Monday, April 24, 2006
Tuesday, April 18, 2006
- "Washington believes in fiscal discipline...Unless the excess is being used to finance productive infrastructure investment, an operational budget deficit in excess of around 1 to 2 percent of GNP is prima facie evidence of policy failure."
- If a fiscal deficit needs to be cut, there is a strong preference in post-Reagan Washington for cutting expenditures, rather than increasing revenues. "[S]tronger views are held, especially in the international institutions, about the composition of public expenditures...Subsidies, especially indiscriminate subsidies...are regarded as prime candidates for reduction or preferably elimination...Education and health, in contrast, are regarded as quintessentially proper objects of government expenditure...The other area of public expenditure that Washington regards as productive is public infrastructure investment. There is of course a view that the public sector tends to be too large (see the section on privatization below)."
- "Increased tax revenues are the alternative to decreased public expenditure as a remedy for a fiscal deficit...Much of technocratic Washington (with the exception of the right-wing think tanks) finds political Washington's aversion to tax increases irresponsible and incomprehensible...[T]hre is a very wide consensus about the most desirable method of raising whatever level of tax revenue is judged to be needed. The principle is that the tax bas should be broad and marginal tax rates should be moderate."
- "Two general principles about the level of interest rates would seem to command considerable support in Washington. One is that interest rates should be market determined..The other principle is that real interest rates should be positive, so as to discourage capital flight and, according to some, increase savings."
- "Like interest rates, exchange rates may be determined by market forces...[T]hough there is some support in Washington for regarding [a market determined exchange rate] as the more important...the dominant view is that achieving a "competitive" exchange rate [that promotes exports] is more important than how the rate is determined. In particular, there is relatively little support for the notion that liberalization of international capital flows is a priority objective for a country that should be a capital importer and ought to be retaining its own savings for domestic investment."
- Trade policy: "Access to imports of intermediate inputs at competitive prices is rgarded as important to export promotion, while a policy of protecting domestic industries against foreign competition is viewed as creating costly distortions that end up penalizing exports and impoverishing the domestic economy...The free trade ideal is generaly...conceded to be subject to two qualifications. The first concerns infant industries...The second qualification concerns timing. A highly protected economy is not expected to dismantle all protection overnight.
- While "liberalization of foreign financial flows is not regarded as high priority...a restrictive attitude limiting the entry of foreign direct investment (FDI) is regarded as foolish...The main motivation for restricting FDI is economic nationalism, which Washington disapproves of, at least when practiced by countries other than the United States."
- "[P]rivatization may help relieve pressure on the government budget...However, the main rationale for privatization is the belief that private industry is managed more efficiently than state enterprises, becuase of the more direct incentives faced by a manager who either has a direct personal stake in the profits of an enterprise or else is accountable to those who do...This belief in the superior efficiency of the private sector has long been an article of faith in Washington (though perhaps not held quite as fervently as in the rest of the United States), but it was only with the enunciation of the Baker Plan in 1985 that it became official US policy to promote foreign privatization."
- "Another way of promoting competition is by deregulation...It is generally judged to have been successful within the United States, and it is generally assumed that it could bring similar benefits to other countries."
- "In the United States property rights are so well entrenched that their fundemental importance for the satisfactory operation of the capitalist system is easily overlooked. I suspect, however, that when Washington brings itself to think about the subject, there is general acceptance that property rights do indeed matter."
While it is jolly to become famous by inventing a term that reverberates around the world, I have long been doubtful as to whether the phrase that I coined served to advance the cause of rational economic policymaking. My initial source of concern was that the phrase invited the interpretation that the liberalizing economic reforms of the past two decades were imposed by Washington-based institutions like the World Bank, rather than having resulted from the process of intellectual convergence that I believe underlies them. From this standpoint, much better terms would have been Richard Feinberg's "universal convergence" (in Williamson 1990) or Jean Waelbroeck's "one-world consensus" (Waelbroeck 1998).
However, I have gradually developed a second and more significant concern. I have realized that the term is often being used in a sense significantly different to that which I had intended, as a synonym for what is often called "neoliberalism" in Latin America, or what George Soros (1998) has called "market fundamentalism". When I first came across this usage, I asserted that it was erroneous since that was not what I had intended by the term. Luiz Carlos Bresser Pereira patiently explained to me that I was being naïve in imagining that just because I had invented the expression gave me some sort of intellectual property rights that entitled me to dictate its meaning: the concept had become the property of mankind. To judge by the increasing frequency with which this alternative concept is being employed by highly reputable economists (such as Stiglitz 1999, n.33), I fear that Bresser had a point.