This article was originally published in Latin Trade Magazine on 7/10/09.
Beginning in the 1980s, the “Washington Consensus” – the concept that free markets were the solution to poverty — dominated development theory, policy, and practice around the world.
Today, just as faith in deregulated markets has evaporated in the nightmare on Wall Street, so too is the long reign of market fundamentalism ending in the development arena. And a debate over the best route to development — a debate that was vibrant in the 1970s and earlier — has returned.
As chronicled in our book Development Redefined: How the Market Met Its Match, adverse impacts of World Bank, International Monetary Fund, and World Trade Organization policies — and the arrogance and recalcitrance of those institutions — over these past decades have sparked public opposition around the world. This became even more widespread after their spectacular failure in the string of financial crises that wracked many Asian and Latin American countries, as well as Turkey and Russia, in the late 1990s.
Throughout Latin America, especially in Venezuela, Brazil, Argentina, Bolivia, Ecuador, Nicaragua, and El Salvador, voters have since elected leaders who eschew the Washington Consensus and seek independence from international financial institutions. In addition to their crises of credibility and legitimacy, the World Bank and the IMF also face new competition. Some countries in the region and elsewhere in the Global South are bypassing their resources and turning instead to China, Venezuela, and other new donors for loans that often come less encumbered by onerous conditions.
Both institutions have tried to use the current global economic crisis to repackage themselves and to regain credibility, legitimacy, and power. In April, the Group of 20 rich and influential nations committed to an increase in the IMF’s resources. Both institutions argue they have learned from this crisis and that they have loosened their policies. Yet a careful look at their recent lending reveals that their rhetoric has changed more than their practices.
Let’s be very clear: the Washington Consensus hasn’t disappeared. There are still defenders of many of its core precepts, not just in the IMF, World Bank, and WTO, but also in the U.S. Treasury Department. Nor is it easy for Southern governments to break with the Consensus or its institutions: Brazil, led by a former metalworker and union leader, has shown how hard it is to shake Consensus policies as his government has continued to pursue export-oriented industrialization and agribusiness. Moreover, there are many poorer nations (particularly in Africa) that remain mired in debt and dependent on international financial institutions, with seemingly little space to maneuver away from Consensus prescriptions.
As the global economic crisis spreads and commodity prices fall, increasing poverty levels and increasing needs for foreign exchange could add to the ranks of countries finding themselves forced to deal with the IMF and World Bank. But, for now, most of the poorer countries are trying to avoid having to do so.
These caveats notwithstanding, the legitimacy of market fundamentalism is severely diminished. Almost none of today’s participants in the development debate would argue that the market alone is enough. Significantly, debate has even found its way back to academic economists. As Robert Reich, who served as former President Bill Clinton’s Secretary of Labor, has explained: “Economists can’t pretend that the consensus for free markets and free trade that existed 30 years ago is still here.”
On local, national, and international levels, new forces have risen to challenge the Consensus and create alternatives to it. Although there are many different proposals, most alternative projects have as a common starting point a redefinition of development. Many citizen groups around the world prioritize the fulfillment of people’s basic social, economic, cultural, and political rights. They measure progress in terms of the improved health and well being of children, families, communities, democracy and the natural environment. Rather than a linear “takeoff,” development in this view involves the redistribution of political power and wealth downward. Many citizen groups and governments are also rethinking aid and open markets, which the Consensus so single-mindedly promoted.
Although much is in flux, the so-called Washington Consensus no longer reigns.