Neo-liberal economic policies

And

Washington Consensus

By: Abhishek Singh Balayan

Abstract:

In this paper I would be researching about the basic ideology of ‘neo-liberalism’ and what it

is all about and how the neo-liberal policies affected the developing nations and how the

ideology of neo-liberalism also laid the foundations for the ‘Washington Consensus’ and its

criticism.

The concept of ‘neo-liberalism’ has been widely used in various academic and political

debates during the past thirty five years or so. In simplest term, neo-liberalism is the idea that

society should be shaped by the free market and economy should be deregulated and

privatized. Various scholars have suggested that neo-liberalism is the dominant ideology

which is shaping our world today. We are living in the age of neo-liberalism. The term neo-

liberalism emerged from the critical left scholarship done on Latin America as way of naming

in a much more critical incisive way, some of the economic policies which were being

imposed by IMF and the World Bank, what was called the Washington Consensus. It can be

said that neo-liberalism had bad effects on the developing countries because the neo-liberal

policies forced the developing countries to borrow a lot of money from the IMF or the World

Bank. It forced them into Structural adjustment reductions of social welfare programs and so

on.

Introduction:

After the Second World War, the economies all around the world were being governed by the

state-centred regulatory regimes. In USA, countries in Western Europe and Japan, economies

were based on the ideology of the free markets and private property. Economies in these

regions were carefully regulated and steered by the Keynesian welfare state model. In USSR

and countries in the Eastern Europe, all the economic activities were controlled by the

authoritarian state regime. The counties in Africa, Latin America and Asia, governments

imposed the schemes for the state-led development because during 1950s and 1960s, all the

third world countries were in the infancy state and they could not compete with the global

market competition. During the Cold War, the world was literally divided into two camps:

one was Capitalist block backed by USA and the other was Socialist block backed by USSR.

If we see historically, we can see that the world was divided into two camps during the Cold

War and the economies underwent through various changes. Now the development was

measured in the economic terms and it is still measured in economic terms. The meaning of

Development has changed over time.

Neo-liberalism: concept and ideology

The concept of ‘neo-liberalism’ is associated with the ideology of Laissez-Faire economic

liberalism. As Chang (2003) suggests, the term neo-liberalism can be considered as ‘the heir

to liberalism, the dominant economic doctrine of the late nineteenth and early twentieth

century’, which proponents tend to view as a capitalist golden age when the global economy

grew enormously under a regime where the private ownership of trade and industry operated

within and between largely unregulated markets. From this starting point, it becomes clear

that the neoliberal, or ‘liberalist revival’ movement promotes ideas and policies based upon

what its advocates view was a fundamentally superior economic past. A core tenet of neo-

liberalism is a belief in what the economist and philosopher Adam Smith (1723-90) called the

‘invisible hand’ of the self-regulating market, an idea which underpinned classical economic

liberalism (Galbraith, 1987;Lux, 1990) The intellectual roots of neo-liberalism are commonly

traced back to a group of thinkers led by Friedrich von Hayek and Milton Friedman at the

University of Chicago. They re-worked the tenets of free-market capitalism to tailor a post-

Keynesian world in the 1960s and 70s (Harvey, 2005; Palast, 2003). Given this intellectual

background, Chang (2002) defines neo-liberalism as an ‘unholy alliance’ between neo-

classical economics, which provided the analytical tools, and ‘Austrian-Libertarian’ thought

which provided the political and moral philosophy typified by thinkers such as Hayek.

Friedman’s fundamental argument was that political freedom can only result from economic

freedom. In this context, ‘freedom’ is defined as the eradication of government intervention

and regulation in economic transactions. He maintained that government interference in the

free market was a force for evil, as private individual economic actors were subject to the

abuses of politicians pursuing their own interests (Friedman, 1962). He therefore maintained

that government intervention should exist in only a few areas of society such as monetary

policy, national security and, above all, the legal enforcement of property rights which he

argued was meant to prevent non-competitive behaviour by creating a level playing field for

the (more efficient) profit-driven private sector (Manzetti, 2003). (as cited in James Halep’s

Geographical paper no.194, 2010).

