Washington Consensus: Myths and Reality. Washington Consensus: Principles, Ideas, Outcomes Institutional Continuity and the Washington Consensus Strategy

The Washington Consensus as a term was proposed by the American professor John Williamson in the late 80s of the XX century together with the IMF specialists and was a recommendation program for overcoming the economic crisis for Latin American countries that were mired in debt obligations to American banks. In the 90s, some countries of Eastern Europe and the Baltic States adhered to similar economic policies.

Rules and Ideas of the Washington Consensus

The Washington Consensus envisioned a list of economic measures such as:

• enhancing foreign trade by reducing import duties,
• allocation of priority areas in the structure of state expenditures (education, infrastructure development and health care),
• formation of loan rates reflecting the real situation in the financial market,
• course for the privatization of enterprises in all sectors of the economy,
• minimization of the budget deficit,
• floating rate of the national currency,
• creating a positive investment climate,
• reducing government intervention in the economy,
• reducing the tax burden by lowering tax rates,
• recognition of property rights as inviolable.

The head of the IMF issued a statement that the consensus with its simplified economic concepts and recipes collapsed, causing the 2008-2009 crisis.

Results of the Washington Consensus

Opponents of this course put forward their vision of the consequences of this policy:

• winding down a number of social programs and increasing the tax burden on the poor,
• reduction in funding for environmental and environmental protection measures,
• slowing down the development of industry and encouraging speculative operations by raising interest rates,
• dependence on the US dollar of the national currency rate,
• privatization of all sectors of the economy, including spheres with monopoly influence, which allows monopolies to increase prices uncontrollably,
• reduction in the money supply in circulation and, as a consequence, the appearance of a cash deficit,
• lower wages and restrictions on trade union rights.

Opinion: the Washington consensus in reality dollarizes the economy, promotes under the auspices of the West. Perhaps this is not so bad - the world becomes connected, there are fewer reasons for conflict.

Dollarization occurs due to expansion, growth in lending. However, when the population of developed countries is under credit, all markets (including the blackest) are already dollar-denominated, and there is no room for expansion - the Washington Consensus collapses.

To save the dollar, it is necessary to cut emissions, which Obama did in 2014. Multinational companies have a liquidity crisis. Where can I get the money? A series of currency devaluations, mainly in developing countries. But this only delayed the situation.

For the countries in which this mechanism has been launched, this is essentially - there is where it works, but more often the results are very deplorable.

A number of measures of the Washington Consensus laid down in the modern lending conditions that it puts forward for potential borrowers.

Consensus reduces the role of the state in the economy, during periods of crises this is not always good, since the consolidation of the market (which can be organized by a large institution, for example, state power) can contribute to an early recovery.

There is an opinion, among them, that VK is a way to import revolution into the country. So they influenced the USSR, but could not bring China down. In addition, through measures introduced in the framework of consensus, funds from countries are pumped into the United States.

The Washington Consensus is a concept that should be familiar to many people interested in macroeconomic processes. However, unfortunately, in practice, few people know what exactly it means, with what names it is associated, and also what way of understanding the public has passed.

Let's look at it in order not to experience any difficulties in the future, answering the question - and how the world crisis is connected with it.

Washington Consensus - what is it

This concept is used to understand the type of policy recommended to countries in crisis. Initially, it was only a set of rules developed by one major economist - John Williamson.

His work, however, was not focused on all countries in a difficult situation, namely Latin America. This document touched upon a number of adjustments that it is desirable to make in the economy for its quick and easy transition to a market model.

In particular, it was about:

In general, it was the Washington Consensus that was subsequently adopted in its broader meaning as a series of measures that allows one to move away from the significant influence of the state on market processes and transfer them almost completely to the power of direct market participants.

The success that the Washington consensus had after its promulgation is largely due to the fact that it was during this period that the planned system of the republics of the USSR actually broke down.

The theses about the need to ensure a smooth transition of the economy from the planned to the market one were very consonant with the Washington consensus, and therefore it was received so well.

And only after some time did it become possible to soberly assess whether these theses were so thoughtful, far-sighted, reliable, or not.

How effective was the system

Despite the fact that at the time of its proclamation this theory as a whole was quite timely and progressive, experience has shown that it has not been finalized. The very first practice of applying the proposed dogmas demonstrated their inability to cope with problems on the ground.

Of course, in all countries this manifested itself in its own way, but it led to practically the same result - in fact, the failure of the doctrine. However, only our contemporaries can reasonably assess this, and only in terms of historical retrospective.

At the same time, this turn of events was not so obvious. How could it be that a seemingly reliable doctrine did not bring the expected benefit?

The method, invented in 1989, could not take into account the metamorphoses that the world economy underwent immediately after the collapse of the Soviet Union. And although it could also be very useful for the countries of this conglomerate, it certainly did not have the proper influence.

It did not bring help in the formation of the economy of young countries. I put a peculiar end to this technique. It was during this period that the proposed dogmas proved to be powerless to cope with the load that had fallen on the financial systems of many enterprises.

