During the previous century, three main economists with distinct theories greatly influenced the global economic framework.
It was Adam Smith and his idea of a laissez-faire economy, Karl Marx with his socialist economic ideas, and finally John Maynard Keynes, who was the boldest of them all, known as the father of modern macroeconomics. Keynes was focused on the aspect of increasing demand and reducing tax to recover the economy.
The circumstances that were presented to Keynes may have influenced his theories, which aimed at reducing socioeconomic effects during the times of world economic recession. Before delving deep into the topic, it is very crucial to revisit the political and economic history and evolution of the complexity of economy during the past century.
Between the 1920s and 1930s, a handful of economists were competing with the idea to reverse the collapse in international trade. Economists from all around the world were rushing to face the challenges of the onset of the Great Depression during that time. Among those in the field were two economists, who in parallel pioneered complementary innovative ideas — Colin Clark, a British economist, and Simon Kuznets, his contemporary from the US.
During the 1940s, the approach of Clark and Kuznets was overtaken and extended by Keynes, who further developed their concepts and the idea of gross domestic product in his pamphlet titled: “How to Pay for the War.” It is also worth mentioning that Keynes is also the co-founder of the Bretton Woods system (World Bank and IMF).
Henceforth, this led two pioneering economists, John Keynes, adviser to the British Treasury, and the less popular economist, Harry Dexter White, who was US chief international economist at the Treasury Department, to establish a new economic system that became known as the Bretton Woods System.
The Bretton Woods agreement was created in 1944 at a conference in Bretton Woods, New Hampshire, and was attended by the allies of World War II. The objective of the agreement was to establish a framework in fixed international currency exchange rates, improve international trade and enhance development to recover the economy.
The system was gradually dissolved between the late 1960s and early 1970s with the announcement of a temporary suspension of gold as a convertibility scale of currencies, and its replacement with the dollar as a fiat currency.
Later in 1989, John Williamson, an economist, presented a concept note titled the “Washington Consensus,” that in summary introduced structural reforms to increase the role of market forces in exchange for immediate financial help through a set of 10 monetary policy principles that were believed to be necessary for the recovery of countries in Latin America from the economic and financial crises of the 1980s. While the Washington Consensus only survived until the time of the 2008 global financial crisis, it had its pros and cons.
I believe it is important to also cooperate to find economic solutions to post-pandemic recovery.
Abeer S. Al-Saud
In the defense of Williamson’s ideas, Joseph Stiglitz, who is widely known to be a bold critic of the IMF policies as applied to developing nations, has written that “the Washington Consensus policies were designed to respond to the very real problems in Latin America and made considerable sense.”
As a reflection to Williamson’s case, I am reminded by a quote by Milton Friedman: “One of the great mistakes is to judge ideas by their intentions rather than their results.”
Following that, in 2011, a paper titled the “Post-Washington Consensus” that outlined a shift in development policies and practices was published by Nancy Birdsall, Augusto de la Torre and Felipe Valencia Caicedo.
It highlighted that “traditionally, this was an agenda generated in the developed world that was implemented in — and, indeed, often imposed on — the developing world.
“Countries such as Brazil, China, India, and South Africa will be both donors and recipients of resources for development and of best practices for how to use them. A large portion of the world’s poor live within their borders, yet they have achieved new respect on the global scene in economic, political, and intellectual terms. In fact, development has never been something that the rich bestowed on the poor, but rather something the poor achieved for themselves.”
The “Post-Washington Consensus” may have not provided clear recommendations for reform. However, just as we have united as an international community to curb the spread of the pandemic, I believe it is important to also cooperate to find economic solutions to post-pandemic recovery through a new Post-Washington Consensus led by a diverse committee of international economists.
• Abeer S. Al-Saud is an Op-Ed writer for Arab News exploring development, peace, and cultural topics. The views expressed in this piece are personal. Twitter: @asmalsaud