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But here is the irony: While the wind may have gone from the protesters' sails, the same might be said of the free-market economic dogma promoted during much of the past couple of decades by the International Monetary Fund and the World Bank, the institutions whose meetings this weekend are the activists' target. Anemic growth, economic crises and stubbornly high poverty rates in a number of countries that pursued programs backed by the IMF and World Bank have combined to spread a sense of disillusionment with the "Washington consensus," the package of policies long touted by U.S. policymakers and international lenders as keys to prosperity for the poor of the world. The main elements of the consensus include policies aimed at curbing inflation, opening markets, dismantling government controls and privatizing state enterprises. The disgruntlement is manifesting itself politically in countries such as Brazil, where after eight years of rule by a government that embraced economic orthodoxy, a leftist presidential candidate, Luiz Inacio da Silva, a former factory worker, has taken a commanding lead in polls on the October election. But perhaps most telling is the letdown expressed by a chorus of voices from within the economic establishment - specialists who once championed the Washington consensus. A particularly rude shock for them was the recent economic collapse in Argentina, because the Argentine government was once viewed as a star pupil of the IMF and the World Bank. Although mainstream economists still believe in the general wisdom of the policies they espoused, many contend that at the very least, U.S. prescriptions ought to be pushed less aggressively. This view has caused the IMF and the World Bank to change their approaches in some significant ways. "It's disingenuous to negate the magnitude of the disappointment," said Ricardo Hausman, a Harvard University professor who recalled that as chief economist of the Inter-American Development Bank from 1994 to 2000 he helped to convince countries that they stood to reap enormous gains by reducing the role of government in their economies and lowering barriers to trade and investment. "I fully participated in the hope, so I'm fully a participant in the disappointment," he said. Consider some numbers for Latin America, Hausman said: Despite the adoption of extensive free-market reforms in many Latin nations, gross domestic product per average working-age person in the region has fallen 5 percent since 1998, while during the same period the comparable figure for the United States has risen 5.2 percent. "Even our star reformer, Chile, is up only 3 percent," Hausman said, which shows that instead of catching up with the United States, "we are further and further behind." Such criticism of economic orthodoxy heartens anti-globalization activists. Although the movement has long enjoyed support from a handful of dissident economists, its leaders are now seizing upon evidence that the weight of respectable opinion is shifting toward their position. It would be grossly misleading to suggest that mainstream economists are abandoning their long-held beliefs and turning in favor of heavy-handed state intervention and trade protectionism. Little controversy exists among economists and policymakers over the necessity of taming inflation to foster healthy economic growth, for example, or the long-term benefits of free markets for spurring job creation. In some ways, the consensus on the benefits of free trade is stronger than ever; many African governments and the aid group Oxfam have taken up the rallying cry that the most pressing need for developing countries is to secure unfettered access for their products in the markets of rich countries, which are often blocked or distorted by import barriers and subsidies for farm products. But much doubt has arisen over whether governments in the developing world are being prodded to move too hastily on the free-market path, because so many countries that have taken the plunge have ended up battered by speculative attacks in financial markets, or disappointed by the absence of foreign investors, or mired in corruption scandals over privatization plans that enriched insiders. Staunch defenders of globalization point to evidence that countries are well advised to open their markets. Studies by two World Bank researchers, David Dollar and Art Kraay, show that the developing world's "globalizers" - defined as countries that have increased trade the most relative to their national income - have enjoyed much faster growth in recent years than non-globalizers. But many economists find this argument unpersuasive, because it relies on including two giant, fast-growing countries, China and India, in the ranks of the globalizers, even though the governments of both keep their economies closed in many important respects, and India's growth spurt began several years before it started opening up. Other defenders of the Washington consensus contend that countries such as Argentina have run into trouble because they failed to carry out sound policies rigorously enough, or because additional reforms are needed, most notably the establishment of a decent legal and judiciary system that protects property rights. Wherever the blame belongs for past failings, the IMF and World Bank say they have learned important lessons and have been altering their advice and lending practices accordingly. The crises in Asia's "tiger" economies, for example, showed how developing countries that allow an inflow of foreign money into their financial markets are vulnerable to disastrous, panicky withdrawals, especially if they have not developed sound banking systems first. So instead of pressing governments to open their financial systems as it used to, the IMF now counsels that "there is no need to rush," said Horst Koehler, the Fund's managing director. As for the World Bank, "We went beyond the Washington consensus long ago," said the bank's chief economist, Nicholas Stern. The bank, he noted, puts much more emphasis than it used to on helping countries develop institutions, and it is encouraging governments that borrow its money to draft their own, comprehensive "poverty reduction strategies," so that they establish "ownership" over their policies instead of grudgingly accepting recipes dictated from Washington. Copyright © 2002 The International Herald Tribune |