In the spring of 1989 John Williamson sat before a congressional committee, arguing that the United States should help debtor countries in Latin America under the Brady Plan. The lawmakers did not believe him. They saw no sign of any real change in economic policy south of the border, and Williamson, an economist in Washington, talked it over with Fred Bergsten, the institute’s director, and they set up a conference to put his claim to the test.
That meant defining what he meant. He wrote a background paper called “What Washington Means by Policy Reform” and sent it to the ten authors preparing country studies for a conference titled “Latin American Adjustment: How Much Has Happened?” In it he listed ten policies where he judged that Washington could muster “a reasonable degree of consensus.” Fiscal discipline came first, then public spending steered toward basic health, education and infrastructure. Then taxes with a broad base and moderate marginal rates, liberalised interest rates, a competitive exchange rate, trade liberalisation, openness to foreign direct investment, privatisation, deregulation and secure property rights. He called the package the Washington Consensus.
“Washington” meant two places at once: the political city of Congress and the administration, and the technocratic one made up of the Fed, the economic agencies and the think tanks, along with the international financial institutions.
The first pushback
Reaction came quickly, and it was mixed. Stanley Fischer, who held the chief economist job at the World Bank at that time, said “there are no longer two competing economic development paradigms.” Allan Meltzer attacked the interest-rate and exchange-rate points. Richard Feinberg offered the line Williamson remembers best: he should have called it the Universal Convergence, since the agreement was far short of a consensus but ran far wider than Washington. It was too late to rename it.
Williamson later conceded two weak spots. On exchange rates, he admitted, he had indulged in wishful thinking about how much agreement existed. On finance, he wished he had stressed prudential supervision alongside liberalisation.
Whose consensus?
The label soon outran the list. Williamson wrote in 2004 that it had been read as an attack on the state, as a new imperialism, as a recipe for a laissez-faire global economy. He rejected all of it. Privatisation, he noted, was the one neoliberal idea that had won broad acceptance, the rest of Reagan-and-Thatcher economics having been dropped as impractical fads. When Argentina collapsed in 2001 many Latin Americans blamed his ten points. He argued the opposite: the country had fixed an exchange rate that turned chronically overvalued and had failed to pay down debt during its boom years.
He also drew a line between his list and what the Bretton Woods institutions later did. In the mid-1990s, he said, the IMF began urging capital-account liberalisation, which his version had limited to foreign direct investment. That departure, in his words, bore the major responsibility for the Asian crisis of 1997.
Critics read the record differently. Kevin Gallagher, writing in The Guardian in March 2011, called the 30-year record abysmal for Latin America, where per capita growth ran under 1% a year, against 2.6% across 1960-81. East Asia, he wrote, has grown 6.7% a year since 1981. After Nafta, he said, Mexico gained about 600,000 manufacturing jobs but shed at least 2m farm jobs once cheap corn and other commodity imports flooded in. His example that month was Colombia, where President Juan Manuel Santos was negotiating with China over a multibillion-dollar “dry canal” to rival Panama’s.
Sources
- A Short History of the Washington Consensus (John Williamson, Peterson Institute for International Economics paper)
- The end of the 'Washington consensus' (Kevin Gallagher, The Guardian)
