Title: Macroeconomic Factors and Growth: Theory and Case Studies Lecture 2: The Struggle for a
1Macroeconomic Factors and Growth Theory and Case
Studies Lecture 2 The Struggle for a
Post-Washington Consensus
2Structure
- Lecture 1 The Washington Consensus (Fritsche)
- Lecture 2 The Struggle for a Post-Washington
Consensus (Seidel) - Lecture 3 Case studies
- Basic aim of this lecture New approach of
development policies based on the experiences
with crises and critiques
3Main Sources
- Gore, Charles (2000), The Rise and Fall of the
Washington Consensus as Paradigm for Developing
Countries. In World Development 28, 5, pp.
789-804. - Stiglitz, Joseph E. (1998), Towards a New
Paradigm for Development. United Nations
Conference on Trade and Development. 9th Raul
Prebisch Lecture, delivered at the Palais des
Nations, Geneva, 19 October 1998. - Williamson, John (2003), An Agenda for Restarting
Growth and Reform. In Pedro-Pablo Kuczynski and
John Williamson (eds.), After the Washington
Consensus Restarting Growth and Reform in Latin
America
4The Main Elements of the Washington
ConsensusFrom state-led dirigisme to
market-oriented policies
- Macroeconomic stability
- Controlling inflation
- Reducing of fiscal deficits
- Opening economies
- Trade liberalization
- Capital account liberalization
- Liberalization of domestic product and factor
markets - Deregulation
- Privatization
5Critical Aspects
- Shift from historical analysis to ahistorical
performance - Traditional attempt to understand pattern and
laws of development - Post-modernization improving and monitoring
performance indicators - Neglect of sustainable human development What
are the means and the objectives? - Discussion of key objective of development
policies Poverty reduction by improving peoples
lives, participation and more equal partnership
versus priority for growth and macroeconomic
stabilization - Internal factors, domestic policies and global
shocks - Good macroeconomic performance covers up
vulnerability
6Post-Washington ConsensusFrom liberal
international economic order to market-friendly
approach to development
- Shift on values related to sustainable human
development - Return to development strategies with long-term
perspectives and holistic approaches respecting
historical specificity - Preservation of LIEO in principle
7Main objective of development Transformation of
Society
- Increase in GDP per capita
- Improvement of living standards (literacy, health
conditions etc.) - Reduction of poverty
- Sustainable environment
- Durable policies, democratic processes
- Transformation of institutions
- Creation of new social capital and new capacities
8Elements of Strategy
- Vision of transformation of society,economy and
institutions within the next 10 to 20 years - Sequencing, for example
- Establishing a competition and regulatory
framework before privatization - Establishing a financial regulatory framework
before capital market and financial sector
liberalization - Coordination providing appropriate
infrastructure, human capital and institutions to
support and foster development - Coordination within and among the different
levels of government - Coordination between private sector and the
public - Coordination within the private sector
- Consensus building supports political and social
stability by acceptance of policies and
institutions
9Key Aspects
- Private sector development
- Public sector development
- Community development
- Family development
- Individual development
10Private SectorStrong, competitive, stable,
efficient
- Legal infrastructure
- Competition law and enforcement conditions
- Bankruptcy law
- Commercial law
- Regulatory framework
- Private provision of infrastructure as far as
possible - Feasible competition
- No abuse of market power
- Subsidiary public provision of infrastructure
- Stable macroeconomic framework
- Stable and effective financial system incl.
regulatory framework - Safety, competition, protection of depositors,
confidence for investors in the securities
markets - Elimination of distortions
11Public SectorCrucial questions
- What should the government do?
- Environment for private sector
- Access to health, education
- How should the government do it?
- Effective civil service
- Market or market-like mechanisms for public
activities - How can private and public sector can complement
each other? - What tasks should be undertaken by what level of
government? - How to interact with civil society?
12Communities development
- Priority of local level
- Conditions
- Preferences
- Circumstances
- Participation and commitment
- Development effectiveness
13Family and Individual Development
- Family
- Autonomy in decision about children
- Female education
- Garantuee of nutrition
- Provision of health service
- Individual
- Education
- Health
14Political approaches IAllocation of Resources
- Allowing returns on physical and human capital
- Provision of complimentary inputs
- Economic environment
- Well functioning institutions
- Development of physical and human capital
- Preserving natural resources
- Encouraging savings and investment
- Providing and financing schools
- Use and renewal of natural resources
15Political Approaches II
- Economic management
- Macro-stabilization
- Liberalization
- Privatization
- Identifying, adressing and avoiding distortions
- Knowledge management
- Education
- Research and development
- Creation and diffusion of knowledge and
technology - Sectoral and regional aspects
- Capacity-building in providing organizational and
social capital
16New Agenda as Post-Washington Consensus
- Reducing vulnerability of countries to crises
- Completing first-generation reforms
- Introducing second-generation reforms
- Income distribution and social sector
17Reducing vulnerability I
- Shift of export profile from primary commodities
to diversified industrial base - Sound fiscal policy
- Budget surpluses in times of prosperity to reduce
public debt and to have scope for stabilizing
deficit strategies (working of built-in-stabilizer
s) - Hard budget constraints for subnational
governments - Entitlements to transfers related to expenditure
rather than tax revenue - Accumulation of stabilization fund out of export
revenues
18Reducing vulnerability II
- Sufficiently flexible exchange rate regime
- Possible improvement of competitiveness through
currency depreciation - Large countries avoiding dollarization for
purposes of savings, contracting loans - Complementing flexible exchange rate regime by
monetary policy focused on low inflation - Proper regulation of banking system respective
financial sector - Encouraging domestic savings, i.e. reducing
dependency of capital imports ( pension
reforms)
19Completing First-Generation Reforms
- Labor market reform
- Abolition of rigidities
- expansion of formal economies,
- flexibility
- Information and transparency
- Skill certification
- Occupational training system
- Trade policy
- Access to markets of Europe and North America
- Privatization
- Competition
- Proper regulation
- Supervision of financial sector
20Second-Generation Reforms
- Teachers, judiciary, civil service
- Provision of infrastructure
- Stable and predictable macroeconomic framework
- Legal and political environment
- Strong human resource base
- Innovation system
- Research, development, diffusion of technology
- Encouraging venture capital
- Property rights (problem informal sector)
- Bankruptcy law
- Political reform (balance of power between
president and legislature
- Creating and maintaining institutional
infrastructure of a market economy - Providing public goods
- Internalizing externalities
21Income Distribution and Social Sector Economic
Growth and Redistribution
- Growth often weak dynamics in favour for the
poor - Redistribution
- Equalizing opportunities
- Reversion of shift from consumption taxes to
direct taxes - Increasing tax enforcement and collection (flight
capital!) - Development of property taxation
- Elimination of loopholes
- Increasing of spending on basic social services
- Social safety net
- Education
- health
Okuns big trade-off
Total income
Washington consensus
Equity
Source Williamson (2003)
22Priorities
- Education as core of development
- Infrastructure
- Communication
- Transportation
- Health as fundamental human right
- Knowledge
- Capacity-building
- Institutions, leadership to catalyse, absorb,
manage the process of change - Partnership to donors and society