The Washington Consensus, 1989

Introduction:

Economists have been trying to develop policies as a unique pattern of guaranteed growth independently of its development level. One such attempt was called the ‘Washington Consensus’ presented by John Williamson in 1989, which referred to a combination of principles adopted from various international policies unified in ten main steps as a way of creating a growth pattern for a country (mostly developing and transitioning countries; especially in the region of Latin America) (Williamson, 2004). Another international organization, called the World Trade Organization (WTO), has been trying to help in creation of liberalized trade environment and push forward economically undeveloped countries by supporting their integration into a multilateral trading system worldwide. Even though, both the Washington Consensus and the World trade organization have acquired quite much negative connotation, the WC for its attempt to generalize growth pattern and the WTO for providing advantageous treatment to some of the organization’s members, the positive results emerging from their existence are very visible in the international trading environment.

Washington Consensus, source of many debates:

The Washington Consensus, initially developed in 1989, as explained by his author John Williamson was not meant to become a policy viewed as a universal growth and development prescription but it was his way of listing ten policies that were held in the city of Washington aimed to set off the economic growth in the area of Latin America. However, according to his own words he did not necessarily include all of the policies that promote development but the primary common feature that must have been their nature of consensus. (CID, April 2003). The Center for International Development at Harvard University listed the following policies as the common denominator of the Washington Consensus provided by Washington-based institutions for the Latin America area: “Fiscal discipline, A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education, and infrastructure, Tax reform (to lower marginal rates and broaden the tax base), Interest rate liberalization, A competitive exchange rate, Trade liberalization, Liberalization of inflows of foreign direct investment, Privatization, Deregulation (to abolish barriers to entry and exit), Secure property rights“ (D. Bloom, D. Canning, J. Sevilla, p.58, 2003).

This list of policies serving as a piece of advice for launching an economic growth rate increase in developing countries received much critique afterwards. Highly accomplished economists have expressed their opinion that this model was a huge step towards neoliberal models, which are nowadays used interchangeably with the term of the Washington Consensus. (Williamson, 2004). However, the criticism was not constructive because they perceived the idea of the ten principles from a different perspective than it was actually formulated by its author. Williamson decided to react and enter a never-ending debate surrounding his original concept and that leads to creation of two mainstream variations of his Washington Consensus. He was inspired by Mr. Stiglitz and Rodrick critics, and did his best to object them in his work The Washington Consensus as Policy Prescription for Development (Williamson, 2004). He explains that Stiglitz’s critique upon the Consensus, which was marked as a ‘Post-Washington Consensus’ was actually only a transformation of the former one put in different words. However, the main idea of pursuing “equitable development, sustainable development and democratic development” (Williamson, 2004) after all have stayed the same. Williamson has also applied further discussion towards the arguments of Mr. Rodrick and expresses an agreement with his description of developed countries systems and successes. On the other hand, everyone interested in international economics, international relations and international law is knowledgeable about current situation of enhanced economies and their mutual interaction. What Rodrick actually failed to do is naming resources of the well being in developed countries and assessing them as a logical pattern or a manual for less developed countries, which are to seek this kind of a growth rate hint nowadays and also in the future. Moreover, Rodrick added to the original Williamson thought other points: “ Corporate governance, Anti-corruption, Flexible labor markets, WTO agreements, Financial codes and standards, “Prudent” capital-account opening, Non-intermediate exchange rate regimes, Independent central banks/inflation targeting, Social safety nets and Targeted poverty reduction.“ (CID, April 2003).

Another strong current, formed as an anti-globalization movement, has been criticizing the Washington Consensus and its trade liberalization. Many of the critics, including Tariq Ali and many others have seen the Washington Consensus as a labor-exploitation policy of poor and undeveloped countries. Contradiction has been found in a reduction of tariffs that allowed free movement of goods while on the other hand labor market was restricted of moving freely due to the requirements of visa and work permits and therefore leading towards restriction of human rights. (STWR, May 2007) Despite such strong arguments against the Washington Consensus, anti-globalization movement has never been taken seriously. The reason for that was found in the positive outcomes that have arisen of Washington Consensus policy, such as the positive attitude towards sustainable development of undeveloped. Basically, the Washington Consensus did take a challenge and tried to create such a pattern that could work not only on the Latin American countries but could be also applied to Least Developed Countries (LDCs) on their pursuit towards economic growth. (CID, April 2003).

Although, there are also many exemplary countries such as India, China, Vietnam , Chile, etc. that have achieved an extraordinary turn around in the economic development on their own without following any kind of a universal manual, such unique accomplishments will be seen in future because of the need for finding a recipe to enhance developing economies is a must-do policy. Therefore, economists like Williamson would and will continue their work of seeking the right combination of the components of an international trade policy that would prove as a helpful strategy in future economic situations.

