Revisiting The Washington Consensus with Its Inventor

John Willamson
John Willamson

AGE does not seem to have caught up with him. Far from being a novice, yet an easy going but deeply intellectual person, John Williamson has however many reasons to be proud of himself. But he is not an arrogant man. To the contrary, his eyes still glitter as he smiles childishly. A star? He does not attempt to play such a role and beyond the circle of learned experts, few people around the world know him even by name. But all serious analysts of economic affairs, especially those related to development policies, will easily talk about the concept he coined twenty years ago –The Washington Consensus. Is he still enjoying the fame associated with that concept? May be. He is rightly entitled to be proud. Indeed, like the concept of soft power devised by Joseph Nye, a professor at the Harvard Kennedy’s School of Government, or the one relating to the Clash of civilizations predicted by the late Professor Samuel Huntington, from Harvard also, Williamson, now a senior fellow at the Peterson Institute for International Economics, is clearly one of the defining luminaries of the post-cold war debates that have been waging about the way forward in economic, political or social sciences following the demise of the authoritarian model of development pushed forward by the now defunct Soviet Union. So, at a moment when the deepest financial and economic crisis is challenging the roots of what used to be seen as a triumphant capitalism, it makes therefore sense to discuss with Williamson. A British national trained both at the London School of Economics and Princeton University, the inventor of the Washington consensus does not mince words as he talks to Adama Gaye in this exclusive interview.

Question: Tell me how did you come to coin this expression –The Washington Consensus- now known worldwide?

Williamson: It all started when I was testifying in a Congressional committee here in Washington. I discovered that most of the congressmen were very skeptical about any reform happening on in latin America. I therefore made a list of ten propositions which I thought would command general acceptance in Washington, and would be also acceptable in latin America. We had a conference during which latin Americans were asked to write papers about whether their countries were performing along each of these ten propositions, lines. And for better or worse, I called it The Washington Consensus. That is how it originated.

Question: When was this?

Williamson: Oh…it happened in 1989.

Question: What was the content of The Consensus ?

Williamson: As I said it was made up of ten points, starting with fiscal discipline. Don’t forget the context of Latin America of that time: in 1989, big budget deficits were the root of the high inflation which was generally prevailing in Latin America. Another point was on public expenditures. It did not take a view on whether public expenditures should be cut or not (that decision was made later in Washington). It rather said that if there were to be public expenditures then they should be spent efficiently on things that really mattered and not thrown away on things like subsidizing State Entreprises or supporting Administration. The money, it was advocated, should be spent on education, health or infrastructures. Taxation was another heading. We argued in favor of low margin tax rates but keep taxing the sort of things on which people with good money earned a lot, for example taxing the earnings of flight capital. Financial sector liberalization was also among the ten points of the Consensus with the aim to aim towards a system in which interest rates are market determined. That would determine the allocation of investments rather than it been determined by government account.

Question: Many people said that capital account liberalization was part of the Agenda you advocated…

Williamson: It was not part of the original set of propositions. I talked in a later heading about liberalization of foreign direct investment but not all capital because I accepted that one wanted to maintain control on some types of short terms capital flows. The remaining propositions of the Washington Consensus were respectively competitive exchange rates, as a unified exchange rates, not having special exchange rates for specific transactions; trade liberalization whereby I said that while there were differences of views about the speed of the trade liberalization everyone agreed that policy should be heading towards that direction; liberalization of foreign direct investment which is now widely accepted as most countries have a welcoming attitude towards foreign direct investments in contrast to what was their attitudes against them in 1989; privatization was the eight heading and it was something that originated by Margaret Thatcher; the 9th was deregulation , not former Us Vice President Dan Quayle’s version which involved having no regulation on companies, consumer protection, environmental and financial norms. That was not that kind of idea but it was rather about having people to enter or to exit into particular professions. The last point on the Agenda was about security of property rights, especially in the informal sector. In general in Latin America there was not a problem about property rights when it came to the public sector but there were big problems as far as the informal sector was concerned.

Question: With hindsight what would you have changed in the measures you advocated?

