ten years. Studies in 2021 found that in Brazil, Chile and Mexico macroeconomic stability improved greatly but growth was uneven and generally disappointing, and that in sub-Saharan Africa per capita growth first fell in the 1980s and 1990s and then rose notably after 2000. Williamson himself summed up the results on growth, employment and poverty reduction in many countries as "disappointing, to say the least", blaming the lack of mechanisms to avoid crises, incomplete reforms and too little attention to income distribution.
Criticism came from several directions. Joseph Stiglitz and Dani Rodrik attacked the "fundamentalist" policies of the IMF and the US Treasury for treating every economy alike; according to Stiglitz the prescription was "one dose, and fast: stabilize, liberalize and privatize", without prioritising or watching for side effects. He contrasted the East Asian cases of Korea and Taiwan, where governments played a large part through industrial policy and raising domestic savings. In Latin America the Washington Consensus has been discussed together with the "lost decade", and it has been argued that it brought social exclusion, weaker trade unions and a shrinking middle class, prompting the turn to the left and to populist leaders by the late 1990s.
Dependency and world-systems writers offered a more fundamental critique. Giovanni Arrighi argued that the scarcity of capital heralded by the Mexican default of 1982 created a propitious environment for the "counterrevolution in development thought and practice" that the neoliberal Washington Consensus advocated. Taking advantage of the financial straits of low- and middle-income countries, the agencies of the consensus foisted "structural adjustment" on them, which did nothing to improve their position in the global hierarchy of wealth but greatly facilitated the redirection of capital flows towards the revival of US wealth and power.
When governments turned to Keynesian policies after the financial crisis of 2008–09, a number of journalists, politicians and senior World Bank officials declared the Washington Consensus dead; the British Prime Minister Gordon Brown said after the 2009 London G20 summit that "the old Washington Consensus is over". Asked in 2009, Williamson replied that this was wrong if it meant his ten points and right if it meant the neoliberal tract that Stiglitz and others had foisted on the term. When the 2010 Seoul G20 summit announced a Seoul Development Consensus, the Financial Times wrote that it would do little more than drive another nail into the coffin of a long-deceased Washington Consensus.