"Neo-liberalism" is a set of economic policies that have become widespread during the last

25 years or so. Although the word is rarely heard in the United States, you can clearly see the

effects of neo-liberalism here as the rich grow richer and the poor grow poorer.

"Liberalism" can refer to political, economic, or even religious ideas. In the U.S. political

liberalism has been a strategy to prevent social conflict. It is presented to poor and working

people as progressive compared to conservative or Rightwing. Economic liberalism is

different. Conservative politicians who say they hate "liberals" - meaning the political type -

have no real problem with economic liberalism, including neo-liberalism.

"Neo" means we are talking about a new kind of liberalism. So what was the old kind? The

liberal school of economics became famous in Europe when Adam Smith, Scottish

economist, published a book in 1776 called THE WEALTH OF NATIONS. He and others

advocated the abolition of government intervention in economic matters. No restrictions on

manufacturing, no barriers to commerce, no tariffs, he said; free trade was the best way for a

nation's economy to develop. Such ideas were "liberal" in the sense of no controls. This

application of individualism encouraged "free" enterprise," "free" competition - which came

to mean, free for the capitalists to make huge profits as they wished. Economic liberalism

prevailed in the United States through the 1800s and early 1900s. Then the Great Depression

of the 1930s led an economist named John Maynard Keynes to a theory that challenged

liberalism as the best policy for capitalists. He said, in essence, that full employment is

necessary for capitalism to grow and it can be achieved only if governments and central

banks intervene to increase employment. These ideas had much influence on President

Roosevelt's New Deal which did improve life for many people. The belief that government

should advance the common good became widely accepted. But the capitalist crisis over the

last 25 years, with its shrinking profit rates, inspired the corporate elite to revive economic

liberalism. That's what makes it "neo" or new. Now, with the rapid globalization of the

capitalist economy, we are seeing neo-liberalism on a global scale. (As cited in

http://www.corpwatch.org/article.php?id=376 ).

Some of the main points of neo-liberalism are:

Cutting Public Expenditure: Cutting up of public expenditure on social services

like health services and education, maintenance of roads, water supply, bridges. In

fact, neo-liberals don’t oppose the government subsidies and tax benefits for the

business.

Deregulation: reducing the government’s role on everything, literally everything

which could hinder the profits in the businesses.

Privatization: Selling the State owned enterprises, goods and services to the private

players in the markets. Privatization may include the banks, industries, railroads and

other services. Government does not necessarily sell off the whole shares to the

private investors. It depends on the governments that how much of share in a service

sector they would sell to the private investors.

Rule of the Market: According to neo-liberal ideology, there should be no

restrictions on the markets. Governments should not intervene in the functioning of

the markets. Governments should not impose any kind of regulations on the markets

and they should not control the prices. Neo-liberals are the advocates of the ‘Free

Markets’.

Neo-liberalism is often misunderstood as a concept and yet it is important for us because

we are living in the age of neo-liberalism. The ideology of neo-liberalism is based on

promoting the ‘rational self interest’ through the policies of privatization, globalization,

liberalization policies such as deregulation and cutting in taxes.

This is the philosophy that underpins and drives economic globalization. At its core is a

belief in the free market and minimum barriers to the flow of goods, services and capital. It

is an extension of the traditional liberal philosophy, which argues for a separation of

politics and economics and that markets should be “free” from interference of government.

This approach is based on four principles:

Economic growth is paramount: corporations and their agents need to be free to pursue

whatever gives them an economic advantage and, in consequence, internal and global

markets must be free to operate with little government constraint or regulation.

Free trade benefits all nations - rich or poor - because every nation has a comparative

advantage.

Government spending creates inefficiency and waste: although most neo-liberals agree

that not all public expenditure is wasteful, many argue that it can be reduced.

In the distribution of economic goods, individual responsibility replaces the concepts of

public goods and community.

There are four pillars to the neo-liberal approach all of which involve liberalization (the

reduction of rules and restrictions): capital account liberalization, trade liberalization,

domestic liberalization, and privatization (Taken from

http://www.who.int/trade/glossary/story067/en/).

Neo-liberal policies had various effects on different countries especially it affected the

developing nations.

