For years, it was widely accepted that free markets, democratic governing and minimal state intervention were the only ways to attain economic prosperity. These were seen to maximize fortune for a large group of people, if not for the entire population of a country, propel growth at unprecedented levels and create an overall ‘developed’ nation. This was how the United States came to stand at the pinnacle of global domination. An aggressive capitalist economy, the US recorded an average of $5, 00,000 Million GDP in 1989. It consistently made extensive advancements in the fields of technology, petro chemicals and medicine and continues to be the wealthiest nation on the globe. It takes pride in its democratic principles, freedom of life and livelihood. And up until the end of the 20th century, the US completely polarized world economies into subscribing to its neo-liberalist ideals. This birthed the Washington Consensus (WC), general guidelines of policy and monetary reforms required for economic development, or more specifically, a set of guidelines followed by policy makers in Washington DC. It would have gone unchallenged, albeit not without criticism, had it not been for the unprecedented rise of another global superpower. This superpower had a troubled history, larger population, a quicker, quieter ascension to power, and most discomfortingly; it did not play by the rules.
The transformation of China from a poor, agrarian economy to a multi-billion dollar power house still remains the most hotly debated topic amongst academicians and economists. The exporter of 221 of the 500 major industrial items (Deloitte’s Global Retailing Powers 2018), China has shown consistent double digit growth since the 1950s. However, it continued to maintain an iron clad grip on all economic proceedings of the country. China micro managed its foreign investment, elevated its favorites amongst private industries, made inconsistent public spending and still somehow managed to become the second-wealthiest nation in the world. All this was achieved in the backdrop of its dangerous disregard for democratic ideals. Alarmingly, it became popular lore that somehow China’s rise to power was not despite its authoritarian rule but because of it. In the scope of this article, this debate narrows to the greatest challenge to the WC and everything it signified, the controversial ‘Beijing Consensus’.
The Washington Consensus
By the 1980s, many regions of Latin America were struggling with hyper-inflation. Eastern European countries like Romania, Hungary and Poland amongst others, were dealing with crushing government debt crises and African countries were building shaky economies from the ground up post independence. In 1989, British economist John Williamson proposed the WC in a bid to pull developing nations from the quagmire. It had affiliation from international institutions such as the IMF, WTO and the American State Treasury Department. It was envisaged to be an essential set of policies to counter the various crises around the world, or, policies “more or less everyone in Washington would agree were needed more or less everywhere in Latin America”.
The policies strongly advocated a neo-liberalist economy, one that propagates free market in a liberalist political structure. While not mentioned outright, the rubrics defined in the consensus seemed to require democratic governance. Moreover, the IMF and other international institutions introduced stabilization and structural adjustment programs. These warranted that nations must fulfill similar criteria to receive financial and reformative aid.
This is perhaps, why the Washington Consensus could not sustain popularity for long.
In fact, many of the WC’s policies were not universally tenable, and had failed to give consistent results for Africa, Latin America and the Soviet region. For instance, if markets are liberalized too early in the course of their development along with complete abolition of protectionist mechanisms, there could be low income production and price volatility within the economy. The same could be said of public spending, which, if completely redirected, could severely affect the social welfare of the poor citizens of a developing country. The WC was criticized for citing policies that could cause further deterioration of national economies. ‘The paradox is that any country capable of meeting such stringent requirements is already a developed country.” wrote Moises Naim, a Venezuelan journalist in ‘Washington Consensus or Washington Confusion?’. The IMF and WTO’s conditionality, which Williamson denied had been based on the WC, caused anger because of its added inaccessibility.
Williamson tried to refute and clarify many conditions and theories based on his creation. He believed that the failure of the WC in other countries was the result of a lack of its mindful application. Each principle required separate modifications and timely introduction when applied to disparate environments. He claimed that the very flexibility of the WC spoke to its superiority. Had there not been freedom in the markets, the WC would truly have been a failure. He strongly opposed those who conflated the nature of the consensus with neo-liberalism. He agreed that there was very little to no scope for social upliftment and welfare, clearly differentiating the WC from it.
Unfortunately, even after several corrections and a new draft of the WC (through the Barcelona Development Agenda), it could not be redeemed. There were too many contradictions and far too much rigidity for it to exist outside of a textbook thesis. And by 2008, after the global financial crisis, the western principles behind the consensus had taken a major hit as well.
The Beijing Consensus
China had always been a silent player. Perhaps that is why its rapid escalation came as a shock to the world. With a bleak history of violent socialism, civil war, external invasion, poverty and a famine that killed 30 million people, China was hardly a global competitor in the markets up to the 1960s. The end of the Mao era saw Deng Xiaoping take the reins and lead China through a series of unprecedented economic reforms, unlike any that the country had ever seen. In 2004, Joshua Cooper Ramo, published an essay called ‘The Beijing Consensus: notes on the new physics of Chinese power.’
