The Washington Consenus

The current economic meltdown may have been caused by the policies that were formed because of the ‘Washington Consensus'.

The ‘Washington Consensus' was first introduced in 1989 by the economist John Williams. Williams described ten recommendations that were intended to liberalize countries, specifically those with low incomes. Collectively, these ten recommendations established the ‘Washington Consensus'; which included: 1) fiscal policy control; 2) a shift in public spending towards primary education, healthcare and infrastructure investment ; 3) tax reforms; 4) a moderation of interest rates; 5) competitive exchange rates; 6) liberalization of trade and imports; 7) liberalization of foreign direct investments; 8) Privatization; 9) Deregulation for market entry and restriction in competition; and 10) Property rights . It was Williams' opinion that adopting these recommendations as a guideline, and moving in the direction of free trade, would benefit a nation and the world.

The ‘Washington Consensus' was readily accepted by economists, and implemented around the world. It was thought to be a formula for the trajectory of economic growth of nations through international trade. According to Dani Rodrik, Professor of International Political Economy at Harvard University, the consensus was established to, "Stabilize, privatize and liberalize...developing worlds and of the political leaders they counselled ."

Although the Washington Consensus was considered a success by many economists, it was also subject to scrutiny by those who saw it as a negative ideology. This pessimistic view of the consensus appears to have been validated over time.

In 1989 The International Monetary Fund, the World Bank, and the U.S. Treasury Department took these recommendations and transformed them into a neoliberal development model . This model was then introduced to developing countries such as Argentina, Venezuela and Bolivia and other Latin American countries, which in turn lead them to economic crisis. At that time details of trade were unknown and countries that were developing could not be placed under the same policies/regulations as developed ones. Paul Krugman, Nobel Prize winner of Economics 2008, has shown through his work on International Trade that developing countries cannot operate under the same guidelines as developed ones. He pointed out that the lack of subsidies and tariffs can reduce incomes of government and domestic industries by diverting profits towards foreign firms which in turn decreases the developing country's income (GDP) . It is essential for developing countries to have funding for their roads, schools, and banks to help national growth. Lacking adequate routes of transportation places a considerable expense on developing countries when transporting goods domestically, the lack of schools decreases labour productivity and human