The Retreat of Western Liberalism

by Edward Luce

At some point during the 2008 global financial crisis, the Washington Consensus died. In truth, that economic model had been declared a ‘damaged brand’ back in 2003 by John Williamson, the man who coined the term in the late 1980s.13 The Washington Consensus prescribed open trading systems, free movement of capital and central bank monetary discipline. Countries that swallowed the prescription suffered terribly during the 1995 Mexican tesobono crisis, the 1997 Asian flu crisis, and in Russia, Brazil and elsewhere during the later 1990s. The Organization for Economic Cooperation and Development, the prestigious Western club that was set up to distribute America’s Marshall Plan aid to shattered post-war Europe, made capital account liberalisation a precondition of its membership. Everyone wanted to join the OECD for its prestige and higher credit ratings. South Korea and Mexico duly liberalised their capital accounts to join in the early 1990s. The destabilising effects of the hot money that flooded into those economies and then out again was almost instant. Most of the world has since chosen China’s more pragmatic path of opening slowly and on its own terms. China’s unorthodox route to development exposed the limits of the Washington Consensus. It had assumed that there was one way to do things, and that the rest of the world would have little choice but to adopt it. China is simply too big, and too important to the world’s bottom line, to push around. Other developing coun...