Is the Washington Consensus Dead?
20 Pages Posted: 29 Mar 2013
Date Written: October 15, 2012
In the postwar years, most Third World countries turned inward partly in response to what they thought were the disastrous consequences of their 19th century integration into the world economy as the global economy collapsed in the Great Depression. The seeming success of Soviet central planning under Stalin also persuaded the leaders of these newly independent countries to substitute the plan for the market. Planning was all the rage, with the state seeking to control the commanding heights of the economy. Furthermore, the many theorists who created a seemingly “new development economics” provided the intellectual basis for the complex system of dirigiste controls on “anything that moved” (as one wit put it) in a market economy.
In the early 1980s, I wrote a small book, The Poverty of ‘Development Economics’ (Lal 1983), which attempted to summarize the logical arguments and empirical evidence against what I called the “Dirigiste Dogma,” which had done so much damage to the prospects of the Third World’s poor. That book, which acquired some notoriety, if not fame, marked the neoclassical resurgence against the Dirigiste Dogma as many developing countries began to adopt (at least partly) the classical liberal policy package known as the Washington Consensus. The reversal of dirigisme in the 1980s and early 1990s, particularly in China and India, but also in many other parts of the Third World, led to the surge in per capita incomes and the largest reduction in structural poverty in human history.
Keywords: classical liberalism, economic neoliberalism, Reagonomics, Washington Consensus, free market capitalism, laissez faire
JEL Classification: G00, F63
Suggested Citation: Suggested Citation