During the 1990s the phrase "Washington Consensus"
was increasingly used in policy circles, particularly in the context of the IMF
when applying conditional aid packages. It was another way of saying,
particularly to developing economies, that countries should liberalise markets;
reduce taxes and trade barriers and put in place a governance structure that
promotes openness. The ethos was that open and competitive markets would allow
the private sector to operate in a manner that acted as a dynamo for economic
growth which would ripple throughout the economy. It would also bring them
closer to the orbit of the Anglo Saxon economies. Successive US Presidents from
Bill Clinton onwards bought into the idea as did UK prime ministers Tony Blair
and Gordon Brown. But it was generally resented by those countries which found
themselves on the receiving end of IMF requirements.
Indeed, the words Washington and consensus appear rather hollow these days, particularly when mentioned in the same sentence. The events of the past week have painted a picture to the world of a chaotic White House failing to grasp how to run government, and suggests that consensus is the last thing on the minds of many in Washington. Meanwhile, on this side of the Atlantic, the UK government is failing to get to grips with the niceties of Brexit negotiations in a way that makes many of us fear for the outcome. Whatever else the Anglo Saxon model stood for, it was meant to be pragmatism over ideology. Admittedly, there were those who believed that the insistence on the primacy of free markets was an ideological stance, but on the whole it seemed to be backed up by a body of evidence. Then 2008 happened.
Ironically had the free market proponents been allowed to apply their doctrine to its logical conclusion, banks would have been allowed to collapse and the swamp would have been drained in a way that would almost certainly have proved ruinous. Fortunately, governments stepped in to put a backstop behind the system. Contrary to popular belief, markets did not fail. The mechanism worked exactly as the textbooks said it would: boom follows bust. It's just that it did not produce outcomes that societies found acceptable.
I have long maintained that the apparent governmental chaos in Washington and London stems from the events of nine years ago. Unlike continental Europe, where memories of the post-1945 economic ruin were still part of collective memory (albeit distant), neither the US nor UK have any social memory of economic hardship. The experience of the 1930s was too far beyond the memory of most, and had in any case been wiped away by the post-1945 glow. Perhaps it was this factor which meant that US and UK governments were unable to effectively communicate the severity of the economic situation to their electorates (though full marks to Ben Bernanke at the Fed who recognized the collapse for what it was). As time went on, and governments were unable to generate the recovery which they promised, their message was increasingly not heard by an electorate that felt it was being lied to. As a result we got Brexit and Trump.
The problem that governments on both sides of the Atlantic face is that evidence-based policy making appears to have taken a back seat to ideology. Take the Obamacare debacle. President Obama’s Patient Protection and Affordable Care Act is designed to provide health insurance to the estimated 15% of the population who lack it. Moreover, it is designed ultimately to rein in the surge in healthcare spending. But the right-wing Republicans hate it because it is seen as a “job killer” by imposing too many costs on business and is seen as an unwarranted intrusion into the affairs of businesses and individuals. But far from being a job killer, health sector jobs have increased by 9% since the legislation was introduced.
Moreover, Senate voted not to repeal it last week because politicians know that large parts of the current system work for the electorate. As Vox put it, “No legislative strategy can skirt around the fact that millions now rely on the health care law for coverage, and do not want to lose their benefits.” Nor is it clear what the replacement legislation would look like. There are numerous flaws with the Obamacare legislation which need to be fixed in just the same way as there are flaws in the way that the EU operates. This does not mean that it is sensible to overturn the status quo without an alternative plan. There is no evidence that Brexit is a policy that will increase the UK’s economic welfare. And just as certain elements of the US media were able to distort the terms of the presidential debate, so the same thing happened in the UK ahead of the EU referendum.
