Washington Consensus
A 1989 list of ten economic reforms that became the global default prescription for developing countries, and then became a term of abuse.
In 1989 an English economist named John Williamson wrote a background paper for a conference at the Institute for International Economics in Washington. He was trying to answer a narrow question: what did the institutions clustered around Dupont Circle, the IMF, the World Bank, the US Treasury, and the think tanks, currently believe that Latin America should do to escape its debt crisis? He listed ten items and gave the list a name he later spent the rest of his career regretting.
The ten were: fiscal discipline; redirecting public spending toward health, education, and infrastructure; broadening the tax base while cutting marginal rates; market-determined interest rates; a competitive exchange rate; trade liberalization; openness to foreign direct investment; privatization of state enterprises; deregulation of barriers to entry; and secure property rights.
Read cold, this is not a manifesto. Most of it is bookkeeping advice. But the phrase escaped, and within a few years the Washington Consensus meant something much larger and much harder: the claim that there was now one correct way to run an economy, and that access to credit depended on adopting it.
How a description became a prescription
Two things converted the list into a program. The first was leverage. Countries in balance-of-payments crises needed IMF and World Bank money, and that money came with conditionality. A memo describing what Washington thought became a schedule of things borrowers had to do.
The second was timing. Williamson published as the Berlin Wall came down. Within two years there was no rival economic model with a state behind it, and the reforms stopped being one option among several and started being simply what modern countries did. Russia's shock therapy in 1992 was the maximal version: liberalize prices, privatize fast, and let the institutions catch up later.
What actually happened
The record is mixed in a way that neither champions nor critics enjoy quoting.
The macroeconomic half largely worked. Latin America's chronic inflations, several of them genuine hyperinflations, were brought down and mostly stayed down. Fiscal discipline and independent central banks turned out to be durable improvements.
The rest went badly enough to discredit the whole. Rapid privatization without functioning legal institutions produced oligarchs rather than markets, most spectacularly in Russia. Capital account liberalization, which Williamson had pointedly not included, was pushed anyway and left small economies exposed to sudden reversals of foreign money, which is precisely what detonated the Asian financial crisis of 1997. The IMF's response to that crisis, demanding austerity from countries whose problem was a run rather than a deficit, cost the institution a generation of credibility across Asia.
And the growth never arrived on schedule. Latin America grew more slowly in the reform decades than it had in the statist decades before the debt crisis, a fact critics never tire of citing. Meanwhile the two countries that grew fastest, China and India, liberalized selectively, kept capital controls, kept large state sectors, and ignored the sequencing entirely.
The echo
Williamson protested for two decades that he had written a description of a moment, not a universal creed, and that half the things attacked under his label were not on his list. He was right, and it did not matter. By 2008 the term was pure pejorative, and the financial crisis in Washington itself finished the argument about who had the model.
What survived is worth naming. Almost nobody now proposes running large permanent deficits financed by the printing press, and central bank independence is close to universal. What died is the confidence: the belief that development is a checklist, that institutions follow markets rather than the reverse, and that one city can write the list. The successor arrangement has no name and no consensus, which is roughly what the last fifteen years of economic policy have looked like.