By Simon Roughneen and Diana Ionescu
At the London G-20 Summit in April, British prime minister and host Gordon Brown asserted that “The Washington Consensus is over.” With the struggling U.S. economy pulling much of the world down with it, the “Anglo-Saxon model” is now deemed flawed. Dirigiste tendencies are in, with U.S. President Barack Obama embracing a government-funded “stimulus” package whose numbers are well in excess of his high-spending predecessor.
Washington itself is moving away from the formula — consisting of fiscal discipline, market-set interest rates, competitive exchange rates, liberalisation of trade and investment regimes, deregulation and privatisation — to which it lent its name. The “Washington Consensus” was a term coined by economist John Williamson back in 1989 to name a would-be policy panacea for struggling Latin American economies. When implemented via international financial institutions, the “one size fits all” approach did not always work, with the Asian economic crisis in 1998-99 being the classic case in point. Moreover, given that it was not adhered to by the U.S., even under allegedly free-market-oriented Republican administrations, it is debatable whether it was ever really a consensus to begin with. Certainly IFI aid recipients often had no choice but to apply the measures prescribed.
Still, whether Brown’s baroque-sounding declaration is in fact true remains unclear. Such “line in the sand” soundbites might be more the product of Western navel-gazing than a reflection of real changes in underlying policy — or even thinking — elsewhere. China and India, who have cherry-picked their market reforms, are doing better in the global downturn than either their OECD counterparts or neighbouring states. Although neither country fully subscribed to every aspect of the Washington Consensus, neither one — so far — is seriously questioning those market-oriented principles and practices that they did use to underwrite their recent economic success. Unlike in Europe or the U.S., for example, neither Asian giant is contemplating the nationalisation of banks.
Prior to the subprime debacle and last autumn’s Wall Street meltdown, an alternative “Beijing Consensus” — labeled as such by Joshua Ramo-Cooper in 2004 — had emerged. So it’s been said, anyway. China’s massive economic growth, combining political repression with economic libertarianism, represents — to some — a new model to be emulated. With the U.S. now focused on domestic economic worries, the Beijing Consensus seems to be the way to go for emerging economies.
However, the Beijing Consensus is more amorphous than its Washington counterpart. Loosely-based around innovation, sustainability and national independence, its inscribed pragmatism means that it can be fitted to local conditions and demands on an individual basis. This is, of course, welcome, with political and economic realities taking precedent over dogma. It does, however, mean that the “consensus,” or model, is more elusive than tangible.
Chinese influence over its neighbours is growing, case-by-case and incrementally, be that via an expanded role for the Asian Development Bank — akin to the revival of the International Monetary Fund by the G-20 — or a series of currency swaps with countries such as Indonesia, South Korea and Malaysia — intended to pre-empt any repeat of 1998 in Asia, with the byproduct being a growing role of the yuan in the world economy. (See Daniel McDowell’s WPR Briefing.)
How much all of this is “ideological” is unquantifiable. But the practical impact is to affirm Beijing as the “go to” patron, adding to the perception that China offers a discrete, alternative economic model to emulate. Certainly all exporting Asian economies need to stimulate domestic spending and consumption as belts are tightened Stateside — with China, too, moving in this direction and exhorting its hinterland to follow.
Meanwhile, on May 16, in announcing his nomination of John Huntsman, the Republican governor of Utah as the next U.S. ambassador to China, President Obama stated that he viewed the U.S.-China bilateral relationship as key to confronting global challenges. Some commentators have talked up a putative “G-2” partnership between Beijing and Washington, designed to lead the way out of the economic crisis. Harvard historian Niall Ferguson described this new entity — bound together by thrifty Chinese savers effectively holding the note for the vast U.S. spending deficit — as “Chimerica.”
However “chimera” might be a better word, since irrespective of the necessity of such a partnership, the U.S.-China relationship is not yet — and might not ever be — a durable formula for global stability. At issue, again, is the notion of consensus, as Western countries struggle to balance their economic need to deal with China, with obligations to uphold and protect civil rights around the world.
China’s values-blind criteria for aid and commercial engagement are well-known. The Sri Lankan army, in its campaign to defeat the Tamil Tiger rebels, has caused untold human suffering in rebel-held areas in the most recent and decisive phase of its counterinsurgency. Colombo is armed and supported by Beijing, which has none of the squeamish concerns evinced by Western governments at Sri Lanka’s disregard for Tamil civilians. The same holds true for Beijing’s political and economic dealings with Sudan, Burma and Zimbabwe. In all these cases, China provides weapons and a U.N. Security Council “diplomatic shield” in return for access to natural resources and favourable investment terms, while Western countries impose sanctions on the same regimes.
Obama’s étatist tendencies notwithstanding, it looks highly unlikely that any effective G-2 consensus can be attained on these and other important political — and economic — issues. The Washington Consensus, in as much as it was ever set in stone or strictly adhered to, is not as dead as Brown thinks. Bits of it will continue to be applied and used, and the same goes for the even more-elusive Beijing Consensus. As for the new Chimerica Consensus, like its predecessors, it will remain more chimera than consensus.
Diana Ionescu is a post-graduate economics student at the Vienna University of Economics and Business, writing her thesis on sovereign wealth funds.Show