Debt Crisis: During the time of Cold War, there was the need for an alternative solution to Keynesian

approaches because the economies throughout the world experienced the slowing rate of

growth in 1970s. Within many parts or the countries in the global south, Import Substitution

policies had been implemented with success, but the limits of such policies were becoming

apparent. These national limits, combined with falling commodity prices and a slow down in

the world economy, led to what has been termed the ‘debt crisis’ of the 1980s. The

relationship between income coming into a country and that going out is termed the ‘balance

of payments. These are divided between the current account and the capital accounts. If

There is a deficit in one of these accounts, this is not necessarily a problem, as a surplus on

the other account may cover the amount. However, if it does not, or if there is a deficit on

both accounts then money must be found to deal with the deficit. This may be found in the

cash account which includes three forms of reserves; foreign ‘hard’ currencies, such as US

dollars, gold and Special Drawing Rights (SDRs) at the IMF. SDRs give the holders the

ability to claim currencies from IMF members in the form of loans (IMF 2004).

The debt crisis arose because many nations of the South were not able to cover their debt

repayments (either the interest or the repayment of the amount borrowed). During the 1960s

and particularly during the 1970s, many Southern governments borrowed large amounts of

money to fund large infrastructure and development schemes. Before the 1970s, most of this

borrowing was from Northern governments or from multilateral agencies, but in the 1970s

there were increasing levels of borrowing from private banks. This is part of what has been

known as the recycling of petrodollars. Because of rising oil prices, countries that were part

of OPEC (Organization of Petroleum Exporting Countries) were amassing large amounts of

money. This was deposited in banks and was then lent to other countries so accruing interest.

Southern governments were happy to borrow this money to fund their development projects,

and this action seemed sensible as interest rates were low and export earnings from

commodities remained at a healthy level. Unfortunately, in the late 1970s commodity prices

fell so reducing the export earnings. Southern countries earned most of their export revenue

from primary commodities, either agricultural products such as coffee or sugar, or minerals

such as coal or iron ore. Thus, a decline in world commodity prices was catastrophic. This

fall in commodity prices was exacerbated by global recession in the 1981–2 period, which led

to industrialized countries implementing greater forms of protectionism such as increased

import tariffs, again making it harder for Southern countries to export their goods. In

addition, interest rates went up and millions of dollars of savings were moved by investors to

what were regarded as ‘safer’ countries through the process of ‘capital flight’. These events

meant that many Southern governments were no longer able to meet their debt repayments,

ushering in the widespread implementation of neo-liberal policies based on market-centred

theories of development (Milward 2000).

During early 1980s, Mexican government announced that it would not be able to meet its

debt repayments. This triggered the ‘debt crisis’ in Mexico.

Structural Adjustments Programmes: Structural Adjustments Programmes (SAPs) were the most well known aspect of the neo-

liberal development theory in practice and its implementation since late 1970s. Structural

adjustment programmes (SAPs) have been adopted by various national governments so that

they continue to get the financial support from the International Monetary Fund and the

World Bank. Basically if we see the underpinning philosophy of SAPs then it can be said

that it reflects the market ideologies adopted by the Thatcher and Reagan administrations and

the implementation of SAPs demonstrates the policies developed in North could be imposed

on the Southern nations.

SAPs encompass a series of government-led policies which are aimed at reducing the role of

the state in the running of the national economy. This does not mean that the state is no

longer involved, but rather that the market is given much greater power. SAPs usually include

two categories of policies which can be classified as stabilization measures and adjustment

measures. The first group includes policies such as stopping increases in government-sector

wages, cutting back on government expenditure and devaluing the currency. Once the

economy has been ‘stabilized’ the adjustment measures are introduced to make longer-term

changes which will, it is argued, contribute to a more economically prosperous future. Such

measures include opening up the national economy to foreign investment, reforms in the tax

system and privatization. (Simon 2002) (Cited in Katie Willis 2005).

