Washington Consensus and its Impact on Thirds World Countries - Report Example

Washington Consensus and its impact on Thirds World Countries Introduction The term Washington Consensus was coined and developed in 1989 by an American economist John Williamson. This was a policy which was designed by John Williamson, who was a member of the Institute of International Economics, a think tank based in Washington prescribing ten different policies for the less developed nations which also constituted third world countries to make them more robust economically and drive out poverty from those nations as well as getting them on the path of development. The term, as Williamson conceived it, was in principle geographically and historically specific, a lowest common denominator of the reforms that he judged ‘Washington’ could agree were required in Latin America at the time. Alternate Arguments: There are economists who have argued that Washington Consensus was not applied in the right way in Latin America as well as parts of Asia and Africa. The original ten points conceived by Williamson were somewhere distorted in application by these nations. Along with this fact, another point of reference which is interesting to note is that people argue that Argentina’s failure of economy of 1999 was characterized by its own issues, which comprised of an uncompetitive fixed rate regime as well as failure to achieve effective control over its fiscal accounts, which became increasingly unpopular with the economic function of the country. “In a well-organized mixed economy, resources are efficiently allocated by means of the signals sent by relative prices. Relative prices, in turn, are determined in competitive markets. On the other hand, redistributive policies are explicitly included in the government’s Budget. In Argentina, on the contrary, those instruments of economic policy had switched roles. Instead of being instrumental in the efficient allocation of resources, relative prices were controlled by the government aiming at redistributing income. On the other hand, instead of playing a role in the redistribution of income, the government’s Budget aimed at allocating investment and employment.” (Yair Mundlak) The “Real” Coming of Washington Consensus: It is worth remembering that the belief that a less developed country could not really benefit from freer international trade and investment was, and to a certain extent continues to be, widely held in these countries. Therefore, the Washington Consensus prescription that government-imposed barriers to imports and exports, to foreign investment and to foreign currency transactions had to be lifted was sharply at odds with the long-held conviction that developing countries had to protect their economies from an unfair and exploitative international system rigged against them. “This belief, of course, flowed from the core proposition of dependency theory, a set of ideas that gained much currency in the developing word and which had few if any conceptual points of contact with the economic profession as it was practiced in most industrialised, capitalist countries” ( Moises Naim, 2000) Neo-Liberal Reforms and their Impact on Third World Countries: Neo liberal reforms have not been able to help the state of the nations in Latin America. The paper shall analyse three countries to this effect, which are namely Argentina, Venezuela and Sierra Leon. After reviewing the existing position and the situation after the influence of neo liberal reforms such as Washington Consensus the writer shall argue that such reforms have hindered the development of these countries. How Neo Liberal Reforms Hindered Development in Chile: Organizations such as the Ford Foundation and the Chicago boys committed grave violence in the name of free market economy in Latin America. IN the disguise of promoting economic development and trying to liberalise the economy, they went on to destroy the existing structure which prevailed in Latin America during the 70’s by means of force. The Chicago Boys were a group of students from the University of Chicago who devised an economic strategy for implantation in Chile. Friedman, who was the head of the Department, recalls the following: “Despite my sharp disagreement with the authoritarian political system of Chile, I do not regard it as evil for an economist to render technical support to the Government of Chile”(Naomi Klien, 2007) The truth lies in the fact that the policies were outrageous in nature and were implanted with deep human rights violations. How can one claim it to be of any help is out of the understanding for a prudent man. Pinochet, who was the dictator of Chile at that time, adopted the principles of Chicago Boys. The people were already governed by a barbarian ruler who did not care for their basic human rights, and in the process of implementing the policy Pinochet committed murders and tortured the people which were beyond any condemnation. It was blatant lies as in the guise of following the policy of Chicago Boys, the people were murdered without having any second look. Milton Freidman, the man behind ruining Chile’s economic and social state, was given a Nobel prize for economic. One needs to wonder that the man who was the cause behind the shutting down of industries, typhoid outbreaks and grave human rights violations, could be awarded the highest prize for community service in the State of Chile. This is beyond understanding and proves that all the human right violations and the killings were conveniently ignored by the West. The Ford Foundation funded academics and economists with the help of the US State Department in Latin America. However, they also funded the Latin Chicago Economic Programme thus churning out the Chicago School of Ideology in big numbers, an ideology which was implemented by force. Even though it claims that it stood outside the ambit of politics, the truth is that the farmers, the workers and the middle class were not satisfied with the way it used its contacts with the Government of Chile to drive down the economic policies in the State. Argentina Facing Problems: Argentina was one of the first countries to adopt “Washington Consensus” in its economic policy. Although it was perceived that the country would be helped by the consensus with respect to the efficient implementation, the truth is that it dramatically hindered the development of the country, the evidence of which is the economic fallout in the year 1999 to 2002. Let us look at how Argentina was before the adoption of the Washington Consensus and after its adoption. In the 1950’s the southern region of Latin America was a symbol of excellent economic growth as well as fast paced development with free health care. “patched them to act as policy advisers for governments across the continent. Nationalist politicians like Argentinas Juan Peron put their ideas into practice with a vengeance, pouring public money into infrastructure projects such as highways and steel plans, giving local businesses generous subsidies to build their new factories, churning out cars and washing machines, and keeping out foreign imports with forbiddingly high tariffs.” (The Other Shock, Klien 