Pax Americana, the long-standing U.S.-inspired post-war world order, is unravelling like a cheap carpet.
Apart from catastrophes like Venezuela, Britain’s chaotic retreat from the European Union, or the threat from President Donald Trump to pull the United States out of the North Atlantic Treaty Organization, there’s the shocking rise of anti-western authoritarian regimes in Iran, China and Russia.
Beyond these isolated reversals, there’s a general unravelling of the norms, institutions and co-operation that had governed international relations since the end of the Second World War. The United States, once the world’s most admired nation and de facto leader of the free world, has retreated into self-centred isolationism.
Although there are many reasons for this, the root of the problem lies in a set of poorly thought out ideas and institutional belief systems that emerged in the U.S. in the early 1990s. They’re commonly referred to as the Washington Consensus.
The Washington Consensus is a set of development principles predicated on the monetarist ideal of market fundamentalism. The economic principles behind the Washington Consensus are faith-based ideas of market purism and are rigidly ideological. Collectively, they’re most commonly referred to as neo-liberalism.
Of course, well functioning markets are both important and necessary. Markets are the places where exchange is facilitated, and where commercial value gets established and formalized. So markets themselves are not the problem; the larger problem is unrestrained, unaccountable market forces.
The Washington Consensus gave legitimacy to a ‘free’ market theory that liberated capital from any social accountability or political supervision.
Led by the International Monetary Fund, the World Bank and the U.S. Treasury Department. developing nations were encouraged to place their trust in markets in order to maximize utility. It would, they were assured, accelerate their development and lead to the best of all possible worlds.
For example the Washington Consensus encouraged politicians to let markets determine their nation’s interest and exchange rates and the amount of foreign direct investment in their economies. Policies like privatization, trade liberalization and deregulation were designed to liberate markets from the dead hand of government and let market forces take their divine course.
What market fundamentalism meant in practice was a wholesale retreat from traditional Keynesian development principles. Under the influence of the Washington Consensus, market forces replaced a host of political-economic goals and considerations.
For example, the Washington Consensus abandoned the idea of advancing human rights in poor countries. So the objective of improving the working conditions and raising the living standards of the poor in the Third World was also dropped. All of this was discarded in favour of the ‘miracle of the market.’
Regrettably, the Washington Consensus lit the fuse that’s blowing apart the modern world.
The Washington Consensus was immediately applied to the post-Soviet economy in Russia. It’s possible to trace the rise of Vladimir Putin and the anti-western bias of his regime to the falling living standards and criminal chaos that the Washington Consensus unleashed upon the Russian people in the 1990s.
Under the Washington Consensus, developing nations like communist China were encouraged to maintain their authoritarian political systems and simply open their economies to global market forces.
It meant the continued exploitation of the developing world’s workforce.
When the United States granted Most Favored Nation status to China in the early 1990s (without preconditions), it turned out to be a windfall for large multinational corporations that became the new oppressor class in China. It remains a partnership of despair in which we all, as consumers, share with the communist dictators.
The populist anger that helped elect Trump is perhaps the most significant legacy of the Washington Consensus. A primary source of that anger is rooted in the hollowing out of the U.S. economy – its deindustrialization over the past few decades.
The social disruption that accompanied these changes was a result of the Washington Consensus’s unbalanced globalization, unrestrained market forces and neglect.
The Washington Consensus was a failure. This bold ideological experiment has delivered reckless, unethical capitalism. It’s time to admit the truth and put human rights and well-being back at the centre of the global development agenda.
Economic policy will necessarily be more localized and provide fewer profit opportunities for multinational corporations. But it might – just might – save the world from catastrophe.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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