Has the Beijing Consensus Replaced the Washington Consensus - Case Study Example

Has the Beijing Consensus replaced the Washington Consensus? Name Class Unit Introduction Washington consensus was introduced in the early 1990s as a means in which developing countries would attain successful economic development1. Washington consensus model advocated for orthodox market liberalisation means and democratic governments as a way of attaining economic development. Beijing consensus was named by American economist Joshua Ramo Cooper2. It was a development model that was adopted by China to attain successful development. The model adopted selected market economy principals while at the same time disregarding human rights and democracy. The Washington consensus was laid out as a program with fiscal discipline, competitive foreign exchange rates, deregulation and advocated openness to foreign direct investment. The Beijing consensus has been adopted by several countries as their development model. Through Beijing consensus, it has become possible for the developing countries to form alliances such as Brazil, Russia, India and China (BRIC)3. Some of the countries that have followed Washington consensus have found themselves in crisis. Washington consensus has been blamed for economic crisis in several countries. This is due to fact that it failed in suitability test in most countries4. As a result, the Beijing consensus has been adopted by most developing countries making it seem to replace the Washington consensus. This paper will analyse how Beijing consensus have replaced the Washington consensus. Definition and key characteristics of Washington Consensus Washington consensus is a liberal economic package. The consensus is made up of free trade, stable currency and Gladstonian finance5. Washington consensus also requires a government that have the capability to ensure natural liberty. This is through ensuring there are laws supporting justice which enables peaceful competition and exchange that is free. Washington consensus rejects egalitarianism as a means of delivering required principles of public policy. Washington consensus contained ten broad recommendations by Williamson6. These recommendations were; discipline in fiscal policy, reducing public spending on subsidies to pro-growth and pro poor services such as education and tax reforms. Other recommendations pointed at market determined interest rates, trade liberalisation, competitive exchange rates, foreign direct investment liberalisation, deregulation and privitisation. Lastly the consensus ensured that there was legal security for the property. Most of the developing countries adopted the Washington consensus in the 1990s7. Developing world such as Russia, Latin America, India and parts of Europe were moving away from the economic statism to adopt the principles that were enshrined in the Washington consensus. Washington consensus at this point reigned and was seen as adoption of the western liberal democracy8. Definition and key characteristics of Beijing Consensus Beijing consensus is a term that was introduced in 2004 by Joshua Cooper Ramo9. It is a set of policies that China pursued during its economic development. The Beijing consensus has antecedents of socialism10. The consensus can be defined well through four main characteristics. These characteristics are; policy toolkit, corporate alliance, resources and long term alliance. In the policy toolkit, Chinese authorities have greater power to intervene in the economy11. The authority in China can also meddle in the financial markets in case they feel the need. In China, corporate alliance is based on the Beijing consensus. Most of the companies in the country are state owned and hence accountable to the government. Beijing has a lot of resources. The country controls a lot of currency in the reserves, gets profits from the companies and has greater control of the land. Based on the Beijing consensus, the government sets long term plans and follows them systematically. Beijing consensus rejects some of the concepts of market liberalisation. For example, privitisation is approach cautiously by Beijing consensus. Beijing consensus beliefs that the country’s foreign policy is supposed to be based on defence of national interests and boarders12. Comparison of the two consensuses Gradualism versus shock treatment Beijing consensus favours gradual approach as compared to Washington consensus. This implies that reforms under the Beijing consensus are carried out in a gradual manner. Washington consensus carries out reforms in a fast manner. Gradualism have been of importance where the society is stable and not yet fallen apart. It also requires a leader who is confident and ready to remain long in order to affect the reforms13. Encouraging innovation Beijing consensus favours and encourages innovation. This is when compared to Washington consensus which is silent on the issue. This has seen countries which have embraced Beijing consensus changing their industries to be more technology intensive14. The main problem arises due to fact that imitation replaces innovation in some instances. Resources in some cases are wasted as the country engages in engaging in reinventing. China created the SEZ with an aim of creating modernity rather than importing. Through innovation, China has been able to create employment through commodification of labour15. Macroeconomic stability Macroeconomic stability is a major theme in Washington consensus unlike Beijing consensus. Beijing consensus seems to maintain price stability. In some instances such as the world recession, Beijing consensus had employed Keynesian policies of demand. This helped the countries using