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Washington Consensus Reconsidered the INITIATIVE for POLICY DIALOGUE SERIES The Washington Consensus Reconsidered THE INITIATIVE FOR POLICY DIALOGUE SERIES The Initiative for Policy Dialogue (IPD) brings together the top voices in devel- opment to address some of the most pressing and controversial debates in economic policy today. The IPD book series approaches topics such as capital market liberalization, macroeconomics, environmental economics, and trade policy from a balanced perspective, presenting alternatives and analyzing their consequences on the basis of the best available research. Written in a language accessible to policymakers and civil society, this series will rekindle the debate on economic policy and facilitate a more democratic discussion of development around the world. OTHER TITLES PUBLISHED BY OXFORD UNIVERSITY PRESS IN THIS SERIES Fair Trade for All Joseph E. Stiglitz and Andrew Charlton Stability with Growth Joseph E. Stiglitz, José Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar Economic Development and Environmental Sustainability Edited by Ramón López and Michael A. Toman Capital Market Liberalization and Development Edited by José Antonio Ocampo and Joseph E. Stiglitz The Washington Consensus Reconsidered Towards a New Global Governance Edited by Narcís Serra and Joseph E. Stiglitz 1 3 Great Clarendon Street, Oxford OX2 6DP Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York © Oxford University Press 2008 The moral rights of the authors have been asserted Database right Oxford University Press (maker) First published 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Typeset by SPI Publisher Services, Pondicherry, India Printed in Great Britain on acid-free paper by Biddles Ltd., King’s Lynn, Norfolk ISBN 978–0–19–953408–1 ISBN 978–0–19–953409–8 (Pbk) 10987654321 Acknowledgements This book is the work of the participants of the seminar series ’From the Wash- ington Consensus, Towards a New Global Governance’, which culminated at the Universal Forum of Cultures in Barcelona in 2004. The seminars were co-hosted by the Initiative for Policy Dialogue (IPD) at Columbia University and the Center for International Relations and Develop- ment Studies (CIDOB) in Barcelona. IPD is a global network of over 250 econo- mists, researchers and practitioners committed to furthering understanding of the development process. The CIDOB Foundation is a research, training and documentation center devoted to international relations and development studies. Both organizations are grateful to each other for a wonderful intellec- tual and working relationship and for the great hospitality given when visiting each other’s cities. We would like to thank all seminar participants, whose contributions to the provocative and productive dialogues and debates on global governance alternatives informed the content of this book. Thanks to the members of the advisory committee for their enthusiasm and energetic devotion to the project, despite their own significant responsi- bilities. We would like to extend a special thank you to Joan Clos, the Mayor of Barcelona, for his encouragement and personal involvement in our endeavor. Joan attended the entire conference, including the long dinners and off-table discussions. Special thanks to Mireia Belil and her dialogue team in particular, Lourdes and Cristina, who worked behind the scenes to ensure that the event ran smoothly. Also of invaluable help behind the scenes were Jorge Blázquez, Carlos Oca˜na and Rocío Martínez-Sampere. We would also like to thank friends Pasqual Maragall, Lionel Jospin, Anto- nio Guterres, Carlos Slim, Gerry Arsenis and Felipe González for responding quickly to our invitation and graciously adding a necessary political dimen- sion to the discussion. Special thanks goes to Shari Spiegel, who served as Executive Director of IPD over the course of this project, and to Shana Hoftsetter for organizing meetings and to Sylvia Wu for her role in editing the book. v Acknowledgements Thank you also to IPD staff Sheila Chanani, Sarah Green, Siddhartha Gupta, Ariel Schwartz and Lauren Anderson, as well as interns Dora Beszterczey and James Giganti, for helping to manage the project and coordinate production of the book. We thank our editors Sarah Caro and Jennifer Wilkinson and the staff of Oxford University Press for bringing