As global poverty deepens, doubts have begun to emerge “from within” regarding the market-driven, neoliberal development model—also known as the Washington Consensus. After 20 years of neoliberal hegemony, many within the international financial institutions (IFIs) have begun talking about the modifications of a “Post-Washington Consensus” or of the need for “second-generation reforms.” Outside of the IFIs, there is a growing demand for a transformation of the entire development paradigm, although a clear alternative vision capable of elucidating a new political agenda has yet to emerge.
A growing proportion of the world’s population is experiencing a process that has been referred to by economic historian Erik Reinert as “retrogression and primitivization.” For much of the Global South, the situation is desperate. For many practitioners in the development community, it has been particularly disheartening to see entire communities in worse conditions now than when the neoliberal reforms began to be implemented two decades ago.
Earlier this year, the UN’s Economic Commission on Latin America and the Caribbean (ECLAC) released its latest figures on hemispheric poverty. In 2001, there were 220 million poor people in Latin America, who by ECLAC’s estimation, could not afford to adequately feed and shelter themselves. Nearly half of them were extremely poor or “indigent.” This is up from 209 million Latin Americans living in poverty in 1994 and 197 million in 1990; the trend, on the Washington Consensus’ watch, has been disquieting.
The demand for a change in the dominant development model has emerged not only as a result of growing global poverty, but also from the fact that the majority of economies in the South, despite their efforts to integrate themselves into the global economy, have not—in developmentalist lingo—“taken off.” During the 1990s, a period of almost unprecedented accumulation of individual wealth, the UN Development Program (UNDP) reports that 60 countries, all in the Global South, actually grew poorer. In Latin America, even those countries that have not grown poorer have grown more powerless vis-à-vis their Northern counterparts.
In this grim context, a small international conference was organized to discuss the growing misgivings with the dominant international development model and, more importantly, to begin sketching out a new global set of policies that would be more inclusive, humane and more fully developmental. Held in Antigua, Guatemala from July 25-28, 2003, the conference, billed the First Annual Conference for Development and Change (ACDC), was convened by the Columbia University-based International Economic Policy Working Group and funded by the Ford Foundation. Above all, it was meant to create the beginnings of a visible, international platform for alternative “human-centered” ideas, theories and policy proposals for development.
The gathering was a sober and critical dialogue among 45 development economists, development practitioners and political activists—a quarter of whom were from Latin America or the Caribbean—over the failures and contradictions of the neoliberal development model as well as the possibilities for constructing a new alternative. The severity of the crisis in the South, the high global stakes in the resolution of the crisis and the sense that a window of opportunity for the expression and implementation of dissident ideas and models of development may be briefly open, led to a degree of seriousness and mutual tolerance not always seen in gatherings of this type. Though the participants represented a very broad center-left diversity of origins and positions, differences were addressed respectfully and there was a remarkably low level of conflict in the wide-ranging discussions.
The most immediate inspiration for the gathering, explained Jerry Maldonado, the director of the Working Group, was the success of the third World Social Forum (WSF), held last year in Porto Alegre, Brazil. The WSF, said Maldonado, showed that among a broad spectrum of civil society organizations, there was a clear-cut discontent with the current development paradigm. “We saw there was a need for a similar space, a recognized platform, for scholars and policymakers to get together to try to construct an alternative human-centered paradigm. Or at least to come up with some ideas about what such a paradigm might look like.” The timing was right, said Maldonado, because “there is a strategic opening. All the orthodoxies are being questioned. This creates an opportunity to rethink what kind of development, what kind of model we are trying to construct. That’s why it’s happening now.”
One of the themes around which discussions revolved was the nature of the Washington Consensus, a free-market model that exists, it was generally agreed, at the heights of abstraction, de-linked from reality. Indeed, the Washington Consensus is a model within which neither history nor concrete political, legal or market institutions exist, in which the historical consequences for an economy that produces sugar and an economy that produces refrigerators are the same. It is a model that has denied the necessary existence of the field of development economics, because, according to its logic, the rules of economics can be applied equally everywhere. As such, it is a model that produces “one-size fits all” policy recommendations. It is also a model that does not take into consideration the importance of those institutions necessary for the construction of a well-functioning economy, much less the social norms, legal mechanisms or diverse structures of Southern economies.
It is a model that has egregiously participated in the rewriting of economic history. One of the goals of the ongoing platform, insists Maldonado, is to “recapture” that history. Central to that goal is the work of one of the conference initiators, Cambridge economist Ha-Joon Chang. Chang has long argued—notably in his book Kicking Away the Ladder—that the “advanced” countries did not develop by simply employing the tools of the free market, but rather achieved development by carefully employing state interventions in order to strengthen their domestic industries and very deliberately build their own comparative advantages. At the conference, Chang commented that the motto of the wealthy countries that advocate on behalf of the Washington Consensus should be: “Do as we say, but not as we’ve done.”
