Since the end of the second world war, the United States has been the primary source of economic and military might throughout the world. The Soviet Union was a worth challenger for a portion of the Cold War but ultimately doomed to failure due to its strict adherence to Communist philosophy. During that time, the United States formulated the policy of Containment which sought to bolster any regime willing to oppose Soviet influence. This, theoretically, would prevent the spread of the Red Scare and avoid direct confrontation with the Soviet Union. To achieve such an end, the United States provided almost unlimited funds to nations in exchange for economic concessions. After the Cold War and into the era of globalization, there were political concessions involved with nation building. This was the Washington Consensus.
The Washington Consensus was a cornerstone of US foreign policy during and immediately after the decline of the Soviet Union. Western leadership believed that open markets would necessarily translate to open politics, also knows and democracy. Essentially, the European Union's path to membership is a successful heir to the Washington Consensus. The goal was to bring developing nations under Washington's umbrella through economic integration. The United States and the Bretton Woods institutions, the World Bank and International Monetary Fund (IMF), would essential loan nations money on certain conditions. Usually these conditions required low tariffs, free trade agreements, low interest rates, and a transparent political system.
There was no inherent problem with the ideas behind the Consensus. However, its implementation had mixed results. When a nation applied the tenements of the plan, their markets usually grew very quickly. In fact it resulted in hypercapitalism, or, rapid growth with little restraint. This looks great on paper and on government fiscal statistics, but it wreaks havoc socially. The result of this quick capitalsim was that it actually increased the income gap in already divided developing countries. Although the poor were getting richer, they were getting richer at a slower rate than the already rich. So while a poor Argentine could now afford a car, the wealthy class bought planes and influenced politics. This inequity in income led to social movements across many of the nations that implemented the Washington Consensus. The result is the leftist movement, with anti Americanism, sweeping South America.
That was the first knell sounded for the Consensus. The second was the success of economies that rejected Washington's plan. China refused to take part in the trade liberalization that Washington demanded. Instead they devised an authoritarian capitalist model that succeeded on tight corporate regulation and government directed growth. This ran almost completely counter to Washington. The Chinese took their economic growth slowly and carefully integrated their markets in to the world's financial system. Their economy succeeded because the government has absolute power and can direct spending any way it wants. The difference between the Chinese and nationalized movements of the past was that the Chinese understood how to use capitalist markets to make money efficiently. They were brutal in implementation and profitable in result.
This is not an advocacy of the Chinese model of growth. However, it is an example of a nation that has become, in less that 15 years, an economic powerhouse by following exactly the opposite of what the Washington Consensus demanded. A counter to the Chinese model is the Indian model. India actually implemented all the provisions of the Washington Consensus and has succeeded in becoming the fastest growing nation in the developing world. However, their revolution is one that comes from the people instead of from the government. It is bottom up as opposed to top down. The social and political change that hypercapitalism brought upon India has forced the government to listen to the people and adapt to their needs intead of manipulating the people and making them adapt to the will of the government. The enormous beauracracy and slow moving democratic process in India actually helps the country remain stable and adopt to changes as they occur. Success stories like India's are very rare. It only proves that the Washington Consensus can really only work in nations were democracy is practiced and its values are revered. That is why the type of capitalism espoused by Washington works in the United States and India. They share the same democratic values.
The success of China and the petroeconomies (Russia, Venezuela, and Saudi Arabia) has given the world another model to strive for: authoritarian capitalism (or, facism). What is interesting is that these models, for the majority, are based on the sale of one commodity, oil. The petro nations are the beneficiaries of the ultimate cash crop. However, their economies are a house of cards compared to the likes of China, India, and Brazil. Once the reliance on oil weakens, or the market price goes down, these economies will face fiscal crisis. They already spend too much of the profits on government spending and not enough on corporate development. This means that while Russia uses its profits from oil to build tanks, Gazprom can't afford to develop new natural gas or oil fields. China uses corporate profits to expand and develop their industries instead of solely bolstering military power. What this all means is that more and more developing countries will use this model for future economic growth instead of a more realistic model. As a result, fewer countries in the developing world will be inclined to implement a democratic model if the authoritarian one can provide financial stability.
