WASHINGTON CONSENSUS - Essay Example

Topic; Washington Consensus March 8, 2008 It was the famous economist and american think tank John Williamson who coined the term Washington Consensus. This term refers to the following policies prescribed by the reform package of the consensus in 1989 originally aimed at radical economic reforms in the developing world (Williamson John 1989). In tandem took place the creation of International Monetary Fund (IMF), World Bank (WB) and US treasury Department. 1- Trade liberalization 2- Increase in the interest rates 3- Privatization of public enterprizes and deregulation of economy 4- Tax reforms 5- Withdrawl of subsidies 6- Decrease in the social spendings by the states 7- Protection of intellectual property rights 8- Exchange rates reforms 9- Fiscal discipline for foreign direct investments Main objective of these reforms package and creation of international financial institutions was to revamp the failing economies of Latin America, Africa and south Asia in 1980s. Free market economy was supposed to give a strong boost to the economies in the developing world. The closed economies were suppoedly not working well and grdually falling apart. The state run enterprises were viwed as hub of corruption and bureaucratic nepotism and decelerating the economic growth. The neo-liberal agenda under washington consensus was prescribed to bring all the world economies at par with each other. The international monetary fund was supposed to bring up biggest development projects like hudroelectric dams and big industrial zones and to provide all possible technical help and fiscal advice to the developing countries. World bank which was actually erected on the money accumulated through petro-dollars generated in the OPEC countries had to finance all the IMF projects.But in fact later on most of the developing countries strongly felt that they had been badly trapped in the debt swaps. Instead of development they suffered underdevelopment .Poverty ,unemployment and political disturbance were the main results. Instead , 35000 transnational corporatios from the first word gripped the whole globe and this game was given the name of globalization. As a result 80% resources of the world went into the hands of 20 % poulation of the world living in the first world. Only the annual budget of Nestle grew more than any African country under this globalisation of economy (Robert N. Gwynne and Cristbal Kay 1999). So the launch of these reforms in the name of structural adjusment programmes on the advice of IMF and world Bank there has attracted a lot of criticism in the thirld world countries. The policies that were originally formed to give a boost to the GNPs and GDPs of the least developed and developing countries in the world.But on the contrary in most of the economies these policy presciptions have played havoc with the unemployement and poverty due to the capitalism's tantacles wide spread from the first world in the poor countries. The major criticism has come from latin american and ex-soviet republics . They majorly see the capitalism as the main monster creeping in the world on the wheels of the multinalnal companies. Ultimately the buzzwords of globalization, capitalism, neo-liberal agenda and Washington Consensus became familiar and synonymous to each other. People in the third world have been debating these terms ever since early 1950s. Most of them argue that there is an important sense in which disagreements on the character and consequences of capitalist ways of organizing economic life actually triggered the nineteenth century emergence of modern social science. This disagreement in the ex socialist and some Latin states stands at the center of the twentieth century political debate on how best to organize advanced industrial societies; and they remain main elements dividing capitalist societies, in former communist societies, and in whole of the under-developed (J.Fulcher: 2004) In order to understand the phenomenon of Washington Consensus this is utmost necessary to have an explicit view of the following terms in the today's economic jargon. 1- Globalization Cross-cultural movement of goods and businesses disregarding the political borders of countries is known as globalization. Globalization as a process has made possible the management of all the resources of production like land, labor, capital and management for the production of goods and services. This process has made possible for instance the Sony of Japan to utilize the mineral resources of Caspian, labor of china and technology of Japan under Japanese brand name Sony of electronic goods. Japanese Suzuki, Toyota, and Honda vehicles are produced and sold in the countries all over the world. The profits go back to Japan and the main profits are being mined from third world countries because third world is the main market. Out of 5.6 billion people, around 5 billion live in the developing countries only. Thus the production and sale of goods remains in these countries while profits go back to their developed word leaving the poverty back in the consuming countries (Stigilitz 2002). 2- Capitalism This term is the anti-thesis of socialism or communism. The social scientists take capitalism as the imperialistic agenda of the first world. Making profits without any regard to the social constraints of the developing world this phrase explains the phenomenon of capitalism. Today there are around 35000 TNCs in the worlds that are accumulating the wealth of the nations from around the world. There are numerous multinationals that have the annual budgets of billions of dollars and on average much more than those of poor African states. Capitalism is seen as rigorous and cruel (J.Fulcher: 2004). Under this system many people are rendered unemployed due to privatization of state enterprises and withdrawal of social subsidies on heath and education etc. Criticism of Washington Consensus The rigors of capitalism and its impacts have so badly been damaging for instance the African states that more than 25 % of total African populations live under the abject conditions of absolute poverty. Majority of them cannot pay for two times square meals. They cannot send their children to schools. They cannot pay for their health needs. Their honors and lives always remain at stake. Life security becomes major problem especially in civil strives (Anthony Michael: 1992). People distrust each other. Tribes slaughter each other for small things. 