By Saamia Jahangir
The annals of human history are replete with a wide variety of innovative ideas and methodologies that people have devised to cater for not only their day-to-day needs but also the macro-economic and social requirements.
New ways challenge the old and traditional ways of executing economic activities and alternative options come to the economists’ attention every day. Likewise, evolution of socio-economic models in contemporary geo-political scenario is so fast that within a matter of half a century, the world got to witness two starkly divergent variations of economic models i.e. the Washington Consensus and the recent Beijing Consensus.
21st Century International Relations discourse began with the unipolar hegemony of United States, however, as the decade unfolded, several political and economic factors shifted the global power dynamics in favor of several rising powers around the globe, mainly Socialist Republic of China.
Amidst this multipolar spectrum of emerging powers, Chinese economic success model, also called the “Beijing Consensus” has been the most shocking one as it presents a prominent divergence from the previously prevalent “Washington Consensus,” led by the democratic United States of America.
In the contemporary times, the onslaught of the Corona Virus Pandemic has had dire impacts on the economic conditions of the world. Every country in the world, from the First World states like USA to Third World countries like Pakistan, has endured severe economic repercussions.
In this situation, a debate has originated vis a vis the future of the world economic system in the post-Covid-19 world. The analysts of International Political Economy are speculating and wondering whether the Neo-Liberal Order of free-market economy under the leadership of USA will prevail or the Socialist state monitored economic trend under the Chinese leadership will subdue to rest.
The answer to that question lies in the comparative evaluation of the recovery of China and USA in the post-Corona world. The world after corona virus is going to be a transformed world and the economic order prevalent in that world is most likely to be dependent on the way various countries strike back and rebuff their economies.
Washington Consensus; the Beginning of the Neo-Liberal Economic Order
Washington Consensus is the term coined in 1989 by a renowned British economist named John Williamson in his scholarship which discussed the operational loopholes of the economic systems of Third World developing countries. His writing was focused on helping these countries recover from economic crisis through structural adjustments and policy reforms suggested by the Bretton Wood Institutions i.e. International Monetary Fund, World Bank and World Trade Organization. The main policy recommendations by these institutions, as delineated by John Williamson, mainly focused on the idea of laissez faire economy and the free role of market forces.
Theses economic institutions necessitated these pre-conditions, named as the “Structural Adjustment Policies,” for immediate fiscal and monetary aid to the struggling Third World Economies. Since such liberalization of trade and free-floating exchange rates fell under the capitalist narrative spear-headed by the United States of America, Williamson named this prevalent economic ideology as the “Washington Consensus.” Explaining the basic doctrine of Washington Consensus, the former chief of the World Bank, Joseph Stiglitz stated in 2004;
“Whatever, its original content and intent, the term ―Washington Consensus, in the minds of most people around the world, has come to refer to development strategies focusing around privatization, liberalization, and macro-stability (meaning mostly price stability); a set of policies predicated upon a strong faith – stronger than warranted –in unfettered markets and aimed at reducing, or even minimizing, the role of government.”
Washington Consensus was the outcome of post-World War II socio-economic reconfiguration of the world order by the victorious nations of the Western Alliance in order to ensure the steering of the future economic order in their own favor. The renowned scholar of International Political Economy, Robert Gilpin explained the birth of Washington Consensus in the Post War global geo-politics in his book: Global Political Economy, Understanding the International Economic Order. In his words;
“In creating the post–World War II regimes, the most important task for American leadership was to promote international cooperation. The United States undertook the leadership role, and other economic powers (Canada, Japan, and Western Europe) cooperated for economic, political, and ideological reasons. These allies believed that a liberal world economy would meet their economic interests and solidify their alliance against the Soviet threat. In addition, cooperation was greatly facilitated by the fact that these nations shared an ideological commitment to a liberal international economy based on free trade and open markets. All three factors—leadership, cooperation, and ideological consensus—were important to creation of the post–World War II liberal international economy” (Gilpin and Jean, 2001)
The prominent policy requirements of the Washington Consensus such as economic regulation, tax reforms, re-ordering public outflows, deregulation of privatization, trade liberalization, relaxed interest rates and property claims, etc. were all reflected in the government policies and strategies of liberal market-orientations adopted by the 1980s governments of Ronald Reagan and Margaret Thatcher. Over the years, there have been a number of staunch supporters of the Washington Consensus, claiming that although the Structural Adjustment Policies (SAPs) demand rapid policy reconfigurations and structural adjustments, their long-term benefits are undeniable.
