Towards a new consensus
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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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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


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


Long wave: expansive phase

  • Higher growth

  • Increased employment

  • Progressive redistribution

  • Consolidated techno-economic paradigm

  • Policy optimism, New Consensus

  • (Post-)Keynesian, (post-)structuralist theory


Changed focus

From policy deconstructionism:

  • Deregulation

  • Decontrol

  • Denationalization


Changed focus

To policy constructivism:

  • Policy sovereignty

  • Structural change

  • Social justice (economic ethics, distributive justice)


New focusNew instruments

Policy sovereignty

Indebtedness policy

Structural change

Investment policy

Social justice

Income distribution policy


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


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


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


New Consensus model

Income

distribution

policy

Indebtedness

policy

Investment

policy

Foreign

debt


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


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


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


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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