The Washington Consensus in retrospect
In a recent Peterson Institute presentation Larry Summers discussed what the “Washington consensus” has meant for the American international economic policy since the end of the Second World War. The “Washington Consensus,” Summers argued, has often come to mean any policies oriented toward free markets or limited government. With this definition in mind, he made the following three points:
- The United States has done extraordinarily well: the share of US wealth reflected heavily in the stock market is far higher share of global GDP than it was in the 1990s.
- The global economy has done very well: Literacy rates are more than twice what they were in the early 1990s while poverty rates, in terms of extreme poverty, are now less than 40%.
- The problems the U.S. is facing now are not due to trade liberalization. In particular, trade with China generated large gains for the U.S. from the jobs created domestically, and the economic impacts of the goods the U.S. sold to China, to the lower cost inputs received because of imports from China, and the enhanced real wages associated with greater spending caused by those lower prices.
- Going forward, domestic industrialization and some kind of renaissance of manufacturing, as a central issue for US prosperity in the future, is not a realistic idea. In addition, substantial and accumulating deficits and debts are a substantial threat to national security and national power. So the important question now becomes: “How long can or will the world’s greatest debtor be able to maintain its position as the world’s greatest power?”
What should the 2023 Washington Consensus be?
By: Larry Summers – Harvard University
The Beijing Consensus
China’s development model has often been positioned as an alternative to the long-dominant “Washington consensus,” argues Antara Haldar in this commentary. The Beijing Consensus was defined as a state-capitalist system that, in contrast to the radical, one-size-fits-all ‘shock therapy’ adopted in much of the post-Soviet bloc, embraced an incremental approach based on experimentation and adaptation. In reality, China adhered to several of the ‘ten commandments’ of the “Washington consensus” by playing the humble role of factory of the world.
So, a quarter of the way into the much-anticipated ‘Chinese century’ the Chinese economy is sputtering and the global mood is souring. But the demise of the ‘Beijing consensus’ might have a silver lining if it serves as a cautionary tale to the developing world. As with the ‘Washington consensus’, the well-being of today’s citizens must not be wagered on an economic future that may never arrive.
A more radical rethink of development is needed, with countries seeking to show that they can produce new ideas—in particular, ideas that complement and advance a sustainable, egalitarian economic paradigm—rather than just manufacturing low-cost goods made to developed-world specifications.
After the ‘Beijing Consensus’
By: Antara Haldar – University of Cambridge
