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Goodbye Washington Consensus ...

Ignacio Hernandez's picture

Hello Washington Confusion?


In case you missed before, that is the title of a paper by Dani Rodrik now published in the JEL, where he discusses (often praising) the World Bank's Economic Growth in the 1990s: Learning from a Decade of Reform, a study on development lessons of the 1990s.


The World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform (2005, henceforth Learning from Reform) is one of a spate of recent attempts at making sense of the facts of the last decade and a half, and probably the most intelligent. In fact, it is a rather extraordinary document insofar as it shows how far we have come from the original Washington Consensus.

Coming from the institution that is one of the chief architects of the reforms of the last twenty years, Learning from Reform is a genuinely interesting document: it represents a mea culpa as well as a way forward. It pushes us to think harder and deeper about the economics of reform than anything else out there. It warns us to be skeptical of top-down, comprehensive, universal solutions—no matter how well-intentioned they may be. And it reminds us that the requisite economic analysis—hard as it is, in the absence of specific blueprints—has to be done case by case.



The Augmented Washington Consensus



Source: Dani Rodrik, Goodbye Washington Consensus, Hello Washington Confusion?


The Washington Consensus, Vindicated. First, this post doesn't make clear what the link is between the Rodrik quote and the table below. Does the table represent "the Washington Confusion?" If so, it doesn't seem particularly confused, but rather a package of fairly definite policy advice. And it is clearly not a repudiation of the Washington Consensus, since it is explicitly an addition to the Washington Consensus. Second, if we are supposed to be "skeptical of top-down, comprehensive, universal solutions," isn't that at odds with offering a 20-point policy prescription? Isn't a 20-point prescription worse than a 10-point prescription? Perhaps not though, because many of the points are vague enough to give a lot of room for policymakers to pursue them in different ways. "Anti-corruption," for example, can be approached differently; "prudent" capital-account opening is almost an explicit invitation to adapt policy to country circumstances. While I think Rodrik's critiques of knee-jerk free-marketism are often well-founded (indeed, some of the agenda of "institutions" is essential to the emergence of genuine free-market economies, while attempts to create property rights by fiat undermine legitimacy and thus backfire), the irony is that it's just now that the Washington Consensus seems to be paying off. In the 1990s, the IFIs had a habit of preaching, "This may cause some temporary pain, but in the long run it will pay off in the form of accelerated economic growth." They said it until the world jeered; protestors filled the streets; they were deemed the diabolical agents of imperialist capitalism etc., etc. And guys like Rodrik sort of rode this wave a bit, joining the critics. Their criticism was of a very different, more intelligent and useful, sort than that of the anti-globlization protesters, yet they fanned the fire. Now the despised promises of the IFIs seem to be coming true: the world economy is booming, the reforms are paying off. Maybe the Washington Consensus wasn't so bad after all?

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