Rise and Fall of Protectionis Essay Example

Rise and Fall of Protectionis Essay PII: S0305-750X(99)00160-6 World Development Vol. 28, No. 5, pp. 789 ±804, 2000 O 2000 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0305-750X/00/$ see front matter The Rise and Fall of the Washington Consensus as a Paradigm for Developing Countries CHARLES GORE * United Nations Conference on Trade and Development, Geneva, Switzerland Summary. The introduction of the Washington Consensus involved not simply a swing from state-led to market-oriented policies, but also a shift in the ways in which development problems were framed and in the types of explanation through which policies were justi ®ed. Key changes were the partial globalization of development policy analysis, and a shift from historicism to ahistorical performance assessment. The main challenge to this approach is a latent Southern Consensus, which is apparent in the convergence between East Asian developmentalism and Latin American neostructuralism. The demise of the Washington Consensus is inevitable because its methodology and ideology are in contradiction. O 2000 Elsevier Science Ltd. All rights reserved. Key words ? development theory, development policies, World Bank/IMF policies 1. INTRODUCTION Developing countries is an international practice. The essence of this practice is the mobilization and allocation of resources, and the design of institutions, to transform national economies and societies, in an orderly way, from a state and status of being less developed to one of being more developed. The agencies engaged in this practice include national governments of less-developed countries, which have adopted development as a purpose to which State power is put, and governments of richer countries, which disburse o? cial development aid to support and in? uence this process; a variety of non-governmental organizations concerned to animate and channel popular concerns; and international intergovernmental organizations, such as the organs of the United Nations and the World Bank, many of which have been expressly set up o resolve various development problems. Often it is the last group who have acted as the avant-garde of development practice. It is because of their activities, as well as the widespread tendency of governments to copy successful practice elsewhere, that it is appropriate to describe developing countries as an international practice. But it is by no means global in scope. We will write a custom essay sample on Rise and Fall of Protectionis specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Rise and Fall of Protectionis specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Rise and Fall of Protectionis specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Indeed the practice of developing countries is only done in a particular set of countries? those which in the 1950s and 1960s were generally 789 alled underdeveloped or less developed countries, but which now generally identify themselves, and are identi ®ed by others, as developing countries. This paper discusses trends in the body of knowledge which guides and justi ®es the practice of development. It examines, in particular, the ideas propagated by international development agencies, and focuses on the shift in thinking which occurred in the 1980s with the introduction and widespread adoption of an approach to the practice of developing countries known as the Washington Consensus. In broad terms, this approach recommends that governments should reform their policies and, in particular: (a) pursue macroeconomic stability by controlling in? ation and reducing  ®scal de ®cits; (b) open their economies to the rest of the world through trade and capital account liberalization ; and (c) liberalize * This paper is an extended version of comments made at the Berlin-Brandenburgische Akademie der Wissenschaften Conference on Paradigms of Social Change held in Berlin on September 3 ±5, 1998. I would like to thank John Toye, Gabrielle Khler, Richard Kozulo Wright and two anonymous referees for critical comments on an earlier draft. The arguments and interpretations are those of the author. The views expressed do not necessarily re? ect those of UNCTAD. Final revision accepted: 17 October 1999. 790 WORLD DEVELOPMENT domestic product and factor markets through privatization and deregulation. Propagated through the stabilization and structural adjustment policies of the International Monetary Fund (IMF) and World Bank, this has been the dominant approach to development from the early 1980s to the present. The paper examines the introduction of the Washington Consensus as a paradigm shift, and assesses the con ®guration of development thinking in the 1990s and pressures for a further paradigm shift, particularly in the light of the East Asian  ®nancial crisis and recent attempts to construct a post-Washington Consensus. The paradigmatic nature of the Washington Consensus is most clearly evident in the work of John Williamson (1990,1993,1997), who coined the name and also set out a speci ®c formulation of the approach at the end of the 1980s. This formulation was founded on an attempt to summarize, with particular reference to policy reform in Latin America, the conventional wisdom of the day