After the 2008 financial crises, trust diminished further in the laissez faire economic system of the West. A lack of state involvement caused the real estate bubble in America to fester and inevitably bring economies all around the world to the brink of disaster. At the 2009 World Economic Forum in Davos, Wen Jiaboao outlined a cracking economic code to a shocked audience. While the collapse of Lehman Brothers razed economies around the world, China had come out relatively unscathed, and grabbed the opportunity (which is now a recurring theme), to declare its superiority. At the time, both France and the US had been busy bailing out their industries with mammoth packages; they were no longer in a position to openly oppose the principle of state intervention. While the Beijing Consensus was never actually acknowledged by the Chinese Government, Jiaboao’s speech certainly gave the theory traction and validity. But questions are still raised about how accurate this picture really is.
The first clause of the Beijing Consensus draws attention to an innovation and R&D based economy. “…Chinese growth is an example of what happens when you let loose lots of cheap labor,” says Ramo, “In fact, innovation led productivity growth has sustained the Chinese economy and helped to offset disastrous internal imbalances.” As of 2006, Chinese R&D investment is about US $ 136 billion and only increasing. Around 82 million Chinese citizens possess higher education degrees with a total investment of US $ 29 billion in the field. This makes China extremely technologically advanced and credible.
As for the second clause, which states that China focuses on environmental sustainability, welfare, education and quality of life for its people, the reality is quite the opposite. Even by those means, China certainly cannot be credited with a ‘developed’ status. China has one of the most unequal distributions of income in the world. According to a survey by the Institute of Social Sciences, Peking, 1% of the Chinese population possesses one third of the country’s wealth, and this gap is only increasing. Environmental sustainability, too, is a far cry from China’s reality. In 2017, China was the most polluting country with 9.3 GT of carbon emissions. While other empirical measurements may be made, no statistical figure is required to attest to China’s environmental irresponsibility. As for measures based on human welfare, given China’s history of hiding exact data/ providing inaccurate data, it is not a measure which can truthfully contest to the point. The third clause of the Beijing Consensus is where things start to get interesting.
Sub-parts of this clause wax eloquent on China’s soft skills, which is undeniably true. In the past fifty years or so China has cultivated an interdependent relationship with struggling economies. It has offered financial aid to Africa and Brazil amongst others and cultivated an indispensable position in the global economy. This has significantly contributed to its power today. However, China has never completely disregarded globalization metrics and policies. So while, China’s globalization ‘on its own terms’ has been about unjustified tax rebates and undervalued exchange rates, it is mostly compliant with international regulations.
The questionability of the Beijing Consensus comes mainly from its claim of opposing the Washington Consensus. For that, we need to go back to the 1980s. After the terrible famine of 1960, China had seen a change in leadership and an overhauling of its socialist ideals. However, the country still kept its control over the Chinese economy. The reason for capitalism in China, to whatever extent, is compromise. Within the Communist Party of China, factions advocated globalization and privatization of state industries. This, along with the many small enterprises cropping up around Beijing, now called a ‘marginal revolution’ compelled the state to loosen its grip. In a way, China’s rise can be credited to an inevitable adoption of capitalism and variation of the Washington Consensus. In fact, compared to central economies of South Korea and Taiwan, China can be considered a distinctly capitalist country. Political liberalization and freedom is still a far reach but China has one of the most favorable FDI environments. A more accurate description of the Chinese economy is, therefore, ‘Capitalism with Chinese characteristics’
In conclusion, the few affirmations of the Beijing Consensus are insufficient to prove its viability. It is not only a misrepresentation of China’s reality but comes with dangerous implications. An outward show of complete disregard for social security, humanity and justice will negatively influence those nations looking to follow China’s path to power. If somehow taken in relation with each other, China’s thriving economy could further undermine democratic principles. Coming to these prescriptive economic models, neither holds absolute validity. Neither one is without its flaws and in fact, shares uncanny similarities which are only increasing by the minute. The Washington Consensus is a model for nations with a privileged majority, starting from a point where all of a country’s population can fend for itself. On the other hand, the Beijing Consensus, while backing societal welfare in theory, barely follows through. The real problem then becomes how both models give very little regard to balanced growth, sustainability and upliftment of the destitute. We are once again left with the ever present questions: Will the current economy always operate on the choice between societal good and economic development? Is this the best we can do?
- Treesha Lall (lalltrisha@gmail.com)
References
1. The myth of the Beijing consensus; Scott Kennedy
2. Washington Consensus or Washington confusion? ; Moises Naim, Foreign Policy
3. The Beijing Consensus: China’s Alternative Development Model; Dustin R. Turin
4. The Beijing Consensus: An alternative approach to development; World Foresight Forum
5. Washington Consensus; Peterson Institute for international Economics
Things to check out
1. Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise by Carl E. Walter and Frasier J. T. Howie
2. China’s Economy: What everyone needs to know by Barry Naughton
3. The Economist YouTube channel
4. Policonomics, YouTube
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