But if the historical record is distinct from the current rhetoric, what is the point of neoliberalism? And why rewrite history? One perspective articulated at the conference was that in order to understand the logic of neoliberalism, it was necessary to go beyond its discourse. The key, according to this perspective, could be found in relations of power. Thus, the growing inequality we see throughout the world—acutely in Latin America—may not simply be a negative unintended consequence of the Washington Consensus, but rather an intended fulfillment of its objectives. After all, economic “discipline” and the maintenance of a large supply of labor able and willing to work for low wages was one of the major motors of the North’s economic recovery, since stagnated, of the 1980s and 1990s. This “recovery,” this great neoliberal success story, is the legacy of such willful political leaders as President Reagan, Lady Thatcher and General Pinochet. It is also a standard legacy of several centuries of colonialism: the deliberate deindustrialization of the colonized to the benefit of the colonizers.
Advocates of neoliberalism prefer to obscure their political objectives behind the mantles of “efficient market theory” and “technical assistance,” thereby privileging economists and technocrats in development policymaking processes. Many conference participants argued for the need to replace this elite process with one that emphasizes a bottom-up approach to economic policymaking. Moreover, there was a great degree of introspection at the meeting regarding the processes that alienate development professionals from their communities and create a chasm between those things considered “technical” (the work of professionals) and the world of politics (the activities of communities). It is a standard attitude among mainstream professionals, commented Southeast Asian development activist Shalmali Guttal that “technique is what we experts do; politics is why it doesn’t work.”
But policymaking from below is no easy task. “Trying to get policymakers to think differently about development,” wrote Alejandro Bendaña, Nicaragua’s former UN ambassador, in a concept note prepared for the conference, “presupposes one of two options: a) that attaining development with and through social justice is simply a question of adjusting present policies, or b) that policy changes are not enough, what is required is a shift in paradigm. And a shift in paradigm requires a shift in power. Ideas are shaped by politics, and not the other way around. The ‘Free Market’ is a political statement, not an economic one. It is at the core of the dominant paradigm. We therefore must address the politics of the paradigm if we are to understand policy.”
Thandika Mkandawire, Director of the United Nations Research Institute for Social Development (UNRISD), emphasized the importance of promoting not only economic growth, but also political democracy and social inclusion. He argued that it was now abundantly clear that these three goals (economic growth, democratization and social inclusion) were mutually supportive and, taken together, represent the true meaning of development. Bendaña’s “addressing the politics of the paradigm” could well be a first democratic step toward Mkandawire’s “true development.”
Over the three days of the conference in Antigua, there were also fertile discussions regarding local development, entrepreneurship, microfinance and the need for generating high quality employment opportunities. It was in these discussions that the closest thing to a full-blown paradigm emerged, a paradigm drawing on the work of the Austrian economist Joseph Schumpeter. This alternate set of ideas, referred to by Erik Reinert as “The Other Canon,” holds (more or less) as follows:
First, industrial activities experience increasing returns to scale, meaning that as an industrial economy grows, production becomes increasingly cheaper; this is a much more problematic process with agriculture. Second, no country has ever developed on the basis of agriculture alone; tariff walls are necessary to permit infant industries to develop and inefficient manufacturing is better for an economy than no manufacturing at all. Third, countries should therefore specialize in “high growth” activities rather than simply filling a global niche in low-growth agricultural or maquila activities. Fourth, new ideas, knowledge and inspiration create investment opportunities; the simple presence of capital does not. Fifth, high growth and technical change lead to higher wages and industrial synergies like clusters of producers and linkages between firms in the production process. These synergies lead to higher wages for the economy at large. Sixth, growth is thus uneven, and competition is imperfect. Uneven development and imperfect competition are dynamic processes and should be encouraged. Seventh, the dynamic sources of uneven economic development are found in the realm of production, not trade.
“The Other Canon,” wrote Reinert in a concept note, “has been the basis of the economic strategies that have catapulted laggard countries from relative poverty to relative wealth, from 15th Century England to Korea in 1960-1980 and Ireland from 1980-2000.”
Michael Chu, a venture capitalist and former CEO of the global microfinance group Acción, expanded on this theme. He gave a talk with the very Schumpeterian title “From Destructive Creation to Creative Construction,” in which, among other things, he raised the question of microfinance. Institutions of microfinance, he argued, can create opportunities for knowledgeable and inspired—but impoverished—entrepreneurs and stimulate synergies, higher incomes and economic growth at the local level. Although the idea of local development drew a sympathetic hearing, participants were by no means unanimous in their assessment of the institutions of microfinance. Some blamed them for creating internal debt crises; others were wary of the personage, implied by both Reinert and Chu, of the “heroic entrepreneur.” But the presentation of the Schumpeterian paradigm inspired some of the most substantive discussion of the conference.
Participants also explored issues associated with the question of social reproduction, the care and services economies, the roles that women are traditionally assigned in those sectors and strategies for transforming these activities in such a way that would promote social well-being and integral development. Any new paradigm, argued Joanna Kerr of the Ottawa-based Association for Women’s Rights in Development, would have to incorporate a kind of feminist economics, an analysis—to begin with—of the articulation of the “care economy” with the market.
