In 1989, the American political scientist Francis Fukuyama announced the “end of history”. The fall of communism, he argued, heralded not simply a new era, but an “unabashed victory of economic and political liberalism”, Western democracy and consumerism. For a while, it seemed he was right.
The “Washington Consensus”, a term coined in the same year, describes a standard set of economic policy recommendations for crisis-hit developing countries. During the 1980s these had become common “structural adjustment” conditions on IMF and World Bank loans. Driven by a fervent belief in the power of free markets, Western economic advisers pushed through cuts to public services, the demolition of trade barriers and the sell-off of state assets.
In her 2007 book The Shock Doctrine, Naomi Klein argues that such policies have wreaked havoc on the developing world, from Latin America and South Africa to Russia and Iraq. Duped by promises of “trickle down”, millions were condemned to unemployment and poverty, while a corrupt few (including the economists themselves) raked in the proceeds of financial speculation and cronyism.
An intended side-effect, says Klein, was to prevent democratic governments from reversing the policies. Locked in by international treaties, developing countries were unable to control prices or protect domestic industries. Conditional loans stopped them imposing controls on speculative flows of “hot money”, while crippling debts prevented them from building public infrastructure. As one former anti-apartheid activist in South Africa put it, “they never freed us. They only took the chain from around our neck and put it on our ankles.”
Today, the IMF and World Bank say they no longer impose such “one-size-fits-all” conditions. High-profile figures such as Joseph Stiglitz, former chief economist of the World Bank, have spoken out against the ideological obsession with free markets.
But discontent has remained, especially as the BRICS economies (Brazil, Russia, India, China and South Africa) have grown in size and influence. Historically, the IMF’s managing director and World Bank’s president have always come from Europe and the United States. Why should developing countries not have more of a say in the institutions that exist to help them develop?
In the absence of an answer from the West, the leaders of the BRICS countries have supplied their own. This month, they announced the creation of a new development bank. Competing directly with the IMF and World Bank, it will be headquartered in Shanghai and its first president will be Indian. Meanwhile, India has threatened to derail a global trade deal unless its farm subsidy programmes are protected.
Fukuyama himself has written of the “Post-Washington Consensus”, arguing that the BRICS are becoming “both donors and recipients of resources for development and of best practices for how to use them”. History may be starting up again.
Which Western country will be the first to be bailed out by the BRICS bank? And what “structural adjustments” will its economists be recommending?