among the economically in? uential bits of Washington, meaning US government and the international  ®nancial institutions (Williamson, 1993, p. 1329). Williamson never explicitly identi ®es the Washington Consensus as a paradigm. But the way he describes the approach conforms in many respects with Thomas KuhnOs notion of one. Thus, he argued that the Washington Consensus is a universal convergence, and that it constitutes the common core of wisdom embraced by all serious economists (Williamson, 1993, p. 1334). He codi ®ed the approach as a set of 10 axiomatic generalizations which, given certain values, are generally shared by scholars and practitioners concerned with economic growth in developing countries; and he listed remaining analytical problems on which normal economic science needs to focus. Finally, he dismissed those who challenged the consensus view as cranks (p. 1330). As he put it, [T]he superior economic performance of countries that establish and maintain outward-oriented market economies subject to macro-economic discipline is essentially a positive question. The proof may not be quite as conclusive as the proof that the Earth is not ? at, but it is su? ciently well established as to give sensible people better things to do with their time than to challenge its veracity (p. 1330). Washington Consensus policies is usually seen as a shift from state-led dirigisme to marketoriented policies. Such a switch undoubtedly occurred. But it is not a su? ient description of the nature of the change as a paradigm shift. As Kuhn shows, when paradigms change, there are usually signi ®cant changes in the methods, problem- ®eld, and standards of solution which are accepted by a community of practitioners (Kuhn, 1970, p. 103). As a consequence, the proponents of competing paradigms practice their trades in di? erent worlds [they] see di? erent things when t hey look from the same point in the same direction (p. 150). In examining the introduction of the Washington Consensus as a paradigm shift, what matters is not simply the substantive di? rences with earlier approaches, but also the nature of the change in the disciplinary matrix and worldview. Here it will be argued that together with the swing to market-oriented policies, there was a deeper shift in the way development problems were framed and in the types of explanation through which development policies were justi ®ed. This involved changes in the spatial and temporal frame of reference of development policy analysis. In brief, these changes were: the partial globalization of development policy analysis; and a shift from historicism to ahistorical performance assessment. . THE PARTIAL GLOBALIZATION OF DEVELOPMENT POLICY ANALYSIS Specifying development policy problems involves both explanations of development trends and normative judgements about how the world should be. For each of these activities, an important decision which must be made is deciding the policy frame, i. e. what elements should be included when viewing a problem and what elements excluded. 2 The framing of policy issues has various aspects but one which critically a? ects the practice of developing c ountries is whether policy problems are seen within a global or national frame of reference. Explanations and normative judgements can each be elaborated within a national or global frame of reference, and so the thinking which underpins the practice of developing countries can be wholly national, wholly global, or some combination of both (Figure 1). The full globalization of development policy analysis will be understood here to mean a shift from a The structure of the revolution in thinking which occurred with the introduction of RISE AND FALL OF THE WASHINGTON CONSENSUS 791 Figure 1. Four main combinations of explanatory and normative framework in development policy analysis. ational to a global frame of reference both for explanations and normative evaluations. Before the propagation of the Washington Consensus in the 1980s, mainstream explanations of the development process and evaluative judgements of the goals of development were both conducted within a national frame of reference. First, economic and social trends within countries were explained, in the mainstream, on the basis of conditions within the countries themselves, i. e. as a result of national factors. Particular external relations might be necessary to start the process, or to close gaps which threatened its breakdown. But the key ingredients of a successful development process were usually identi ®ed through analyses of sequences of change within already industrialized countries, which were then applied in less developed countries without any reference to their di? erent external situation. Second, development policies were geared toward the achievement of national objectives. This orientation was often simply taken for granted in development policy analysis. But it was also in? enced, more or less strongly, by political and economic nationalism. According to Johnson (1967), key features of economic policy in new States? namely, the desire for greater selfsu? ciency and early industrialization, the preference for economic planning and public control, and hostility to foreign investment? can all be traced to the mutual