Just as I was reading the final chapters of William Easterly’s book, Violent Saviours: The West, the Rest, and Capitalism Without Consent, the United States government abducted the president of Venezuela to stand trial on drug charges in New York. I was pleased to see Nicolás Maduro facing justice, even if for the wrong reasons, but at the time of writing it remains to be seen whether the U.S. actions will advance the economic and personal freedom of Venezuelans.
In the light of recent developments, Easterly’s
conclusion seem to me to be excessively optimistic. He states:
“Adam Smith’s prophesied movement of “nations into some sort of respect for the rights of one another” had been partially fulfilled. The relation of the West to the Rest, previously based on coercion, was now based mainly on consent.”
Under the
presidency of Donald Trump, the U.S. seems to me to be behaving like a colonial
power. President Trump makes no secret of the fact that he is more interested
in control of additional territory, oil, and other resources than in promoting
respect for human rights, free trade, and the liberal international order.
Apologists
for President Trump can claim, with some justification, that big powers have
always swung their weight around in their own interests despite their rhetoric
supporting the liberal international order. Nevertheless, public support for international
norms of behaviour has hitherto signaled a willingness to be held to account
publicly for breach of those norms.
Easterly qualifies his statement that the relation of
the West and the Rest is now based mainly on consent:
“The trend toward freedom is neither inexorable nor irreversible. As of this writing, new threats to freedom have emerged with proposed increases in US tariffs and possible restrictions on foreign students. It’s a little premature to declare the attainment of a liberal paradise.”
With the benefit of observation of recent events, however, it
is difficult to escape the conclusion that the world is currently moving rapidly
away from the ideal of relations between nations being based on consent rather
than coercion. It is possible, nevertheless, that oppressed people in some countries
will manage to achieve more economic and personal freedom over the next few
years. The best we can hope for is that before too long Washington will once
again embrace the ideal that relations between nations should be based on
consent rather than coercion.
Before I discuss Easterly’s view of the Washington Consensus,
I will briefly outline what Violent
Saviours is about.
The
West’s conflicted view of the Rest
Violent Saviours offers a historical account of the
conflict between the duelling visions that have influenced the conduct of
Western nations toward the rest of the world since the 17th and 18th
centuries. On the one hand, there are the liberal ideas of consent, self-determination,
and equality that make possible positive-sum gains from commerce between groups
and individuals. On the other hand, there are the opposing illiberal ideas of
coercion, paternalism and racism that yielded a negative sum world of conquest.
Adam Smith was a leading advocate of liberal ideas and a critic
of many aspects of colonialism. However, some well-intentioned Enlightenment
philosophers (e.g. Condorcet) offered support for the “Development Right of Conquest”.
Condorcet sought to justify conquest as offering the hope of eventually “civilizing”
the locals.
Over the period from 1776 to 1865, the liberals were mainly
on the losing side. They were unable to prevent the West’s adoption of illiberal
policies such as colonial conquest and population removal (in countries such as
the U.S, and Australia). However, liberals had some victories during that
period; most notably, they were able to bring about abolition of the slave trade
and of slavery in the United States.
Easterly suggests that over the period from 1865 to 1945 most economists abandoned liberal morality: “Commerce expands but without moral constraints on plunder”. The regression of freedom culminated in World War II, during which liberalism had to fight for its survival.
The period since 1945 has seen the partial victory of
liberal ideas with the end of colonialism and a surge in commerce which has partially
restored agency to people in the former colonies. Easterly notes that some economists
– notably Milton Friedman, P. T. Bauer, and Amartya Sen – revived the idea of individual
freedom as “an end in itself”.
It is possible to quibble with some aspects of that account,
but I think the important point to focus on is the current state of the
conflict between the duelling visions. Easterly writes:
“Yet the legacy of the past is still here. While obviously not equating modern development efforts with slavery, genocide, and colonialism, the question remains of what violations of consent today in the name of progress should be out of bounds.”
That provides the context in which I would like to consider
the Washington Consensus.
The Washington Consensus
The Washington Consensus was the term John Williamson, an
economist, invented in 1989 to describe the
set of policy reforms that the US Treasury, the World Bank and the IMF believed
would be good for Latin American countries. The ten propositions of the
Washington Consensus combined fiscal discipline with selective deregulation. They
were broadly pro-market but did not entail a vastly diminished role for government.
