Is this the end of the Washington Consensus?
Two events, to be held in the next eight days, may signify the end of an era — a meeting of G20 leaders on October 30-31 to discuss “how to overcome the great challenges of today”, and the opening of the 26th United Nations climate change conference.
For the past five decades, liberal market economics has been the dominant governing philosophy. These years have undoubtedly seen the greatest increase in prosperity and decline in poverty in human history. But, at the same time, inequalities have risen and richer nation have consolidated their dominance.
Within nations, the Washington Consensus, as the market-based liberal paradigm came to be known, created inequalities; this bred dissatisfaction; and dissatisfaction led to a rise in autocracies.
Between nations, a rise in inequality has impacted global public goods. At their June summit in Cornwall, G7 leaders pledged to donate 870 million doses of the Covid-19 vaccine, but as World Health Organization director-general, Tedros Ghebreyesus, said then, “We need more and we need them urgently”. Vaccine inequity has only got more exacerbated since.
The relentless promotion of the pursuit of Gross Domestic Product (GDP) growth, without thought for its environmental consequences, has also led to a tipping point, where the consequences of the climate crisis are now real and palpable.
The Washington Consensus, with its promotion of the market, its advocacy of privatisation, and its emphasis on global trade, encouraged minimising the State’s role. In the beginning, this was understandable because of the damage States had caused when socialism was the dominant economic creed. Although socialism had many achievements to its credit, there is no doubt that, in the socialist era, the State became too influential economically. The PV Narasimha Rao government’s reforms were necessary to prevent socialism doing further damage in India.
But now, as a G7 Economic Resilience Panel appears to suggest, the Washington Consensus may have taken minimising the State too far and allowed the private sector to become excessively influential. To be sure, the panel has not called for a return to a socialist role for the State. It has called for “a critical role for governments in shaping economies that are more resilient, sustainable, and equal in partnership with private sector actors”.
India failed to recognise the dangers of giving the State too big a role. Now, there is a possibility that it will ignore the signs of the private sector getting too dominant a role. Can the Indian government’s reliance on privatisation to fund the recovery from the pandemic’s setback to the economy be seen as part of a new well-thought-out partnership between the State and the private sector? Or is it driven by necessity and the flawed assumption that the private sector inevitably does things better than the public sector?
The G7 panel report also suggests that there has been excessive reliance on measuring economic progress exclusively by GDP growth. India has been guilty of this. It needs to heed the report’s call for “a broader range of economic indicators and measurements of economic success”. The G7 panel also recommends that we need “a step-change in global economic governance”.
Will G20 leaders attending their summit this weekend and the delegates at the Glasgow climate conference take that step, or will nationalism block the way?
The views expressed are personal