John Williamson, “Democracy and the ‘Washington consensus’,” World Development 21 (1993), pp. 1329-36.

Summary: Williamson sees the need to retain much of what was proposed in the Washington consensus, but focus on first stabilization (crisis proofing) and then the subsequent implementation of both first and second generation reforms. It all just sounds so easy…

 

Critique: All of this requires political will, and given Karl’s argument about the vicious cycle of inequality, there is little to none of that.  This ignores the realities on the ground.

 

== Notes ==

* 1990s did not produce the growth that many in LA were hoping for

* What went wrong in the 1990s?

** There were policy errors and externalities, but the most damaging factor to economic growth was the series of crises that emerging markets have suffered

*** Too many countries made themselves vulnerable to ‘sudden stops’ in capital inflows, and they left themselves no scope to relax fiscal policy in difficult times

** Reforms were incomplete

*** Some first generation reforms were neglected or incomplete

*** In addition, there is a whole generation of second-generation reforms required (by Washington consensus) and (except for in Chile), not properly pursued

** The main objective informing policy was excessively narrow

*** Policy stressed growth no growth and equity (cf. Karl)

 

=== New Agenda I: Crisis Proofing ===

* Achieve budget surplus in times of prosperity

* Subject subnational governments to hard budgetary restraints

* Accumulate resources and build a stabilization fund when exports are strong

* Adopt a flexible exchange rate regime

* Minimize the use of US dollar as currency

* Monetary policy focused on low inflation rate

* More supervision of the banking system

* Increase domestic savings

* All of these are simple economic mechanisms

 

=== New Agenda II: Completing First-Generation Reforms ===

* Crisis proofing isn’t enough -> They need a faster rate of growth

* Important to take some of the power away from organized labour to allow for faster growth and flexibility

* Argues for more privatization (problem for accountability…), improving access to markets

 

=== New Agenda III: Second-Generation Reforms ===

* Government has an important role in creating a business-friendly environment (see Johnson on developmental state)

* Should pursue reforms of the judiciary, teachers, and the civil service

* Also, should modernize the institutional infrastructure of a market economy – Increase the effectiveness of property rights

 

=== New Agenda IV: Income Distribution and the Social Sector ===

* Two ways to decrease poverty

** 1) Increase the size of the pie

** 2) Re-allocate the existing pie

* “Benefits do trickle down.” (14) Even without a pro-poor agenda in place

* There is room for both equity and income improvements – and not necessarily one at the cost of the other

* “in a highly unequal region like Latin America, opportunities for making huge distributive gains for modest efficiency costs deserve to be seized.

* Need for progressive, direct taxation

** Property tax as a major revenue source

** Elimination of tax loopholes

** Better tax collection

* Taxes collected should be devoted to basic social services

* Basic solution to poverty is to offer the poor the opposition to take part in the market -> Education, titling programs, land reform, micro credit

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