Through these policies, government income is maximized and there is much greater

efficiency and economic growth. Given the debt burdens and the negative rates of economic

growth that had been experienced, such policies appeared to hold some hope for

development. These policy recommendations are sometimes referred to as reflecting the

‘Washington Consensus’. This term was originally coined by Williamson in 1990 to describe

the neo-liberal policy reforms in Latin America that institutions based in Washington DC,

such as the IMF and World Bank, were proposing in the late 1980s. It is now often used to

describe the implementation of neo-liberal policies by international financial institutions

(IFIs) throughout the world and as ‘a synonym for market fundamentalism’ (Williamson

2000: 256).(Cited in Katie Willis 2005).

In the vast majority of cases, SAPS proved to have very serious consequences. The

withdrawing of the state, the opening up of the national economy to foreign investment and

currency devaluation did not have the desired effect; rather poverty levels increased as real

wages went down, unemployment increased and the cost of living rose. The removal of state

safety nets in some cases also left the most vulnerable and destitute with no form of

assistance (Cornia et al. 1987). (Katie Willis,2005)

Main characteristics of structural adjustment programmes Internal policy reforms – to increase role of the market in the domestic economy

● Privatization of state firms – allows for greater competition, reduces drain on state

resources if firms doing badly;

● removal of state subsidies – increases competition and reduces state expenditure;

● improvements in tax system – increases state income;

● removal of wage controls, e.g. minimum wages – wage levels should be set by the

market;

● reduced government workforce – cuts back on bureaucracy and inefficiency and reduces

state expenditure.

External policy reforms – to encourage foreign investment and increasing exports

● Currency devaluation – makes imports more expensive and exports cheaper;

● removal or reduction in tariffs – encourages international trade;

● removal or reduction in quotas, e.g. legal minimum amount of domestically sourced

inputs – encourages foreign investment and export;

● end state control of exports, e.g. for agricultural commodities – improves efficiency and

encourages private investment. ( Milward 2000)

Structural adjustment in Jamaica

If we take the example of Jamaica for the effects of SAPs then we can see that the experience

of the SAPs policies in Jamaica was good. During the 1970s the Jamaican economy

experienced severe economic problems including negative levels of economic growth from

1974 onwards. These problems led the Jamaican government under Edward Seaga to sign an

agreement with the IMF in 1977 for further funding dependent on Jamaica following

adjustment policies. Further agreements with both the IMF and World Bank followed in the

1980s and 1990s. Government expenditure fell dramatically as part of these policies. The

budgeted expenditure for 1985/6 was 71 per cent of the 1981/2 level. While government

spending on social services was 641 million Jamaican dollars in 1979/80 this had fallen to

372 million in 1985/6 (based on 1979/80 prices). These declines in government social

spending, combined with increased unemployment and falling real wages led to declining

standards of living. Levels of infant malnutrition increased, education levels fell and the

supply of new housing for low-income groups shrank to almost zero. Between 1980 and

1985, O’Level pass rates fell from 62 per cent to 34 per cent, reflecting the declining

investment in school infrastructure and teachers’ wages, as well as poor levels of health

among children and pressures from families for children to enter paid work.

Overall poverty levels increased during the 1980s, with some annual fluctuations. Using

US$60 per month at 1989 prices as the poverty line, the poverty rate increased from 45.5 per

cent in 1989 to 54.5 per cent in 1996. Some households were able to maintain living

standards, especially those who had access to remittances from family members overseas, but

overall SAPs in Jamaica have had serious negative impacts on social development in

the country. (adapted from Boyd (1987); Handa and King (1997, 2003).

It is difficult to generalize about the effects of SAPS in social terms, partly because of the

diversity of experiences (Stewart 1995), but also because we cannot know what would have

happened if SAPS had not been introduced. In some cases there is evidence of poverty

increases after SAP introduction, ‘however, the key point is that it is agreed that although

SAPs may not have caused poverty in a direct sense, they certainly did not lead to poverty

reduction’ (McIlwaine 2002: 99). (Katie Willis, Second edition 2005)

International Financial Institutions and the “Washington Consensus” During the 1990s, neo-liberalism became a more technocratic and refined set of policies, and

might now be considered the ‘commonsense of the times’, to the extent that they dominate

social and economic policy discourse (Gore, 2000; Peck and Tickell, 2002). On the global

scene, this has, to a large extent, occurred thanks to the role played by the predominantly

Washington-based IFIs: The World Bank Group and the International Monetary Fund (IMF).