On the theme of local development and mutual care, Cuban economist Pedro Monreal commented that among the “possible alternatives that could be explored are the so-called ‘associative and self-managed projects,’ consisting of measures to allow workers to share in the management of existing firms and the establishment of new worker-managed private firms and cooperatives... The conditions for the creation of what some authors have called a ‘popular economy’ are already there. They only have to be fostered and expanded.”
As the participants debated the broad parameters of a new development model, a rough consensus evolved around several key points. Above all, it was agreed that the dominant global trade regime needs to be transformed. Emphasis, it was felt, should be on the creation of new spaces in which developing countries can pursue their own trade and industrial policies and not on the concept of international harmonization. It was also agreed that global macroeconomic policymaking must be transformed, by moving away from a model based on “economic equilibrium” towards a new model that focuses on development. There was a strong consensus that long-term development and investment perspectives take precedence over short-term strategies, as should the real economy over the financial. An even stronger consensus emerged on the question of poverty reduction—that the design of anti-poverty policy needs to change from a model that focuses solely on safety nets, to one that seeks institutionally to strengthen countries’ entire social fabric. There is an obligation, in economist Monreal’s words, “not to treat excluded people as ‘leftovers of modernization’ or as welfare recipients.”
The genesis of the conference was informal and somewhat serendipitous. Its continuation, on the other hand, will require a good deal of deliberate effort. “A lot of the early discussions happened when I was at the Cambridge Program [on Rethinking Development Economics],” related Maldonado after the conference. “And I had a discussion with Ha-Joon [Chang] about the need for the creation of a new type of forum. So it happened kind of informally, after a lot of discussions with different scholars who were part of our network and different civil society partners who we would engage with... Some folks from Third World Network and other civil society networks were involved. We thought that one way to do this was to help create an international platform that would help bring together all these different strands that were already emerging. Civil society was already proposing a series of alternative recommendations. There were scholars and different networks that were emerging. We thought: ‘If only we could target these discussions to the advocacy needs of activist groups.’ It is crucial that this kind of critical, historical thinking be accessible to civil society.
“What we wanted to do was help create a space that would bring a lot of those strands together on an annual basis—help those different movements build the political and intellectual capital we thought they needed in order to help legitimize the alternative proposals they were recommending… If these things were going to take off they would need champions, and if these champions were based in the South, so much the better. Ultimately, that’s where the policies have to be developed and advocated, by Southern governments... The entire thing has been a kind of consultative process, an informal process and, for logistical purposes, a small planning process.”
The Working Group is now spinning off four processes: three regional training programs and the institutionalization of the ACDC platform. A small planning committee, drawn from the ACDC participants, has been created. That group will attempt to identify an institutional host—a government drawn most likely from among Brazil, India, South Africa or Malaysia—for the next conference. It will also put together a special advisory council with prominent figures; hopefully the process will then take off to have an independent life of its own.
In the realm of economic policymaking, the changes of the last several decades have been enormous. There was once a time when the necessity of state intervention in the marketplace, for any number of reasons, was commonly accepted as a given. In those days, only some 25 years ago, advocates of the free market were marginalized in international development policy debates. For the past two decades, the opposite has been true. Those who have critiqued unregulated markets have been treated as individuals who simply do not understand the dynamics of the “real” world.
In terms of transforming the dominant paradigm… well, that is where the challenge lies. Paradigms of thought are generally driven to crisis points when key problems arise that they cannot solve. The continuing stagnation—slow growth at best—of the Southern economies is one such problem. Contradictory events also bode poorly for dominant paradigms. The current debate over First World farm subsidies that anomalously pits the “free traders” of the South (who have been frozen out of global agricultural markets) against the “protectionists” of the North (who insist on subsidizing the exports of their own agricultural sectors) is one such contradiction. And then there is the dissonance caused by an unexpected realization: Last year’s open letter, for example, sent by financier George Soros to the Brazilian electorate advising Brazilians to vote against the leftist then-presidential candidate, Lula da Silva. According to Soros, Brazilian economic policy is made in Washington and it’s best not to confront the real policymakers too strongly. Soros’ letter raised doubts, especially in Brazil, about the necessary identification of “free trade” with “free elections.” Intractable problems, contradictory events, dissonant realizations: Sooner or later something’s got to give.
And as global poverty increases, as inequalities between individuals and between countries rise, as community bonds continue to disintegrate, the ACDC platform has set itself the task of elaborating alternative models, capturing the imagination of university scholars and researchers, engaging in a real dialogue with the media and changing the nature of the debate.
ABOUT THE AUTHOR
Fred Rosen is an independent reporter and NACLA’s Contributing Editor. He is currently based in Mexico City. A portion of this article originally appeared in the Mexican newspaper, La Jornada.