11 million people in Africa are dying of hunger right now. The GDP per capita has never arisen above $180per year. In The Bottom Billion, Collier expounds that these poorest failed states pose the central challenge of the developing world in the twenty-first century. From Latin America while giving his considered verdict Joseph Xercavins finally says "Neoliberalism is not the solution to the economic and social problems confronted by developing countries.... We are seeing in Latin America the devastating consequences of 25 years of application of neoliberalism," Argentina crisis of 1999-2002 is the most vocal example for the failure of policy prescriptions of Washington Consensus. In Bolivia many people died in the wake of privatization of water management board. China, Cuba and Zaire did not accept these policies. India only partially implemented. However USA has been successful in getting signed the North Atlantic free trade agreement (NAFTA) that directly or indirectly favors the US based international businesses (Gary Clyde Hufbauer and Jeffrey J. Schott 2005). Solutions and lessons learnt. The bottom billion population of the world is living in the abject poverty these are the poorest of the poor population. Both Collier and Stiglitz prescribed certain solutions that have. Collier suggests that 1- G8 countries (first word) have to adopt preferential trade policies for the G77 (developing) countries 2- They have to introduce new anti-corruption laws both in the developed and developing world. 3- New charters and carefully calibrated military interventions. 4- According to Collier (2006) these are the corrupt leaders who opt for these policies and inflict cruelties on their masses disregarding their aspirations. Free and fair democracies can only reflect the aspirations of people in the public policies. According to Stiglitz (2002) 1- A new system of global financial reserves may be established to overcome international financial instability 2- A new political framework, combining economic incentives and principles of equity has to be arrived at. 3- The amicable policies that are more likely to be accepted both by US and developing world may heal the wounds of developing nations. . 4- Reforming global institutions such as the UN, the IMF and the World Bank is necessary to make them truly responsive to the problems in the third word. Conclusion There is no denying the fact that the policy prescriptions under the Washington Consensus have widely been criticized from all around the world. This situation has basically arisen from immediate debacle of soviet republics and the transitional economies were not ready for reforms immediately. The Latin America, south Asia and Africa were not ready as yet. Those countries that blindly adopted these policies did not have a better taste of these policies. People reacted badly and results were not favorable politically. The economic reforms have to be adopted very prudently, slowly and gradually in all political wisdom by the leaders. But this is also a fact that free market economies are the order of the day. The WTO has at least now been setting favorable incentives for the least developed and underdeveloped world. The international competition cannot be beaten by mere agitation from the third world. The reform in the production process and compliance with the ISO certifications and intellectual property rights has to be complied with all the countries in the world equally. However the safety nets for the protection of poorest of the poor people have to be provided by the respective governments. It is still widely believed that growth in GDPs is not vastly trickling down to the poor segments of society. Corruption in the developing countries is rampant and rich elite is taking the advantages of new reforms. Poor have to be defended any way. The immediate withdrawal of subsidies on the agricultural production is making the cost of production in agriculture high and food security is becoming an acute problem. Therefore food stamps schemes must cover these poor people. Similarly health and education subsidies should also be taken away but in a very slow manner. Only the prudent adoption of Washington Consensus policies and their operationalization can save the situation and produce the desired results. References: 1-Williamson, John1989. What Washington Means by Policy Reforms in: Williamson, John (ed.): Latin American Readjustment: How Much has Happened, Washington: Institute for International Economics 2- Joseph Stiglitz .2006.Making Globalization Work .Amazone.com 3- Joseph Stiglitz, Globalization and its Discontents (2002), p. 53. 4- J.Fulcher: 2004 Capitalism; a very short introduction. Oxford University Press 5- Paul Collier; The Bottom Line.2006 Oxford University Press. ISBN13: 9780195311457 6- Gary Clyde Hufbauer and Jeffrey J. Schott 2005, NAFTA Revisited: Achievements and Challenges" Peter G. Peterson Institute for International Economics). Washington, 7-Robert N. Gwynne and Cristbal Kay (1999).Latin America Transformed: Globalization and Modernity ISBN 20098765 8- Anthony Michael , 1992 African Poverty - a geographical approach ISBN 185293087X Read More