Since the early 1980s, these institutions have played a central role in developing and

promoting market-based policies to LDCs around the world.(GP 194).

The term “Washington Consensus” was coined in 1989 by John Williamson.

Before further exploring the significance of the IFIs – and their role in promoting neo-

liberalism - it is useful to start by summarising some of the key concrete policies that

have been implemented in many places with their support. In the context of economic

development, a useful starting point is the set of policies often referred to as the

‘Washington Consensus’, a term which has gained notoriety is recent years, even

being parodied as the ‘Washington Contentious’ (Birdsall and De La Torre, 2001).

(Geographical

Paper194).(https://www.reading.ac.uk/web/FILES/geographyandenvironmentalscienc

e/GP194.pdf.)

The WC emerged in the early 1980s as a dramatic right-wing reaction against the perceived

weaknesses of the pre-WC developmentalist consensus. Rhetorically, the WC involved a

heavy attachment to a universalist neo-liberal ideology, with absolute commitment to the free

market and the presumption of the state as a source of both inefficiency and corruption, not

least through rent-seeking (for a clear statement, see Krueger, 1974). At the level of

scholarship, the WC suppressed the old development economics as a separate and respected

field and instead imposed rigid adherence to the deductive and formal methods of

neoclassical economics that were thought to be equally and directly applicable for analysis of

the problems of poor countries (see Jomo and Fine, 2006).

Content of the Original list of Washington Consensus 1. Fiscal Discipline. This was in the context of a region where almost all countries

had run large deficits that led to balance of payments crises and high inflation that

hit mainly the poor because the rich could park their money abroad.

2. Reordering Public Expenditure Priorities. This suggested switching

expenditure in a pro-growth and pro-poor way, from things like non-merit subsidies

to basic health and education and infrastructure. It did not call for all the burden

of achieving fiscal discipline to be placed on expenditure cuts; on the contrary, the

intention was to be strictly neutral about the desirable size of the public sector, an

issue on which even a hopeless consensus-seeker like me did not imagine that the

battle had been resolved with the end of history that was being promulgated at the

time.

3. Tax Reform. The aim was a tax system that would combine a broad tax base with

moderate marginal tax rates.

4. Liberalizing Interest Rates. In retrospect I wish I had formulated this in a

broader way as financial liberalization, stressed that views differed on how fast it

should be achieved, and—especially—recognized the importance of

accompanying financial liberalization with prudential supervision.

5. A Competitive Exchange Rate2. I fear I indulged in wishful thinking in asserting

that there was a consensus in favor of ensuring that the exchange rate would be

competitive, which pretty much implies an intermediate regime; in fact

Washington was already beginning to edge toward the two-corner doctrine which

holds that a country must either fix firmly or else it must float “cleanly”.

6. Trade Liberalization. I acknowledged that there was a difference of view about

how fast trade should be liberalized, but everyone agreed that was the appropriate

direction in which to move.

7. Liberalization of Inward Foreign Direct Investment. I specifically did not

include comprehensive capital account liberalization, because I did not believe

that did or should command a consensus in Washington.

8. Privatization. As noted already, this was the one area in which what originated as

a neoliberal idea had won broad acceptance. We have since been made very

conscious that it matters a lot how privatization is done: it can be a highly corrupt

process that transfers assets to a privileged elite for a fraction of their true value,

but the evidence is that it brings benefits (especially in terms of improved service

coverage) when done properly, and the privatized enterprise either sells into a

competitive market or is properly regulated.

9. Deregulation. This focused specifically on easing barriers to entry and exit, not

on abolishing regulations designed for safety or environmental reasons, or to

govern prices in a non-competitive industry.

10. Property Rights. This was primarily about providing the informal sector with the

ability to gain property rights at acceptable cost (inspired by Hernando de Soto’s

analysis). (John Williamson; Short history of Washington Consensus)

(http://www.iie.com/publications/papers/williamson0904-2.pdf).

Washington Consensus promotes open trade, deregulation and liberalized financial markets.