supporting relations between nationalism, aid policy, and id eas about the development problem formed in the 1930s. Those ideas became part of a common understanding and language of national and international policymakers after WWII. There were, of course, major controversies both over the meaning of development and the means of achieving it. In the 1950s and 1960s there were debates about development strategy (for example, balanced or unbalanced growth), the nature of dualistic development processes, and the role of human capital. Moreover, in the 1970s the earlier focus on economic growth with structural change was strongly challenged by those who pointed to the need to focus on social objectives, notably income distribution, poverty, employment and basic needs satisfaction. But these disputes actually served to reinforce the normative and explanatory frames of development policy analysis as being national. Whatever objectives were taken to be central, national objectives were the focal concern. Moreover the development strategy debates essentially examined the articulation and sequencing of internal (national) ingredients which could facilitate or accelerate the national development process. An important count ercurrent to mainstream development policy analysis before the 1980s came from structuralist and dependency theories elaborated in Latin America (see Kay, 1989). Like the dominant approach the normative concern of these theories was national, and indeed strongly informed by nationalist concerns. But their analytical perspective was global in scope and this underpinned their critiques of mainstream thinking. Both structuralist and dependency theorists emphasized the importance of centerperiphery relations as determining or conditioning the national development process. But some strands within dependency theory, 792 WORLD DEVELOPMENT instead of indicating how national development was a? cted by the articulation between internal and external factors, simply put forward an antithesis to the mainstream approach, arguing that external factors were the only ones that mattered, and then deduced that by delinking from the world economy, an authentic development process, solely founded on internal factors, could be made to occur. In the late 1970s and early 1980s, the growth rate of most developing countries, with the notable exception of some countrie s in East Asia, collapsed. The economic crises which beset most developing countries lent weight to arguments that mainstream development practice had failed. But at the same time the East Asian success neutralized those versions of dependency theory which argued that development would always be blocked on the periphery, and also Latin American structuralism, which allegedly was wedded to inwardoriented import-substitution policies in contrast to East AsiaOs alleged outward-orientation. In this situation, arguments which emphasized the positive role of free markets in development attracted greater attention. These ideas had always been an element within development policy analysis, represented, for example, by early critiques of protectionism, such as G. Haberler and H. Myint, Milton FriedmanOs support of free enterprise, and P. T. BauerOs dissection of mainstream thinking (Bauer, 1971). The uptake of these ideas was not strong however until the late 1970s and early 1980s, when a new approach to developing countries, which was later labeled the Washington Consensus, emerged as the main alternative to national developmentalism. The frame of reference for this new approach was, like the Latin American countercurrents of the pre-1980s, partially global and partially national. But rather than combining normative economic nationalism with a methodological internationalism, the Washington Consensus was its mirror image. It combined normative economic internationalism with a methodologically nationalist form of explanation which attributed what was happening within countries mainly to national factors and policies (Figure 2). In this new approach, the key norms which played the decisive role in de ®ning development practice were the norms of a liberal international economic order (LIEO). In most general terms, these norms involve a commitment to free markets, private property and individual incentives, and a circumscribed role for government. But they can be speci ®ed in di? erent ways, according to di? erent interpretations of the precise content of the LIEO. For example, in the early 1980s, laissez-faire liberalism was strongly advocated. This entailed liberalization of both external and domestic economic relations. But at the start of the 1990s, this extreme market fundamentalism was softened with the emergence of the socalled market-friendly approach to development (see, notably, World Bank, 1991). This Figure 2. The con ®guration of development policy analysis: 1950 ±1990. RISE AND FALL OF THE WASHINGTON CONSENSUS 793 continued strongly to advocate liberalization of external trade and capital movements. But, the scope of domestic economic liberalization was limited, in particular, by recognizing more fully the legitimacy of state intervention in cases of market failure. These norms were propagated through two types of persuasive argument:  ®rst, arguments about the