Secret of Washington Consensus - Coursework Example

Section/# The Washington Consensus: An Analytical Discussion and Review of Why This Particular Approach was Readily Integrated within Latin America Introduction: The international political economy is a complex study which seeks to understand the means by which economic decisions and agreements from various stakeholders are able to impact upon the way in which economic growth, stabilization, recession, depression, integration, and a litany of other factors come to take place within a given nation or between a groups of stakeholders. Within the current globalized system, the importance of international political economy and the means by which decisions of economic importance are engaged, the overall level of relevance is maximized. As a function of this, the following analysis will engage the reader with an understanding of why the “Washington Consensus” came to be so widely accepted and agreed upon by a litany of different Latin American countries. Although merely referencing the Washington Consensus, and the determinants that it necessarily imposes, would be an effective start, the analysis will also integrate with an in-depth discussion of each of the 10 points which engenders the Washington consensus as a means of understanding the ultimate attraction that so many Latin American countries had to this particular economic integration and approach. Further, the unique drawbacks and tacit inabilities that the Washington Consensus will also be discussed with regards to the way in which stakeholders within this particular issue realize that it was in their best interest to accept the Washington consensus even with its tacit level of drawbacks. This is the hope of this particular analyst that the preceding information will be useful in categorizing and helping to understand the means by which stakeholders within the world can come to levels of agreement and cooperation based upon shared benefit and mutual understanding. Although the information that will be provided is specifically with regards to the international political economy and the methods and standards by which the integration of Latin American countries took place with the United States based upon economic issues, a tacit level of understanding with respect to world affairs, international relations, and political theory will necessarily be engaged and hopefully understood. History/Background Firstly, before delving into the ultimate rationale behind why so many Latin American countries chose to integrate so fully and completely with Washington consensus, it must be understood that key macro economic factors throughout Latin America provoked and invoked a level of greater cooperation and willingness to attempt a different approach than might have been realized that any other point in history. By the time of the 1980s, Latin America, in addition to much of the rest of the world, was still reeling from the economic repercussions of the global malaise that had existed for almost a decade during the 1970s. Whereas the United States, and the rest of the world for that matter, felt the impact of the drastic increase in fuel costs that took place during the late 1970s and early 1980s, the impact that this had upon developing nations were even more profound (Duncan, 2003). This stands to reason due to the fact that the United States and other developed nations had a level of wealth that could be leveraged against a sudden price fluctuation with respect to a inelastic demand. What ultimately prompted the oil crisis during the 1970s had to do with the rising levels of debt, inaccessibility of foreign credit, and a restriction in global trade. Whereas the fuel crisis of the 1970s and early 1980s was of course of relevance, it must further be understood that this particular issue was a significant impact with regards to developing nations around the world; especially Latin American countries. The rationale behind this is due to the fact that Latin American countries, unlike many other nations around the globe, invariably had relatively little oil development and fuel independence from the remainder of the world. Trade linkages between oil providers and Latin America were tenuous at best; providing a situation through which the slightest disruption in supply and/or an aggregate increase in the cost of the supply have long and strong reverberations with regards to the way in which the domestic economy is of these nations could develop. As such, the reader can come to the firm understanding of the fact that even though the fuel crisis of the early 1980s and the 1970s was of significant importance to the developed world, developing nations within Latin America saw this particular issue as a defining moment with regards to the way in which they would integrate with the remainder of the world and the means through which their economy would continue to grow in the near future (Stallings, 1992). Political analysts, scholars, an economist within Latin America, and the rest of the world for that matter, came to the understanding of the fact that situation such as the fuel crisis could ultimately perform a level of irrevocable harm upon such economy; thereby creating a clarion call for a reintegration with global political economy and seeking to ameliorate the issues that impacted so heavily upon these nations said that this particular depression and economic trade and output would not occur again in the future. Whereas the focus of this particular analysis is concentric upon economics and the means through which Latin American countries decided to engage with the Washington consensus, it must also tangentially be understood that the Washington consensus was up a particularly political meaning as well. Whereas analysts and scholars have sought to downplay the role that the United States had in “forcing” the Washington consensus upon Latin American countries, it must be understood that the United States was locked in something of a mortal struggle with international communism during this very time period. As such, the role that the Washington consensus played it with respect to benefiting the economic, political, and military interests of the United States should not be ignored. Although it is patently obvious that a level of cooperation and free will defined the relationship between the nations that