The WC comprised four elements. First is the hegemony of modern neoclassical theory

within development economics. In general, the neoclassical theory assumes that the market is

efficient and the state is inefficient. It naturally follows from this assumption that the market

rather than the state should address such economic problems of development as industrial

growth, international competitiveness and employment creation. Unquestioned belief in the

neoclassical theory also leads to the assumption that capital mobility and the relentless

advance of “globalization” is good for the world economy and all individual economies.

Although these policies offer the possibility of rapid growth by attracting foreign capital, this

can be achieved only if domestic policies conform to the interests of the (financial) markets—

otherwise capital will be driven elsewhere. Finally, given the priority attached to monetary

policies over fiscal policies, interest rates became the most important economic policy tool. It

was believed that “correct” interest rates could deliver balance of payments equilibrium, low

inflation, sustainable levels of consumption and investment, improved allocation of resources

and, therefore, high long-run growth rates.

Second, for the pre-WC, the main reason why poor countries remain poor is their lack of

capital (machines, infrastructure and money), and development is a process of systemic

transformation through modernization and industrialization, driven by domestic consumption

and domestically-financed capital accumulation. In contrast, in view of the WC, countries are

poor because of misconceived state intervention, corruption, inefficiency and misguided

economic incentives. According to WC, development is the inevitable outcome of a set of

“appropriate” incentives and neoclassical economic policies, including fiscal restraint,

privatization, the abolition of government intervention in prices, labour market “flexibility”,

and trade, financial, and capital account liberalization. There is little specification of what the

end-state would look like but, presumably, all countries would eventually approach an

idealized version of the United States.

Third, the WC emphasis on the virtues of the market was supported by the neo-Austrianism

associated with Friedrich von Hayek and the general equilibrium theory of mainstream

economics (see Fine and Saad-Filho, 2011). Despite the libertarian streak associated with

these theories, even the most ardent supporter of freedom of the individual in general, and

through the market in particular, agrees that these freedoms can be guaranteed only through

state provision of, and coercion for, a core set of functions and institutions. These range from

fiscal and monetary policies to law and order and property rights, and includes military

intervention to secure the “market economy” when this becomes necessary. Not surprisingly,

then, WC policies are often associated with authoritarianism, while the WC declarations of

support for political democracy are hedged and conditional in practice (Chile serves as a

classic illustration; see Barber, 1995). While the WC claimed to be leaving as much as

possible to the market, in practice it encouraged state intervention on a discretionary basis,

and directed to systematic promotion of a globalized and heavily financialized capitalism.

Fourth, under the WC the World Bank set the agenda for the study of development, with the

Bank and the IMF imposing the standards of orthodoxy within development economics, and

enforcing the relevant policies through conditionalities imposed on poor countries facing

balance of payments, fiscal or financial crises.( DESA Working Paper No. 100 November 2010 Growth, Poverty and Inequality: From Washington Consensus to Inclusive Growth Alfredo Saad-Filho).( http://www.un.org/esa/desa/papers/2010/wp100_2010.pdf).

It is apparent that this combination of policies, regulations and incentives is designed to shift

the economic role of state institutions away from direct intervention in the allocation of

resources, and transfer to the (financial) markets control over the levels of investment and

consumption, the allocation of investment funds, the composition of output and employment,

and the selection of competitive advantages. In these circumstances, poverty alleviation

cannot be a priority except only rhetorically and, even then, distributive aspirations were

tempered by “recognition” of their alleged inefficiency-generating implications.

Significantly, with the WC, states lost much of their capacity to select, implement and

monitor distributive and welfare policies because of legislative changes, departmental

reorganizations, salary reductions and large-scale redundancies. Given these pressures, the

improvement of the lot of the poor under the WC would depend upon the vicissitudes of the

trickle-down process. The conditionalities through which WC policies were imposed upon

poor and post-Socialist countries went far beyond the core monetary and fiscal

macroeconomic policies (in the case of the IMF) and the sector-specific, micro and financial

policies (for the World Bank) that were prevalent in the pre-WC period. An expanding set of

policy areas were claimed by the IFIs in the 1980s, including pricing policy, ownership of

productive and financial enterprises, market structures and regulation, public sector

management and political and economic governance (see UNCTAD, 2002, pp. 16-17). The

widening scope of policy conditionality was justified by the need to avoid moral hazard and

adverse selection, and by the hope of securing improved governance, which would

demonstrate public sector commitment to the new policy agenda. At a further remove, the

endogenous growth literature suggested that economic convergence was not inevitable, as

was implied by the Solow model. Rather, convergence was conditional on “good policies”

and sound investment decisions which could be secured only by market-friendly

Governments (see Bigsten and Levin, 2004, p. 255).

