Ha-Joon Chang on the death of the Washington consensus

A coupe of days ago I blogged about a Financial Times report that the current G20 summit in Seoul is likely to see the end of the Washington consensus that untrammelled markets are the best way to secure development in poor countries. I have since heard similar reports from other sources in the development field.

The case to this move was provided by the Korean-born economist Ha-Joon Chang in a Guardian article earlier this week:

In my lifetime Korea has lived through one of the greatest development miracles – half a century ago, its annual per capita income was around £50, less than half that of Ghana at the time. Today, it stands at £12,000, putting it on a par with Portugal and Slovenia. How was this possible?

Korea of course did things that most people agree are important for economic development, such as investment in infrastructure, health and education. But on top of that, it also practised many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance.

You read more from Ha-Joon Chang, who teaches at Cambridge, on his own website.

He is also quoted in a recent Christian Science Monitor article:

The government’s emphasis on free trade over aid in its G20 development agenda, however, has left some wondering whether Seoul has wandered from its own development model.

Korea received millions of dollars in aid from the United Nations Development Program and other international donors throughout its development process. Last year, Korea became the first major recipient of overseas development aid to become a major international aid donor.

Korea’s economy also benefited from relatively closed markets during the cold war. Professor Chang calls Seoul’s call for freer markets “fundamentally at odds with how Korea itself developed."

I suppose it is rather like the way you become in favour of strict discipline in the classroom as your own schooldays recede in your memory.

Profesor Alan Winters on the principles of development

A 17-minute tutorial with the chief economist at the Department for International Development.

G20 to ditch Washington consensus on development

Chris Giles writes on the FT website:

The Group of 20 leading economies will ditch free market recommendations for the poorest countries on Friday in favour of a more rounded approach that puts “resilient growth” at the heart of development strategy.

According to a draft communiqué seen by the Financial Times, dated November 3, the G20 agrees that “there is no single formula for development success” and stresses rich and poor countries should work as “partners” to foster enduring growth.

The agreement is termed the “Seoul consensus for shared growth”, an attempt to supplant the Washington consensus of the late 1980s that recommended free market solutions to lift countries out of poverty.

Instead of promoting deregulation, fiscal discipline and privatisation, as in the Washington consensus, the agreement in Seoul will suggest nine “pillars” for generating growth. These include building infrastructure to eliminate bottlenecks in the economy, securing private investment, financial inclusion, social protection, good governance and food security.

Interesting stuff. I was convinced by Joseph Stiglitz's Globalization and its Discontents (which was adopted by many as an anti-market book) that free trade was the route to development for Third World countries. But history shows that those countries who have trodden this path successfully have often deviated markedly from the pure free market route.

All in all this move by the G20 looks a victory for the sort of pragmatism that a modern Liberal instinctively supports.

International alliance urges Robin Hood tax on G20 leaders

When those nice people at Oxfam sent me off to New York a few weeks ago I managed to remain a good Liberal in what I wrote. In fact, as I learned more development issues I found that principles like political reform and a free press were immensely important in this field.

The only time I forgot myself was when I posted a Richard Curtis video.

That video made the case for a financial transaction tax, better known as the Robin Hood tax. With world leaders about to meet in Seoul for the G20 summit, an alliance of 183 organisations from 42 countries has written to them, urging them to bring in such a tax:

The letter, addressed to G20 leaders including Prime Minister David Cameron and US President Barack Obama, is signed by development, health, education and environmental charities and unions from 16 of the G20 countries.

It says that a financial transaction tax would help meet the costs "of the global financial and economic crisis, including reducing the unacceptably high rate of job loss, and achieve key development, health, education and climate change objectives in developing countries".

There are still many to be answered about this tax - Is it meant simply to raise money or curb the banks' more speculative activities? What will the proceeds be spent on? Will it be the banks who pay or their customers? - but I continue to find it an appealing idea.