integrated with the Washington consensus and the rest of the world, a further beneficiary of this cooperation was obviously the capitalist block within the free world. It is without question that the Cold War was a defining era in global politics. Although it was not what’s punctuated by hostile aggression, in the form of military engagement by either the United States or the Soviet Union, proxies for this war were engaged around the globe. Moreover, rather than viewing this dynamic conflict from the realm of military conflict alone, the individual analyst should be fully cognizant of the idea that both the United States and its allies, as well as the Soviet Union and its allies, were keenly interested in spreading political ideology and engaging stakeholders, as well as coaxing them, to be representative of their particular block. Within such an understanding, the Washington consensus can be understood as a key political triumph of the United States and the capitalist nations due to the fact that it was able to engender a great deal of support and tacit agreement on the part of Latin American nations throughout Central and South America. In such a manner, the Washington consensus served to be a key political triumph that promoted a degree of cooperation as compared to coercion that so far defined the relationship that the United States and other global powers have had with respect to the way in which governance and economics were exhibited throughout the nations in question. Misconceptions Concerning the Washington Consensus: although it is widely understood, by virtue of the very name that defines it, the Washington consensus was in fact not something that the United States foisted upon the nations of Latin America; quite the contrary. In fact, the Washington consensus can be understood as a set of policy recommendations and economic integration that many of the Latin American countries in question came to of their own volition. As a result of the previously alluded to difficulties and economic hardships that the 1970s and 80s denoted, many of the Latin American nations sought to wipe the slate clean and start from a new perspective. Realizing that levels of socialism and/4 government control and interference with regards to macroeconomic policy was ultimately harmful to the way in which wealth was generated and integration with the remainder of the world, not to mention their Latin American neighbors, took place, scholars and economic analysts began to realize that a transition towards a new dynamic was required. As a function of this level of realization, it must be understood and engaged that Latin American nations did not have an epiphany when presented with the information that a greater degree of integration, lowering the barriers, and free market reform could benefit them. Instead, these realizations were more often than not derived by the economists and experts within the Latin American countries themselves; long before American economists were able to present these in the form of 10 elucidated points of economic reform that have since become known as the Washington consensus. As is so often the case in global economics, the nations that came to the realization that the Washington consensus could be beneficial to them ultimately came to this realization due to macro economic analysis and indications of nations around the globe who had experienced high levels of growth and development as a result of engaging similar policies. It is necessary to underscore and emphasize the fact that the Washington consensus, even though packaged and granted by the United States and the global institutions that it had a great deal of power over, was not new concepts that the Latin American countries had never before considered and agreed upon on it is the fact that the United States heavily promoted them. Origins of Cooperation: Realizing that the prior model of macro-economic integration was ineffective in addressing such issues as the global fuel crisis, diminishing levels of available external credit, and/or the rising levels of internal debt, these Latin American nations integrated with the understanding that if they were going to continue to grow their domestic economies, it was necessary to integrate with an export economy; similar to the type that so many of the Asian countries had adopted to such a runaway level of success in the decades preceding the 1980s. Accordingly, the following section will provide a point by point discussion of the components of the Washington Consensus and how and why each of these resonated with many Latin American nations and their economic needs at the time. Firstly, the Washington consensus promotes a degree of fiscal policy and discipline. Whereas the previous era had witnessed a great many Latin American nations running a massive budget deficits in order to foster social programs and provide for the requisite needs of the government in question, it came to be understood that a degree of fiscal discipline and a requirement to abstain from engaging in a large budget deficits was an absolute requirement in terms of seeking to promote exports and further solidify currency gains that could be effected through the manipulation and appropriate management of deficits in budget. Economic analysis on the part of nations such as Brazil and Chile indicated the fact that such a form of fiscal management was necessarily a complement of the Asian miracle that had been witnessed during the preceding decades. This comparison to Asia cannot and should not be diminished due to the fact that many Latin American nations came to infer that the Asian miracle could in fact be evidenced within Latin America; providing the right policy mechanisms and macro-economic principles. A further level of realization that was engaged, both on the part of Latin American stakeholders, and the United States, was with respect to the fact that fiscal growth can only take place in such a point as a level of policy discipline is engaged towards reducing the overall level of subsidized nation and public spending as a means of promoting growth. As such, promoting growth was no longer seen as something that could or should be determined based upon protectionism but instead upon funding education, primary health care, and infrastructure investment to a greater degree. Rather than coming to this understanding as