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Washington Consensus

The phrase “Washington Consensus” is today a very popular and often pilloried term in debates about trade and development. It is often seen as synonymous with “neoliberalism” and “globalization.” As the phrase’s originator, John Williamson, says: “Audiences the world over seem to believe that this signifies a set of neoliberal policies that have been imposed on hapless countries by the Washington-based international financial institutions and have led them to crisis and misery. There are people who cannot utter the term without foaming at the mouth.” [1]

Williamson originally coined the phrase in 1990 “to refer to the lowest common denominator of policy advice being addressed by the Washington-based institutions to Latin American countries as of 1989.” [2] These policies were:

  • Fiscal discipline
  • A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education, and infrastructure
  • Tax reform (to lower marginal rates and broaden the tax base)
  • Interest rate liberalization
  • A competitive exchange rate
  • Trade liberalization
  • Liberalization of inflows of foreign direct investment
  • Privatization
  • Deregulation (to abolish barriers to entry and exit)
  • Secure property rights

Since then, the phrase “Washington Consensus” has become a lightning rod for dissatisfaction amongst anti-globalization protestors, developing country politicians and officials, trade negotiators, and numerous others. It is often used interchangeably with the phrase “neoliberal policies.” But, as Williamson also states:

Some of the most vociferous of today's critics of what they call the Washington Consensus, most prominently Joe Stiglitz... do not object so much to the agenda laid out above as to the neoliberalism that they interpret the term as implying. I of course never intended my term to imply policies like capital account liberalization...monetarism, supply-side economics, or a minimal state (getting the state out of welfare provision and income redistribution), which I think of as the quintessentially neoliberal ideas. [1]

Clearly, the definition of the term has gone well beyond the control of Williamson and other economists. That is, if you believe it is useful to talk of a Washington Consensus. Moses Naim, the editor of Foreign Policy, has argued that no such consensus exists. Naim highlights the fact that economists are often divided over such issues as the East Asian crisis, the need for an international financial architecture, and the effectiveness of “open” trade policies. “If this sample represents the Washington Consensus, then just imagine what a Washington Confusion would be like,” he says. [3]

Some of today’s policy discussion, however, might still be understood by using the term as a reference point. For instance, Dani Rodrik argues that there now exists an “Augmented” Washington Consensus, which in addition to the items listed above, adds: [4]

  • Corporate governance
  • Anti-corruption
  • Flexible labor markets
  • WTO agreements
  • Financial codes and standards
  • “Prudent” capital-account opening
  • Non-intermediate exchange rate regimes
  • Independent central banks/inflation targeting
  • Social safety nets
  • Targeted poverty reduction

Clearly, the debate continues about the Washington Consensus, its definition, its successes and failures, and whether it even exists. As many of the Washington Consensus’ policy components – however it is defined – relate directly to trade policy, it is a debate worth following.

Last updated April 2003