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Towards a New Consensus

Towards a New Consensus. Analyzing Bolivian Poverty Reduction Strategies. “It is fair to say that nobody really believes in the Washington Consensus anymore.” From: “Goodbye Washington Consensus, Hello Washington Confusion?” Dani Rodrik Harvard University January 2006.

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Towards a New Consensus

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  1. Towards a New Consensus Analyzing Bolivian Poverty Reduction Strategies

  2. “It is fair to say that nobody really believes in the Washington Consensus anymore.” From: “Goodbye Washington Consensus, Hello Washington Confusion?” Dani Rodrik Harvard University January 2006

  3. Long wave: depressive phase • Lower growth • Increased unemployment • Regressive redistribution • Decaying “techno-economic paradigm,” or “mode of regulation” (“Fordism”) • Laissez-faire, Washington Consensus policies • “Real business cycles” types of economic theory

  4. Long wave: expansive phase • Higher growth • Increased employment • Progressive redistribution • Consolidated techno-economic paradigm • Policy optimism, New Consensus • (Post-)Keynesian, (post-)structuralist theory

  5. Changed focus From policy deconstructionism: • Deregulation • Decontrol • Denationalization

  6. Changed focus To policy constructivism: • Policy sovereignty • Structural change • Social justice (economic ethics, distributive justice)

  7. New focusNew instruments Policy sovereignty Indebtedness policy Structural change Investment policy Social justice Income distribution policy

  8. Indebtedness policy:regulation of financial flows From : Cycles of massive inflows and euphoria followed by capital flight and debt crises To: Desendeudamiento and regulation of international capital flows Foreign saving = trade deficit = a knowable variable

  9. Investment policy:output structure matters Structure matters • Natural resource exports = low growth • Primary specialization = high inequality • Employment intensity = poverty reduction elasticity of growth Investment policy

  10. Income distribution policy:tax and expenditure reform • Increasing inequality in most countries during the low growth phase • Latin America: Most unequal income distribution, low tax/GDP ratio, regressive tax reforms Income distribution policy

  11. New Consensus model Income distribution policy Indebtedness policy Investment policy Foreign debt

  12. Base scenario: Estrategia Boliviana de Reducción de la Pobreza(Poverty reduction 200-2015: 5.7 points, from 50.3 percent to 44.6)

  13. Poverty minimizing structural change(Poverty reduction 2000-2015: 10 points, from 50.3 to 40.3 percent)

  14. Redistribution policies • Millennium tax [and expenditure] reform: Tax rate 8.1 percent (4.6 percent of GDP) • Rawlsian tax reform: Tax rate 16.7 percent (9.5 percent of GDP) • Undercollection: 3.6 percent of GDP

  15. Millennium employment strategy Employment maximizing investment strategy • Strong similarity with poverty minimization Similar GDP and poverty reduction Similar changes in output structure Stronger focus on Food staples agriculture (weaker on Small industry) • Confirmed cross-country by World Bank study (Perry et al. 2006)

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