FROM THE WASHINGTON CONSENSUS TO THE
SPIRIT OF BANGKOK
Is there a Bangkok Consensus or a Bangkok Convergence?
In the course of our deliberations here in Bangkok, I have tried to reflect on the question that I put to myself at the opening session of UNCTAD X, the Round Table of Eminent Economists. I asked whether there are some broad themes of thinking about trade and development that have emerged with greater clarity as a result of our discussions.
The contributions that the Conference has received have been diverse and wide-ranging. We have listened to the ideas coming to us from all points of the compass - from Heads of State and Heads of Government, from the delegations of the member States, from the leaders of the international financial institutions, from the representatives Parliaments, of the non-governmental organisations,and entrepreneurs from SMEs and TNCs, from the directors of the agencies and regional commissions of the United Nations system, as well as from the academic experts.
After such a rich diet, we might be excused if we felt that we were suffering from a problem of intellectual indigestion, and if were ached for a little pill labelled "consensus" in order to ease the discomfort.
The economic discourse of the past decade was dominated by the so-called "Washington Consensus", twelve rules of economic policy with which all sensible people were supposed to agree. However, they quickly proved to be too restrictive, and even the World Bank, in the person of Professor Joseph Stiglitz, began to adventure "beyond the Washington Consensus". More recently,in the speech he gave to OXFAM´s Gilbert Murray lecture in Oxford on 11 January, the Chancellor of the Exchequer, Gordon Brown, stated that "we need to move beyond the Washington Consensus of the 1980s, a creature of its time that narrowed our growth and employment objectives. Which assumed by liberalising, deregulating, privatising and getting prices right, private markets would allocate resources efficiently for growth.This has proven inadequate for the insecurities and challenges of globalisation". And he concluded: "We need to find a new 2000 paradigm. The new consensus cannot be a Washington consensus, but as we have recognised in the poverty reduction strategies,countries must claim ownership and make it a part of their national consensus". It would be tempting now to be more adventurous still, to announce the arrival of the"Bangkok Consensus", and to hand you a different set of twelve points. I am tempted, but the fate of the previous consensus suggests to me that to do so would be unwise. Consensuses self-destruct. I will not, like King Canute of England, pretend that I can control the tide of world opinion on issues of fundamental concern to all. Neither will I offer myself up to some ironic comment like the one that Georges Clemenceau attributed to President Wilson´s Fourteen Points when he said: "Even the good Lord contented Himself with only ten commandments, and we should not try to improve upon them".
What I want to do today is more modest, but nevertheless significant for UNCTAD´s member Governments, its partners in the UN system and civil society. In other words, instead of trying to freeze the ongoing debate into a static mold labelled Bangkok Consensus, I will strive to capture the dynamic currents starting from opposite ends and gradually converging towards some common ground.I want to try to define the ways in which the spectrum of opinion has in fact narrowed in recent years, not just among academic experts, but also among national leaders and those at the head of international organisations.
The key event of our time has been the ending of the Cold War, which brought with it a new awareness of the phenomenon of globalisation.The ending of the bi-polar world of US and Soviet power also undermined the identity of the "third world" that tried to stand apart from both power blocs. The countries in this grouping have ever since had to define themselves in relation to the phenomenon of globalisation. That is to say, their strategic choice is whether they accept or reject a growing integration into a single system of trading and financial relations, in which the most powerful participant country is the United States.
As the Prime Minister of Singapore told the Conference, "Today, capitalism is everywhere triumphant . . . and that may pose a challenge". Mr Goh Chok Tong noted that, for countries that begin to integrate globally, rapid economic progress brings in its wake new insecurities. As the Asian financial crisis showed all too clearly, the consequent disruption is systemic in scope.The responses to these risks by the international community have been slow and inadequate,indicating the need for new institution-building in the international sphere. This is at ask that will require both developed and developing countries to be more flexible in admitting elements of what have hitherto been purely domestic policies into international negotiation.
The end of the Cold War has created some of the pre-conditions for such mutual flexibility. One of the results of the collapse of the Russian and East European socialist regimes has been the virtual disappearance of the belief that the cutting of trade and financial links with the rest of the world will generate "true development". Now the debate is about the appropriate terms on which countries should insert themselves into the global trade and finance network.