Critique of the Bretton Wood System under Washington Consensus
On the other hand, the criticism on the Bretton Wood Institutions has also been very stark. This economic system propagates internationalism as opposed to a patriotic inclination towards nationalism and protectionist policies to let the domestic markets thrive.
Too much focus on the development of Gross Domestic Product (GDP) through the formation of a laissez-faire universal economy is the end game for Washington consensus yet over the years, many third world countries like Pakistan, Greece, etc. have failed to reap true economic growth with the help of IMF bail-outs and WB developmental funds.
This narrative has most widely been established by a renowned American scholar named Dani Rodrik, a Professor of International Political Economy at Harvard University. He wrote a renowned paper named “Goodbye Washington Consensus, Hello Washington Confusion?” in which he explained how the Washington Consensus model of economic growth and poverty eradication for the global South has done nothing but increase the wealth gap between the global North and the global South. He evaluated the impacts of SAPs on the overall growth, employment and poverty reduction in many countries and found the outcome to be disappointing, to say the least. In his words:
“Stabilize, privatize, and liberalize” became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counseled.”
Similar criticism has been put forth by some Latin American politicians and heterodox economists, for instance, Erik Reinert who believes that the neo-liberal policies aim at expanding the role of the free market and influence of United States of America and globalization to overwhelm the national sovereignty of countries of Third World through their debt-trap diplomacy.
That is why, the disillusionment towards the Washington Consensus was most noticeable within the developing world, where the economic analysts view the Bretton Wood institutions as a means for the economically-advanced North to exploit the institutional and governance inefficiencies of the developing and under-developed South. When this viewpoint became more prevalent across the developing world, especially around the early 1990s, nations began to look for other options in terms of suitable economic model for the Third World.
Beijing Consensus; The Rise of the Alternative Model
In the concluding decade of the 20th Century, when the illusion of South’s economic prosperity through Modernization Theory under the Washington Consensus was waning, the Chinese economic boom presented the world with another model for economic progress, “The Beijing Model” which was quite opposite to the formula of economic rejuvenation presented by the Bretton Wood system.
The term, “Beijing Consensus” was coined by Joshua Cooper Ramo in his 2004 book named “Beijing Consensus” to refer to the remarkable institutional success and economic prosperity undertaken by China in a matter of few decades. Ramo was a former senior editor and foreign editor of Time magazine. His objective of writing the book was, in the words of Huang (2011):
“to undertake the ambitious objective to debunk the famous doctrine of the “Washington Consensus.”
What is remarkable about the Beijing Consensus is that the economic path that China took was remarkable different from what the world was accustomed to in the Neoliberal economic order. While the Washington Consensus promoted neoliberal and market-oriented doctrines, the Beijing Consensus focused on authoritarianism and heavy state involvement in the economy.
China’s economic prosperity has been ensured strong and proactive government intervention that plays a critical role in the swift mobilization of massive assets and resources to ensure institutional reformation and efficient policy execution without any bottlenecks to growth. This authoritarian model of economic rejuvenation is termed as the Beijing Consensus which stands in direct opposition to the democratic, free-market economy of United States.
Beijing vs. Washington Consensus; The Clash of Economic Ideologies
According to Joshua Cooper Ramo, the Beijing Consensus had its foundation on three basic ideological pillars, namely innovation, work through chaos management and self-determination. On the basis of these three ideological principles, Ramo made a clear distinction between the Washington Consensus and the Beijing Consensus.
According to him, the very first foundational principle of the Chinese model of economic prosperity is “commitment to innovation and constant experimentation.” He puts the Chinese inclination towards experimentation and novelty in direct contrast with the Bretton Wood’s strict adherence to Complacency. Washington Consensus has its foundation on the idea that their way of economic prosperity is the only viable and practical solution to economic stagnation.
On the other hand, Beijing Consensus is devoid of any such unilaterally constructed policy recommendations and reforms which China forces a developing nation to adhere to in order to attain economic success. Joshua Ramo highlights this loophole in the Bretton Wood System, stating:
“There is no perfect solution, and that the only true path to success is one that is dynamic, as no one plan works for every situation.”
The second foundational principle that distinguishes the Beijing Consensus from the Washington Consensus is the Chinese emphasis on different indicators for economic prosperity other than Per Capita Income (GDP/capita) as propagated by the Bretton Wood model of prosperity.