What is most worrying about the debate on both sides of the Atlantic is that a short-term political agenda is being pursued which will have longer term economic consequences. Both Trump and Theresa May will one day just be another in a long line of ex-politicians. But the damage to their respective countries may well outlive them. In the case of the US, the policy vacuum will create more space for the likes of China to create a global structure designed to maximise its influence. The UK’s position is even worse for it does not have the economic and political heft of the US. The reputation of both countries as economically successful bastions of freedom and tolerance has taken a beating, and the rest of the world may in future only look to them for lessons in how not to manage affairs.
Indeed, the words Washington and consensus appear rather hollow these days, particularly when mentioned in the same sentence. The events of the past week have painted a picture to the world of a chaotic White House failing to grasp how to run government, and suggests that consensus is the last thing on the minds of many in Washington. Meanwhile, on this side of the Atlantic, the UK government is failing to get to grips with the niceties of Brexit negotiations in a way that makes many of us fear for the outcome. Whatever else the Anglo Saxon model stood for, it was meant to be pragmatism over ideology. Admittedly, there were those who believed that the insistence on the primacy of free markets was an ideological stance, but on the whole it seemed to be backed up by a body of evidence. Then 2008 happened.
Ironically had the free market proponents been allowed to apply their doctrine to its logical conclusion, banks would have been allowed to collapse and the swamp would have been drained in a way that would almost certainly have proved ruinous. Fortunately, governments stepped in to put a backstop behind the system. Contrary to popular belief, markets did not fail. The mechanism worked exactly as the textbooks said it would: boom follows bust. It's just that it did not produce outcomes that societies found acceptable.
I have long maintained that the apparent governmental chaos in Washington and London stems from the events of nine years ago. Unlike continental Europe, where memories of the post-1945 economic ruin were still part of collective memory (albeit distant), neither the US nor UK have any social memory of economic hardship. The experience of the 1930s was too far beyond the memory of most, and had in any case been wiped away by the post-1945 glow. Perhaps it was this factor which meant that US and UK governments were unable to effectively communicate the severity of the economic situation to their electorates (though full marks to Ben Bernanke at the Fed who recognized the collapse for what it was). As time went on, and governments were unable to generate the recovery which they promised, their message was increasingly not heard by an electorate that felt it was being lied to. As a result we got Brexit and Trump.
The problem that governments on both sides of the Atlantic face is that evidence-based policy making appears to have taken a back seat to ideology. Take the Obamacare debacle. President Obama’s Patient Protection and Affordable Care Act is designed to provide health insurance to the estimated 15% of the population who lack it. Moreover, it is designed ultimately to rein in the surge in healthcare spending. But the right-wing Republicans hate it because it is seen as a “job killer” by imposing too many costs on business and is seen as an unwarranted intrusion into the affairs of businesses and individuals. But far from being a job killer, health sector jobs have increased by 9% since the legislation was introduced.
Moreover, Senate voted not to repeal it last week because politicians know that large parts of the current system work for the electorate. As Vox put it, “No legislative strategy can skirt around the fact that millions now rely on the health care law for coverage, and do not want to lose their benefits.” Nor is it clear what the replacement legislation would look like. There are numerous flaws with the Obamacare legislation which need to be fixed in just the same way as there are flaws in the way that the EU operates. This does not mean that it is sensible to overturn the status quo without an alternative plan. There is no evidence that Brexit is a policy that will increase the UK’s economic welfare. And just as certain elements of the US media were able to distort the terms of the presidential debate, so the same thing happened in the UK ahead of the EU referendum.
What is most worrying about the debate on both sides of the Atlantic is that a short-term political agenda is being pursued which will have longer term economic consequences. Both Trump and Theresa May will one day just be another in a long line of ex-politicians. But the damage to their respective countries may well outlive them. In the case of the US, the policy vacuum will create more space for the likes of China to create a global structure designed to maximise its influence. The UK’s position is even worse for it does not have the economic and political heft of the US. The reputation of both countries as economically successful bastions of freedom and tolerance has taken a beating, and the rest of the world may in future only look to them for lessons in how not to manage affairs.
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