Some Fundamental Inadequacies of the Washington Consensus: Misunderstanding the Poor by the Brightest
AbstractThe Washington Consensus suffers from fundamental inadequacies, and that a more comprehensive framework of the economic process is needed to guide the formulation of country-specific development strategies. The following five propositions summarise the set of interrelated arguments made in this paper: 1. The Washington Consensus was based on a wrong reading of the East Asian growth experience. This explains why some observers have called the trade regimes of Korea and Taiwan in the 1965- 1980 period “free trade regimes” even though they featured extensive import tariffs and export subsidies. 2. There have been two phases to the Washington Consensus doctrine. The mantra of the first phase (Washington Consensus Mark 1) is “get your prices right”, and the falsification of this first mantra led to the emergence of the second phase of the Washington Consensus doctrine. The new mantra from the Washington Consensus Mark 2 is “get the institutions right.” The danger is that an elastic definition of the term “institutions” will render the current mantra intellectually vacuous. 3. While central planning went overboard in suppressing the private market economy, the Washington Consensus runs the danger of denying the state its rightful role in providing an important range of public goods. The Washington Consensus also runs the danger of denying the limitations of self-help in the case of sub-Saharan Africa by overlooking the possibility of poverty traps. 4. The Washington Consensus does not understand that the ultimate engine of growth in a predominantly private market economy is technological innovations, and that the state can play a role in facilitating technological innovations. The Washington Consensus is too hooked upon trade-led growth to acknowledge that science-led growth is becoming even more important. 5. The Washington Consensus does not recognize the constraints that geography and ecology could set on the growth potential of a country. For example, the trade-led growth strategy of East Asia cannot work with the same efficiency for a landlocked country. Foreign direct investment is also less likely to go to places that are malaria- infested.
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Length: 52 pages
Date of creation: 18 Nov 2004
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Washington Consensus; poverty trap; institutions; geography; ecology;
Other versions of this item:
- Wing Woo, 2004. "Some Fundamental Inadequacies of the Washington Consensus: Misunderstanding the Poor by the Brightest," Development and Comp Systems 0411021, EconWPA.
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F15 - International Economics - - Trade - - - Economic Integration
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F35 - International Economics - - International Finance - - - Foreign Aid
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- I28 - Health, Education, and Welfare - - Education - - - Government Policy
- K11 - Law and Economics - - Basic Areas of Law - - - Property Law
- N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-AFR-2004-11-22 (Africa)
- NEP-ALL-2004-11-22 (All new papers)
- NEP-DEV-2004-11-22 (Development)
- NEP-IFN-2004-11-22 (International Finance)
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