ECONOMY: Near Agreement against Washington Consensus

By Julio Godoy Reprint | | Print |

Julio Godoy

PARIS, Jun 14 2003 (IPS) - The so-called Washington Consensus on market-oriented policy measures has failed Latin America and other countries of the South, a group of experts and analysts agreed at an international meeting this week.

The experts sought a new approach that would include investment in human development, environmental protection, a strong regulatory role for the state, and international cooperation financed by taxation of international financial transactions.

The experts gathered at a conference organised by the World Bank in Paris. It brought together Susan George, of the French non-governmental organisation Attac, Dag Ehrenpreis from the Development Assistance Committee (DAC) secretariat of the Organisation for Economic Cooperation and Development (OECD) and Steen Jorgensen from the World Bank.

The conference also included participants from Brussels, Geneva and London by video link.

The Washington Consensus, a term coined by U.S. economist John Williamson in 1989, held up the mantra of privatisation of state-owned enterprises, reduction of state deficits and of taxes, liberalisation of interest rates, an emphasis on trade, improving conditions for foreign direct investment, and other forms of deregulation.

This economic policy was expected to bring steady growth in Latin America. Official figures show otherwise. The Gross National Income (GNI) in Latin America shrank 0.6 percent on average last year, after stagnating in 2001.

The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) says that per capita income in the region now stands 2 percent below its 1997 level. This amounts to a "lost half decade", says the ECLAC, following the "lost decade" in the 1980s unleashed by the debt crisis that began in Mexico in 1982.

Susan George, vice-president of Attac France, said the economic and social outcome produced by the neo-liberal agenda spoke for itself.

"Economic growth in Latin America in the 1990s under the Washington Consensus was considerably lower than between 1950 and 1980, when the region applied other economic policies," George said. "At the national level, the neo-liberal economic policy in the 1990s produced a huge redistribution of income, from the lower and middle classes to the richest minorities."

A similar shift took place during the 1990s at the international level, widening the income gap between underdeveloped and industrialised countries, George said. "The application of the Washington consensus was a success for the rich, who became richer, but a major failure for the poor, who became poorer."

José Maria Figueres, former president of Costa Rica, and now managing director of the Centre for the Global Agenda at the World Economic Forum, said from Geneva that more than 10 years after the application of the economic policy agenda, Latin America is free from "neo-liberal dogmas." The continent "no longer holds on to the idea that it suffices to liberalise the economy to launch a process of sustainable economic development," Figueres said. "Markets don’t take care of everything."

Figueres defended some aspects of the Washington Consensus, particularly those relating to fiscal discipline. But he spoke of the need for "significant investment in human progress, in education, environmental protection, and a strong regulatory role of the state" as necessary for long term, sustainable economic development.

Steen Jorgensen, director of the Social Development Department of the World Bank also called for an alternative economic policy to the market-oriented propositions of the Washington Consensus.

"We are discovering that land reform is a good measure for development, for it promotes income equality, sustainable growth, and gives rural population work opportunities," Jorgensen said.

He stressed the need of protecting small producers in the South against shocks from globalisation.

"Without regulatory measures, the small farmer in Zambia cannot extract value from economic globalisation, but is heavily exposed to the risks inherent to it," he said. "To formulate an economic policy for developing countries, we have to take into account the needs of the population in those countries."

Susan George said formulation of an economic policy that takes people’s interest into account needs a strong popular organisation. "In the end, the question goes back to the balance of power," she said.

"In Brazil, the coming to office of President Luiz Inácio Lula da Silva is the result of 25 years of patient organisation work by the Labour Party," she said.

George said direct popular representation in government is the basis of successful economic policies in the Brazilian city Porto Alegre. "The participation of people in the city’s government guarantees that the policies are oriented to address popular problems," she said.

George called for taxation of international financial transactions to pay for development. At the conference on development financing last year in Monterey, Mexico, the richest countries of the world preferred not to address the issue of how development policies could be financed. They ignored the option that a very low tax upon financial and other international transactions would suffice, George said.

Another measure to finance international development cooperation could be the closing of tax havens, and to cut down illegitimate capital flow from the countries of the South. "Nowadays, the richest elites of the South have stockpiled some 1.5 trillion dollars in tax havens in the Caribbean and Europe," George said.

She also called for substantial debt relief for the poorest countries of the world, and for an increase and reorientation of development aid.

Dag Ehrenpreis, senior advisor on poverty reduction at the DAC secretariat of the OECD said the DAC had set several social criteria for development aid. "We see that the countries receiving aid qualify for it by putting in place policies that enhance environmental protection, reduce vulnerability of women in society, and improve income distribution," Ehrenpreis said.

Figueres said international aid should be made conditional on abolition of military spending, and investment in health, education, and other human development measures.