a result of US policy suggestion, it must be reinforced yet again that Latin American countries primarily came to integrate with this particular approach due to the fact that the polar opposite approach had been attempted, many times unsuccessfully for several decades; blending these nations to come to the realization that in order for a level of sustained growth to be realized, fundamentally different macroeconomic policy and approaches to public welfare must be engaged. As a result of the broad-based level of social experimentation that was taking place within Latin America for much of the second half of the 20th century, many of these nations had driven industry and trade far from their shores. Accordingly, the third complement of the Washington consensus was with regards to the need to engage tax reform in order for a revival in trade and domestic macroeconomic profitability to be witnessed. In short, leftist governments throughout Latin America had implemented varying degrees of Marxism and were under the opinion that industrialization was only meant to be managed and effected at the state level; as compared to a privatized nation of these resources and the tangential benefits that could be extended to greater society as a result of their profitability. However, as this Marxist approach to social policy and economic policy was realized to be on the whole ineffective, it was understood that a dynamically different approach must be engaged is these nations were to experience a level of growth similar to the Asian model which is previously been discussed. Rather than focusing the entire tax code upon extraordinarily high levels of taxation for industry and producers, a reform and tax law meant that the tax burden must be shared across the society; neither contingent entirely upon the lowest and middle class and neither contingent upon the producing class. Rather than this particular decision being the result of integrating with a more capitalist view of society and economics, the reader should understand the fact that economic analyst within Latin America had come to the understanding that progressive Marxist interpretations and ultimately driven away investment within their respective nations. As such, in order to reengage this investment and provide an attractive base for which large multinational firms could trade with and invest in the infrastructure of the nation, a radically different approach was necessitated. Although it is oftentimes difficult to analyze a group of nations and find a common denominator that somehow identifies each of their respective failures with regards to macroeconomic policy, it can definitively be stated that interest rate manipulation and use of the central bank of many of these Latin American nations had previously been a primary tactic through which the respective governments have sought to ameliorate pressures upon the currency, debt levels, and the means through which imports and exports were affected. Although it is invariably true that any nation engages in such an effort as a means of promoting its best interests, the degree and extent to which Latin American countries had relied upon their central banks and interest rates in general as a means of affecting this can only be stated as extreme. As such, a categorical understanding that came to take place was with respect to the understanding that such decisions and manipulation of interest rates cannot and should not be a tool through which all economic policy is determined. Instead, interest rates should invariably the market determines and not the sole discretion of the central bank or ruling party at any given point in time. Whereas many of the other compliments of the Washington consensus Previously been determined to be the result of the fact that Latin American countries analyzed their competitors and came to an understanding of the fact that different determinants would yield a different result, the realization that took place with regards to interest rates was almost categorically organic. What is meant by this is the fact that different Latin American countries realized that macro-economic policy was too heavily leveraged with regards to the independent decisions of central banks and the means through which currency could be valued and revalued at a whim. As such, a level of regulation and expectation with regards to the way in which a currency was to be valued and inflation/deflation was to take place were central in seeking to promote the resiliency and faith that outside investors might have within the economy as a whole (Bulmer-Thomas, 2006). Working hand in glove with this particular interpretation concerning the means by which current evaluation was structured, a further understanding and appreciation for engaging in competitive exchange rates was also determined. This, perhaps more than any other factor, was reliant upon the extent and degree to which other stakeholders within Latin America engaged with such an issue. Whereas it is invariably true that a particular nation within Latin America could place a high level of emphasis upon the need for a competitive exchange rate, the ultimate impact of this could only be furthered if other nations engaged in a similar process and valued this determinant to the same degree. Yet, it must also be understood that if all the determinants that is thus far been listed with regards to the Washington consensus, this particular one was not as important to Latin American countries as it was to the United States and the institutions that it sought to promote. Whereas almost all of the other mechanisms that it been engaged are concentric upon promoting economic growth with respect to the outside world, a manipulation and level of determinacy with regards to competitive exchange rates was not only in the interests of these nations but also within the distinct interests of the IMF and the World Bank. Trade liberalization and creating uniform tariffs and levels of restriction for tantamount towards mirroring the economic renewal that many parts of Asia had experienced during the decades preceding the 1980s. As such, in almost categorical level agreement existed between stakeholders of the Washington consensus that this must form the backbone of any new policy with regards to trade and development of protective economies that had previously experienced a