The idea that the national state can itself spear-head a modernisation of the economy by means of state-owned industries is another casualty of the end of the Cold War. This strategy has lost its credibility because of its excessive fiscal and environmental costs. It also lost support because state enterprise was less effective than private in mastering the new technologies that are the heart of economic development. Now countries are willing to create policy regimes that are attractive to private enterprise, whether domestic or foreign, that can bring about technological up-grading.
That macro-economic instability was ever strongly advocated is something that I doubt. However, it was commonplace for politicians to take actions that favoured higher inflation and growing balance of payments deficits in the hope that they would be bailed out of their economic crises by their Cold War partners. Now the imperative of macro-economic stability is much more generally respected. The debate today centres on the means to such stability, for example, the best policies for exchange rate management, and not the objective of stability itself.
In these three respects - freer trade,promotion of the private sector and the imperative of macro stability - I submit that informed public opinion has converged, during the last ten years, towards liberal views of desirable economic policies. Opinion is by no means homogenous, but the range of deviation is greatly reduced. This has provided the basis on which developing countries can move towards meeting the international standards that are involved in the globalisation process.
At the same time, however, such standards should not be set exclusively by the developed countries. They will have to be negotiated between all the parties that subscribe to them in a democratic and transparent manner. And, once they are negotiated, the developed countries must be willing to be bound by them even when they cut across their particular national interests. This is one of the clearest appeals made at this Conference by the Heads of State and Government who have spoken. Amore inclusive and participatory decision-making process is needed at the international level.
The new world in which we have been living for the last ten years has not only been about convergence towards liberal economic policies. It has also seen the increasing acceptance of ideas that have been denied persistently by advocates of "uncritical market triumphalism".
For the sake of balance, I shall also cite three examples of this contrary movement of ideas.
The notion that capitalism is an economic system that is vulnerable to explosive financial crises has long been resisted. Although Keynes produced a General Theory that explained how monetary factors could prevent an economy from functioning optimally, the Cold War period was one of increasingly successful attempts to discredit the Keynesian analysis. Awareness of the vulnerability of the real economy, the economy of people´s employment, income and investment, to malfunctions in the monetary sector, become blurred. There have been plenty of economists willing to argue that the complete freedom of markets, including money markets, would produce the best of all economic worlds. Fortunately, the UNCTAD economists did not take that view, and from the early 1990s foresaw trouble ahead from what Mr Juan Somavia has called "casino capitalism". As John Kenneth Galbraith recently remarked:"The fact is that capitalism in inherently unstable and it is particularly so in its early, infant stages".
When trouble came, starting in Thailand in 1997, it brought with it a reversal of opinion. That episode revealed the sheer size of the financial flows that the industrial world could generate, relative to the normal size of flows of developing countries. The swift entry, and even swifter exit, of such massive flows made clear for all to see the havoc that can be unleashed on small and fragile financial systems that are open to such tidal waves of finance. Despite the commitment of many international agencies to the complete liberalisation of capital markets right up to(and beyond) the hour of Asia´s crisis, the same agencies now say that they can see some virtues in certain types of capital controls.
At last, then, a more realistic evaluation of the limits of unrestricted capitalism is evident. The leaders of Asia have told the Conference of their perception of the increased volatility and systemic instability of international finance. Prime Minister the Honourable Mahathir bin Mohamad of Malaysia and President Abdurrahman Wahid of Indonesia, were extremely forceful and persuasive, almost dramatic, at times touching, in their personal accounts of the ordeals endured by their peoples. It certainly was one of the high points of the Conference. Their message is that neither can be effectively managed by means of the existing financial architecture. Its further reform is an urgent priority, and it should address the more substantive aspects of the problem.
As Yilmaz Akyuz, Chie and Development Policies Programme of UNCTAD, said at the Host Country event on"Causes and Sources of the Asian Financial Crisis", the crisis has shown that"when policies falter in managing integration and regulating capital flows, there is no limit to the damage that international finance can inflict on an economy. It is true that control and regulation over such flows may reduce some of the benefits of participating in global markets. However, until systemic instability and risks are adequately dealt with through global action (...) the task of preventing such crises falls on governments in developing countries."
