Introduction
Washington Consensus is a terminology coined in the year 1989. It was used to elaborate the policy guidelines to be adopted by the developing countries to ease the economic challenges hindering growth and development. The term was first used by John Williamson a reputable economist based in Washington DC. It gives directions for the developing states benefiting from the financial assistance from the international monetary institutions such as the International Monetary Fund and the World Bank. (Cypher, & Dietz 2009)
Main text
Since its inception, the term interchangeably used as neoliberal has drawn a lot of criticism across the globe. Ranging from trade unionists, political leaders, globalization protesters and rights activists; all have expressed their displeasure with the idea. They have termed it as a scheme by the American government to pursue their own interest with the pretext of assisting the developing nations especially those against liberal trade fundamentalism. The notable personalities that have voiced their concerns about the Washington Consensus include the Nobel Prize Winner Joseph Stiglitz and Mr. George Soros. (Stiglitz 2002)
Despite its adoption, several states faced financial viability challenges. As it is, little can be pinpointed as its achievements. Instead, a number of destabilizations are being associated with it like the notorious crisis in the Argentinean economy in 1999. John Williamson, the lead proponent of the idea too has acknowledged that it has produced unsatisfactory results from the implementation which should be improved.
However, the proponents of the Washington Consensus have totally different views on its agenda. They argue that it has no expression of tough neo-liberal programs as projected by the opponents. Instead, it offers a conventional evaluation of the type of policy framework aimed at stabilization of the economic status of a country. (Cypher, & Dietz 2009)
The rise of the Washington Consensus is traceable back to the late 1970s and early 1980 when Latino America and other developing countries were faced with several economic challenges. This gave rise to limited growth and development. It also gave rise to the unemployment rate and increased the poverty index. To assist in the situation, the US government developed the lowest universal denominator on the course of actions to be applied to the monetary institutions that are based in Washington e.g. the World Bank, IMF and the US Treasury. (Stiglitz 2002)
This consisted of ten policies on thematic issues regarding the trade and financial services sector considered relevant areas to uplift the crippling nation’s economies. The policy areas include fiscal discipline, privatization, duty and levy reforms, viable exchange rates, market and foreign investments inflow liberalization, prioritization of national budget to the potential sector of increased economic returns, deregulation and free trade regulation. (Willis 2005)
The key issues targeted by the Consensus included policies to reduce the heavy reliance on imports but instead promoting the opening of investments opportunities for foreign investments. However, this idea drew a lot of criticism from opponents claiming that it was targeting to collapse the local infant industries in the poor nations. The idea was also perceived to be an attempt by rich nations to exploit the pristine resources in the developing world. (Noland, & Howard 2003)
According to John Williamson, the theory was to capture neo-liberalism guiding principles. In this aspect, it was to incorporate deregulation of the financial system including the market workforce together with institutional privatization. It also aimed at zooming up the demand for semi-skilled and unskilled labor hence decreasing the unemployment rate in the countries apart from technological growth promotion. (Willis 2005)
The proponents of consensus hoped that the idea would ensure that national budgets would allocate a substantial percentage of the fund towards major sectors such as education and healthcare services. Its target also encompassed the capacity of building human resources especially of the vulnerable segments of the society such as the poor. This is based on the fact that no country can prosper without properly skilled human capital. (Noland, & Howard 2003)
The thoughts coined in the theory received support from major corporations such as the World Trade Organization and the International Monetary Fund. This was due to the fact that they aimed at reducing the monitory deficit and inflation rates enhancing the micro and macro entrepreneurship development locally thereby economic stability. (Willis 2005)
On the other hand, despite the description of the Washington Consensus as a paradigm shift toward the realization of economic prosperity by developing nations, it has not been successful. One of the major arguments against the Consensus is that it was too narrow in terms of the objectives it fronts. It never encompassed other necessities of development making it less realistic. In its description, the development growth is only considered as the growth of the Gross Domestic Product. In this angle, the major focus is on price stabilization instead of consistent enlargement of outputs. Generally, it argued that most of the successful nations economically are those that overlook IMF and World Bank development strategies and policies. This is because the strategies presented offer very minimal focus on the fundamental economic growth and the transitional process. This case is one of the reasons attributed to the fall of the Consensus theory. (Noland, & Howard 2003)
Mr. Stiglitz, the former Vice President of the World Bank and Nobel Laureate in Economics, criticized the theory stating that it disregarded the institutional and the harmonization, therefore, limiting the reallocation procedures in a market economy and rolling down of the development processes. Besides, the world-leading financial institutions’ theories tend to view economic growth as one aspect of the societal transformations i.e. change of thoughts, healthcare handling, education systems, modes of producing goods and services into conformity with modernity. All this development process can not be handled by economists only. (Naím 2002)
The other factor which contributed to the fall of the Washington Consensus is that the basis of its inception never considered distribution of income earned but just centered on the growth acceleration. This created a perception that the idea was a scheme for exploitation not sustainability on livelihood. (Stiglitz 2002)
Based on the failure of the Consensus ideology on growth and development, world leaders have called for it replaced with the more viable approach to uplift economies of the second and third world nations. An example is the one spearheaded by the United Nations Development Program which factored on the sustainability of human livelihood and growth approach while the second one is the Southern Consensus. The Southern Consensus is propelled by under-industrialized nations that are striving to get a market for their produce. (Naím 2000, p.98)
The individuals behind the idea of the Southern Consensus claim that it will operate using down to the top-level methods that will project development towards people’s welfare with proper collaboration and partnership between the benefactor countries. On the other hand, the sustainable human development approach fronted by UNDP distinctively targets poverty alleviation as its major goal, unlike the Washington Consensus which only targeted economic growth with a perception that it will eventually result in poverty decline. (Cypher, & Dietz 2009)
Conclusion
Although the Washington Consensus never achieved much of its fundamental objectives, the Millennium Development Goals agenda adopted by the UN Charter borrowed a lot from it. Areas such as micro-economic development and fiscal regulation are basically what were in the Washington Consensus. It is a good workable economic policy reform package for the developing world. The ideological failure is due to weak implementation strategies and a lack of political will to tackle corruption among the developing nations.
References List
Cypher J.M, & Dietz J.L 2009, The Process of Economic Development, Routledge, New York.
Naím, M 2000, “Washington Consensus or Confusion?” Foreign Policy, no. 118, pp. 86-103.
Naím, M 2002,”Washington Consensus: A Damaged Brand.” Financial Times.
Noland, Marcus, & Howard P 2003, Industrial Policy in an Era of Globalization: Lessons from Asia. Washington: Institute for International Economics. Forthcoming.
Stiglitz, Joseph E 2002, Globalization and its Discontents. New York: Norton.
Willis K 2005, Theories and Practices of Development, London: Routledge