The 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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Find related papers by JEL classification: 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; Growth and Fluctuations - - - Asia including Middle East O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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