Positive processes of integration into the world economy are the goal. This has never changed. However, the liberalisation measures that are necessary to this end must be phased in a prudent and orderly manner. They must take account of specific local circumstances, they must be complemented by appropriate domestic policies and accompanied by institution- and capacity-building. Only then can they hope to succeed.
Globalisation is not an unstoppable change sweeping inevitably across the face of the world. It is, at least in part, a work of deliberate construction, that has consisted so far of a number of regional integration projects, in Europe and Latin America, in addition to the emergence of the financial markets of Asia. As was stressed by President Abdelaziz Bouteflika, President of the Republic of Algeria and current Chairman of the Organisation of African Unity, "the developing countries, representing the sweeping majority of mankind, are excluded from the process of consultation and collective decision-making....A new map of the world is being drawn, from where a whole continent, Africa, is merely erased".
These economies remain marginal because of their very narrow export bases in primary commodities. In the short run, they are adversely affected by systemic financial crises only indirectly, as the price levels of primary commodities fall with the deflation of world demand. Their longer-run development is jeopardised by the secular fall in the terms of trade of commodities vis à vismanufactures. The existence of a secular downward trend in the terms of trade for Dr Raul Prebisch , drew attention to it. In recent years, by contrast, this fact has at last been generally accepted.
As we prepare for the UN Conference on the Least Developed Countries, we must all do more to formulate practical assistance to address this problem. Export diversification is an important component of any solution, but this in turn depends on relaxing the constraints on supply capacity, including investment in infrastructure and human capital formation. The representatives of governments have frequently expressed at this Conference the need for appropriate external support for these and similar measures to support the long-run development of the least developed countries. In this context, I can assure the Conference that the UNCTAD secretariat will itself renew and strengthen its efforts to this end.
My third example of the belated recognition of inconvenient facts concerns the question of income distribution, and absolute poverty.Throughout the 1980s, the item "poverty reduction" was entirely off the official international agenda. The excuse was that only once growth was achieved could matters of redistribution be addressed. To reverse the sequence and begin redistribution before growth was realised was a naive an impractical suggestion, we were assured.
In 1990, nevertheless, poverty was chosen as the subject for the World Bank World Development Report. When Mr. Wolfensohn became President, he declared that the reduction of poverty was the Bank´s"over-riding objective". Now, at this Conference, we had the pleasure of hearing Mr. Michel Camdessus, the outgoing Managing Director of the International Monetary Fund, declare that "there is a mutually reinforcing relationship between . . . growth and the reduction of poverty and inequality. . .".
This is fully in line with the views of Professor Frances Stewart, as given to the Round Table of Eminent Economists. She quoted numerous studies to the effect that a more equal income distribution is associated with faster growth. The reasons for this are both political and economic in nature.Politically, regimes that sustain or actively create inequality tend to rely on policies that will put the brakes on economic growth. Economically, reducing inequality has a variety of positive economic effects, such as reducing the fertility of populations,widening the market, and raising the productivity of labour. Our instincts of solidarity are not arbitrary, but well grounded in reason.
I have argued that, while we have observed a convergence of opinion towards the policies of economic liberalism, simultaneously we have witnessed a frank official acknowledgement of the key unsolved problems of the capitalist economic order. These are its proneness to financial crisis, its economic undermining of peasant production and its tendency to neglect the problem of poverty. All of these problems especially affect developing countries, and their resolution will not come about naturally, but only with selective and intelligent forms of government action.
The convergence of the last decade has come about by movement from both ends of the ideological spectrum. What does this imply? To me,it suggests that the period from 1914 to 1990 was indeed, as it has been called by the historian Eric Hobsbawm, "the age of extremes". Since 1990, the world has been learning to live without the extreme policies of the political Left and without the extreme ideology of the political Right. It is almost as if society had to wait for the inadequate policies of state socialism to be discredited before it could permit itself to re-discover the enduring problems of capitalism that those policies were supposed to be able to solve.
In my view, this dual movement of ideas reveals a world recovering its sense of moral values, and this is a credible reason for hope. We are now increasingly aware that both governments and markets require a moral basis for their proper functioning. Markets cannot operate when they are dominated by the behaviour of opportunists, inside traders or players who freely break their contracts. Governments cannot operate as they should when dominated by the behaviour of the corrupt and greedy. And development itself is impossible unless both markets and governments do function properly, that is, working together in partnership. Many aspects of the so-called"failure of development" during the last fifty years can be readily explained, once we have these three precepts in mind.