As an advocate of a greater measure of economic freedom than required by the ten
points in the Washington Consensus, I recall being bemused to see opponents
equate it with “neoliberalism” and “market fundamentalism”. John Williamson had
a different reaction. As he discussed in the
paper from which I obtained the epigraph, he was concerned that the term was
often being used to refer to a more radical pro-market view than he had
intended.
The policy ideas in the Washington Consensus were certainly applicable
beyond Latin American countries and were not confined to economists in
Washington DC. Those ideas were widely accepted by economists with expertise in
economic policy in many different countries. I think they are still widely
accepted by economists today.
As I was reading Easterly’s discussion of the Washington
Consensus, the thought crossed my mind that the era in which it held sway was actually
the high point in economic development policy as advocated by the World Bank. The
Washington consensus seemed to show more recognition of the importance of
economic freedom than subsequent policy approaches emerging from Washington.
One of the problems that Easterly mentions is that many observers
thought that pro-market reforms were only desirable if they produced immediate
economic gains. The reforms led to anti-globalization protests because they
didn’t have an immediate positive impact on economic growth and were often associated
with worsening of poverty. As time went on, however, “there was more evidence
of growth turnarounds and poverty reduction correlated with movements away from
extreme state control”.
As I was reading this, I tried to recollect what I had written
in the 1990s about the adjustment process following an expansion of economic
freedom. I wrote about some aspects of that question in an article entitled “The New
Zealand Model of Economic Reform: A Review” (published in: Agenda: A Journal
of Policy Analysis and Reform, Vol. 4, No. 3 (1997), ANU
Press). My work suggested that the lack of clear evidence of economic benefits
in some countries that had undertaken economic reforms in the 1980s could be
attributed partly to the time required for new policy directions to become
embedded and for adjustment to occur:
“Profound changes in behaviour, including changes in the willingness of individuals to learn new skills and business practices, are required as people respond to the incentives that policy reforms provide. It takes time even for the most innovative firms and individuals to accept that new market incentives are likely to be sustained and to develop and implement new strategies. Widespread adoption requires sufficient time for these new strategies to become demonstrably successful.”
I am pleased that I wrote that even though I missed an
important point that Easterly makes. He suggests that the emphasis “on material
results alone – on both sides of the debate – neglected Sen’s and others’
arguments for freedom as an end in itself”.
I don’t see freedom as an “end in itself” – freedom is
necessary because human flourishing is an individualized and self-directed
process. What I think Easterly means is that institutional freedom would be no
less desirable if individuals chose to use it ways that made no contribution to
economic growth e.g. by increasing the amount of time they spent on leisure
activities.
Easterly also suggests that the manner in which foreign
governments were encouraged to adopt Washington Consensus polices was
problematic:
“Low and middle-income countries could get badly needed loans from the World Bank and IMF only if they agreed to reforms decreed by Bank and Fund staff. The fatal combination of foreign advisors with some coercion would keep discrediting promarket recommendations made by the World Bank and International Monetary Fund in the 1990s, especially for Africa, Latin America, and Russia.”
A few pages on, however, the author notes that “the
association of liberal reforms with a Washington-imposed Consensus did not turn
out to be fatal”. He follows that observation with a long list of “homegrown
reformers” who have pursued pro-market reforms. (I have reproduced the list here.)
Unfortunately, Easterly’s list of reformers does not include
Javier Milei, president of Argentina. It was probably compiled too soon for
that to be possible.
Now that I have mentioned Javier Milei it is worth noting
that the U.S. government offered a $20 billion bailout for Argentina prior to the
country’s recent legislative elections. The offer was apparently made with strings
attached — namely, that the funds would be available only if Milei’s party won the
election.
It seems to me that if the U.S. president were to promote a
general policy of assisting those low-income countries whose political leaders enthusiastically
expand economic and personal freedom, he might be worthy of the Nobel Peace Prize.
Conclusion
William Easterly’s book, Violent Saviours, offers an
insightful account of the conflict between liberal and coercive views of
economic development since the 17th and 18th centuries. He
suggests that the legacy of the past is still with us because development economists
and policy makers are still confronted by the question of what violations of
consent should be out of bounds.
That provided the context in which I considered Easterly’s
views of what was wrong with the Washinton Consensus – the moderately pro-market
economic policies advocated by the U.S. Treasury, the World Bank, and the IMF
during the 1990s. Easterly is clearly sympathetic to espousal of pro-market
policies. However, he makes a strong case that such policies should be
advocated to promote economic freedom rather than to promote “material results
alone”.
The view that Easterly presents is consistent with the idea
that liberty is desirable because it provides opportunities for individuals to
flourish in the manner they choose.
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