intrinsic ethical superiority of economic liberalism; and second, theoretical and empirical analyses which demonstrate that conformity to the norms of a LIEO (variously de ®ned) would lead to better outcomes, not simply for the world community as a whole, but also for individual nation-states within it. The latter, which have served as the principal form of argument supporting the new approach, have mainly been articulated on a terrain in which promoting the national interest has been narrowly equated with promoting economic growth and increasing personal economic welfare. Important developmentalist concerns such as constructing national unity and realizing national sovereignty are thus excluded. On this narrowed ground, attention and publicity has been given to analyses which show that national policies which are in con? ct with the norms of LIEO, including many elements at the heart of earlier development practice, such as protection of infant industries, managed interest rates and selective credit, have been harmful to national interests, and thus constituted domestic mismanagement and irrationalities. At the same time, the policies of the East Asian newly industrializing economies which had actually achieved rapid and sustained growth have been described in ways which suggest t hat they conformed to the requisite liberal norms. 5 For both con? icting and conforming policies, their impact on the e? iency of resource allocation has been identi ®ed as the main mechanism by which domestic policies a? ect economic growth. While the normative frame of reference of the new approach was global in scope, the explanatory arguments which sought to prove the instrumental superiority of the LIEO were characterized by methodological nationalism. That is to say, in explaining economic trends within countries, they partitioned in? uences into external and internal factors and attributed most of what was happening to internal (national) factors and, in particular, to domestic policy. In making the case for trade liberalization and export promotion, for example, conditions of global demand are generally ignored and, through the small country assumption, it is typically assumed that foreign markets are always available, and at prices largely independent of a countryOs expo rts. Empirically, the most common approach to prove the dynamic bene ®ts of outward-orientation has been crosscountry regression analyses which establish the statistical relationships between indicators of national economic change and a series of national variables, which include, in particular, indicators of national policy. The essence of this methodology is areal correlation between dependent and independent variables, to identify the extent to which variation in the former between a given set of national territories matches variation in the latter between the same territories. This can be done at a certain point in time or for periods of time (e. g. by using growth rates over 20 years). In either case, speci ®c histories are  ®ltered out and it is assumed that relationships which pertained in the past will continue into the future. Economic trends are necessarily attributed to the behavior of the national factors. In the 1990s, changes in the nature of the external environment are increasingly being used to explain why liberalization, coupled with the right macroeconomic fundamentals, works. Thus it is argued that in an increasingly globalized world economy, in which there is the globalization of production systems, increasing reliance on trade and increased availability of external  ®nancial ? ows, countries which do not follow Washington Consensus policies will be especially penalized, as they will be cut o? and thus excluded from the intensifying (and implicitly bene ®cial) global  ®eld of ? ws. Concomitantly, those countries which do follow the right policies will be rewarded, as they can capture foreign direct investment which brings technology and market access, and they can also supplement national savings with international capital ? ows, thus reaping the bene ®ts of the new external environment. In this way, the case for liberalization is rooted in the rhetoric of the globali zation. But the analysis remains methodologically nationalist as it retains the distinction between external and internal (national) factors, and still attributes ountry trends largely to domestic policy (see, for example, IMF, 1997; World Bank, 1997). Globalization is something which is happening to the external economic environment of countries; it is outside them. 794 WORLD DEVELOPMENT 3. THE SHIFT FROM HISTORICISM TO AHISTORICAL PERFORMANCE ASSESSMENT The curious combination of global liberalism 7 and methodological nationalism which underpins the way in which development is seen in the new paradigm has been buttressed by a second key shift which occurred in development policy analysis at the end of the 1970s. This can be characterized as a shift from historicism to ahistorical performance assessment. Theorizing on development strategy from the 1950s to the 1970s was historicist in the general sense that it was founded on an attempt to understand rhythms, patterns and laws of development. 