The old “Washington Consensus” was an abbreviation for a set of neoliberal policies and prescriptions advocated by the International Monetary Fund and its sister organization, the World Bank, in the last decades of the 20th century. The policies of these Washington-based institutions, mandating austerity, deregulation, and privatization, foreshadowed the wave of globalization that would enter the 21st century. They underpinned a sense of a world connected by commerce and trade and enhanced by shared prosperity, which became a kind of dogma for political elites in the West and elsewhere.
Such beliefs are no longer commonly held. In Western countries, political leaders now speak of globalization in derogatory terms. This is the legacy of economic policies that have created a wealthy few while weakening the middle class in society, where manufacturing jobs have dried up, wages have stagnated, and life has become more precarious. Sullivan noted that the Biden administration's adoption of industrial policy and large-scale economic stimulus is a major paradigm shift and a key cog in the United States' plan to compete with China for decades to come.
Sullivan seems to have argued that the world is not “flat” but uneven. And it was up to like-minded governments and alliances to defuse the chaos and disruption caused by shocks like the pandemic, the ambitions of rising powers like China, and wars that disrupt global supply chains. Welcome back, laissez-faire capitalism, mercantilism and protectionism.
Although the contours of a new orthodoxy are still taking shape, some of the underlying global realities remain the same, perhaps even more so. As the IMF and World Bank held their annual meetings in Washington this week, officials and economists offered a somewhat bleak outlook. The IMF predicted that annual global growth remains below pre-pandemic levels and warned of long-term challenges ahead.
“Rising geopolitical risks are also worrying funders, including signs that the global trading system is splintering into separate blocs centered on the United States and China,” my colleague David Lynch reported. “If this fragmentation widens, countries could suffer 'significant production losses' as goods and capital move less efficiently around the world,” the foundation warned in its flagship World Economic Outlook. .”
This downturn is having a major impact on aging societies in the West, but it is even more of a concern for poorer countries in the developing world. Ambitious economic stimulus and subsidy programs launched by the United States and the European Union could inhibit investment and opportunities elsewhere. Eswar Prasad, an international trade expert at Cornell University, said: “As major economies turn inward, trade and financial flows become fragmented, coinciding with deepening geopolitical rifts, poorer and least developed countries may be deprived of the benefits of globalization.” Bloomberg News.
Many countries, particularly in sub-Saharan Africa and Latin America, are also burdened by crippling public debt burdens and are struggling to find solutions. IMF Managing Director Kristalina Georgieva said earlier this year: “Growth is slowing, so the chances of catching up are actually getting worse.” She added: “Some countries are truly facing life-or-death, economic and social challenges.”
For some in the Global South, institutions like the IMF and World Bank remain part of the problem. New Oxfam analysis finds that 60% of low- and middle-income countries that receive subsidies or loans from the IMF or World Bank have “high or widening income inequality.” This is in part due to forced cuts in public spending that impact the lives of ordinary citizens in these countries.
Glebe ChelwaA Zambian economist based in the United Arab Emirates pointed to the country's recent experience that IMF mandates have hampered social spending, contributed to rising food prices and exacerbated the cost of living crisis. . “IMF-enforced austerity could result in another lost generation for Zambia and Zambians,” he told me.
Senegalese development economist Ndongo Samba Sila said, “The United States and other rich countries have seen that for as long as these institutions have been functioning, they have not only outlived their usefulness, but have fallen into destructive obsolescence.'' Now more than ever, we must awaken to the reality that He spoke at an Oxfam-sponsored event in Washington this week.
While Americans and citizens of other wealthy countries face economic headwinds, people in poorer countries often find their governments' hands tied. The strength of the U.S. dollar and the whims of foreign credit rating agencies have as much impact on their lives as their home country's policies.
In the era of increasing competitiveness that Sullivan praises, Western governments appear to be cutting development aid to poor countries., with devastating costs. Mohamed Nasheed, former president of the Maldives and head of the bloc of nations known as the Climate Vulnerability Forum, which represents countries most threatened by the effects of global warming, said the bloc's 68 economies are It said it had lost more than half of its economic growth. Climate change has created $1 trillion in wealth over the past 20 years, but climate change only accounts for about 4% of global greenhouse gas emissions.
However, many of these countries face high levels of external debt, and the obligation to repay these debts to lenders such as the IMF “is a major hurdle for governments to make the investments needed to meet climate change and development goals.” “It's crowding out their abilities.” ” Nasheed told me.
Leaders at the IMF and the World Bank are keen to see the institutions, which were born when much of the world was still the domain of declining European empires, evolve to meet the needs of the 21st century. Western officials are also trying to address growing inequality within and between countries. In Washington, the finance ministers of France and Brazil announced joint plans to crack down on tax avoidance by the wealthy. These proposals are likely to accelerate in the coming months as Brazil takes the lead at this year's meeting of the Group of 20 (G20) economies.
But for many in the Global South, the “new” Washington consensus is still perceived as old. Adriana Abdenour, a policy advisor at the Brazilian Government Office, said: “It's a change that developed countries are now openly pursuing industrial strategies, but the same international financial institutions dominated by rich countries are still providing support to developing countries.'' “We're prescribing a lot of the Washington Consensus.” President Luiz Inacio Lula da Silva said this in his personal capacity at an Oxfam event. “Rather than fighting inequality, this system is reinforcing it.”