(Williamson) Washington Consensus 14 PG Inglés
(Williamson) Washington Consensus 14 PG Inglés
(Williamson) Washington Consensus 14 PG Inglés
John Williamson
The phrase Washington Consensus has become a familiar term in development policy
circles in recent years, but it is now used in several different senses, causing a great deal of
confusion. In this article the author distinguishes between his original meaning as a sum-
mary of the lowest common denominator of policy advice addressed by the Washington-
based institutions (including the World Bank) and subsequent use of the term to signify
neoliberal or market-fundamentalist policies. He argues that the latter policies could not
be expected to provide an effective framework for combating poverty but that the original
advice is still broadly valid. The article discusses alternative ways of addressing the confu-
sion. It argues that any policy manifesto designed to eliminate poverty needs to go beyond
the original version but concludes by cautioning that no consensus on a wider agenda
currently exists.
Ten years ago I invented the term Washington Consensus to refer to the lowest
common denominator of policy advice being addressed by the Washington-based
institutions to Latin American countries as of 1989 (Williamson 1990). While it is
jolly to become famous for coining a term that reverberates around the world, I have
long been doubtful about whether my phrase served to advance the cause of rational
economic policymaking. My initial concern was that the phrase invited the interpre-
tation that the liberalizing economic reforms of the past two decades were imposed
by Washington-based institutions (for example, see Stewart 1997) rather than hav-
ing resulted from the process of intellectual convergence that I believe underlies the
reforms.1 Richard Feinbergs universal convergence (in Williamson 1990) or Jean
Waelbroecks one-world consensus (Waelbroeck 1998) would have been a much
better term for the intellectual convergence that I had in mind.
I have gradually developed a second and more significant concern, however. I find
that the term has been invested with a meaning that is significantly different from
that which I had intended and is now used as a synonym for what is often called
The World Bank Research Observer, vol. 15, no. 2 (August 2000), pp. 25164.
2000 The International Bank for Reconstruction and Development / THE WORLD BANK 251
neoliberalism in Latin America, or what Geeorge Soros (1998) has called market
fundamentalism. When I first came across this usage, I asserted that it was a misuse
of my intended meaning. I had navely imagined that just because I had invented the
expression, I had some sort of intellectual property rights that entitled me to dictate
its meaning, but in fact the concept had become public property.
The battle of economic ideas, as McCloskey (1998) has argued, is fought to a
significant extent with rhetoric. The use of a term with dual meanings and strong
ideological overtones can therefore pose serious dangers not only of misunderstand-
ing but also of inadvertently prejudicing policy objectives. Specifically, there is a real
danger that many of the economic reforms favored by international development
institutionsnotably macroeconomic discipline, trade openness, and market-friendly
microeconomic policieswill be discredited in the eyes of many observers, simply
because these institutions are inevitably implicated in views that command a consen-
sus in Washington and the term Washington Consensus has come to be used to
describe an extreme and dogmatic commitment to the belief that markets can handle
everything.
The objective of this article is to consider what should be done to minimize the
damage to the cause of intellectual understanding, and therefore of rational eco-
nomic reform, that is being wrought by the current widespread use of the term Wash-
ington Consensus in a sense different from that originally intended. Would it be
productive, for example, to insist that the original usage is the correct one? Or should
one simply refuse to debate in these terms? Is it possible to escape by declaring fidel-
ity to some postWashington Consensus? The first stage in answering these ques-
tions is a careful examination of the semantic issues involved.
Fiscal discipline
A redirection of public expenditure priorities toward fields offering both high
economic returns and the potential to improve income distribution, such as
primary health care, primary education, and infrastructure
Tax reform (to lower marginal rates and broaden the tax base)
Interest rate liberalization
A competitive exchange rate
Trade liberalization
Liberalization of inflows of foreign direct investment
252 The World Bank Research Observer, vol. 15, no. 2 (August 2000)
Privatization
Deregulation (to abolish barriers to entry and exit)
Secure property rights.
