The necessity to achieve development, specially by developing countries, have generated the designs of diverse paradigms of development. Due to the impressive Chinese economic performance and the failures of the current liberal paradigm, today China offers a possibility to have a new paradigm and therefore to count with sustain economic growth.
To understand the ‘Beijing Consensus’ is necessary to know first that is the ‘Washington Consensus’. The present article is divided in three parts, where the two first ones analyze each consensus mentioned and the third one is the conclusion. The sources of information come mainly from Kennedy Scott (2010) “The Myth of the Beijing Consensus” and lesser extent from others authors.
Is it important to highlight that the creation of the Washington Consensus had as objective to provide of sustainable economic growth to developing countries such as Latin American countries. However, at the same time that this strategic had failed, it is contrasted with the success gotten by China, given its high rates of economic growth during the last 30 years.
Obviously, this sharp contrast had caused, by academic, the promotion of debates about to take serious considerations of key aspect of the China Model, especially in the wake of the recent global financial crisis. It is expected that given the necessity of sustain economic growth and the empirical evidence of China, the attention over it and the efforts to designing formulas or paradigms could have as foundation considerable aspects of the China Model.
2. Washington Consensus
The Washington Consensus (WC) was an invention of John Williamson at the late of the eighties, when in 1989 hosted a conference to draw attention to economic reforms for Latin America and identified areas of further reform. He is an economist who belong to the Peterson Institute of International Economics in Washington DC.
The WC includes 10 policies (see Table 1), thought more or less everyone in Washington would agree were needed more or less everywhere in Latin America or other region. As it is known these policies have as foundation the principle of the forces of the free market and liberalization as a strong instrument to achieve development.
Table 1
Once the WC failed to get sustainable growth in Latin America, Africa and the former Soviet bloc, immediately arose innumerable critics. Where appear Joseph Stiglitz as one of the most famous critics. In fact, the critics are various such as minimalist state that did not provide welfare or address toward income distribution. But, also was pointed out that the WC has never been a consensus in Washington.
Worse, although not getting sustainable growth, the policies of the WC had been the cause of international financial crisis, such as the 1997 Asian financial crisis. The critics point out that the liberalization and deregulation made that the capital account allowed fast incomings and outgoing of money, speculation and finally the outbreak of the crisis.
After the critics, Williamson quickly answered arguing misinterpretation of the WC. First, he made a demarcation between the WC and the kind of conditionality and policies applied by the Bretton Woods institutions (Work Bank, International Monetary Fund, World Trade Organization). For him the latter would be the responsible of the financial crisis, and not the WC.
One important argument, was when he said that the WC should not be copied mechanically, as it is conditioned by the Bretton Woods institutions, instead it should be adapted locally. And continuing with his arguments, he said that the WC not means that liberalization is not regulation to protect people’s safety and the environment, or that the government should not regulate the public goods.
To hold each one of the 10 policies of the WC, not only makes demarcation, as already noted, also suggested to complementation with additional local, and also consensus policies such as liberalized labor markets, adoption of crisis avoidance mechanism, support of national innovation system, education and technology, provision of R&D tax incentive, support for industrial clusters, etc.
But, until now the justification is not enough and the supplementation continue. This time the new proposals look toward the strengthen of the national institutions. These new proposals are so-called as WC’s second generation:
A. Strong judiciary.
B. Efficient civil service.
C. Effective prudential financial supervision.
D. An independent Central Bank.
E. An anti-corruption agency.
F. Social safety net.
Despite all the Williamson’ efforts, the critics remain. Therefore, in search of formulas to achieve sustain economic growth, analysts persist in the investigation, this time, pointing out market failures and the necessity of the governments to do more than the measure viewed till now. Thus, it is made appeals for the following several alternatives:
Table 2: Alternatives consensus to the Washington Consensus
However, it is important to emphasize that the most substantial challenge to the WC has been: The “Developmental State Model”, related to the success of Japan and the Tigers of Asia, although also attributed to France, Ireland, Israel. But, the important point is the necessity and space for the creation of a paradigm able to do which the WC failed. In this wake, the economic growth of China in the past 30 years and the new proposal of Beijing Consensus deserve great attention.
3. Beijing Consensus
The Beijing Consensus (BC) was created by Joshua Cooper Ramo, in 2004, who belong to the same line of Goldman Sachs, the creator of BRIC in 2001. Unfortunately, the Beijing Consensus of Joshua also has strong critics about it born as opposition to the WC, and that its three items (see table 3) is incongruent with Chinese reality. Worse, the Beijing Consensus is not accepted by Chinese governmental leaders.
In fact, in the following table we can see the BC that consist is three items, which try to explain both economic development and international influence. The first item is based upon recently improvement of technology and productivity in China. The second item is related to the concerns and efforts of equitable distribution and the reduction environmental damage. Finally, the third item is the ability of China to maintain control over its own development path, while challenging US.
Table 3
About the first item, although apparently, China had gotten achievement in technology and productivity, since we can see incremental innovations, growing pool of scientists, engineers, increase of patents, copyrights, trademarks, etc. Notwithstanding, this technology had been developed outside China and adapted internally by subsidies of multinationals or joint venture. Worse, China has failed in its objective of create indigenous innovations internally.