8 This understanding was based on historical analysis of long-term sequences of economic and social change, which had occurred in the past in already-industrialized countries and which were expected to re-occur, particularly if the right policy interventions were made, in less developed countries. Such theorizing most typically understood development as a societal and economy-wide transition from a traditional (rural, backward, agricultural) society to a modern (urban, advanced, industrial) society. This process was seen as a sequence of stages of growth, a process of modernization, or recurrent patterns of structural transformation. 9 All countries were expected to go through such patterns of development, and development agencies sought to ensure or accelerate the arrival of a better future for whole societies through interventions in these long-term processes of historical transformation. With the shift to ahistorical performance assessment, the focal object of enquiry has been to describe and explain national performances of various types. Not surprisingly but now taken-for-granted, the key word in the discourse propagated by international development agencies since the start of the 1980s has been performance. Attention has been particularly paid to economic performance, but also agricultural performance, industrial performance, trade performance,  ®nancial performance,  ®scal performance, poverty performance, human development performance and so on. Using these various standards, countries have been partitioned into good and bad performers, and ranked according to their performance in various new leagues of nations. Moreover comparative performances have been explained by reference to national factors and national policy. It is according to these performance standards that past development policies have been criticized because they do not work and narratives have been constructed about the e? ectiveness of the Washington Consensus. A succession of countries which have undertaken policy reform in the requisite way and achieved good short-term growth results have also been identi ®ed as, and dubbed, success stories. These stories have acted as exemplars for the new paradigm, providing not only practical rules-of-thumb guidance on how policy reform should be undertaken, but also proof of the validity of the Washington Consensus. The transition from historicism to ahistorical performance assessment started in the 1970s, and was initially animated by those who sought to re ®ne the de ®nition of development by adding social aspects. E? rts to measure poverty based on the quality of life and satisfaction of basic needs were particularly important in this regard. Michael LiptonOs book Why Poor People Stay Poor was a key text in propagating a performance-oriented approach. The uptake of the notion of urban bias, a concept which was forged within debates about how to achieve redistribution with growth but which be came central to the neoliberal paradigm, can be attributed to its performance-based de ®nition, and the vitriolic debates of the late 1970s, particularly with Byres, can be interpreted as an attempt to sustain a historicist view (see, for example, Byres, 1979). In the 1980s, these initial moves toward performance assessment were overtaken by, and later incorporated in, the discourse and practice of structural adjustment. Adjustment involved improving the performance of national economies by increasing the e? ciency of resource allocation. The central criterion used to measure performance was current or recent GDP growth rate, and macroeconomic stability, indicated by  ®scal and external payments balance and low in? ation. The dynamics of long-term transformations of economies and societies slipped from view and attention as placed on short-term growth and re-establishing  ®nancial balances. The shift to ahistorical performance assessment can be interpreted as a form of the postmodernization of development policy analysis. It re? ects, in particular, the questioning of grand narratives of historical transformation which was central to the appeal of the post- RISE AND FALL OF THE WASHINGTON CONSENSUS 795 modern ethos in the 1980s. 10 Befo re the shift, development agencies acted as handmaidens of progress, modernization, industrialisation, or the emancipation of people from oppression, exploitation, disease and drudgery. After it most agencies re-oriented their work to monitor and seek to improve performance, often through local problem-solving and local social engineering designed to make economic and social institutions work better. Adjustment also entailed the abandonment of grand long-term government-directed designs for whole societies and a shift to decentralized decision-making, laissez-faire and local social engineering. But ironically, this shift away from holism could not be achieved without a holistic approach. Everything has been made subject to the rules and discipline of the market. The vision of the liberation of people and peoples, which animated development practice in the 1950s and 1960s, has thus been replaced by the vision of the liberalization of economies. The goal of structural transformation has been replaced with the goal of spatial integration. 