Chinese economists believe that per capita income should not be the only indicator in consideration while considering the criteria for viable and durable progress. Rather, Ramo analyzes that there are a number of other factors like sustainability of the economic system and an even distribution of wealth which play a significant role, along with the GDP, in determining the economic progress of a state.
Last but not the least, the principle of Beijing Consensus that Joshua Ramo highlights in his critique is the policy of self-determination. In the Chinese model of economic development, developing nations have their right to financial sovereignty intact through the use of leverage which keeps the superpowers in check.
This leverage-policy includes fiscal self-determination as well as an inclination towards the most effective and efficient military strategy. The inclusion of military strategy highlights the idea that model of economic prosperity for the Third World under the Beijing Consensus does not merely focus on economics, rather, geo-politics and geo-economic is intertwined in the eyes of the Chinese.
That is why, while China has interconnected its economic interests with Pakistan through the China Pakistan Economic Corridor (CPEC), Beijing constantly supports Islamabad on a number of geo-political forefronts. Such an attitude is not apparent for countries patronaging the Bretton Wood System.
Future of World Economic Preferences Post-Covid-19
The contemporary world is facing an unprecedented crisis of health sector as the Corona Virus has taken over every nook and corner of the world. As the pandemic has progressed over the months, its impacts have reached every domain of human life, either social, political, cultural or economic.
Likewise, the pandemic has also impacted the political and economic conditions of Nation-States as well. Amidst this chaotic situation, the world order is undergoing a rapid and unpredictable shift. Previously, the United States of America had consolidated its status as the sole hegemon of the world in the post-cold war scenario. However, with the rise of the Chinese model of growth, the sole hegemony of United States came under question.
Although the virus initiated from Chinese city of Wuhan, it has spread all across the world, impacting the economic stability of not only China but also the United States of America. When it comes to the impact of Corona Virus on the economy of China, recent evaluation of economic data shows that:
“China’s economy contracted 6.8% in the first quarter of 2020, during which some 460,000 Chinese firms closed. Moreover, registration of new firms fell 29% year-on-year between January and March.”
This contraction is said to be first recorded contraction in China since before Mao-era collectivization was ended in the second half of 1970s. On the other end, the impact of the corona pandemic on the US economy has also been catastrophic. The United States, unfortunately, is now reaching a total of 650,000 infections. The country is now the new epicenter of the deadly outbreak.
Along with the United States and Republic of China, the entire globe is facing detrimental impacts of the virus. At this moment, more than 2.1 million individuals from across the world have been infected with the deadly Corona Virus and more than 140,000 people have, as of today, died from the infection of this disease. In a few months, as the world begins to restart its economic engine, the nations will contemplate the best form of economic model to choose in order to rejuvenate their dying economies.
At this moment, the debate of “Washington Consensus vs. Beijing Consensus” will re-emerge once again. It is significant to note that the debate between the Washington Consensus and the Beijing Consensus is, in fact, the debate between United States of America and Republic of China as these two nations are the protagonist states promoting their respect models of economic growth. Therefore, when the debate initiates regarding the title of supremacy and hegemony in the post- Covid-19 world, a lot will depend upon the way the two countries, United States and Republic of China, will handle the pandemic crisis and rejuvenate their economies as soon as possible.
Factors Impacting the Prospects for Victory
There a number of factors which impact the way each nation will recover its economy in the post-Corona world. Any time an unprecedented catastrophe hits, the consequences are also far-reaching. Therefore, in order to recover from such massive catastrophes like the Corona pandemic, nations need to resort to unprecedented efforts for a speedy recovery. Highlighting the factors required by the two competing nations to recover from the economic impacts of the virus, Francis Fukuyama writes in his recent article “The Pandemic and Political Order”:
“The factors responsible for successful pandemic responses have been state capacity, social trust, and leadership. Countries with all three—a competent state apparatus, a government that citizens trust and listen to, and effective leaders—have performed impressively, limiting the damage they have suffered. Countries with dysfunctional states, polarized societies, or poor leadership have done badly.”
In view of the above discussion, it becomes quite apparent that any country that will be successful in recovering from the virus through a competent state apparatus, a government that citizens trust and listen to, and effective leaders, will eventually be able to present to the world a more attractive model of economic progress and, hence, win the title of the sole hegemon in the post Corona World Order. In this perspective, the gameplay of United States of America, under the weak leadership of Donald Trump seems to be at a disadvantage. However, only time will reveal the real winner in years to come.
Photo Credit: Saul Loeb/AFP
(The opinions expressed in this article are solely those of the authors and do not necessarily reflect the views of World Geostrategic Insights)