The need for the first three reforms is, so far as I am aware, widely accepted among
economists. Nevertheless, when I reviewed the progress that Latin American coun-
tries had made in implementing the recommended set of policies several years later
(Williamson 1996), it appeared that the least progress had come in redirecting pub-
lic expenditure priorities. The other seven reforms have stimulated a measure of
controversy and therefore merit comment.
In my original paper I specified interest rate liberalization as the fourth reform. I
am now well aware that many economists have reservations about that formulation.
As a matter of fact, I have such reservations myself: in Williamson and Mahar (1998)
interest rate liberalization is identified as merely one of six dimensions of financial
liberalization. Moreover, Stiglitz (1994) has argued that interest rate liberalization
should come toward the end of the process of financial liberalization, inasmuch as a
ceiling on the deposit interest rate (equal to the Treasury bill rate, he suggests) might
provide a constraint on gambling for redemption. I find this argument persuasive
and long ago changed my description of the fourth element of the Washington Con-
sensus to financial liberalization. More recently Stiglitz (1998) has expressed a much
more basic objection to financial liberalization, arguing that the success of some East
Asian countries stemmed importantly from their policy of directing credit to par-
ticular industries rather than allowing the market to determine the allocation of
credit. That argument is highly contentious, especially in the aftermath of the East
Asian economic crisis of 199798.
My fifth choicea competitive exchange ratewas not, I have concluded, an
accurate report of Washington opinion. I suspect that by 1989 a majority of econo-
mists, in Washington as elsewhere, were already in favor of either firmly fixed or
freely floating exchange rates and hostile to the sort of intermediate regime that in
my judgment gives the best promise of maintaining a competitive exchange rate in
the medium term. (My own preference remains an intermediate regime of limited
flexibility, provided that excludes an old-fashioned adjustable peg, even if such a
regime is more likely to spawn speculative pressures than a floating rate.) But note
that the East Asian countries did by and large achieve and maintain competitive
exchange rates, at least before about 1996 (and even after 1996 only Thailand failed
to do so).2
My sixth reform was trade liberalization. Here I see little reason to doubt that I
reported accurately on opinions in the international financial institutions and the
central economic agencies of the U.S. government (although parts of Congress and
the Department of Commerce are not noted for their dedication to liberal trade).
But this is another area where critics can rightly claim that the policies that nurtured
254 The World Bank Research Observer, vol. 15, no. 2 (August 2000)
undertaken a similar exercise for Africa or Asia, and that still seemed to be the case
when I revisited the topic (with regard to Latin America) in 1996 (Williamson 1997).
This doubtless made it easier for some to interpret the Washington Consensus as a
policy manifesto that its adherents supposedly believed to be valid for all places and
at all times.
Current Usage
The following is a selection of recent definitions of the Washington Consensus that
I happened to stumble across. (I have undertaken no bibliographic research to com-
pile this list.)
A die-hard liberalization advocate (or a Washington-consensus believer). . . .
(Ito 1999)
. . . the self-confident advice of the Washington consensusfree-up trade, practice
sound money, and go home early. . . . (Vines 1999)
. . . the Washington Consensus: policy prescriptions based on free market prin-
ciples and monetary discipline. (Hamada 1998)
The Washington Consensus had the following message: Liberalize as much as
you can, privatize as fast as you can, and be tough in monetary and fiscal matters.
(Kolodko 1998)
The bashing of the state that characterized the policy thrust of the Washington
Consensus. . . . (United Nations 1998)
This new imperialism, codified in the Washington Consensus. . . . (Alam 1999)
The Brazilian crisis has reignited the debate over the so-called Washington Con-
sensus on the creation of a laissez-faire global economy. (Rajan 1999)
In none of these examples is my phrase used in the sense that I originally intended.
On the contrary, when I coined the term in 1989, the market fundamentalism of
Reagans first term had already been superseded by the return of rational economic
policymaking, and one could discern which ideas were going to survive and which
were not (monetary discipline but not monetarism; tax reform but not tax-slashing;
trade liberalization but maybe not complete freedom of capital movements; deregu-
lation of entry and exit barriers but not the suppression of regulations designed to
protect the environment).