this book into publication. We are most grateful to The John D. and Catherine T. MacArthur Founda- tion and the Ford Foundation for supporting the seminar series and the work of IPD. Finally, a very special thank you to the people of Barcelona, who embraced the Universal Forum of Cultures and enriched our debates through their attendance and enthusiastic participation. vi Contents List of Figures ix List of Tables x List of Contributors xi Foreword xiii Part I The Washington Consensus: From Its Origins to Its Critics 1. Introduction: From the Washington Consensus Towards a New Global Governance 3 Narcís Serra, Shari Spiegel, and Joseph E. Stiglitz 2. A Short History of the Washington Consensus 14 John Williamson 3. Inequality and Redistribution 31 Paul Krugman 4. Is there a Post-Washington Consensus Consensus? 41 Joseph E. Stiglitz 5. The Barcelona Development Agenda 57 Part II Analyses of Central Issues in Development 6. A Broad View of Macroeconomic Stability 63 José Antonio Ocampo 7. The Wild Ones: Industrial Policies in the Developing World 95 Alice H. Amsden 8. Sudden Stop, Financial Factors, and Economic Collapse in Latin America: Learning from Argentina and Chile 119 Guillermo A. Calvo and Ernesto Talvi 9. Towards a New Modus Operandi of the International Financial System 150 Daniel Cohen vii Contents 10. The World Trading System and Implications of External Opening 180 Jeffrey A. Frankel 11. The World Trading System and Development Concerns 215 Martin Khor 12. Reforming Labor Market Institutions: Unemployment Insurance and Employment Protection 260 Olivier Blanchard 13. International Migration and Economic Development 277 Deepak Nayyar Part III Towards a New Global Governance 14. The Future of Global Governance 309 Joseph E. Stiglitz 15. Growth Diagnostics 324 Ricardo Hausmann, Dani Rodrik, and Andrés Velasco 16. A Practical Approach to Formulating Growth Strategies 356 Dani Rodrik Index 367 viii List of Figures 3.1. Most Commonly Cited Data on Income Growth, US 32 3.2. Percentage Increases in Income from 1979 to 2001, US 33 3.3. Correlation between Changes in Inequality and Progress/Lack of Progress in Reducing Poverty 36 7.1. Growth in Income: 1950–80 and 1980–2000 101 8.1. LAC-7 External Financial Flows and Economic Growth 121 8.2. Boom and Bust in Capital Flows to LAC-7, 1990–2002 123 8.3. Sudden Stop and Macroeconomic Adjustment in LAC-7, 1990–2002 128 8.4. Sudden Stop and Macroeconomic Adjustment in Chile, 1990–2002 133 8.5. Sudden Stop and Economic Performance in Argentina and Chile 135 8.6. Sudden Stop, Dollarization, Financial Crisis, and Economic Collapse: Argentina in the Light of Chile 138 10.1. Countries’ Openness vs. their Share of Gross World Product 182 15.1. Growth Diagnostics 326 15.2. Average Years of Schooling of 12-year-old Children 338 15.3. Lending Rates in Latin America 341 15.4. Domestic Savings, National Savings and Investment 341 15.5. Returns to Education and Years of Schooling 342 15.6. Real Exchange Rate, Remittances, and the Trade Balance 345 ix List of Tables 3.1. International Comparisons of Inequality 34 7.1. Who Exports Labor Intensive Textiles, 2001–02 98 8.1. Boom and Bust in Capital Flows per Country 124 8.2. Current Account Reversals and the Real Exchange Rate (RER) per Country 130 8.3. Growth and Investment Reversals 131 8.4. Sudden Stop, Openness, and Real Exchange Rate (RER) Adjustment in Argentina and Chile 136 9.1. Debt Reschedulings in the 1980s 154 9.2. Market Value of Debt Circa 1990 155 9.3. Case 1: Foretold Crises in Argentina and Ecuador 157 9.4. Case 2: Unexpected Crises in Mexico and Korea 157 9.5. Case 3: Foretold Crises Without Apparent Macroeconomic Disequilibria 158 9.6. Summary Table 158 9.7. Debt Dynamics 159 9.8. Capital/Output Ratio (volume, Summers-Heston data) 160 9.9. Capital/Output Ratio (value, current dollars) 160 9.10. Capital/Output Ratio (manufacturing) 161 9.11. Selected Commodities 174 9.12. Endowment to Stabilize Prices 175 10.1. Deep Determinants of Growth 190 13.1. International Migrants in the World: The Distribution of the Stock Across Country Groups, 1960–2000 281 13.2. Remittances from Migrants: The Distribution of the Flows Across Regions, 1980–2000 298 15.1. GDP Growth Rates 335 15.2. Brazil: Basic Macroeconomic Indicators 336 15.3. Savings, Investment, and the Current Account 338 x List of Contributors Alice H.
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