the Beijing consensus to keep their economy to almost full capacity16. Open economy Washington consensus deals with the issue of open economy by calling for trade liberalisation, opening inward FDI and ensuring a competitive exchange rate. Beijing government started liberalisation of FDI inflows during the early reform era. The government also ensured that they reduce protectionism as one of the requirements to join WTO17. The main difference between the two consensuses occurs on exchange rate which is not clear on the Beijing consensus. Chinese economy can be viewed as one of the most open economy if the ratio of GDP to exports is used. Despite this, China has been opposed to international discipline on exchange rates. The country has also continued running the undervalued exchange rate which makes their current account surplus. The main contradiction between Beijing and Washington consensus is centred on currency valuation. China has been undervaluing their exchange rates through large interventions18. Market liberalisation Market liberalisation is one of the most basic differences between Beijing consensus and Washington consensus. Washington consensus is pro-market as opposed to Beijing consensus where the state plays a major role. Despite the state intervention on market, China has taken a major role in market liberalisation which has contributed to economy growth. In market liberalisation, China showed no hurry in privitisation. Some of the companies remained under state and helped a lot during the recession19. This is through injecting demand to the economy during the recession. This helped China to recover from recession faster than most of the countries. Beijing consensus rejects vital aspects on market liberalisation from the Washington consensus. For example, Beijing consensus approach privitisation with caution as opposed with Washington consensus. Beijing consensus foreign policy is also based on lively defence of the country national borders. This is can be explained by the China action on Taiwan and Tibet. China through Beijing consensus has been able to grow without having to lose its independence20. Authoritarianism Beijing consensus has a conspicuous feature of hostility to any democratic deal. Washington consensus is pro-democracy unlike Beijing consensus. Democracy in China is seen as a pro western idea instead of a universal value. Beijing consensus has been seen by many to oppose democracy in the name of national sovereignty. Despite that Washington consensus does not refer to democracy in its recommendations, its implementation is prodemocracy when compared to Beijing consensus. China through the Beijing consensus has proved that authoritarian regimes have the capability to deliver economic growth. Washington consensus on the other hand believes that economic development can only be attained on democratic settings. This has led to western countries enforcing democracy and their values to other countries21. Citizenship versus individuality Beijing consensus is based on citizenship unlike Washington consensus which favours individuality. China is a collective society where individuality is lowly ranked. Beijing consensus thus creates a bottom up development environment. This is very different from capitalism that is supported by the Washington consensus. Beijing consensus thus is based on the collectivism22. Washington consensus does not have the capability to induce rapid growth as compared to the Beijing consensus. This is due to fact that the consensus was not constructed for rapid growth. Washington consensus was designed as an expression of consensus views. The consensus lacks some of the policies which are essential for rapid growth. Being designed for consensus views, it implies that some of the essential policies that are held by the minority cannot appear23. Discussion & argument Beijing consensus is replacing the Washington consensus. Washington consensus list that had been designed for the Latin American countries which were facing economic difficulties were applied globally. This implies that the consensus was not suitable for most countries in which it was applied to. Countries such as Argentina which followed the Washington consensus found themselves in economic crisis. Countries in Latin America which faced economic crisis due to the consensus resulted in rise of leftists leaders. Washington consensus have been accused of destroying economies and hence abandoned by most countries. Countries which ignored the Washington consensus such as China and India experienced tremendous growth. At the same time, Argentina and Indonesia who followed Washington consensus endured economic hardships24. Beijing consensus has been adopted due to fact that its approach is based on ensuring high and equitable growth. As a result, Beijing consensus has been taking the Washington consensus in a gradual manner. This has been seen especially in the developing countries which have adopted Beijing consensus and shunned Washington consensus. Washington consensus has been seen as an economic theory which tells sovereign nations how to run themselves25. Beijing consensus has been used by poor countries to change the market behaviours. Previously, Washington consensus assumed that poor countries have to borrow from rich countries in order to develop. The borrowing policies were a major drawback which led to recurring debts and currency issues. The developing countries that have adopted the Beijing consensus have changed the tactic. Instead of borrowing, developing countries have been looking for foreign direct investments (FDI)26. China was able to make foreign investors come to the special economic zones to build factories and start