Concerning the second item, it is true that Chinese governmental leaders are concerned about the levels of inequalities and had even initiated a regulatory frame for environmental protection, for example including the environmental damage in the accountability of the rate of economic growth, reducing it. But, due to that exist a tradeoff between these and economic growth.
China had preferred the latter. In consequence, China still its preferential policy for coastal region to assure economic growth, while other discussed policies such as social spending in rural areas and the accounting and inclusion of environmental damage in the reduction of economic growth have been practically ignored.
In relation to the third item, a strong critic toward the self determination of the development path is that it is contradictory, since China has a “unique” development strategy, then it is impossible that other country of the world could copied it, because it is only unique for China. Therefore, there is not possibility to be a model o paradigm, which could be applied for others. Due to that no other country could copied the same Chinese policies, either would get the same successful result of China.
Actually, for some analysts, it is not true that China has an independent development path, which it can control, instead China had to make liberalization and now follow, unless, 8 of the 10 items of WC. For other scholar China belong to the group of countries who followed the Developmental States Model, which also initiated with a liberalization process.
Finally, China does not have an antagonistic against US or the global community, instead has a friendly and pragmatic behavior, one clear example is its efforts for joining the WTO. Also, having the same problem of the WC, the BC has not have any kind of consensus, and basically had been created individually by Joshua. Worse, in China the BC is not accepted by no Chinese governmental leader.
Despite, apparently the BC had failed due to its critics, it is important to note that the BC no represent the real Chinese experience. The BC is not only the individual interpretation of Joshua, actually there had been different interpretations with different names for China, such as ‘Capitalism with Chinese characteristics’, ‘authoritarian capitalism’ and so on, while every time more and more countries and analysts are interested in learning from the Chinese success.
A BC should be interpreted as the China Model, even the term ‘consensus’ causes fears, since it suggests confrontation with US and the international system. Some characteristic of the “real” BC or the China Model would its gradualism, more state intervention, the application of economic reform while simultaneously maintaining political institutions and so on.
An interesting suggestion to define the China Model is a set of policies designed by the elites, bureaucrats and interested groups in response to short-term problems as well as long-term plans. In other terms, the China Model would be reduced to modifying Chinese policies according to new circumstances. Although is necessary greater work to get a appropriate paradigm able to supply a guide for sustain economic growth, China Model could offer a promising solution.
4. Conclusion
As we had seen, the WC is a proposal that includes 10 general policies of liberalization, design for Latin America or other region in order to the sustain economic growth. These policies have as foundation the principle of the forces of the free market as a strong instrument to achieve development. In spite of being a liberal proposal, the creator of the WC had made some efforts of demarcation with similar proposal, as those which come from the Bretton Woods institutions in order to delimit responsibilities with international financial crisis.
On the other hand, the BC or China Model, derived from the Chinese experience, presents features such as gradualism, more state intervention, the application of economic reform while simultaneously maintaining political institutions and a set of policies designed by the elites, bureaucrats and interested groups in response to short-term problems as well as long-term plans or modifying Chinese policies according to new circumstances.
The main different between the WC and the BC or China Model is that, while the former has as foundation the forces of the free market, for the latter it is necessary a greater intervention of the government in order to achieve the necessary sustain economic growth. Thus for example, even, although the creator of the WC had emphasis additional governmental measures such as the WC’s second generation (ie. strong judiciary, anti-corruption agency, social safety net, etc.), for the BC or China Model the appropriate role of the state should have more intervention in the economy.
Following the evolution described by Charles Gore (2000) in “The rise and fall of the Washington Consensus”, since the time of Adam Smith in the world the liberal policy had been doubtless predominant, however the with the great depression of 1929 and the entire world in crisis, in 1936 Keynes’ proposal of state intervention and stimulation of the demand, allowed the solution of crisis successfully. But Keynes’ paradigm did not last long, due to was challenged by supply shocks as was the international crisis of oil at the 1970s.
In consequence, Keynes’ policies no longer were effective and represented the cause of more inflation due the high price of the oil plus greater stimulation of the demand. Then the liberal paradigms back, this time Milton Friedman and the WC. At the beginning the liberal proposal attacked the inflationary expectation exacerbated by government spending intervention and then promoted a set of policies such as privatization, fiscal discipline, trade liberalization and so on. Today, in the context of a International financial crisis, accompanied with severe critics against the liberal paradigm (WC) and the successful China Model, the history suggest that is it likely that a BC could replace the WC, although not forever.
Finally, in the case there is a predominant BC or China Model, it could shape the international system and the Bretton Woods institutions, but not necessarily affect the future world order. It is reasonable to suggest that a BC era could be similar to the Keynesian era, when there was a redesigned of the international institutions in order to improve the globe economic performance. Actually, today some institutional organizations as the World Bank highlight and recommend some policies derived from the China Model.
In any case, the future world order will depend of the number of powers or superpowers in the world. In fact, today some countries are rising more faster than other, for example in the first group we have Brazil, China, India, etc, while in the second are even western developed countries. A BC or China Model, basically would affect the future world order to the extent that is well adapted and benefits the economic growth of a certain country or groups de countries, but the same case is applicable for any model even for the WC.
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