The WTO, its efforts, controversy and reflections toward future:

Compilations of policies like The Washington Consensus are in the center of attention of international organization namely The World Trade Organization (WTO), which seeks to promote the international trade and economic globalization with least harmful effects. The misconceptions about the Washington Consensus as explained above have been one of the main arguments of anti-globalization movement across the world. These groupings of people perceive it as a deathtrap of powerful countries imposed on developing countries with the intention of causing even deeper crises and putting them into greater disadvantage on global market. “The World Trade organization officially was established on January 1, 1995, as the successor to GATT (the General Agreement on Tariffs and Trade) and as the legal and institutional foundation of the international trading system“(D. Palmeter, P.C. Mavroidis, page 13, 1999)

Moreover, the World Trade Organization is dealing with various trade regulations between the participating countries: “It provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments.” (Fairtrade, 2010). Moreover, disputes that may arise between the countries are mostly the main topics on WTO trade negotiations

Currently the negotiations dealing with great issues like agriculture, tariff and non-tariff barriers to international trade and trade concept amendments are in progress and close to the end at the 4th WTO Ministerial at Doha, Qatar. The discussions were launched in 2001 and according to Ian F. Fergusson in his Congress Research Service Report there are “three issues among the most important to developing countries, in addition to concessions on agriculture. One issue, now resolved, pertained to compulsory licensing of medicines and patent protection. A second deals with a review of provisions giving special and differential treatment to developing countries. A third addresses problems that developing countries are having in implementing current trade obligations.” (I. F. Fergusson, page 3, 2006) The special and differential treatment provisions imply prioritized position for developing countries in international trade negotiations. In terms of international politics “developing countries are guaranteed:

  • longer time periods for implementing agreements and commitments
  • measures to increase trading opportunities for these countries
  • provisions requiring all WTO members to safeguard the trade interests of developing countries
  • support to help developing countries build the infrastructure to undertake WTO work, handle disputes, and implement technical standard

Provisions related to least-developed country (LDC) members“ (WTO, 2001)

However, according to further findings the situation is quite different and no matter how the intentions may be stated the United States of America along with international financial institutions and multinational corporations play main role in the game of international politics no matter whether a pattern like the Washington Consensus is in place or an organization like the WTO is leading some negotiations to favor poorer nations development. To explain the argument more precisely, the WTO has a clause which guarantees one vote for each of its members but most of the decisions are not made by the voting process because they depend upon consensus. Therefore, opposing voices like to use several disputes as examples of the discrimination of the developing countries (e.g. environmental issues, banana case, textile case, etc.). One of the most visible cases was so called banana case when the decision of the WTO was presented as a move favoring the USA and putting the developing countries in disadvantage. To be more precise the decision was a ruling against the EU and not against developing countries in first place. The whole issues started and ended with tariffs set on bananas, which were preferential to African and Caribbean countries producers, mainly French and British colonies – members of Lomé Convention (The Assosiated Press, 2008). The WTO made an objective decision based on its agreements. Furthermore, there is another event to mention and it is a fact that four other developing countries out of Latin America including “Ecuador, the world’s largest banana producer” (The Assosiated Press, 2008) protested together with the US against EU’s banana tariffs.

Yet the WTO policies contain dispute settlement clauses, which have been used quite many times successfully when fighting back the decisions made by developed countries. The developing countries also have a chance to turn in proposals for the WTO’s future programmers in order to change their current position in multilateral trading system next to developed countries. Among other requests “these include: belief that better implementation of existing WTO agreements, including faster removal of textiles restrictions, longer transition timetables for developing countries and greater technical assistance, should have priority over negotiation on new issues, desire to change or ease some WTO rules which they believe give inadequate weight to their situation, disappointment at continuing barriers to their exports, particularly against processed products based on their own natural resources, concern at the practical burdens involved in taking part in WTO work for the small delegations of developing countries, and at the cost of dispute cases.“ (WTO, 1999). To conclude, an inference that the WTO favors big powerful countries and MNCs and therefore it is pain in the eyes of public audiences cannot be completely disproved at any stance. However, evidence provided above has concluded efforts of the organization and its members toward including more of the concerns about developing countries’ difficulties and implementation of the appropriate solutions.

Summary:

To sum up, both the Washington Consensus and the World Trade Organization have common vision of promoting economic development via core set of rules and policies. As to every controversial topic there are advantages and disadvantages to mention but in order to survive their results must be positive otherwise there is still room for improvement or termination. Both Mr. Stiglitz and Mr. Rodrick were right in their lectures on economic growth policy guidelines but they did not assert any statement what so ever that would be contradictory to the Washington Consensus in its fundamental essence. However, the great increase in development growth rate examples of China, India, Vietnam, etc. are spotlights in current global economic scene due to their considerable difference when compared to the Washington Consensus idea pursued by the IMF or the World Bank. Achievements of these countries are a foretoken of a completely new approach to the development of developing nations.

Future predictions

It is relatively hard to make any predictions considering the future of the WC and WTO. Washington Consensus did indeed create healthy basis for the WTO future but there is hardly enough space for both organizations on the international scene. Most likely the Washington Consensus will become only a term used for comparison with more current and up-to-date development approaches. The World Trade Organization, on the other hand, has a long way to go and its members are here to predefine its future path. The WTO is neither undemocratic nor it undermines the sovereignty of its member states and their governments. However, there are still many problems in relation to negotiations with developing countries to resolve and providing special and differential treatment to them will not solve those problems but may help along the way towards sustainable development.