Remember the Washington Consensus? I attended a Davos lunch on its meaning and its fate. (My table was expertly hosted by Kristin Forbes of CGD's advisory committee.
Here's a quick recap:
Is the Washington Consensus alive and well?
The Washington Consensus is alive and well as a set of sensible recommendations for good management of market economies, as proposed in the ten reasonable statements set out by John Williamson in 1989. However the Washington Consensus is dead as a religion of market fundamentalism -- mostly because as a religion it came to include rapid liberalization of capital markets (not John Williamson's fault), or in today's lingo, justified letting all that toxicity flow globally.
Are the ten reasonable statements of the original Washington Consensus still a good idea?
Looking back at the Asian financial crisis, Korea had to swallow bitter IMF medicine, but recovered quickly with the type of V-shaped recovery no one foresees now for the global economy. In this sense, the original ten statements behind the Washington Consensus are still a good idea. However, fiscal austerity and tight monetary policy that made sense in Korea and Mexico (a localized crisis -- partial equilibrium) make no sense applied globally (a global systemic crisis -- general equilibrium).
Was the Washington Consensus as religion a good idea?
I put this question in the past tense because we are in a general equilibrium global meltdown in which the Washington Consensus as a (fundamentalist) religion is definitely dead. Was it ever a good idea: "Hell no!" The religion ignored not only the systemic risks of unregulated global capital flows but the domestic political imperative for equity -- or the word I prefer, fairness. One unfortunate result: In Latin America (the setting for which Williamson suggested there was a consensus on sensible policies), Chavez, Morales and Correa (of Venezuela, Bolivia and Ecuador) now have a near-monopoly on the rhetoric (though not the reality) of Fair Growth.
The real issue now is whether the line between the market and the state will be redrawn. Surely yes -- in the direction of more state. That's why the the press has emphasized Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin's endorsement of the market as the organizing principle for their economies in their Davos speeches (as much or more than their evident disdain for America's cowboy version). The luncheon speakers were also mostly sitting officials from emerging markets including Mexico (Central Bank Governor Guillermo Ortiz), South Korea (Prime Minister Han Seung-Soo), and South Africa (Minister of Finance Trevor Manuel), and like Wen and Putin they remain clear market adherents. In some sense, it seems fair to conclude that despite the current crisis, with its epicenter in the rich economies, the fundamental assumption of the "Washington" Consensus -- that markets are what matter -- lives on where it first took hold: in the emerging market economies.