The Plan to Enrich the World's Wealthy at the Expense of Everyone Else
John Williamson, a Peterson Institute “senior fellow” coined the term “the Washington Consensus” at a conference in 1989. Williamson joined the Institute in 1981 when it was founded by Pete Peterson, the Republican billionaire from Wall Street who has dedicated his life to proselytizing for lower taxes on the wealthy, stringent spending cuts in social programs, and privatizing Social Security – the unholy grail of Wall Street that would provide our largest banks with hundreds of billions of dollars in additional investment fees. Peterson has funded many groups to evangelize for these neo-liberal dogmas.
Williamson’s statement of the “ten” “principles” of what he chose to label “the Washington consensus” parallels Pete Peterson’s policies. Williamson, the Reagan administration and the IMF did not see these principles as being of equal importance. A paper by Williamson makes clear that the focus of the Washington Consensus was on Latin America.
Here is Williamson’s introductory paragraph, in full.
“No statement about how to deal with the debt crisis in Latin America would be complete without a call for the debtors to fulfill their part of the proposed bargain by “setting their houses in order,” “undertaking policy reforms,” or “submitting to strong conditionality.” The question posed in this paper is what such phrases mean, and especially what they are generally interpreted as meaning in Washington. Thus the paper aims to set out what would be regarded in Washington as constituting a desirable set of economic policy reforms. An important purpose in doing this is to establish a baseline against which to measure the extent to which various countries have implemented the reforms being urged on them.”
The paragraph is critical to understanding the context of the creation of the Washington Consensus. It was all about the Latin American “debt crisis.” It was all about a quid pro quo. The Washington Consensus was a consensus of creditors about how to deal with their debtors. Latin American debtor nations would be allowed to delay the repayment of their debts, but only if they “submit[ed]” to “strong conditionality” dictated by the Washington creditors. The creditors – the U.S. Treasury, the Federal Reserve, the IMF, and the largest U.S. banks – needed to develop a coordinated position on what to demand as their quid pro quo from the Latin American debtors. The number one thing on their list from the beginning was austerity (“setting their houses in order”).
The Washington Creditors were not willing to accept mere promises from the Latin America debtors. Williamson emphasized that a key purpose of creating an explicit Washington Consensus was to be able to use it as a scorecard to ensure that the Latin American debtor Nations were “submitting” fully to the Consensus’ requirements imposed by the Washington Creditors (“strong conditionality”). “An important purpose in doing this is to establish a baseline against which to measure the extent to which various countries have implemented the reforms being urged on them.”
Williamson then (implicitly) acknowledged that the Washington Creditors’ ten principles bore three equivalents to an Achilles’ heel. First, he agreed that corruption could pervert the plan so that it would cause great harm. He admitted that the Washington Creditors had “at least some awareness” of this danger – a classic example of damning with faint praise. Williamson acknowledged that the Creditors who shared the Consensus believed that corruption in Latin America was “pervasive.” Williamson was implicitly admitting that the Creditors had committed the classic economics error (and the defining joke of the economics profession) by “assuming the can opener.” The Creditors implicitly assumed that privatization, deregulation, and the protection of private property (Consensus principles 8-10) would not be perverted by “pervasive” corruption (and I would add, private “control fraud”).