In 1989, John Williamson, a fellow at the Institute for International Economics in Washington, DC which previously advised the World Bank and the International Monetary Fund, presented a background paper to a conference aimed to explore how extensive were the policy reforms that were then ongoing in Latin America. To try and ensure that the papers addressed a common set of issues, Williamson listed what seemed to him to be the central areas of reform that most Washington-based policy agencies and institutions at the time thought were needed for Latin American countries recovering from the economic and financial crises of the 1980s. Williamson labeled this list — “The Washington Consensus“. In the final paper published a year later, he elaborated this list into ten policy actions.
“1. Budget deficits … should be small enough to be financed without recourse to the inflation tax.
2. Public expenditure should be redirected from politically sensitive areas that receive more resources than their economic return can justify… toward neglected fields with high economic returns and the potential to improve income distribution, such as primary education and health, and infrastructure.
3. Tax reform… so as to broaden the tax base and cut marginal tax rates.
4. Financial liberalization, involving an ultimate objective of market-determined interest rates.
5. A unified exchange rate at a level sufficiently competitive to induce a rapid growth in nontraditional exports.
6. Quantitative trade restrictions to be rapidly replaced by tariffs, which would be progressively reduced until a uniform low rate of 10 to 20 percent was achieved.
7. Abolition of barriers impeding the entry of FDI (foreign direct investment).
8. Privatization of state enterprises.
9. Abolition of regulations that impede the entry of new firms or restrict competition.
10. The provision of secure property rights, especially to the informal sector.” (Williamson 2004: 196).
In the course of the years since that 1989 conference at the authoritative think tank, the phrase “Washington Consensus” has widely come to be used to describe a set of policy prescriptions promoting and implementing market fundamentalism.
In 2004, perhaps genuinely or perhaps ostensibly dissatisfied with the meanings that have been associated with the term he coined, Williamson published in Journal of Post Keynesian Economics “The Strange History of the Washington Consensus” (an open-access file below) to explain why, as he put this, “alternative versions of the Washington consensus” emerged. Specifically, Williamson referred to the usage of the concept as the policy approach imposed by the IMF and the World Bank on their client countries and the widely perceived narrative attributed to “The Washington Consensus” as the creed and the toolkit of Neoliberalism. The latter, resents Williamson (2004: 201), is “a thoroughly objectionable perversion of the original meaning. Whatever else the term “Washington Consensus” may mean, it should surely refer to a set of policies that command a consensus in some significant part of Washington, either the U.S. government or the international financial institutions (IFIs) or both, or perhaps both plus some other group. Even in the early years of the Reagan administration, or during the administration of George W. Bush, it would be difficult to contend that most of the distinctively neoliberal policies, such as supply-side economics, monetarism, or minimal government, commanded much of a consensus, certainly not in the IFIs“. Evidently, as it appears in one of the footnotes, Williamson was unsatisfied by Joseph Stiglitz’s book Globalization and Its Discontents (2002) that greatly contributed to the dissemination of the term with these particular interpretations.
On the other hand, Williamson had “some sympathy” with the criticism laid by Dani Rodrick in “Growth Strategies“ (2003) regarding the pretended universality and insensitivity of the recommended reforms to local context. “The problem with the Washington Consensus was that it listed what became regarded as “ten commandments,” with an implicit promise that a country that did these ten things would grow“, noted Williamson (2004: 205).
Elsewhere I wrote that sociology of economics is about “the social and political processes, mechanisms and conditions of formation, articulation and diffusion of economic ideas, models and theories. In this respect academic, practical and administrative configurations of economic knowledge are always embodied in particular economies, epistemic cultures and institutions”. Williamson’s “The Washington Consensus” initial agenda, the life cycle and the global spread of this term and its meanings during the last three decades, and Williamson’s 2004 paper itself in which he tried to retrospectively reposition himself — are an interesting and rich example of sociology of economics. This story, especially after the 2007-8 global financial crisis which is certainly the result of Neoliberalism, clearly demonstrates the great influence of economic ideas, such as “The Washington Consensus”, in (inter)national economic policymaking, especially when deployed by the coalition of powerful actors and institutions.
– Williamson, John. 1990. “What Washington Means by Policy Reform” Chapter 2 in Latin American Adjustment: How Much Has Happened?, edited by John Williamson. Washington, DC: Peterson Institute for International Economics. (open access)
– Williamson, John. 2004. “The Strange History of the Washington Consensus.” Journal of Post Keynesian Economics 27 (2): 195-206.