Any time‘reforms’ are carried out in a sweeping manner, with the same policies applied to very different countries, ignoring the historical and institutional make-up of the individual countries, there are going to be problems. The
Washington Consensus lumped all countries together—not just the 20 very distinct countries within Latin America –but Asia, Africa (and now in its somewhat modified approach, Europe).
The“Consensus” was an ideological pursuit based on shaky theoretical grounds. The empirical evidence revealed quite clearly that the ‘reforms’ were not for the common good, as unemployment, informality and poverty skyrocketed.
But when these inconveniences were pointed out, the common response of the supporters of the Washington
Consensus was to argue that the reforms hadn’t been instituted fully – that labour market “rigidities” were keeping the economy from adjusting, thus leading to unemployment.
Chile is the emblematic case because its reforms were undertaken more than a decade before liberalization in many other Latin American countries and the post-1984 recovery and robust growth of the 1990s was taken as evidence of success. The severe crises of the mid-1970s and early 1980s were glossed over as were the important lessons that could have been learned from when hasty, and
ideologically driven, liberalization are put in place. But rather than noting that privatization led to emergence of large industrial conglomerates (the“grupos”), that the privatized pension system had sky-high administrative costs, that workers had no voice or bargaining power, that unemployment averaged 15% in Greater Santiago during the 1980s, that real wages did not recover their 1970 level until 1992, or that there was (and still is) a proliferation of short-term and precarious contracts in the labour market,
the IFIs stood silent – selling instead a slate of reforms.
The Washington Consensus was doctrine and it was
doctrinaire, but unfortunately, in this current crisis, I don’t see that we have moved much past it.
ILO (also writing in her personal capacity)
Sr. Development Economist Policy Integration Department
International Labour Office
4, route des Morillons
1211 Geneva Switzerland