business. This has ensured that the assets invested cannot be withdrawn fast in case of crisis. China has become major shaper of the world order to countries which are connected to it. Countries have ben reformatting their economic system to be in line with China economic model. China growing soft power is another factor that have made the Beijing consensus replace Washington consensus. China has been helping the developing countries with foreign aid and investment. The influence of U.S in the world economy is waning as more country is attracted through China soft power. Through the Washington consensus, aid granting organisations such as World Bank have changed. World Bank used to fund large projects in the developing countries a role that China have taken over. China has been lending developing countries loans which are repaid through natural resources27. This approach has made Chinese influence to be felt in most developing countries. The World Bank approach failed due to high default rates. The mutually benefit approach applied by China have seen its influence increase among the developing countries. Beijing consensus has been able to fill the gaps that were left by World Bank while at the same time influencing the countries. A lot of developing countries will continue embracing China Beijing consensus and shunning the Washington consensus28. The Washington consensus has been a colossal failure where a lot of cash have been wasted while seeking development. Beijing consensus has been able to show that development can be achieved so fast and on a wide front. This is a proof that Beijing consensus is the preferred mode of development. Another proof of adoption of the Beijing consensus is the creation of the Asian Infrastructure Investment Bank (AIIB). The bank which was proposed by China is based on the Beijing consensus. The bank was proposed by China in 2013 and by 2014, it had been able to sign a memorandum of understanding with over 20 countries which were interested. At the moment, a total of twenty two countries are in the process of drafting the establishment agreement of AIIB29. The bank aims at achieving development of the Asian countries. This is through construction of infrastructure. AIIB is a proof that China economic system based on the Beijing consensus has been playing an international role. AIIB is set on an authoritarian market system which does not have call for democracy30. For the developing countries, Washington consensus contains western values that are forced on them. The consensus has been forcing democracy prematurely leading to rule of law being undermined. This has led to leaders in the developing countries to focus more on the popular sentiments rather than reforms. The developing countries want to have ethnic harmony, economic growth and sustain law and order. These are highly important than forced democracy. The main aim is to have a balanced and harmonious nation which is supported by the Beijing consensus31. Washington consensus aspects have been disputed by most countries which have abandoned the Washington consensus. Washington consensus imposition of liberal views is over. Countries which have survived the ills brought about by Washington consensus have abandoned it. India, China, Russia and Brazil are notably the countries which have rejected the Washington consensus which acted to marginalise them. Indonesia, South Africa and Mexico have shown ambitions to abandon the Washington consensus32. At the moment, countries have accepted the market economy but are not ready to compromise their national interests through Washington consensus33. Conclusion From the discussion and analysis, it is clear that Beijing consensus have been able to replace Washington consensus. Beijing consensus has been a success as evidenced by China economic growth. Washington consensus has failed to institute rapid economic development as witnessed by the Beijing consensus. Research proves that Washington consensus failed the test and was not applicable to some of the countries it was applied to. Countries such as Argentina and Mexico have paid heavily through economic crisis due to adoption of Washington consensus. Countries which ignored Washington consensus such as BRIC have been able to see rapid economic development. The decades of imposing liberal views by the Washington consensus are over. At the moment, most of the developing countries are adopting Beijing consensus. Developing countries have eliminated borrowing culture and are attracting foreign direct investment as a way to grow their economy. This is a view that is upheld by the Beijing consensus. Through use of soft power, China has made most of the developing countries adopt its model of development. The western countries powers have been waning as China influence on world order increases. An example of adoption of Beijing consensus is the development of the AIIB. The bank formed by Asian countries is based on the Beijing consensus and has more than twenty two countries. Therefore, it is evident that Washington consensus influence continues to decrease as it is replaced by the Beijing consensus. References Beeson, Mark, and Iyanatul Islam. "Neo-liberalism and East Asia: resisting the Washington consensus." The Journal of Development Studies 41, no. 2 (2005): 197-219. Dirlik, Arif. "Beijing Consensus: Beijing ‘Gongshi.’Who Recognizes Whom and to What End?." Position Paper, Globalization and Autonomy Online Compendium (http://www. globalautonomy. ca), January 17 (2006). Fine, Ben. "Neither the Washington nor the post-Washington Consensus." Fine, B., Lapavitsas, C. & J. Pincus (eds.), Development Policy in the Twenty-First Century. 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