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What Should the World Bank Thinkabout the Washington Consensus?John WilliamsonThe phrase "Washington Consensus" has become a familiar term in development policycircles in recentyears, but it is now used in several diJfferent senses, causing a great deal ofconfusion. In this article the author distinguishes between his original meaning as a sum-mary of the lowest common denominator ofpolicy advice addressed by the Washington-based institutions (including the World Bank) and subsequent use of the term to signifyneoliberal or market-fundamentalist policies. He argues that the latter policies could notbe expected to provide an effective framework for combating poverty but that the originaladvice is still broadly valid. The article discusses alternative ways ofaddressing the confu-sion. It argues that any policy manifesto designed to eliminate poverty needs to go beyondthe original version but concludes by cautioning that no consensus on a wider agendacurrently exists.Ten years ago I invented the term "Washington Consensus" to refer to the lowestcommon denominator of policy advice being addressed by the Washington-basedinstitutions to Latin American countries as of 1989 (Williamson 1990). While it isjolly to become famous for coining a term that reverberates around the world, I havelong been doubtful about whether my phrase served to advance the cause of rationaleconomic policymaking. My initial concern was that the phrase invited the interpre-tation that the liberalizing economic reforms of the past two decades were imposedby Washington-based institutions (for example, see Stewart 1997) rather than hav-ing resulted from the process of intellectual convergence that I believe underlies thereforms.' Richard Feinberg's "universal convergence" (in Williamson 1990) or JeanWaelbroeck's "one-world consensus" (Waelbroeck 1998) would have been a muchbetter term for the intellectual convergence that I had in mind.I have gradually developed a second and more significant concern, however. I findthat the term has been invested with a meaning that is significantly different fromthat which I had intended and is now used as a synonym for what is often calledThe World Bank Research Observer. vol. 15, no. 2 (August 2000), pp. 251-64.( 2000 The International Bank for Reconstruction and Development / THE WORLD BANK 251"neoliberalism" in Latin America, or what Geeorge Soros (1998) has called "marketfundamentalism." When I first came across this usage, I asserted that it was a misuseof my intended meaning. I had naively imagined that just because I had invented theexpression, I had some sort of intellectual property rights that entitled me to dictateits meaning, but in fact the concept had become public property.The battle of economic ideas, as McCloskey (1998) has argued, is fought to asignificant extent with rhetoric. The use of a term with dual meanings and strongideological overtones can therefore pose serious dangers not only of misunderstand-ing but also of inadvertently prejudicing policy objectives. Specifically, there is a realdanger that many of the economic reforms favored by international developmentinstitutions-notably macroeconomic discipline, trade openness, and market-friendlymicroeconomic policies-will be discredited in the eyes of many observers, simplybecause these institutions are inevitably implicated in views that command a consen-sus in Washington and the term "Washington Consensus" has come to be used todescribe an extreme and dogmatic commitment to the belief that markets can handleeverything.The objective of this article is to consider what should be done to minimize thedamage to the cause of intellectual understanding, and therefore of rational eco-nomic reform, that is being wrought by the current widespread use of the term "Wash-ington Consensus" in a sense different from that originally intended. Would it beproductive, for example, to insist that the original usage is the correct one? Or shouldone simply refuse to debate in these terms? Is it possible to escape by declaring fidel-ity to some "post-Washington Consensus"? The first stage in answering these ques-tions is a careful examination of the semantic issues involved.The Original VersionMy original paper (Williamson 1990) argued that the set of policy reforms that mostof official Washington thought would be good for Latin American countries couldbe summarized in 10 propositions:* Fiscal discipline* A redirection of public expenditure priorities toward fields offering both higheconomic returns and the potential to improve income distribution, such asprimary 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 investment252 The World Bank Research Observer, vol. 15, no. 2 (August 2000)* Privatization* Deregulation (to abolish barriers to entry and exit)* Secure property rights.The need for the first three reforms is, so far as I am aware, widely accepted amongeconomists. Nevertheless, when I reviewed the progress that Latin American coun-tries had made in implementing the recommended set of policies several years later(Williamson 1996), it appeared that the least progress had come in redirecting pub-lic expenditure priorities. The other seven reforms have stimulated a measure ofcontroversy and therefore merit comment.In my original paper I specified interest rate liberalization as the fourth reform. Iam now well aware that many economists have reservations about that formulation.As a matter of fact, I have such reservations myself: in Williamson and Mahar (1998)interest rate liberalization is identified as merely one of six dimensions of financialliberalization. Moreover, Stiglitz (1994) has argued that interest rate liberalizationshould come toward the end of the process of financial liberalization, inasmuch as aceiling on the deposit interest rate (equal to the Treasury bill rate, he suggests) mightprovide a constraint on gambling for redemption. I find this argument persuasiveand long ago changed my description of the fourth element of the Washington Con-sensus to financial liberalization. More recently Stiglitz (1998) has expressed a muchmore basic objection to financial liberalization, arguing that the success of some EastAsian countries stemmed importantly from their policy of directing credit to par-ticular industries


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