The cracking Washington Consensus
Levinson, Mark
STARTING IN the early 1980s, fashionable opinion held that unfettered free markets, a reduced role for the state, and integration into the global economy provided the best formula for...
...But an alternative to the Washington Consensus must have an international constituency...
...These measures were necessary, the Fund argued—this is the core of the Washington Consensus— to restore overseas investor confidence, stabilize falling exchange rates, and attract capital...
...They all contain elaborately detailed protections for property, corporations, and investors...
...The Mexican experience was repeated on a still larger scale in 1997, when another round of failing investor confidence, devaluation, and capital flight caused immense damage in a number of East and Southeast Asian countries...
...Even Charlene Barshevsky, the U.S...
...If there is one area where [World Bank and IMF] institutional conditionality is both appropriate and of great economic value it seems to me that this is it...
...The crisis was short-lived for investors...
...Stiglitz finally left the World Bank, disgusted by advisers—"market Bolsheviks" he called them—who believed in a fundamental doctrine and tried to force entire societies to conform to it...
...Today the consensus is breaking up...
...The argument is not pushed very far, but it is remarkable that it is raised at all...
...Defenders of orthodoxy charge that linking human rights to trade is simply disguised protectionism...
...And President Bill Clinton has acknowledged the common-sense proposition that labor rights should be enforced with trade sanctions, just as investor rights are...
...Or take a chance and send us your article...
...We are not asking for the moon," said G. Rajasekaran, general secretary of the Malaysian Trades Union Congress, "but very basic things...
...For the first time a draft of the report was made available on the Internet, and it became the subject of a discussion in which more than 1,500 people were involved...
...If you are submitting to Dissent electronically, our e-mail address is editors@dissentmagazine.org . (4) Notes and footnotes should also be typed double-spaced, on a separate sheet...
...Market liberalization is no longer easy and magically effective...
...According to Paul Krugman they were "denying opportunity to third-world workers...
...3) Type your ms double-spaced, with wide margins...
...speculation makes up over 90 percent of all transactions...
...But it had far-reaching effects on the Mexican people, reducing real wages for workers by 25 percent...
...The issue of empowerment, or rights, is the issue that can unite workers in the developed countries with their counterparts in the developing world...
...The draft 2000 report must be read in the context of Bank policy...
...As a result, financial markets were dominated by sudden and rapid flows aimed at profiting from speculation...
...only about 10 percent were speculative...
...They do not protect labor rights...
...It is vital that we insist that this is a question of fundamental human rights, and has nothing to do with protectionism...
...Dissension is growing even within the ranks of the international finance and trade organizations...
...The last time the Bank addressed this issue was in 1990, and that report has been a touchstone for Bank policy over the past decade...
...Second, implicit in the draft recommendations is the belief that governments have an important role to play in development...
...What will survive in the published WDR no one knows...
...The report suggests that the Bank might be a lot more effective in countering poverty by working on international public goods (that is, commodities, services, or resources with benefits that cross borders, such as international economic stability, health research, and environmental improvement) and giving countries more autonomy to run their own poverty programs...
...The Bank occupies a unique position in setting the agenda for development policy...
...1 believe that we can achieve much more than improvements in efficiency...
...BRAVE NEW GLOBE ments to liberalize...
...I ISTEN TO voices from the South...
...THE EDITORS 14 n DISSENT / Fall 2000...
...The report offered a neoliberal heaven in which poverty reduction went together with market liberalization and small government...
...Worker rights that are already universally endorsed, but simply not enforced...
...Among its innumerable studies, the most influential is the annual World Development Report (WDR...
...You put in six billion dollars . . . that enables the oligarchs to take out six billion dollars in capital flight the next day...
...But the high interest rates forced even sound companies in Thailand and Indonesia to the wall, which didn't re-inspire foreign investors...
...Nobel Prize-winning economist Amartya Sen has argued that development should be understood as the expansion of freedoms that ordinary people enjoy...
...An alternative development agenda requires more than labor rights...
...There has, in fact, been little progress in reducing global poverty...
...As the Washington Consensus fades, there is an opening for a long overdue debate on development...
...12 n DISSENT / Fall 2000 Stiglitz claimed that when he raised doubts in house "it was like hitting your head against the wall...
...In the 1980s, for instance, the WDRs argued against state enterprises and in favor of trade liberalization...
...A study from the Center for Economic Policy Research concludes that "there is no region of the world that the Bank or Fund can point to as having succeeded through adopting the policies that they promote— or in many cases—impose on borrowing countries...
...It laments their lack of assets, including their lack of political access...
