- Economist John Williamson, who coined the term “Washington Consensus”, died in April 2021 at the age of 83.
- Economic debates in post-apartheid South Africa were shaped by the ideas of Williamson.
- As inequalities continue to increase and as we strive to rebuild better after the pandemic, we can look to South Africa for a new global consensus based on economic justice and shared prosperity.
Two years before assuming his role as the first president of a democratic South Africa, speaking at the 1992 World Economic Forum annual meeting in Davos, Nelson Mandela called for “a global offensive for development, prosperity and human survival ”. Outlining his vision of a looming post-apartheid economy, he spoke in terms that would have appealed to the orthodoxy of the time. The new regime would inaugurate a mixed economy with ambitions to increase levels of investment and productivity.
As we mark the passing of economist John Williamson – who coined the term “Washington Consensus” – it is worth reflecting on a new society that arose in an era shaped by popular notions of what Williamson wanted. to say. South African economic debates have been shaped by – and continue to refer to – this set of ideas.
What is the Washington Consensus?
In his seminal paper published in 1990, Williamson had Latin America in mind. Its aim was to define a “desirable package of economic policy reforms” to deal with the debt crisis that was raging in that region at the time.
Williamson presented a set of 10 policy instruments, which were quickly treated as commandments in some quarters:
- small budget deficits
- tax expenditures motivated by economic and non-political returns
- lower taxes on a larger tax base
- financial liberalization
- a competitive exchange rate
- trade liberalization
- promote foreign direct investment (FDI)
- privatization of public enterprises
- pro-competitive regulatory reform
- secure property rights
But it was not meant to be an economic recipe to slavishly follow, as Williamson argued in the years that followed.
The Washington Consensus has been understood in two ways, Williamson wrote in The strange story of the Washington consensus, published in 2004.
In an alternate interpretation, consensus is shorthand for the policies of the Bretton Woods institutions as they advocated economic reform across the world.
However, there are distinctions between Williamson’s list and the policy advice provided by these bodies. Notably, Williamson argued for the liberalization of FDI, not the liberalization of short-term financial flows or outflows. When it came to exchange rates, international financial institutions tended to urge countries to make a clear choice between a “pure” floating exchange rate or a fixed rate, while Williamson wanted currencies to be actively managed towards a competitive level. Finally, the Bretton Woods bodies paid much more attention to institutions and governance, unlike Williamson.
The other way to understand the Washington Consensus is to confuse it with neoliberalism or market fundamentalism: “I see this as a very reprehensible perversion of the original meaning,” Williamson wrote in 2004.
The Washington Consensus and post-apartheid South Africa
In South Africa, the ANC-led government quickly removed tariff barriers, removed state participation and price regulation in markets such as agriculture, removed industrial subsidies in industrial parks in the apartheid era and gradually liberalized capital flows. But it was a mix of policies tailored to the need to dismantle racial inequalities, protect labor rights, and tackle market concentration and anti-competitive behavior. A progressive tax system was introduced to extend social protection to poor blacks, who had been largely excluded from the generous welfare state once reserved for whites only. The direction of post-apartheid economic policy was inspired by the ethics of Ubuntu, which maintains that we realize our humanity by supporting the humanity of others. In this vision of the world, the State has the obligation to deploy all means to promote an inclusive economy based on shared prosperity.
For white-owned businesses, run by conglomerates that became rich and powerful under apartheid, the program of liberalization and market discipline has become a rallying cry. Concerned about property rights and eager to invest in global markets, companies have shrouded themselves in the narrative of liberalization, privatization and deregulation. The support that the apartheid state had provided to interests in mining, agriculture, energy and basic industry – for example, through the suppression of black wages and lavish industrial subsidies – was quickly forget.
The left, including unions allied with the ANC, accused the government of following the Washington Consensus (to the commandments) too closely. From this perspective, the government was proceeding in a way that neither supported the goals of the liberation struggle nor responded to the terrifying economic realities on the ground.
The economic results of the first years were encouraging. The three major global credit rating agencies all had South Africa in the investment category in 2007. A strong global economy, a commodities boom anchored by China, the rise of the black South African consumer and growing stature as a continental champion led to this early success.
Yet as the commodities market cooled and the financial crisis plagued the global economy, the limits of this early success became clear. Unemployment has remained high, poverty has risen again and the level of inequality is one of the highest in the world. Even though South Africa has never been a case study of the Washington Consensus as it is commonly understood, there is a greater appreciation of these same things that Williamson sought to add to his agenda. in recent years, such as the importance of institutions and the idea that “this the objective of economic policy should not be framed as a mere increase in the rate of growth … but that governments should also recognize that” it is deeply important to know who gets the increase in income. “
A new global consensus born in South Africa
Around the world, inequalities have increased. The arguments for deregulation and globalization are hotly contested. The evils of deindustrialization are not only felt in the communities of Johannesburg, but have also taken their toll in America’s Rust Belt and former industrial Britain.
Indeed, as the world wonders how rebuild better, the Reconstruction and Economic Recovery Plan announced by President Cyril Ramaphosa aims at the structural transformation of the economy towards a digitally greener economy, with closer links with its home continent and the rest of the world. A key pillar of this program is the (re) construction of the institutional capacities of the State and the development of know-how in the whole of society to support this economic transformation. Measures to tackle the economic exclusion of those who have been kept on the margins of the economy – women, youth, blacks – are a key component of reconstruction efforts.
In its economic policy endeavors, South Africa, a microcosm of the world, holds the seeds of an Ubuntu-inspired global consensus based on economic justice and shared prosperity.
The author is a member of the expert network of the World Economic Forum.