4. THE CONFIGURATION OF DEVELOPMENT POLICY ANALYSIS IN THE 1990S The collapse of communism in Eastern Europe and the Soviet Union has served as con ®rmation of arguments which predicted the impossibility of central planning and reinforced the apparent superiority of a market-oriented development approach. Since the late 1980s however there have developed two important challenges to the Washington Consensus. The  ®rst is the UNDPs sustainable human development (SHD) approach. This approach takes up some of the themes of the UNICEF critique of the dominant approach, Adjustment with a Human Face, originally published in 1987, and has been elaborated through the annual Human Development Report, which  ®rst appeared in 1990 (UNDP, Various years). The second is a latent Southern Consensus, which is founded on analyses made from the perspective of countries undertaking late industrialization and seeking to catch up with richer countries in the global economy. This Southern Consensus does not exist as a political reality. Nor has it, as yet, been articulated analytically. Its existence is apparent however in the convergence between the policy conclusions of Latin American neostructuralism, initially set out by ECLAC in 990, and the deeper understanding of East Asian development models, which is described in ESCAP (1990), but has been most thoroughly reconstructed by UNCTAD in its annual Trade and Development Report (particularly 1994, part 2, chapter 1; 1996, part two; 1997, part 2, chapters V and VI; and 1998, part 1, chapter 3). 11 These two challenges to the Washington Consensus have shaped development thinking and practice in di? erent ways. Indeed development policy analysis is now characterized by a double dialectic. The clash between the Washington Consensus and the sustainable human development approach acts to reinforce and conserve the key elements of the current paradigm, and in particular its ahistorical approach and its combination of normative internationalism with methodological nationalism, whilst the clash between the Washington Consensus and ideas within the two strands of the Southern Consensus serves to undermine these elements and creates tensions and pressures for a further paradigm shift. The key feature of the sustainable human development approach which distinguishes it from the Washington Consensus, is that it espouses a di? rent set of values. Whereas the Washington Consensus focuses on the promotion of GDP growth, and has been implemented through a top-down, donorconditionality-driven and outside-expert-led, approach, the sustainable human development approach argues that the ultimate test of development practice is that it should improve the nature of peopleOs lives, and ad vocates that it should be founded on participation and a more equal partnership between developing countries and aid donors. This people-centered approach, which explicitly identi ®es itself as an alternative paradigm (see, for example, ul Haq, 1995, Part I), has been quite in? ential. An important strand of development research in the early 1990s has sought to refute its challenge by showing that Washington Consensus policies in fact serve to reduce poverty, increase employment and can, in themselves, deliver growth with equity, and that therefore social concerns are already adequately addressed by the mainstream approach. But the SHD alternative has promoted the introduction of poverty reduction as a key goal of development practice and increasing attention to possible LIEO-compatible relaxation of Washington Consensus poli- 96 WORLD DEVELOPMENT cies in order better to achieve poverty objectives (see World Bank, 1990). These changes have certainly made the Washington Consensus m ore humane. But at the same time, the SHD approach has had the e? ect of conserving key features of the worldview of the dominant paradigm. Although its di? erent values have emphasized di? erent indicators and weighting systems, particularly to capture levels of human development and poverty, these measures have reinforced a focus on short-term performance assessment. The substitution of multidimensional indicators of poverty for simple income poverty, for example, has added greater reality to the description of deprivation and more leverage for moral outrage, but at the cost of crippling e? ective analysis of the dynamics of change. Signi ®cantly also, the analytical basis of the SHD approach, which is itself somewhat loose, is methodologically nationalist. A central focus is the mismatch between economic growth performance and social performance and the ways in which domestic policy can rectify this mismatch to deliver more social achievements for any given level of GDP per capita. Even the apparent di? erence in values between the SHD approach and the Washington Consensus is less clear-cut than it appears. This applies whether human development is speci ®ed rigorously, as in Amartya SenOs capability approach which underpins the human development index, or through a vaguer focus on decentralization and participation. SenOs capability concept emphasizes freedom of choice which is quite consonant with the liberal perspective. 12 Moreover the project of making economic and social institutions work better through decentralization and the use of local knowledge, indigenous management ractices and the participation, not of the masses, but of local people and small comm