In 1989, the British economist John Williamson christened what was to become the defining intellectual export of the era of globalisation: the Washington Consensus. Initially a reference to the policies adopted to tackle macroeconomic turmoil in Latin America, the term quickly morphed into a canonical "ten commandments" of development.
For at least two decades thereafter, evangelists of the "consensus" -- the World Bank, the International Monetary Fund, and the US Treasury (all headquartered in Washington) -- would preach the orthodoxy with quasi-religious zeal. The end of the Cold War meant that the gospel could be brought both to newly decolonised countries and to the post-communist "transition economies". The Western model -- liberal democracy combined with free markets -- represented the "end of history", and since the West had triumphed, all that remained was to convert the "rest" to the one true faith.
Three and a half decades later, we have ample evidence to assess the Washington Consensus's track record. One clear takeaway is that its one-size-fits-all approach often amplified macroeconomic events (like the 1997 Asian financial crisis) and reduced developing economies to sites for sweatshops. These countries ended up in a race to the bottom as they tried to outcompete each other on labour costs.
Moreover, none of these countries ever became a success story. The "development miracles" that policymakers and academics now fetishise -- Japan, South Korea, Taiwan, Singapore, China, India -- all departed from the Washington Consensus by making government an active participant in development.
Ever since the 2008 global financial crisis, meanwhile, many countries in the Global North have been experiencing what used to be considered "Third World problems": declining growth, rampant inequality, failing institutions, a fractured political consensus, corruption, mass protests, and anti-globalisation sentiment.
By 2009, UK Prime Minister Gordon Brown -- following on the heels of influential economists like Joseph E Stiglitz and Dani Rodrik -- had pronounced the Washington Consensus dead.
But the spectre of the Washington Consensus continues to haunt us. What would it take finally to exorcise the ghost? Among the explanations for why the "West and the rest" diverged historically, the most influential hypothesis has centred on "institutions". Douglass North's Institutions, Institutional Change and Economic Performance, Hernando de Soto's The Mystery of Capital, and Daron Acemoglu and James Robinson's Why Nations Fail all make a persuasive case that an economy's development depends on formal and informal rules, norms, and structures.
The context for these analyses is a world where secure property rights and enforceable contracts lubricate the wheels of economic performance. Yet the kinds of institutions that we will need to face the challenges of the future – climate change, artificial intelligence, the "race for space," pandemics – are fundamentally different. Not only must they be vastly more prosocial and geared toward establishing international cooperation to solve collective-action problems, but, following this, they will probably confer a structural advantage on the Global South.
The balance of world power is rapidly shifting. The Global South is already where most of the world's people live; and by dint of its younger population, it is where the world's future lies. Indeed, in 2023, the concept of the Global South and its possible role in global leadership was deemed mainstream. To navigate this new world, we will need to confront questions that the old consensus pushed aside.
For example, is there more than one route to growth and development? Is there a way to reinvent or restructure the global economy now that it has become a source of widespread dissatisfaction? Do some of the Global South's core features -- such as its relatively more communitarian cultures -- make it better suited to a leadership role in the current era? And most importantly, what even is the goal of development?
The Washington Consensus never had any time for such questions, and its ghost continues to impede the emergence of a new development paradigm based on cultural contexts and human cognition. The Seoul Development Consensus, with its pluralistic approach, was a promising step in the right direction. But we now need a Soul Consensus that accommodates ordinary people's psychic needs, in addition to countries' aggregate material needs. ©2024 Project Syndicate
Antara Haldar, Associate Professor of Empirical Legal Studies at the University of Cambridge, is a visiting faculty member at Harvard University and the principal investigator on a European Research Council grant on law and cognition.