...Check all your figures, dates, names, etc.—they're the author's responsibility...
...Treasury Department, wanted to re-shape the message emerging from the early draft...
...They need to give people time to adjust...
...As Sen explains: The governmental response to acute suffering often depends on the pressure that is put on it, and this is where the exercise of political rights (voting, criticizing, protesting, and so on) can make a real difference...While this connection is clearest in the case of famine prevention, the positive role of political and civil rights applies to the prevention of economic and social disasters generally.....To concentrate only on economic incentives (which the market system provides) while ignoring political incentives (which democratic systems provide) is to opt for a deeply unbalanced set of ground rules [emphasis added...
...Current agreements (such as NAFTA) and institutions (like the WTO, IMF, World Bank) regulating the global economy all function with a "deeply unbalanced set of ground rules...
...They have to become more capable at managing liberalization, providing social protection, understanding and controlling risks, and building social capital...
...To Our Contributors A few suggestions: (1) Be sure to keep a copy of your manuscript...
...Reports indicated that he did so because the Bank, with the active involvement of the U.S...
...the expansion of these freedoms also serves as a measure of a country's development...
...STARTING IN the early 1980s, fashionable opinion held that unfettered free markets, a reduced role for the state, and integration into the global economy provided the best formula for development...
...Kanbur's draft raises serious doubts about this program...
...First, there is the case of Joseph Stiglitz, formerly the Bank's chief economist...
...Before the publication of the final draft,* the economist writing this year's report, Ravi Kanbur, resigned...
...Outside of China, the DISSENT / Fall 2000 n I I BRAVE NEW GLOBE number of poor increased from 916 to 992 million between 1990 and 1998...
...Clearly the country is worse off, and everybody knew it was going to happen...
...Finally, and most important, the report raises the issue of the powerlessness of the poor...
...The worst-affected among them sustained huge losses: in 1998, Indonesia's gross domestic product (GDP) fell by 9 percent, Thailand's by 8 percent, and South Korea's by 6 percent...
...Debt relief, exchange rate policies, the regulation of capital flows, new international institutions, and a global tax on foreign currency transactions should all be explored...
...Labor unions and other genuine forms of popular self-organization are key to democratic economic development...
...If there's a delay, it's because a few editors are reading your article...
...Stiglitz was also critical of Western policy toward Russia, arguing that the crash privatization program, in a country with no working democratic, legal, or financial regulatory system, created a corrupt new oligarchy that blocks economic growth...
...They could forget about schemes to redistribute income...
...In policy circles, this formula came to be known as the "Washington Consensus...
...It's difficult, dangerous, and costly...
...And even though some of these countries have bounced back, millions of their people have not...
...It is legitimate for a country to attract investment because it is poor and its wages are low...
...Today, those percentages are reversed...
...Third, the World Bank needs to rethink its role...
...Do worker rights matter...
...This report sets the terms for public discourse, shapes the Banks' own policies, and influences many national governments...
...Gibson Sibanda, president of the Zimbabwe I Congress of Trade Unions put it this way: "They tell us that African trade unions will be used by the trade unions of the industrialized countries to undermine the comparative advantages of African workers...
...The growth in the scale of speculation relative to other transactions has been particularly pronounced in the foreign exchange markets...
...But turmoil at the Bank goes beyond Stiglitz...
...Look at our last few issues to see if your idea fits in...
...The 1990 report argued that economic growth was the best way to reduce poverty: market liberalization was the best way to achieve growth...
...These trends have led to an increasingly effective citizen backlash against Washington Consensus-style globalization...
...Please use inclusive language so that we don't have to make adjustments during editing...
...Not all economists agree with Krugman and Bhagwati...
...The share of the population living on less than $2.80 a day increased to 38 percent...
...trade representative, has called the notion that labor rights should be disconnected from trade "intellectually indefensible...
...At the same time, the sharp cuts in government spending stimulated violence across Indonesia, which did not build confidence, either...
...According to Dani Rodrik, "I see no argument that would make it appropriate for some governments to deny their citizens basic political rights such as freedom of speech, DISSENT /Fall 2000 n 13 BRAVE NEW GLOBE Bhagwati, Krugman, and others who claim that linking worker rights to trade is anti-poor fail to make a crucial distinction...
...Capital poured in from pension and mutual funds, generating short-term growth...
...They need to do more than just throw open the door...
...5) We're usually quick in giving editorial decisions...
...MARK LEVINSON is chief economist at the Union of Needletrades, Industrial and Textile Emplyees (UNITE...
