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Mikeg
---------- Forwarded message ----------
Date: Tue, 12 May 1998 10:24:21 -0500
From: "Doug H." <[EMAIL PROTECTED]>
To: [EMAIL PROTECTED]
Subject: World Bank VP Condemns "Washington Consensus" Economics
Feature articles
WORLD BANK SENIOR VICE PRESIDENT ADMITS
HIPC CONDITIONS WRONG
'Greater humility' is needed, admitted the World Bank's chief
economist and senior vice president Joseph Stiglitz, in a speech in
which he called for an end to 'misguided' policies imposed from
Washington.
Joseph Stiglitz's wide-ranging condemnation of the 'Washington
Consensus' and the conditions imposed on poor countries must
raise fundamental questions about the entire debt relief process
now being coordinated by the IMF and World Bank. Debt relief
under the HIPC (Heavily Indebted Poor Countries) initiative is
conditional on six years of faithfully obeying demands from the
Fund and Bank which Stiglitz now calls 'misguided'.
The World Bank's senior vice president and chief economist is
scathing about what he calls the '"Washington Consensus" of US
economic officials, the International Monetary Fund (IMF), and the
World Bank'. He says that 'the set of policies which underlay the
Washington Consensus are neither necessary nor sufficient, either
for macro-stability or longer-term development.' They are
'sometimes misguided', 'neglect .. fundamental issues', are
'sometimes even misleading, and do 'not even address ... vital
questions'.
'Had this advice been followed [in the United States], the
remarkable expansion of the US economy ... would have been
thwarted.' Russia followed the Washington Consensus line while
China did not, Stiglitz notes, and 'real incomes and consumption
have fallen in the former Soviet empire, and real incomes and
consumption have risen remarkably rapidly in China.'
The Washington Consensus only sought to achieve increases in
measured GDP, whereas 'we seek increases in living standards -
including improved health and education. ... We seek equitable
development which ensures that all groups in society enjoy the
fruits of development, not just the few at the top. And we seek
democratic development.'
Joseph Stiglitz made his speech in Helsinki, Finland, on 7 January
1998, and so far it has been little reported. Perhaps he needed to
be as far away from Washington as possible, because he
undermined virtually every pillar of the structural adjustment and
stabilisation polices that serve as necessary conditions under
HIPC. He asserts:
MODERATE INFLATION IS NOT HARMFUL. Hyper-inflation
is costly, but below 40% inflation per year, 'there is no
evidence that inflation is costly'. Furthermore, there is no
evidence of a 'slippery slope' - there is no evidence that one
increase in inflation causes further increases. Thus 'the focus
on inflation ... has led to macroeconomic policies which may
not be the most conducive for long-term economic growth.'
BUDGET DEFICITS CAN BE OK, 'given the high returns to
government investment in such crucial areas as primary
education and physical infrastructure (especially roads and
energy).' Thus 'it may make sense for the government to treat
foreign aid as a legitimate source of revenue, just like taxes,
and balance the budget inclusive of foreign aid.'
MACRO-ECONOMIC STABILITY IS THE WRONG TARGET.
'Ironically, macroeconomic stability, as seen by the
Washington Consensus, typically down-plays the most
fundamental sense of stability: stabilizing output or
unemployment. Minimising or avoiding major economic
contractions should be one of the most important goals of
policy. In the short run, large-scale involuntary unemployment
is clearly inefficient - in purely economic terms it represents
idle resources that could be used more productively.'
'THE ADVOCATES OF PRIVATIZATION OVERESTIMATED
THE BENEFITS of privatization and underestimated the
costs.' And the gains occur prior to privatization, through a
process of 'corporatization' which involves creating proper
incentives. China 'eschewed a strategy of outright
privatization'.
COMPETITION, NOT OWNERSHIP, IS KEY. Private
monopolies can lead to excess profits and inefficiency.
Government must intervene to create competition.
MARKETS ARE NOT AUTOMATICALLY BETTER. 'The
unspoken premise [of the Washington Consensus] is that
governments are presumed to be worse than markets. ... I do
not believe [that]'. Stiglitz notes, in particular, that 'left to itself,
the market will tend to underprovide human capital' and
technology. 'Without government action there will be too little
investment in the production and adoption of new technology.'
PRIMARY EDUCATION MAY NOT BE THE RIGHT
PRIORITY. Tertiary (university) technical education has a
particularly high economic return because it enables the
economy to import ideas. But here, Stiglitz has two caveats.
He wants to see the training of more scientists and engineers
and not extra liberal arts graduates as were trained in much of
Africa. And he warns university education causes an
immediate increase in inequality because 'the direct
beneficiaries ... are almost always better off than average.'
'THE DOGMA OF LIBERALIZATION HAS BECOME AN END
IN ITSELF AND NOT A MEANS TO A BETTER FINANCIAL
SYSTEM.' Financial markets do not do a good job of selecting
the most productive recipients of funds or of monitoring the
use of funds, and must be controlled. Deregulation led to the
crisis in Thailand and the 'notorious Savings and Loan
debacle in the United States.'
Perhaps the key problem is that Washington Consensus 'political
recommendations could be administered by economists using little
more than simple accounting frameworks.' This led to 'cases
where economists would fly into a country, look at and attempt to
verify these data, and make macroeconomic recommendations for
policy reforms, all in the space of a couple of weeks.'
Stiglitz calls for a new 'post-Washington Consensus' which, he
says, 'cannot be based on Washington'. And, he adds, one 'one
principle of the emerging consensus is a greater degree of
humility, the frank acknowledgement that we do not have all the
answers.'
