The London Consensus Part 1

The Bretton Woods institutions of the World Bank and IMF were established after WWII to guide economic development in the developing world under the tutelage of the US. They were run on Keynesian principles – on the assumptions that markets need state guidance, whether to stabilise currencies and prevent panics (IMF) or to build the infrastructure necessary for economic development (the Bank). But with the ascendance of Reaganite and Thatcherite free-market economics in the West by 1980, the operating philosophies of both institutions changed. They began pushing laissez-faire policies, labelled in 1989 as the “Washington Consensus”.
Basically, these regurgitated the aims of classic 18th- and 19th-century liberal economic policies as their guiding mantras – hence the term “neo-liberal”. The consensus was to be enforced by the World Bank and the IMF through the Structural Adjustment Programs (SAP) they could impose on the Third World because of the latter’s debt crisis. In 1989, the PNC under Desmond Hoyte accepted the ministrations of the IMF under an SAP, and this was inherited by the PPP in 1992.
John Williamson, the man who coined the term, explained: “The three big ideas [of the Washington Consensus] are macroeconomic discipline, a market economy, and openness to the world [at least in respect of trade and FDI].”
One critical commentator interpreted the application of the ideas thusly: “The ‘consensus’ prescribed budgetary discipline [a passion for eliminating deficits]; fiscal reform [favouring those who own most]; trade liberalisation [removal of tariff barriers by less developed countries without any compensation from the rich]; opening up to foreign investment [without rules or controls]; privatisation [public patrimony within the grasp of the powerful]; deregulation [weakening or removal of labour guarantees, social and environmental controls]; and absolute guarantees of the right to property and management of lesser affairs [excepting police involvement].”
However, the policies of the Washington Consensus failed to deliver on their promises, and by 2003, John Williamson was forced to concede, “The Washington Consensus is dead…The results have been disappointing, to say the least, particularly in terms of growth, employment, and poverty reduction… Countries ought not to have adopted the Washington Consensus as an ideology.” However, by that time, the tenets of the Washington Consensus were no longer confined to arcane provisos in IMF and World Bank programmes. They had become the pillars of a new regime of international law. They were embedded in the charter of the World Trade Organization, for instance – a quasi-judicial body as well as a regulator of international trade and much more besides. By 2008, the contradictions became so severe that the entire global financial system collapsed.
But in the rebuilding, the fundamental neoliberal premises were retained, especially regarding the fundamental role of “free markets”, which was expanded from the economic realm into the moral. All decisions were to be made by the market. This has led to a skewed distribution of wealth where the top twenty richest individuals are worth US$300 billion. Eight trillion – which is far more than all 54 countries in Africa (US$3.2 trillion). This disparity has led to a search for “new economic paradigms”, which should be of interest to us in Guyana as we ride the wave of our oil-fuelled development.
Recently, the UN Economic Commission for Latin America and the Caribbean (ECLAC), in collaboration with the venerable London School of Economics (LSE), held a conference that attempted to move beyond the old Washington Consensus toward what participants are calling a “London Consensus”. This is a more flexible, state-aware, and inequality-focused model of development that shifts from “liberalise and stabilise” to “transform, include, and future-proof”.
It recommends that we move from “markets know best” toward one that balances the roles of the state – which is supposed to look at matters like equity – and the market. As such, it rejects the idea that liberalisation and privatisation alone drive development. Instead, it emphasises a strong but smart state that actively shapes markets; industrial/”productive development” policies to steer sectors and innovation; and context-specific policies rather than one-size-fits-all rules. It would appear that the Irfaan Ali Government will become the poster boy of the “London Consensus” (to be continued).