Some of the sting has been taken out of the published version:
April 28th, 2010: The Express-Tribune: Policies for Growth
The pre-publication version is around 700 words and more aggressively asserts FAILURE of conventional growth policies. My title for it was The Breakdowns of the Washington Consensus:View Download
The version given below is an early draft, and several paragraphs have been excised from it in later versions.
Related Articles are attached below:
by Faisal Bari:View Download
Article below gives historical background information used in my newspaper article
Pakistan Forum: Building Dependendency in Pakistan
Author(s): Feroz Ahmed View Download
Source: MERIP Reports, No. 29 (Jun., 1974), pp. 17-20
Published by: Middle East Research and Information Project
Degol Hailu, International Policy Centre for Inclusive Growth:
Is the Washington Consensus Dead? April 2009, IPC One-Pager No 82
The Rich Expand, the Poor Contract:The Paradox of Macroeconomic Policy in Ethiopia, March 2009 IPC One pager No. 78
Shahrukh Rafi Khan: On IMF Loans to Pakistan.
Has Policy-Based Lending by the IMF and World Bank Been Effective in the Arab World? by Jane Harrigan, Professor, Department of Economics, Centre for Development Policy and Research School of Oriental and African Studies (SOAS) Development Viewpoint No 17, Oct 2008.
Breakdown of the Washington Consensus
Asad Zaman
When we look at the world around us, we observe strikingly large income disparities. Heart-rending pictures of starving children crawling towards UN Relief Camps as the vultures circle can be juxtaposed with those of $20,000 crocodile skin briefcases, and luxury yachts of people who own private islands. Closer to home, a distraught widow resigned herself to the loss of a daughter with typhoid, until neighbors pitched in for Rs. 4000 required for the treatment. Many are less fortunate, and suffer heavily for lack of amounts which are small change for the wealthier segments of society. These within country disparities are matched by inter-country disparities. World Bank data for 2008 shows the gross national income per capita (GNIPC) for Norway to be $90,000 per annum, about 400 times the GNIPC of $150 for Congo. How did the world come to be this way? Can we change things for the better? These questions, and the urge to ‘do something about it’ arise naturally to sensitive and compassionate people. I hope to use these columns to present several elements of the answers, which are deep, complex and surprising. In this column, I will discuss the failures of policies used to combat poverty.
Prior to World War I, virtually the whole world was under direct or indirect control of European powers. Used as pawns on an international chessboard, the European colonies tasted of wars and revolutions and freedom. These lessons were put to use as nearly all colonies gained independence by the middle of the twentieth century. Leaders of the newly independent countries faced this question in its most urgent and practical form: what policies should we adopt to lift ourselves up from poverty? Long periods of colonization had destroyed indigenous traditions and leadership, and power came into the hands of western educated elites, who naturally pursued western ideas about the nature of the problem of “under-development” and its cure. The striking fact about sixty years of experience with pursuing these western strategies is their virtually complete failure. Nearly all success stories of development are associated with significant deviations from western models, while all systematic applications of western theories have led to failure.
In Pakistan, we have first hand experience of this failure. The first and second Five Year Plans of Pakistan were drafted by the “Development Advisory Service,” funded by the Ford Foundation and led by Edward Mason of Harvard University. Apart from preparing the most important sections of Five Year Plans, Harvard advisers also participated in and contributed significantly to provincial planning. Institutions required for American style planning processes were also launched with heavy involvement and advice from Harvard and the World Bank. These included the Planning Commission, PIDE and CSO – Central Statistical Organization – the predecessor of FBS. Many bureaucrats opposed aspects of the plan which they saw as opposed to vital domestic interests, but lost the battle to the “technocrats” who claimed expertise and were armed with sophisticated theories and data.
Mahbubul-Haq, one of the chief architects and executors of the Harvard group economic policies, was disillusioned by the outcomes of the much touted “Decade of Development”. In 1968, after ten years of western style development, Dr Haq said that 22 family groups “controlled at that time about two thirds of the industrial assets, 80 percent of banking, and 70 percent of insurance in Pakistan”. He expressed his dissatisfaction as follows: “In blunt terms, Pakistan’s capitalistic system is still one of the most primitive in the world. It is a system in which economic feudalism prevails. A handful of people, whether landlords or industrialists or bureaucrats, make all the basic decisions and the system often works simply because there is an alliance between various vested interests.”
The initial wave of USA led planning processes did not produce development, but foreign aid packages within these plans did create dependencies, links and client state relationships between the USA and the political and military leadership in the former colonies. Widespread failures, and changing political climate, led to the development of second generation development policies, this time based on free markets. A package of standard policies used by the IMF and the World Bank has been labeled the “Washington Consensus.” The detailed list of ten policies has been summarized as “Stabilize, Privatize, and Liberalize.” Nobel Laureate Stiglitz has criticized this package as a “one size fits all” approach which does not take into account local economic conditions. Despite substantial difference in appearance and format, this approach to development has led to outcomes similar to those observed in Pakistan: Increases in concentration of wealth, income inequalities, poverty and unemployment. Social tensions caused by these policies have frequently resulted in political and economic crises. Some economists have argued that much of the poverty we see around the world is due to global imposition of these flawed policies for growth.
In parallel with Mahbubul-Haq’s experience, many people associated with the design and execution of the Washington Consensus policies have acknowledged their failure. Oliver Williamson, who coined the term “Washington Consensus,” has summarized the overall results on growth, employment and poverty reduction in many countries as "disappointing, to say the least". Unlike Mahbubul-Haq, Williamson did not abandon them in face of this failure. He considers the theories on which the policies are based to be as fundamental and basic as “motherhood and apple pie,” and blames their failure on other factors.
Like Williamson, economists and policymakers continue to tout third generation reformed and sophisticated versions of these policies, as cures for low income. They attribute second generation failures to institutional weaknesses, flaws in execution and sequencing, corruption, and other factors. In fact, these policies and their background theories are fundamentally flawed. To prove this, Dani Rodrik of Harvard has pointed out that the general economic policies of China and India remained the exact opposite to the Washington Consensus' main recommendations. Both had high levels of protectionism, no privatization, extensive industrial policies planning, and lax fiscal and financial policies through the 1990s. They have nonetheless been highly successful in achieving income growth and poverty reduction.
In subsequent columns, I plan to analyze elements of neoclassical prescriptions for growth which lead to failures. This is important since our economic planners still seem to be under the spell of the Washington Consensus, despite its widely acknowledged failure. I will also try to analyze the success stories of development and pick out those policies which could be successfully replicated in the Pakistani context.