How is it that a term intended to describe a technocratic policy agenda that sur-
vived the demise of Reaganomics came to be used to describe an ideology embracing
the most extreme version of Reaganomics? The closest I can come to understanding
this is to note that my version of the Washington Consensus did indeed focus prin-
cipally on policy reforms that reduced the role of government, such as privatization
and the liberalization of trade, finance, foreign direct investment, and entry and exit.
It did this because the orthodoxy of the generation whose ideas were embodied in
256 The World Bank Research Observer, vol. 15, no. 2 (August 2000)
ideas as refuting a doctrine described by a term that many people in the Bank regard
as providing a useful summary of the advice the Bank dispenses.
258 The World Bank Research Observer, vol. 15, no. 2 (August 2000)
desirability. But time has moved on, and we are now looking to World Development
Report 2000/01 for an outline of the policies needed to supplement my version of the
Washington Consensus in a world that takes poverty reduction seriously.
Insist on the original usage. Insist that my version of the Washington Consensus
is the only correct and legitimate interpretation, as a corollary of which the term
will (with the qualifications noted above) be recognized as pro-poor. This alter-
native strikes me as both presumptuous and unrealistic: once a term has escaped
into the public domain, one cannot dictate the reestablishment of a common
usage. The likely result would be a perpetuation of the public confusion that I am
attempting to address.
Abandon the term. Refuse to debate in the terms that have been so compromised
by the widespread adoption of the populist definition. I cannot imagine that
this approach would end the populist use of the term; it would simply be a cop-
out.
Endorse a postWashington Consensus. A more promising strategy has been
adopted at least twice within the Bank. In 1998 the Latin America Regional
Office of the World Bank issued a policy document that favored going beyond
the Washington Consensus (Burki and Perry 1998). Stiglitz did almost the same,
semantically at least, in urging a postWashington Consensus in his lecture to
the World Institute for Development Economics Research in January 1998.
When I first came across this approach, I thought it implied that the reforms
included in the Washington Consensus were necessary but not sufficient for pro-
moting development, an idea that seemed eminently reasonable. Clearly the Bank
today would want to go further and endorse a wider array of antipoverty instruments
than was able to command a consensus in 1989, when the most I thought I could
legitimately include was the promotion of public expenditure on primary health and
education.5
In their book, Burki and Perry (1998) explicitly refer to my version of the Wash-
ington Consensus and assert that the widespread implementation of the first-
generation reforms it prescribed was paying off in Latin America in resumed growth
and an end to high inflation. They noted that the reforms had not been equally
effective in reducing poverty and inequality, which they argued demonstrated a
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original points. But my emphasis would have been different; I would have focused
much more generally on institutions. To explain why, let me offer a brief history of
postwar development thinking.
In the first wave of theorizing about economic development, from the 1940s to
the early 1960s, economists saw the accumulation of physical capital as the key to
development (as reflected in the Harrod-Domar model, the Lewis model, and the
two-gap model). The second phase recognized that human capital provided another
and more inelastic constraint on development, a constraint that explained why Eu-
rope and Japan had recovered from World War II so rapidly, when growth in devel-
oping countries had been lagging despite the adoption of development policies and
the beginning of large-scale aid. The third phase, which started about 1970 with the
work of Little, Scitovsky, and Scott (1970) and Balassa (1970), emphasized that the
policy environment influenced the level and dominated the productivity of invest-
ment. The Washington Consensus attempted to summarize the outcome of this
debate on the policies that were conducive to economic development. The major
advance of the 1990s stemmed from recognition that the central task of the transi-
tion from communist to market-based economies involved building the institutional
infrastructure of a market economy. This realization was complemented by a grow-
ing recognition that bad institutions can sabotage good policies. This viewpoint was
reflected in Stiglitzs (1999a) remarks on the transition, in Naims (1995) work on
supplementing the Washington Consensus, in Burki and Perry (1998), in the World
Development Reports of 1997 and 1998, and in the World Banks decision to launch
a crusade against corruption.