2007) The economy of Argentina was an embodiment for a successful State running on domestic policies specifically designed for the economy of the State. However, as the current situation lies, Argentina is not among the developed countries, however, it is 46 on the HDI index ranking as a developing nation. What went wrong in the years to come which caused the downfall as well as the economic turbulence of 1999? The answer lies in the adoption of Washington consensus. The principles of Washington Consensus did not sit well with the existing ideology of Argentina. It did economics differently, relying more on domestic upliftment rather than allowing foreign investment and industries to flourish. The mistake it made was to open its doors to libelrisation which effectuated in the destruction of its economy in the year 1999, which was seem to be a direct consequence of the adoption of Washington Consensus. The fact that Argentina is no more a symbol of development in Latin America as well as the rest of the world after 1990, and the adoption of Washington Consensus along with the downfall of the economy in 1999 is enough to prove and indicate that yes Washington Consensus indeed hindered the development of the country, something which is highlighted in the HDI index of today. The economy was exploited by the industries which entered the economy from the consequence of Washington Consensus. The domestic industries suffered dramatically which led to the economic fall down of 1999. The disappointing performance of Argentina after the WWII was due to a certain institutional misplace, which had been a consequence of the trade and macroeconomic policies implemented thereafter. (Domingo F. Cavallo, 2007) The Foreign Minister of Argentina in an interview in the year 2006 Jorge Taiana said that the reason of the economic downturn of Argentina was directly linked to Washington Consensus. He admitted that the country did not have a real consensus of the policy, and due to its attractive marketing it fell prey to the implementation, the price for which they paid in 1999 when it suffered massive economic problems. After that recession period in Argentina, many Latin American countries disallowed the implementation of this policy, a proof that it did hinder the development of Argentina as well as other Latin American countries. Venezuela’s Experience: It is an understood notion that Venezuela’s economy had been stagnant for a long time since the 1990’s. Josh Bivens in his article states that Venezuela’s growth and development did not yield enough for the people as it was before the Washington Consensus came into the picture. He delivers clear evidence that Venezuela was hindered in its development majorly due to the influence of these policies.(Josh He takes into account ten countries from Latin America which includes Venezuela and says that the productivity in these countries grew by 2.8 percent from 1950-197, while from 1985 to 2000, after the countries adopted the Washington Consensus it grew only by .37 percent, a clear cut indication that Washington Consensus did hinder the growth and development of these countries, which includes Venezuela. Venezuela sits at 77 on the HDI index, which is pretty low for the State. It started off as one of the richest countries in the world post World War 2, but after theadoption of Washington Consensus its growth rate has fell below that of the East Asian countries, another clear example that due to the adoption of this consensus the country has suffered negatively in its economic growth. Sierra Leone: The condition at Sierra Leone after the adoption of Washington has mirrored that of Venezuela. It ranked 171 on the HDI index before it adopted the consensus, however, after the adoption, it fell four notches below to 175, declaring that there was a negative impact which hindered the development of the country. The reason why Sierra Leone suffered such dramatic downfall was the wrong implementation of the idea as well as the failure to merge the closed domestic economy with a free market policy. Comparing this with the East Asian scenario, one needs to understand that in those countries the policy was already free market, which opened even further. In countries like Sierra Leone, there was a serious departure from a situation which fostered the growth of the domestic enterprises to allowing foreign investment. The entry of the foreign companies was bound to have a negative effect, as demonstrated in the growth chart of the country (Wing Thy Woo, 2004) Conclusion The essay talks about how Washington Consensus has hindered the development of the Latin American countries and to this point the author rests his case along with factual arguments and figures. It is extremely unfortunate that the third world countries were compelled to enforce this ideology into their system, but as the research points out countries like Chile faced a lot of violence by Western organizations before the advent into neo liberal reforms. Argentina was a classic example where the policy turned out to be a massive failure. The main argument over here is that despite having such a strong economy post World War 2, these countries fell into the trap of the Western Ideologies by going too far into the implementation of foreign economic policies. It is for everyone to see how major the difference was, with all the examples mentioned facing some sort of decline post Washington Consensus, Argentina having the worst effect of the consensus. The answer to the problem surfaced by Washington Consensus is simple. The countries’ existing economic and social model did not allow for free market economy. It was an ambitious idea which fell on the ground. The foreign industries exploited the domestic labour and there was a decline in the domestic industries as well, all due to the implementation of Washington Consensus which led to the hindrance of the development in such States. Bibliography The Shock Doctrine, Naomi Klien, Chapter 2-5, 2007 Fads and Fashion in Economic Reforms: Washington Consensus or Washington Confusion? Moises Naim, : Third World Quarterly, Vol. 21, No. 3 (Jun., 2000), pp. 505-528 Serious Inadequacies of the Washington Consensus: Misunderstanding the Poor by the Brightest, Wing Thy Woo Washington Consensus leads to productivity stagnation in South America, Josh Bivens, 2005 (http://www.epi.org/publication/webfeatures_snapshots_20051102/) Did the Washington Consensus Fail?, John Williamson, 2002 (http://www.iie.com/publications/papers/paper.cfm?researchid=488) Latin America and Economic Ideologies, Domingo F. Cavallo, Harvard University, Cambridge, Massachusetts, U.S.A.,2004 A Short History of the Washington Consensus, John Williamson, Published in ““From the Washington Consensus towards a new Global Governance”, 2004 The Washington Consensus as Policy Prescription for Development, John Williamson, Published in “Practitioners of Development”, 2004 The Co-Evolution of the Washington Consensus and the Economic Development Discourse, Ravi Ranbur, 2008 The Washington Consensus is dead! Long live the meta-narrative!, Simon Maxwell, 2005, Overseas Development Institute The Argentina that Could Have Been, Yair Mundlak Read More