Is There a New Washington Consensus?

CAMBRIDGE – Two and a half years ago, senior staff members of the World Bank approached the Nobel laureate Michael Spence to ask him to lead a high-powered commission on economic growth. The question at hand could not have been more important. The “Washington consensus” – the infamous list of do’s and don’ts for policymakers in developing countries – had largely dissipated. But what would replace it?  

Spence was not sure he was the man for the job. After all, his research had focused on theoretical issues in advanced economies; he had been dean of a business school; and he did not have much experience in economic development. But he was intrigued by the task. And he was encouraged by the enthusiastic and positive response he received from the commission’s prospective members. Thus was born the Spence Commission on Growth and Development, a star-studded group of policymakers – including another Nobelist – whose final report was issued at the end of May.    

The Spence report represents a watershed for development policy – as much for what it says as for what it leaves out. Gone are confident assertions about the virtues of liberalization, deregulation, privatization, and free markets. Also gone are the cookie cutter policy recommendations unaffected by contextual differences. Instead, the Spence report adopts an approach that recognizes the limits of what we know, emphasizes pragmatism and gradualism, and encourages governments to be experimental.

Yes, successful economies have many things in common: they all engage in the global economy, maintain macroeconomic stability, stimulate saving and investment, provide market-oriented incentives, and are reasonably well governed. It is useful to keep an eye on these commonalities, because they frame the conduct of appropriate economic policies. Saying that context matters does not mean that anything goes. But there is no universal rulebook; different countries achieve these ends differently.