In effect, the Washington Consensus was a failure before this financial crises even started. However, the recent collapse of American financial institutions and the contested bailout plan effectively buried the Washington Consensus in the graveyard of history. Now the American model of capitalism, once the paragon of economic development, is now ridiculed as the ultimate flop. Every nation across the world that has been touched by the Washington Consensus or that has no stake in international finance probably feels a bit of Schadenfreude. But what is worse is that America's best tool for spreading democracy was its economic prowess, not its military force. And now we have no justification for our system, no moral authority, and a military that is handcuffed. If our isolation wasn't complete before, it may be now.
The Washington Consensus was a cornerstone of US foreign policy during and immediately after the decline of the Soviet Union. Western leadership believed that open markets would necessarily translate to open politics, also knows and democracy. Essentially, the European Union's path to membership is a successful heir to the Washington Consensus. The goal was to bring developing nations under Washington's umbrella through economic integration. The United States and the Bretton Woods institutions, the World Bank and International Monetary Fund (IMF), would essential loan nations money on certain conditions. Usually these conditions required low tariffs, free trade agreements, low interest rates, and a transparent political system.
There was no inherent problem with the ideas behind the Consensus. However, its implementation had mixed results. When a nation applied the tenements of the plan, their markets usually grew very quickly. In fact it resulted in hypercapitalism, or, rapid growth with little restraint. This looks great on paper and on government fiscal statistics, but it wreaks havoc socially. The result of this quick capitalsim was that it actually increased the income gap in already divided developing countries. Although the poor were getting richer, they were getting richer at a slower rate than the already rich. So while a poor Argentine could now afford a car, the wealthy class bought planes and influenced politics. This inequity in income led to social movements across many of the nations that implemented the Washington Consensus. The result is the leftist movement, with anti Americanism, sweeping South America.
That was the first knell sounded for the Consensus. The second was the success of economies that rejected Washington's plan. China refused to take part in the trade liberalization that Washington demanded. Instead they devised an authoritarian capitalist model that succeeded on tight corporate regulation and government directed growth. This ran almost completely counter to Washington. The Chinese took their economic growth slowly and carefully integrated their markets in to the world's financial system. Their economy succeeded because the government has absolute power and can direct spending any way it wants. The difference between the Chinese and nationalized movements of the past was that the Chinese understood how to use capitalist markets to make money efficiently. They were brutal in implementation and profitable in result.
This is not an advocacy of the Chinese model of growth. However, it is an example of a nation that has become, in less that 15 years, an economic powerhouse by following exactly the opposite of what the Washington Consensus demanded. A counter to the Chinese model is the Indian model. India actually implemented all the provisions of the Washington Consensus and has succeeded in becoming the fastest growing nation in the developing world. However, their revolution is one that comes from the people instead of from the government. It is bottom up as opposed to top down. The social and political change that hypercapitalism brought upon India has forced the government to listen to the people and adapt to their needs intead of manipulating the people and making them adapt to the will of the government. The enormous beauracracy and slow moving democratic process in India actually helps the country remain stable and adopt to changes as they occur. Success stories like India's are very rare. It only proves that the Washington Consensus can really only work in nations were democracy is practiced and its values are revered. That is why the type of capitalism espoused by Washington works in the United States and India. They share the same democratic values.
The success of China and the petroeconomies (Russia, Venezuela, and Saudi Arabia) has given the world another model to strive for: authoritarian capitalism (or, facism). What is interesting is that these models, for the majority, are based on the sale of one commodity, oil. The petro nations are the beneficiaries of the ultimate cash crop. However, their economies are a house of cards compared to the likes of China, India, and Brazil. Once the reliance on oil weakens, or the market price goes down, these economies will face fiscal crisis. They already spend too much of the profits on government spending and not enough on corporate development. This means that while Russia uses its profits from oil to build tanks, Gazprom can't afford to develop new natural gas or oil fields. China uses corporate profits to expand and develop their industries instead of solely bolstering military power. What this all means is that more and more developing countries will use this model for future economic growth instead of a more realistic model. As a result, fewer countries in the developing world will be inclined to implement a democratic model if the authoritarian one can provide financial stability.
In effect, the Washington Consensus was a failure before this financial crises even started. However, the recent collapse of American financial institutions and the contested bailout plan effectively buried the Washington Consensus in the graveyard of history. Now the American model of capitalism, once the paragon of economic development, is now ridiculed as the ultimate flop. Every nation across the world that has been touched by the Washington Consensus or that has no stake in international finance probably feels a bit of Schadenfreude. But what is worse is that America's best tool for spreading democracy was its economic prowess, not its military force. And now we have no justification for our system, no moral authority, and a military that is handcuffed. If our isolation wasn't complete before, it may be now.
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