...Tom Palley, an economist at the AFL-CIO, identified seventeen countries that reformed their freedom of association laws and examined their economic performance in the five years before and after the changes...
...2) Please don't write to ask whether we're interested in such and such an article—it makes for useless correspondence...
...Uncontrolled capital flight led to devaluation of the currency—and to a collapse of the economy that could only be halted through a fifty-billiondollar rescue package led by the United States...
...In this view, freedom to take advantage of economic opportunities, to participate in the political process, and to gain access to basic social services are necessary steps in the path toward development...
...Instead, the IMF chose the exact opposite course, directing the beleaguered Asian countries, as a condition for getting the bailout loans, to raise interest rates and reduce government spending, including the all-important food and fuel subsidies...
...Every year the WDR focuses on one particular aspect of development policy...
...They need to pay attention to inequality...
...They need to install social protection to limit the inevitable costs...
...The unregulated flow of private capital produces extreme volatility...
...The process of producing the WDR was new this year...
...Vavi, general secretary of the South African trade union confederation, COSATU, argues, is to "link worker rights to trade rules to change the balance of forces for workers in the developing countries...
...Since 1980, economic growth rates for the developing world (with the exception of East Asia, which did not follow the Washington Consensus) have been much worse than in the two previous decades...
...They need to work on institutional change to make markets work for everybody, not just the powerful...
...According to Stiglitz, after Thailand's devaluation in July 1997, when that country's financial crisis was triggering a depression—a severe downturn that would soon spread to Indonesia, South Korea, and Hong Kong—he recommended stimulatory policies to counter the decline...
...For more than a decade, the World Bank and the IMF have forced governments to open their stock and financial markets to short-term investments from the West...
...International financial institutions, the World Bank and the International Monetary Fund (IMF), pressed developing countries to conform to the formula as a condition of their loans...
...And Joseph Stiglitz makes a similar point, By becoming advocates of stronger workers' rights and representation at every level...
...As we're not an academic journal, we prefer that they, wherever possible, be dropped altogether or worked into the text...
...For Sen, freedom is both the principal means to, and the primary end of, development...
...export-oriented growth was best because it developed labor-intensive industries, and governments could help by investing in education and health care...
...In 1971, just before the collapse of the Bretton Woods fixed exchange rate system, about 90 percent of all foreign exchange transactions were for the finance of trade and long-term investment...
...In another study of more than seventy countries, Palley shows that freedom of association is linked to higher wages, improvements in political governance, reduced levels of corruption, and improved income distribution...
...All that developing-country governments had to do was to pass an education and health budget and sign World Trade Organization (WTO) agree"As I write in August the final report has not been issued...
...The 2000/01 WDR focuses on fighting poverty...
...We will not consider manuscripts submitted simultaneously to several publications...
...Take, for example, the recent controversies within the World Bank...
...But this episode demonstrates that critics of Bank policy are being heard inside the Bank even if powerful forces are still hostile even to moderate challenges to the dominant views on development...
...Although poverty rates are down in some regions, they are up in others, often spectacularly...
...Its legitimacy is declining in the face of slow economic growth, crippling instability in global financial markets, growing inequality, and the degradation of working conditions for large numbers of people...
...What we want," Zwelinzima the right to vote and stand for political office, or freedom of association...
...It is the world's largest employer of economists, and the volume of research on development done at the Bank is far greater than it is anywhere else in the world...
...Thus, Jagdish Bhagwati attacked the WTO protesters as people who were "[taking] aim at the poor...
...He is particularly biting about the IMF's 1998 Russian bailout...
...Poverty increases rapidly when an economy contracts in a crisis—the poverty rate doubled in both Korea and Indonesia, and average living standards fell more than 20 percent in both countries—but decreases much more slowly when the economy recovers...
...First, it suggests developing countries need to be much more careful about the way they approach market liberalization...
...It is not legitimate for the government of a country, acting in concert with multinational corporations, to suppress wages by violating internationally recognized worker rights...
...In Mexico, foreign money, flowing massively into the country following implementation of the North American Free Trade Agreement (NAFTA) in early 1994, reversed course at the end of the year...
...And please remember that we can't consider articles unless they're accompanied by a stamped, self-addressed envelope...
...I don't know the real reason behind Kanbur's resignation (he has not spoken publicly since he stepped down), but it isn't hard to imagine why the draft report would make many at the Bank and the Treasury Department uncomfortable...
...On average, GDP growth and manufacturing output increased while export growth decreased, which Palley suggests is a result of increased domestic demand...
...This conception of development implies a very different set of rules to guide the global marketplace...
Vol. 47 • September 2000 • No. 4