Williamson: Ahaha…Hem. I wish I phased some of them differently. I would not have phased privatization is such a poor manner as to invite the interpretation that I was I was saying to privatize every State enterprise. I wish I made it clear that I was referring to those State enterprises in Latin America that needed to be privatized in 1989 not all of the State enterprises. I wish also that I would be clearer about deregulation, financial liberalization to make clarification about capital account liberalization and also the necessity to having regulation of the supervision of the financial sector. That is obvious that there are ways things could have been phased differently but overall the basic ideas stood up very well. That is because they were central ideas on which people agreed…

Question: The IMF, World Bank and other advocates of economic liberalization ran away with the policies of the Washington Consensus to create the global neoliberal agenda making it a contentious package in many developing countries…

Williamson: Well there was a tendency to regard this as a bible for how one should be going about policy reform. I think that was probably inevitable because of the prevailing ideas of the time. Much more was however exaggerated by those who opposed these ideas by depicting them as neoliberal ones. The fundamental ideas I was expressing were not neoliberal ideas but generally accepted ideas and not the controversial parts of the neoliberal doctrine.

Question: That there has been an augmented version of the Washington Consensus calling for implementation of good governance, adherence to democratic norms etc seem to have increased the focus on the package…

Williamson: I think you are referring to Dani Rodrik (Harvard Professor) and his reference to the augmented Washington Consensus saying that the Bretton Woods Institutions had now developed the project in certain respects. He did not agree with all those points himself but he said that they were a representation of the Bretton Woods Institutions. I felt that was not a very good representation of their views. It contained some issues on which the Bretton Woods institutions tried to remain neutral, such as democracy, and others on which, I think, there was a direct contradiction between what I had expressed in the original Washington Consensus and the views in the Augmented Washington Consensus. I am pointing expressly here to policy on exchange rates.What I said was that you have to maintain competitive exchange rates. He put in that that you have either to have a freely floating rate or an absolutely fixed rate. This was a very popular doctrine in the IMF around the year 2000 but I think it was wrong and was not certainly in the original Washington Consensus. It was a contradictory idea; that was not a terribly fair representation…

Question: The Washington Consensus has generated babies. Some are now talking of Beijing, Indian and even African Consensus. How do you see such developments? Are they a challenge to the original one?

Williamson: Well I don’t think any of them really represents a Consensus. There have been some exaggeration probably in calling them consensus -even the original one! But certainly we came closer to a consensus in 1989…

Question: Should you have rather said Washington Precepts?

Williamson: One might discuss the best alternative, such as by calling the Washington Consensus the Universal Convergence as ideas were converging while old ideas like socialism had gone out of the window. Certainly it was not a total consensus but on the other hand it was a lot wider than Washington. Many African, Asian and Latin American countries had also been working towards achieving convergence. There is some convergence now. So I would not call it a consensus and I think the same is also true of all these imitations. By and large, the imitations have not achieved the success of the original. The one that has come closest is the Beijing Consensus but as it was said during the Conference on New Ideas on Development (held in Washington at the Johns Hopkins University) Chinese economists tend not to recognize it. It is the creation of an American journalist who resides in China.

Question: With the current economic and financial crises some are questioning the wisdom of capitalism…

Williamson: Whenever there is a crisis it is inevitable that people tend to question the wisdom of any prevailing philosophy or for that matter any economic approach that has been guiding the march of so many nations. It is quite right that people should raise questions but I don’t think that there is much doubt as to how the answers will come out. We have a lot of experience comparing progress under capitalism and socialism. Time after time the answers have come out in favor of the capitalist solution. The reason China advanced was precisely because it started implementing some of the capitalism answers. The reason why Taiwan got so far ahead of China was because it adopted earlier the capitalist system. That the outcome is known in advance does not justify that the healthy debate, sometimes the controversial one, raised by capitalism, should not be allowed to proceed from time to time as is the case currently.

Question: One last question: as the inventor of the concept do you think The Washington Consensus will survive the current crisis that the capitalist world is facing at this very moment?

Williamson: I guess that having survived for twenty years I will be quite surprise that it would disappear in the next ten years!

– Dec. 26, 2019 @ 11:33 GMT |