Economies do not develop just because they exist. Economic development has been historically exceptional, and not a general rule. It does not happen automatically in response to the fact that a country has fertile land or large deposits of mineral resources. It is more likely to happen where elaborate systems of human co-operation have evolved. Markets and governments are both the institutional embodiment of this co-operation good functioning of all social institutions rests, in turn, not only on habits of personal trust, but also on habits of general and impersonal reciprocity of behaviour. These habits are reinforced by our religious beliefs, whatever the religion that guides us.
I could add to the six areas of consensus that I have already discussed by mentioning the need to make the best use of the changing opportunities for technological progress, and the importance of mobilising financial resources for development. Everyone would agree with our eminent experts Dr. Perez and Dr.Botchwey about the centrality of these two issues.
But, rather than formalising a new consensus on economic policy in a list with a fixed number of key points, I believe that it is more important to urge that extremism in economic policy be abandoned by all sides. Let us finally put away those doctrines of economic policy that, as a matter of fact, were never economic in origin at all, but created in the heat of a geopolitical conflict that is now, mercifully, concluded.
As for the issues of economic policy that remain, we should avoid any forced unanimity. Unless there is free scope for the exchange of economic ideas, for criticism and counter-criticism, our economic understanding will not make any further progress. We should not lose sight also of the inherent limits of convergence and even of consensus. Even when we agree on basic principles, we may often differ on how to apply these principles, to concrete situations which will not always be interpreted in the same way by all of us. Economists still disagree about the causes of the Asian crisis and about the remedies employed to end it. Likewise, economic historians continue to argue about the causes of the Great Depression and what finally put an end to it.
As we look to the future, let us not forget the wise words spoken here by the Indian Minister of Commerce and Industry, Mr. Murasoli Maran. The end of socialism does not silence the cry of the poor, and out of the pain of poverty must be born new dreams of justice - a new world economic order.
Today I want to insist that the building of an international community that will respect the aspirations of all its members for sustainable development must rest on the same moral foundation as does sustainable development itself. The fundamental idea is once again that of generalised reciprocity.
However, as Raul Prebisch declared when UNCTAD was established in 1964, the reciprocity of international economic relations must be real.It cannot be merely conventional, it cannot be formal only. It cannot be based on a nominal equality of countries that is belied in all the practices of negotiation, decision-making and dispute settlement. Precisely because, so far, global integration has affected only a dozen developing countries, the economic world is still divided. In such a world, real reciprocity means taking account of the underlying asymmetry of economic structures. Real reciprocity still has to be constructed. It will be the new international order that so many nations in this Conference have demanded. What are they asking for? Three things, above all:
1) They want the massive barriers to be dismantled in relation to trade in agriculture, textiles and clothing and in the areas where tariff peaks and escalation still prevail, even after the implementation of the Uruguay Round Agreements. Although greater access to industrial countries´s markets will not solve the problems of the least developed countries, it is crucial to securing the benefits of an open global trading system for the more advanced developing countries.
2) They want recognition for their efforts in promoting regional economic solidarity. Provided that these are in the form of "open regionalism", they can strengthen the move towards positive global economic integration.
3) They want existing international economic institutions to evolve so that they are capable of bridging the interests of both developed and developing countries. As the NGOs have emphasised, such institutions must be more pluralistic and participatory than they are today.
In the aftermath of the WTO Ministerial Meeting in Seattle, the prospects for progress in these three directions are at best mixed. This Conference has provided the opportunity for a wide-ranging exchange of views. In my view,it has been instrumental in creating an atmosphere of greater mutual understanding on the complexities of the globalisation process. But much remains to be done in translating this into practical moves for institutional change at the international level.
The entire international community must see this as its goal in the four years ahead of us. UNCTAD´s role in assisting the emergence of more effective international economic institutions must be a constructive one. UNCTAD must deploy for this purpose all of the three instruments at its command -research, policy advocacy and technical assistance. I look forward to the challenge that this will present.