The Washington Consensus
In 1990 John Williamson, an economist with experience working for the World Bank, the IMF, and the UK Treasury, compiled a list of free market policies that were being pressed onto Latin American nations ‘by the powers-that-be in Washington’. He called this package of economic ‘reforms’ the ‘Washington Consensus’. The World Bank calls it the ‘market-friendly view’. His list covered:
- Fiscal Discipline:
- Reduced budget deficits at all levels of government (after taking account of debt)
- Public Expenditure Priorities:
- Redirecting government expenditure from areas of public demand that provide little economic return to areas with ‘high economic returns and the potential to improve income distribution, such as primary health and education, and infrastructure’.
- Tax Reform:
- Broadening the tax base and cutting marginal tax rates to provide more incentive to high income earners to invest their money.
- Financial Liberalization:
- Aiming towards market?]determined interest rates and the abolition of preferential interest rates for privileged borrowers.
- Exchange Rates:
- Setting exchange ‘to induce a rapid growth in nontraditional exports’, as well as to ensure exporters remain competitive.
- Trade Liberalization:
- Reduction of tariffs and trade restrictions.
- Foreign Direct Investment:
- Abolition of barriers to investment by foreign firms and foreign firms to be treated on the same basis as local firms.
- Privatizing government businesses and assets.
- Abolition of regulations that impede investment or restrict competition, and requirement that all regulations be justified ‘by such criteria as safety, environmental protection, or prudential supervision of financial institutions.’
- Property Rights:
- Securing property rights without excessive costs.
These were measures that would expand business opportunities, reduce the cost of doing business and minimize the regulations that business would have to abide by. They were the policies being promoted by corporate-funded think tanks in the US and the UK. The ‘Washington Consensus’ was pushed by Washington policy networks supported by large corporations, corporate-funded think tanks and international financial interests and incorporated into an economic reform agenda for most countries in the world.
The Washington Consensus was a policy prescription that benefited transnational corporations, large companies and international financial institutions, often at the expense of small local businesses, and always at the expense of the poor. It placed an ‘exaggerated faith in market mechanisms’ for solving economic problems and it gave economic goals priority over social goals, destroying socially beneficial traditions and desirable aspects of cultures in the process. Progressive taxation systems were destroyed and government social services decimated. In the extreme governments were to be reduced to being responsible for little more than law and order and national defense.
Many governments of different political persuasions adopted the pro-business policies prescribed by the Washington Consensus voluntarily during the 1980s including the conservative governments of Margaret Thatcher in Britain and Ronald Reagan in the US and Labor Governments in Australia and New Zealand.
During the 1980s Australia and New Zealand ‘embarked on programs of economic and social transformation arguably more comprehensive in scope and intensity than anywhere else in the Western World’. These programs of market ‘liberalisation’, undertaken by labour/social democratic governments, ‘cut away many of the key mechanisms employed to achieve traditional social democratic objectives’ and destroyed ‘the ethos and institutional pillars on which Labor's support had always been based’.
By the end of the 1980s most Western countries were moving towards smaller government and market deregulation. This was not because of the power of the free-market ideas themselves, or the efficacy of the policies in meeting their stated purposes. Rather it was because of the power of those who backed these ideas, the corporations. International financial markets also played a key role.