Demise of The Washington Consensus
Before the Asia crisis in 1997, most technocrats and businessmen in Thailand
believed that the country's economy should be relatively open. This openness
provides access to technology and capital. Technocrats have long believed
that increasing openness is needed to force Thai companies to become more
efficient and to break down old monopolies. Hence liberalization and privatization
had been staples of economic policy since the mid-1980s.
The 1997 Asian crisis brought this view into question, along with a number
of related conventional wisdoms of the time, the most notable being the so-called
Washington Consensus, an agreement of outlook among the multilateral agencies
in Washingtonthe World Bank and the International Monetary Fund (IMF)on
a set of free market policies that formed the basis for the conditions under
which those agencies lent to developing countries.
Under the Consensus, countries were encouraged to promote liberalization
by reducing barriers against imports with a view to eventually achieving free
trade. Privatization of state owned enterprises and financial deregulation
were also key elements in Washington Consensus policies. In short, governments
were expected to withdraw from economic activity and intervene as little as
possible. Free market prices were seen as the most important factor in promoting
In the 1990s these policies began to be questioned, not only by academic
writers but also by the World Bank itself. The double-digit annual Gross Domestic
Product (GDP) growth in China since the start of its economic reform program
in 1978 has not been achieved by universal free markets, free trade or widespread
privatizations. The Chinese experience suggested that the state can promote
development by intervention in the economy. Looking back on the Asian Crisis
it is also apparent that its cause was not the result of too much government
intervention, but of too littlea failure to regulate financial markets.
Pasuk and Baker's analysis of the 1997 Thai
crisis goes even further, arguing that the transformation of Thai institutional
structures to conform to the mandates of the Washington Consensus on limited
state economic intervention are precisely what caused the crisis.
Increasingly, throughout Asia a post-Washington Consensus outlook is emerging
which stresses that markets can failespecially financial markets and
markets for technology and that governments should intervene to promote
domestic competition, regulate financial transactions, promote education and
stimulate the inward transfer of technology.
This particular view of government intervention has become one of the key
elements of Thaksinomics.