Already in 2011, there are quite sharp critical passages addressed to such a document. In particular, the IMF representatives characterized the vision of economic mechanisms in this paradigm as simplified, too one-sided.

Opponents said the same about the recipes that the Washington Consensus offered countries to exit.

As the best test factor for confirming the thesis about the inability of the postulates of this consensus to solve real problems, economists, of course, cited the current state of countries with a transitional type of economy, which could not get out of their financial predicament using such norms.

Of course, there were such problems in this situation, but it is still not necessary to exaggerate them. On the whole, the report contained a lot of correct and reasonable positions.

But the main problem of the Washington Consensus was rather the aspect that the countries guided by it took it without adjustments to their internal situation. After all, it is likely that if they had made such an amendment, the situation could have turned out completely differently.

On the whole, the Washington Consensus can be considered a rather interesting document of its time. And even though he could not justify himself in a later one, let's speak frankly - a completely different era, he certainly deserves attention.

After all, some of his theses, with a modern understanding, taking into account what is already available now, can be very useful for countries that are developing today.

The Washington Consensus is a trap from which Russia has not been able to get out for a quarter of a century. This was discussed at the Council on Foreign and Defense Policy in Moscow. Moreover, the presence of the so-called Washington consensus is recognized not only by experts and economists, but also by the Russian business community. Perhaps the only one who denies the facts is the Russian Ministry of Finance.

The International Monetary Fund and the World Bank made a knight move in 1989. Then the world financial hegemons decided to play a chess game, the main goal of which was to subjugate other countries. Russia, having entered the game, adopted a set of rules of economic policy, in which each further move was spelled out. It is clear that with such a game the winner is obvious.

"The Fed is the global emission center of the world currency - 85% of transactions, 85% of settlements in the world are made in US dollars. Whoever owns the printing press, who determines monetary policy, determines financial flows in the world. The distribution of funds is determined only by the US monetary cycle and the reserve currency - dollar ", - said the General Director of JSC" MC "Sputnik - Capital Management" Alexander Losev.

"At the same time, the United States itself offered all other countries the so-called Washington Consensus, which requires minimizing budget deficits, liberalizing financial markets, and regulating the economy," Losev added.

While China, India and Vietnam, which did not agree to accept the rules of the Washington Consensus, are increasing the pace of economic growth, Russia continues to play with the IMF and the World Bank in the people's Russian game of give-away. As a result - high interest rates, strangulation of domestic business, a decline in the standard of living of the population.

"The hypothesis that, by reducing the money supply, we reduce inflation, and a decrease in inflation leads to an increase in investment and economic growth is the dogma of the Washington Consensus. It does not work at all. Not in our conditions, anywhere in the world," the economist stressed , politician, academician of RAS Sergey Glazyev.

According to Glazyev, there is nothing normal in this policy - it really leads to a trap. "And we have not been able to get out of this trap for 25 years," the academician added.

And while the scientific and business communities are vying with each other about getting out of Washington's hegemony, the Russian Ministry of Finance, whose high-quality work has been noted more than once overseas, pretends that there is no consensus. The only game the department is playing is to save the domestic economy.

Finance Minister Anton Siluanov said that he "wants to argue with Sergei Yuryevich."

“We need to take a balanced approach to macro and monetary policy. The main goal is growth, the main goal is low interest rates and low inflation. And, of course, some Washington Consensus was mentioned here. I know, "Siluanov says.

While the Russian financial department diligently bluffs, the opponent's chess knight in tandem with the queen has declared the domestic economy a check. There is still time for salvation. The main thing to remember is that behind a winning combination lies the sovereignty and well-being of citizens.

The rebirth (or revival) of globalization began in the late 1970s with an incredible revolution in the advancement of global reach delivery vehicles, computer science, telecommunications, and digitalization.

The "death" of space was the most important single element that changed the world between two phases, two periods of globalization. “It changed the idea of \u200b\u200bwhere people should work and live; changed the concept of national borders, the tradition of international trade. This circumstance had the same character overturning all our ideas, like the invention of electricity. "

In the early 1980s, the heads of the three most powerful economic departments located in the American capital - the US Treasury Department, the International Monetary Fund and the World Bank agreed that customs and other barriers to world trade were the main obstacle to economic growth. The global goal has become to break down these barriers. This is how the so-called. The Washington Consensus, whose activities have opened the gates of world globalization. Actually, the Washington Consensus is called the ten recommendations for reforming world trade, formulated in 1989 by the economist J. Williamson.

1. Tax discipline. Large and persistent budget deficits are fueling inflation and capital flight. States must keep this deficit to a minimum.

2. The special focus of public spending. Subsidies to businesses should be kept to a minimum. The government should only spend money on education, health care and infrastructure development.

