Glorious Ritchie!

I have a feeling that Richard doesn\’t in fact understand what he\’s talking about here.

Has he learned nothing as yet?

This the old paradigm of the Washington Consensus writ large. Haven’t they noticed it was this that failed? It was this that created the crisis.

So, let\’s see what the Washington Consensus actually says, shall we?

The consensus included ten broad sets of recommendations:[1]

* Fiscal policy discipline;
* Redirection of public spending from subsidies (\”especially indiscriminate subsidies\”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
* Tax reform – broadening the tax base and adopting moderate marginal tax rates;
* Interest rates that are market determined and positive (but moderate) in real terms;
* Competitive exchange rates;
* 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;
* Liberalization of inward foreign direct investment;
* Privatization of state enterprises;
* 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.

Now I cannot see there any policy proposal that I would argue against. In fact, I cannot see any policy proposals there that Ritchie would want to argue against.

I also cannot see anything in that which led to the current \”crisis\”.

Indeed, I can see that all of the varying (and entirely different) posited explanations of the causes of the crisis violate one or more of those suggestions.

If you go for the simple credit bubble leading to an asset bubble which then bursts explanation then that was in violation of point 4. If you go for the bankers getting out of hand one then that\’s a violation of point 9. If you go for Brown (or Bush, whoever) spending like a drunken sailor when the boom, according to basic Keynesian thought, should have been leading to fiscal contraction then that\’s a violation of point 1. If it\’s all about an overvalued dollar and an undervalued renmimbi then that violates point 5.

And so on, through the various different possible explanations of what actually happened.

So no, I don\’t see that the Washington Consensus can be blamed for what went wrong.

However, I can see that same consensus taking the credit where it was actually applied, in the developing nations….for yes, do note that the preachers weren\’t in fact following (as above) their preaching at home. Quelle Surprise. Jim Bakker and Jimmy Swaggart really were role models….

And what was the result of applying that Washington Consensus?

World poverty is falling. Between 1970 and 2006, the global poverty rate has been cut by nearly three quarters. The percentage of the world population living on less than $1 a day (in PPP-adjusted 2000 dollars) went from 26.8% in 1970 to 5.4% in 2006 (Figure 1).

Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.

I think I\’d call that a win really. Wouldn\’t you? The greatest reduction in poverty in the entire history of our species?

5 comments on “Glorious Ritchie!

  1. Only a week two ago Dick was bigging himself up about seeing “the IMF later this week. I’,m now looking forward to constructive dialogue, debate and a programme for action.” Doesn’t look like they are listening to him…not necessarily a bad thing in my book.

  2. The great reduction in world poverty was caused mainly by China, wasn’t it? And I’m not sure they followed the Washington Consensus, particularly on exchange rates.

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  5. Most of that reduction was done by China and they have not followed the Washington Consensus. Less illiberal is not the same as following the Washington Consensus.

    * Fiscal policy discipline;
    Nope. The Chinese state is fairly profligate and has responded to the crisis with a large and decidedly un-Washington Consensus stimulus. It has consciously learned from the dreadful advice given by the IMF during the East Asian Crisis. Fail.
    * Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
    Definitely had a more focused provision of public service in China. Pass.
    * Tax reform – broadening the tax base and adopting moderate marginal tax rates;
    Tax issues in China are fairly complex and a lot of it is left down to local Government. Partial Credit.
    * Interest rates that are market determined and positive (but moderate) in real terms;
    Interest rates set by the state. Fail.
    * Competitive exchange rates;
    Undervalued renimbi. Fail.
    * 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;
    High tariff barriers and non-tariff barriers in the early days, with relatively high barriers remaining. Although there is a lot of cross border trade of components which I think is not controlled or taxed in anyway. Fail.
    * Liberalization of inward foreign direct investment;
    Lots of controls on inward investment from the late 1970s onwards. Fail.
    * Privatization of state enterprises;
    Everything was state owned in China so privatisation is the only way China could have gone, it couldn’t get more statist. But for a lot of its modern incarnation the State sector has played an important role. Partial Credit.
    * 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;
    In China there has been lots of deregulation, true. Pass.
    * Legal security for property rights.
    Not in China, it developed for 30 years with only de facto but not de jure property rights for most of the population (who kinda long leased their land from the state). Fail

    Come on, it woz capitalism wot did it, but not a liberal form of it, or anything to do with the Washington Consensus.

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