I usually don’t like to write about something just because it makes me mad, but I have to make an exception. I finally got around to opening my March/April 2011 edition of Foreign Affairs. I enjoyed an article by Thomas Christiansen (Princeton) on why Beijing’s foreign policy has become more assertive and how the US can effectively respond without generating greater insecurities on the Chinese side. Wang Jisi, dean of the School of International Studies at Peking University and widely considered one of the few international relations specialists who provides informal counsel to China’s decisionmakers, also has a nice essay pondering what China’s grand strategy should be. It is not just a “we want peace as we develop in a non-threatening way” propaganda note. He shows real empathy for how China’s foreign policy actions and statements are perceived by others.
On the downside, though, Nancy Birdsall and Francis Fukuyama have what to my mind is a very misguided essay entitled, “The Post-Washington Consensus: Development After the Crisis.” Birdsall is president of the Center for Global Development, and Fukuyama teaches at Stanford University. In the 1980’s and 1990’s, Fukuyama was at the government-funded think tank, the Rand Corporation, which is where he penned, The End of History and the Last Man (1992). (He taught at Johns Hopkins-SAIS before moving to Stanford.) In the wake of the Cold War and the USSR’s demise, his book sounded the highest note of triumphalism, arguing that the ideas of democracy and free markets had thoroughly vanquished all rivals permanently.
Well, sad to say, things haven’t quite worked out that way (and this essay might be seen as Fukuyama’s confession). Yes, democracy is a widely shared norm; even authoritarian regimes like to argue that they are democratic in some way, take China’s “socialist democracy,” for example. But Fukuyama was absolutely wrong about free markets. Markets yes, free no. That is, economists, political scientists, and policymakers, have never reached a consensus about the right mix of policies to promote economic development or sustain growth more generally. The original so-called “Washington Consensus” (WC) was supposedly a consensus just of economists in Washington made up by John Williamson of the Peterson Institute for International Economics in 1989, and we know that was going too far.
Within a few short years of the original formula and Fukuyama’s victory speech, the consensus started to come unglued. The failure of Latin American countries to overcome their debt crises and move to a consistent development trajectory following free-market norms and the failure of shock therapy reform to generate growth across central Europe and the former Soviet Union were the chief reasons why the Washington Consensus lost its luster. Not to mention the success of the East Asian “dragons,” where government intervention was standard practice.
Williamson and others tried to rescue the concept by modifying it – clarifying that they did not mean Reaganesque neo-liberalism and suggesting that nurturing solid government institutions was just as important as government getting out of the way – but it never again regained its original influence. The World Bank started to issue reports recognizing that states could selectively promote industries and perhaps even specific firms, and the IMF began to reconsider conditionality. And this was the late 1990’s.
Birdsall and Fukuyama give the impression that it was the 2008 financial crisis that shook the world’s faith in free markets. Certainly, that happened long before. Over the last decade, the rise of China may have given some more impetus to this trend because of the government’s interventionist tendencies. Hence, Joshua Ramo in 2004 penned the extended essay, “The Beijing Consensus.” But the Chinese case is far more complicated than Ramo or other BC advocates let on. China’s experience actually comes closer to the WC maxims than Ramo or others admit. For an exposition of this, you can see my article, “The Myth of the Beijing Consensus,” published last June. [Download Kennedy Myth PUB June 10] You should also check out the forthcoming book, In Search of China’s Development Model (in which my article is also included), edited by S. Philip Hsu, Yu-Shan Wu, and Suisheng Zhao.
But speaking of the financial crisis and the end of the WC, the real nail in the coffin for free-market policies was not the interventions of the Chinese and other developing countries, but of the US government. Since September 2008, the US federal government has spent hundreds of billions, if not trillions, rescuing banks and major corporations that if the market had been left to its own devices would have gone the way of the Dodo Bird. Remember the joke that President Obama is CEO of General Motors? Washington’s interventions were the exact opposite of what it and the IMF and World Bank had been preaching to others for the past several decades. And it is this hypocrisy, or rather the unveiling of what states really must do in the face of such economic and political storms, that gave another blow to the WC. Yes, there are many admirers of China’s developmental success, and some of them as a result are more open to industrial policy and intervention more generally. But the loss of confidence in the Washington Consensus started a long time ago and reached its culmination far closer to home, at 1600 Pennsylvania Avenue. Washington can cluck all it wants about how its trading partners should continue to reduce barriers and get out of the way of the market (or rather America’s companies who want a larger piece of their markets), but everyone is watching and learning from what America actually does. And that’s just as consequential in the long term as what the Chinese and others do in terms of defining what economic policies are recognized as legitimate and acceptable.