3. Tax reform. The scope of the taxable in society should be broad, but the tax rates should be moderate.

4. Interest rates. Interest rates should be determined by the domestic financial markets. The interest offered to depositors should stimulate their deposits in banks and curb capital flight.

5. Exchange rate. Developing countries should introduce an exchange rate that will help exports by making export prices more competitive.

6. Trade liberalism. Tariffs should be kept to a minimum and should not be imposed on those goods that promote (as part of a more complex product) export.

7. Foreign direct investment. Policies should be adopted to encourage and attract capital and technological knowledge.

8. Privatization. The privatization of state enterprises should be encouraged in every possible way. Private enterprises must be more efficient, if only because managers are directly interested in higher productivity.

9. Deregulation. Excessive government regulation only generates corruption and discrimination against subcontractors who are unable to break through to the upper layers of the bureaucracy. Industrial regulation must be done away with.

10. Private property rights. These rights must be guaranteed and enhanced. Weak legal framework and ineffective legal system diminish the importance of incentives to accumulate and accumulate wealth.

The ideas of the "Washington Consensus" have had a tremendous impact on the economic life of many countries in the last decade of the twentieth century.

The ideological and political alliance formed "almost by accident" turned out to be a powerful force both politically and in the theoretical struggle of this critical period. All three corners of the triangle turned out to be reliable allies and this ensured its stability and strength. The ideas of the "Washington Consensus" became the backbone of liberal fundamentalism in the 1990s. The governments of developed, developing and transition economies, which began to reform their economies and economic policies, received a kind of prescription. This, in fact, was the very "golden corset", which will be discussed below. The term "Washington Consensus" took on special meaning and began a life of its own - especially in light of the collapse of the Soviet system. There was a search for ideas purely alternative to socialist centralism, and the spoon turned out to be for dinner. As the editor-in-chief of Foreign Policy magazine M. Naim writes, "an important function of every ideology is to function as a 'thought-forming' mechanism that simplifies and organizes what is often a confusing chaotic reality." In a strange way, the "Washington Consensus" has become a kind of temporary substitute for the never-created comprehensive ideological doctrine for millions of people who have become dependent on the choice of a system of government imposed on them - a surrogate for the public worldview.

The search for such a scheme was facilitated by the very confident tone ("consensus"), the predetermined nature of his postulates, his directive confidence, his birthplace - Washington, the capital of the victorious empire. The need for a newfound, market-oriented administration to mitigate the painful effects of economic reforms demanded by the "consensus", as well as the lack of credible alternatives (never presented by the discredited opposition) have also helped raise the reputation of the "Washington Consensus", its elan. If all this were not enough, then the indomitable persistence of the International Monetary Fund and the World Bank, whose loans were conditioned precisely in the spirit of the ideas of the "Washington Consensus", would be used.

M. Thatcher and R. Reagan with their neoliberal legislation weakened the role of the state, giving the green light to globalization. A significant share of the state's economic power was transferred to private companies. At the same time, from the ideas of state intervention, from the ideas of the "Great Society" and the views of J.M. Keynes had to be abandoned. The two oldest and most sophisticated elites of the two oldest economies in the Western world have come to the conclusion that the existing system of global interchange does not provide sufficient room for economic growth. World economic thought, led by the so-called. The "Chicago school" has taken an important turn. The privatization of industry and services has become a symbol of progress. In the 1980s and 1990s, international business and large private capital took possession of all possible key positions in the national economies of the largest Western countries.

Washington Consensus

Washington Consensus - the type of macroeconomic policy that a number of economists recommend for use in countries experiencing financial and economic crises.

The Washington Consensus includes a set of 10 recommendations:

• Maintaining fiscal discipline (minimum budget deficit).
• Priority of health care, education and infrastructure among government spending.
• Reducing marginal tax rates.
• Liberalization of financial markets to maintain real interest rates on loans at a low, but still positive level.
• Free exchange rate of the national currency.
• Liberalization of foreign trade (mainly due to the reduction of import duty rates).
• Reducing restrictions on foreign direct investment.
• Privatization.
• Deregulation of the economy.
• Protection of property rights.

The term "Washington Consensus" was coined by the American economist John Williamson in 1989.

There is an alternative presentation of the parameters of the Washington Consensus, coming from the circles of its opponents:

A number of publications claim that Russia followed the recommendations of the Washington Consensus in the 1990s, but in reality this is not the case, since these recommendations were not followed in terms of fiscal discipline, tax cuts, deregulation and protection of property rights. The economic policies of the countries of Eastern Europe and the Baltics were much closer to the Washington Consensus than the actions of the Russian authorities.

In a broader connotation, the term “Washington Consensus” is used to describe a number of measures (not necessarily from the above list) aimed at strengthening the role of market forces and reducing the role of the public sector.

Notes

Literature

• Agiton K. Alternative globalism. New world protest movements. - M .: Gileya, 2004. - (Hour "H". Modern world anti-bourgeois thought). ISBN 5-87987-031-6. (Washington Consensus, pp. 45-49).

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