What should one make of the idea of launching a postWashington Consensus? I
would not be happy at such a move if it were interpreted to imply a rejection of
the Washington Consensus, although I would have no problem if it involved re-
jection of the populist, or market-fundamentalist, version. But it seems a somewhat
odd crusade. The time of the original consensus, 1989, was an unusual period in that
the ideological battles of the Reagan era, not to mention the cold war battle between
capitalism and communism, were passing into history, leaving in their wake an un-
usually wide measure of agreement that several rather basic ideas of good economics
were not only desirable but of key importance in the current policy agenda of at least
one regionLatin America. Currently, there is no similar coalescing of views, cer-
tainly not on the wider agenda that Stiglitz has laid out. (Consensus on egalitarian-
ism? With aid fatigue threatening the future of the International Development Asso-
ciation? On environmental sustainability? In a world where the U.S. Senate refuses
even to consider ratifying the Kyoto Protocol?) I agree, rather, with Tim Geithner
(1999:8): I dont think anyone believes there is some universal model that can or
should be imposed on the worldWashington consensus, post Washington con-
sensus, or not.
Notes
John Williamson is senior fellow at the Institute for International Economics. This article was written
as a background paper for World Development Report 2000/01. The author is indebted to the partici-
pants in a session at which an early version of the paper was discussed, notably Ravi Kanbur and
Moiss Nam.
1. This intellectual convergence was the result of the collapse of communism, which resulted not
from machinations of the Bretton Woods institutions, or even of the U.S. Central Intelligence Agency,
but because socialism does not work except in a simple economy, and even then it seems to have
worked reasonably well only when large numbers of people were inspired with revolutionary zeal.
262 The World Bank Research Observer, vol. 15, no. 2 (August 2000)
2. Exchange rate policy is the one topic on which I have a serious difference of view with T. N.
Srinivasans comment that accompanies this paper. The term competitive exchange rate originated
with Bela Balassa and signifies a rate that is either at, or undervalued relative to, its long-run equilib-
rium. I do not regard measuring the latter as an exercise in futility; see Hinkle and Montiel (1999) for
evidence that other people in the Bank do not either. I dissent from the consensus Srinivasan pro-
claims that holds that only currency boards and freely floating rates offer viable regimes. For further
details, see Williamson (forthcoming).
3. In trying to identify policies from the Reagan-Thatcher era that had not won consensus support,
I wrote in 1996: it [the Washington Consensus] did not declare that the only legitimate way to
restore fiscal discipline was to slash government expenditure; it did not identify fiscal discipline with
a balanced budget; it did not call for overall tax cuts; it did not treat as plunder the taxes raised to
redistribute income; it did not say that exchange rates had to be either firmly fixed or freely floating;
it did not call for the proscription of capital controls; it did not advocate competitive moneys or argue
that the money supply should grow at a fixed rate (Williamson 1997:50).
4. Growth of output of a heavily protected product can immiserize a country if the resources used
in production exceed the social value of the output.
5. However, in commenting on my paper, Stanley Fischer (then the Banks chief economist) ar-
gued that I could and should have gone further: Emphasis on poverty reduction has increased in
recent years and will continue to do so. [A good forecast.] The concern with poverty reduction goes
beyond the belief that economic growth will reduce poverty, to the view that targeted food subsidies
as well as the medical and educational programs to which Williamson refers, can reduce the number
of poor people . . . and should be used for that purpose (Williamson 1990:27).
6. Some people might wish to add nation-building to the noneconomic objectives to be pursued by
development policy (as was common in the 1960s).
References
The word processed refers to informally reproduced works that may not be commonly available
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Brecher, Richard, and Carlos Diaz-Alejandro. 1977. Tariffs, Foreign Capital, and Immiserizing
Growth. Journal of International Economics 7(4):31722.
Burki, Javed, and Guillermo E. Perry. 1998. Beyond the Washington Consensus: Institutions Matter.
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