great deal of hardship with regards to trade. Whereas the existing data most certainly existed with regards to the benefits of trade liberalization, this one aspect of economic growth was perhaps the most difficult for stakeholders to allow; due to the fact that it was widely believed that trade liberalization would merely mean that these respective economies would be flooded with a glut of foreign goods – providing a situation in which domestic consumers would actually be doing more harm to their own means of production than before. However, this was soon proven to be a belief founded on incorrect and inaccurate data; something that almost each and every economist and political strategist came to realize was fallacious. As a means of ensuring that the previous action points were allowed to take place and could in fact benefit the overall economy, sub .7, eight, nine, and 10 of the Washington consensus delineated that liberalization of foreign direct investment, privatization of state enterprise, deregulation of financial institutions, and the legal guarantee of security for property rights must be engaged. Privatization of existing state enterprise was irresistible for several reasons. First, state enterprise within many of these Latin American countries had been struggling to affect a level of profitability for many years; oftentimes decades. However, due to the economic malaise that these respective systems had experienced, state owned means of production had only barely been able to meet the required demands of the individual economy in question; as one might imagine, they were completely incapable of addressing the economic needs that could be gained through effective trade mechanisms. As such, many of the Latin American countries in question found privatization of existing state enterprise as irresistible due to the fact that this resource was already evidenced throughout their economies and did not need a great deal of further investment or up that in order to be attractive to potential buyers. As such, the level of liquidity and the high level of profitability that the state owned enterprises offered was something that could provide a rapid level of cash and tangible immediate benefit to the economies as a whole. Once again, deregulation was irresistible; due to the fact that the prior level of regulations had effectively constricted and confined the means by which both internal and external investment were made within these nations. This come to be so much the norm that many individuals stakeholders within these societies had begun political movements formulated upon the precepts and concepts of deregulation and the need to deconstruct the government agencies that lorded over the means of production and the rules constraining them. Once again, the failed experiment of radical socialism and Marxism throughout Latin America proved to be an impetus to further integrate with a level of capitalism and a new way forward for the economy. Finally, even though each of the determinants that have thus far been discussed is inherently important, it must be understood that without a level of security regarding the rights of property ownership, none of this could be affected. As such, property rights within Latin America and oftentimes been predicated upon the socialist model of any and all property ultimately belonging to the government and not the individual. However, as this system came to be seen as ineffective with regards to the ability to enhance the lifestyle and wealth of the individual stakeholder, economic analysts, government decision-makers, and indeed the populace themselves, begin to promote a more radical approach to individual property rights than had before been witnessed. As a result of this, not only were the individual property rights of Latin Americans promoted, the property rights that a foreign direct investor might be able to leverage within a given region were also promoted. Even though this is the last issue that will be discussed with regards to the Washington consensus, it is reasonable to understand that this particular level of liberalization and deregulation was perhaps the single most important of all in ensuring that each of the other determinants that have thus far been discussed with in fact be engaged. Effectively, without a level of property liberalization and the rights of privatization that were granted as a result of this, none of the preceding levels of liberalization and development of the economy could have taken place. Conclusion: From the information that is been engaged, it is patently obvious that Latin America did not merely acquiesce to the Washington consensus. Rather, economists and government leaders, as well as citizens, came to the understanding that the current and past models of economic integration that it been practiced throughout many parts of Latin America where ineffective means of promoting further economic growth. As such, it was necessary to integrate with new model as a means of engaging the world from a new perspective. From this particular level of understanding, the reader can and should come to the realization of the fact that the Washington consensus was perhaps incorrectly named. Even though it is impossible to go back in history and denote that this consensus would more likely and reasonably be named “the alternative economic integration of Latin America”, the name has stuck and the innate biases that it engenders continues to remain. Yes, this fact notwithstanding, the consensus that remains part of this economic determinacy underscores the fact that even though it is somewhat inappropriately named to inferred that the United States promoted this particular integration, each of the determinants that have been discussed can effectively be understood with regards to the standpoint of the native level of realization that came to be represented within each and every one of the Latin American countries that eventually integrated with the Washington consensus. Bibliography Bulmer-Thomas, Victor, 2006. The Cambridge Economic History of Latin America. 2 Cambridge University Press. Green, Duncan, 2003. Silent Revolution: The Rise And Crisis Of Market Economics In Latin America- 2nd Edition. 2 Edition. Monthly Review Press. Stallings, Benjamin, 1992. The Politics of Economic Adjustment. n Edition. Princeton University Press. Read More