In the late 1980s and 1990s, the hegemony of the WC came under attack both in the academia

and in the emerging social movements, with three (not necessarily complementary) criticisms

pushed to the fore. The first was inspired by the notion of the developmental state (see Fine,

2006), thought to apply to the successful East Asian newly industrializing economies (NIEs),

with Japan as the precursor, followed by the four “tigers” (Hong Kong Special

Administrative Region of China, Republic of Korea, Singapore and Taiwan Province of

China) in the 1960s and 1970s, followed, in turn, by China, Indonesia, Malaysia, Thailand

and Vietnam. In all these cases, it was found that the state had violated the main tenets of the

WC through long-term planning, protectionism, directed finance and other departures from

the free market. The second approach focused on the notion of “adjustment with a human

face.” Irrespective of the merits of WC in bringing stability and growth, the adverse impact of

the WC policies on those in, or on the borders of, poverty was highlighted by a growing

literature beginning with Cornia, Jolly and Stewart (1987). They documented the human costs

of the crisis, showed that poverty was rising in the “adjusting” countries, and demonstrated

the tendency of the adjustment costs to fall on the most vulnerable. The WC stood accused of

being at least oblivious to the disproportionate burden on the poor arising from the processes

of adjustment and stabilization (see Chang, 2003 and Chang and Grabel, 2004). In its

defence, the World Bank deployed questionable appeals to the empirical evidence, selective

reference to the occasional if invariably temporary star performers, and the argument that the

problem was not with the policies but with their insufficient implementation, opening the way

to subsequent discourses around corruption, good governance and the like, invariably shifting

the blame to the underperforming countries themselves (see UNCTAD, 2002, p. 5). This

effort culminated in the publication of a major report on the East Asian newly industrialized

countries (NICs) (World Bank, 1993), arguing that government intervention had been

extensive but had only succeeded because it had been along the lines of what the market

would have done had it been working perfectly, and that the East Asian experience, in any

case, was not replicable elsewhere. These implausible claims were received with a

combination of astonishment and derision, and the Bank’s report was soon forgotten (see

Wade, 1996). The third criticism of the WC concerns the interface between economics and

politics. The closely related transitions to neoliberal economic policies and to political

democracy in several countries in the South and in Eastern Europe have introduced a

potentially severe tension because of the deployment of democratic and supposedly inclusive

political systems to enforce exclusionary economic policies. The neoliberal economic

policies demand a state hostile to the majority, even though a democratic state should be

responsive to majority pressures. (http://www.un.org/esa/desa/papers/2010/wp100_2010.pdf)

Bibliography:

James Halep’s working paper 194. Online at

(https://www.reading.ac.uk/web/FILES/geographyandenvironmentalscience/GP194.p

df.)

What is neo-liberalism A Brief Definition for Activists

by Elizabeth Martinez and Arnoldo Garcia, National Network for Immigrant and Refugee Rights.

(http://www.corpwatch.org/article.php?id=376)

Neo-liberal ideas. Online at http://www.who.int/trade/glossary/story067/en/

Theories and Practices of development, Second edition by Katie Willis. Online at

(http://younganthropologists.com/wp-content/uploads/2015/01/Theories-and-

Practices-of-Development.pdf)

Growth, Poverty and Inequality: From Washington Consensus to Inclusive Growth by

Alfredo Saad-Filho, November 2010. Online at

(http://www.un.org/esa/desa/papers/2010/wp100_2010.pdf)

Short History of Washington Consensus by John Williamson. Online at

(http://www.iie.com/publications/papers/williamson0904-2.pdf)

** Note: I have taken the book Theories of Development by Katie Willis as my main

Reference**