Development theory and policy 2007 WHAT ARE THE ELEMENTS OF THE WASHINGTON CONSENSUS AND HOW IS THIS DIFFERENT FROM

1. S. McLean 1 Development theory and policy 2007WHAT ARE THE ELEMENTS OF THE �WASHINGTON CONSENSUS� AND HOW IS THIS DIFFERENT FROM �ADJUSTMENT WITH A HUMAN FACE�?By: Schmoi McLean

2. S. McLean 2 Outline of the Presentation What is the Washington Consensus? Why was it developed? What are the elements of the Washington Consensus? What is Adjustment with a Human Face? What is the difference between the Washington Consensus and Adjustment with a Human Face?

3. S. McLean 3 What is the Washington Consensus? The concept and name of the Washington Consensus were first presented in 1989 by John Williamson, an economist from an economic �think-tank� in Washington, D.C. The term Washington Consensus was used to summarize the commonly shared themes among policy advice by Washington-based institutions at the time such as the International Monetary Fund, World Bank, and the U.S. Treasury Department It was a set of Structural Adjustment Policies (SAPs)/economic policies which countries must follow in order to qualify for new World Bank and IMF loans and help them make debt repayments on the older debts owed to commercial banks, governments and the World Bank

4. S. McLean 4 Why was the Washington Consensus developed? The Washington Consensus was believed to be necessary for the recovery of Latin America from the financial crisis of the 1980s.

5. S. McLean 5 What are the elements of the Washington Consensus? There were 10 broad sets of recommendations Fiscal policy discipline (This often result in deep cuts in programs like education, health and social care). Redirection of public spending from indiscriminate subsidies toward broad-based provision of key pro-growth, pro-poor services such as primary education, primary health care and infrastructure investment. (Many IMF and World Bank loans call for the imposition of �user fees� � charges for govt-provided services like schools, health clinics and clean drinking water. For very poor people, even modest charges may result in the denial of these services).

6. S. McLean 6 What are the elements of the Washington Consensus? Cont. Tax reform � broadening the tax base and adopting marginal tax rates Interest rates that are market determined and positive (but moderate ) in real terms (Higher interest rates exert a recessionary effect on national incomes, leading to higher rates of joblessness. Small businesses find it more difficult to gain access to affordable credit, and often are unable to survive). Competitive exchange rates

7. S. McLean 7 What are the elements of the Washington Consensus? Cont. Trade liberalization � liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs (the elimination of tariff protection for industries in developing countries often leads to mass layoffs. Eg. In Mozambique the IMF and World Bank ordered the removal of an export tax on cashew nuts. The result:10,000 adults, mostly women, lost their jobs in cashew nut-processing factories. Most of the processing work shifted to India, where child labourers shell the nuts at home).

8. S. McLean 8 What are the elements of the Washington Consensus? Cont. Liberalization of inward foreign direct investment Privatization of state enterprises (SAPs call for the sell off of government-owned enterprises to private owners, often foreign investors. Privatization is typically associated with layoffs and pay cuts for workers in the privatized enterprises.

9. S. McLean 9 What are the elements of the Washington Consensus? Cont. Deregulation � abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions Legal security for property rights

10. S. McLean 10 What is Adjustment with a Human Face? �When structural adjustment issues came to the fore (in the 1980s), little attention was paid to the effects on the poor �. Many observers called attention to the situation, but it was UNICEF that first brought the issue into the centre of the debate on design and effects of adjustment� (World Bank, 1990: 103)

11. S. McLean 11 What is Adjustment with a Human Face? Cont. In the early 1980s UNICEF became increasingly concerned with the setbacks in health, education and child nutrition arising in many developing countries. UNICEF�s response to this was to develop international and national policies to offset these setbacks.

12. S. McLean 12 Economists contribution to the Washington Consensus John Keynes General Theory of Employment and Money (1936) was not particularly interested in long term growth or in conditions in the colonies. Keynes� analyses and propositions regarding institutional control of international trade and finance

13. S. McLean 13 Leading up to Washington Consensus and Adjustment with a Human Face

14. S. McLean 14 Difference between the Washington Consensus and Adjustment with a Human Face In the 1980s focus was shifted to poverty and priority given to basic needs which came out of �Adjustment with a Human Face� (Cornia, Jolly and Stewart, 1987) Pressure from UNICEF and UNDP encouraged the World Bank to revisit its previous poverty programs and to come forward with clear formulations on the need for addressing poverty in a direct manner, rather than through macro-economic measures.

15. S. McLean 15 Difference between the Washington Consensus and Adjustment with a Human Face

16. S. McLean 16 Difference between the Washington Consensus and Adjustment with a Human Face

17. S. McLean 17 Resistance to Washington Consensus SAPs JAMAICA(January 1985) Demonstrators across the country protest the government�s decision to raise fuel prices in accordance with a SAP that began with a 1982 World Bank loan that was renegotiated in November 1984 (www.whirledbank.org)

18. S. McLean 18 Resistance to Washington Consensus SAPs TRINIDAD (July 28 - August 2, 1990) The Society of Muslims assaults govt. headquarters and takes President Robinson and other members of the cabinet hostage, demanding an end to IMF-imposed economic austerity measures. Riots and looting follow the assault in Port of Spain; at least 50 people killed (www.whirledbank.org)

19. S. McLean 19 Conclusion The Washington Consensus took a one size fits all approach and failed to look at economic and cultural differences between countries which has not allowed for industrial deepening and structural transformation of many developing countries. Adjustment with a Human Face tried to address this by incorporating basic human concerns and seeing vulnerable groups as central objectives in economic growth and development. Without public action directed at the poorest and most vulnerable, there is no guarantee that economic growths and improvements in social indicators and poverty will automatically decline.