Download IMF Structural Adjustment Programs: Concepts, Design, Critique

Macroeconomic Factors and
Growth: Theory and Case
Studies
Lecture 2:
The Struggle for a „PostWashington Consensus“
Bernhard Seidel
Structure
– 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
Dr. Bernhard Seidel
September 2003
Main 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
Dr. Bernhard Seidel
September 2003
The Main Elements of the
„Washington Consensus“
From 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
Dr. Bernhard Seidel
September 2003
Critical 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 people‘s 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
Dr. Bernhard Seidel
September 2003
Post-Washington Consensus
From 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
Dr. Bernhard Seidel
September 2003
Main objective of development:
Transformation of Society
– Increase in GDP per capita
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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
Dr. Bernhard Seidel
September 2003
Elements 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
Dr. Bernhard Seidel
September 2003
– Consensus building: supports political and social
stability by acceptance of policies and institutions
Key Aspects
– Private sector development
– Public sector development
– Community development
– Family development
– Individual development
Dr. Bernhard Seidel
September 2003
Private Sector:
Strong, competitive, stable, efficient
– Legal infrastructure
• Competition law and enforcement conditions
• Bankruptcy law
• Commercial law
– Regulatory framework
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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
Dr. Bernhard Seidel
September 2003
Public Sector
Crucial 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?
Dr. Bernhard Seidel
September 2003
Communities development
Priority of local
level
•Conditions
•Preferences
•Circumstances
Dr. Bernhard Seidel
September 2003
–Participation and commitment
–Development effectiveness
Family and Individual Development
Family
– Autonomy in decision about children
– Female education
– Garantuee of nutrition
– Provision of health service
Individual
– Education
– Health
Dr. Bernhard Seidel
September 2003
Political approaches I
Allocation of Resources
– Allowing returns on physical and human capital
– Provision of complimentary inputs
• Economic environment
• Well functioning institutions
– Development of physical and human capital
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Dr. Bernhard Seidel
September 2003
Preserving natural resources
Encouraging savings and investment
Providing and financing schools
Use and renewal of natural resources
Political Approaches II
– Economic management
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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
Dr. Bernhard Seidel
September 2003
New Agenda as Post-Washington
Consensus
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Dr. Bernhard Seidel
September 2003
Reducing vulnerability of countries to crises
Completing first-generation reforms
Introducing second-generation reforms
Income distribution and social sector
Reducing 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 builtin-stabilizers)
– Hard budget constraints for subnational
governments
Entitlements to transfers related to expenditure rather than tax
revenue
– Accumulation of stabilization fund out of export
revenues
Dr. Bernhard Seidel
September 2003
Reducing 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)
Dr. Bernhard Seidel
September 2003
Completing First-Generation
Reforms
– Labor market reform
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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
Dr. Bernhard Seidel
September 2003
Second-Generation Reforms
Creating and
maintaining institutional
infrastructure of a
market economy
Providing public goods
*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
Internalizing
externalities
technology
*Encouraging venture capital
*Property rights (problem: informal sector)
*Bankruptcy law
*Political reform (balance of power
between president and legislature
Dr. Bernhard Seidel
September 2003
Income 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
Dr. Bernhard Seidel
September 2003
Okun‘s big trade-off
Total income
Washington consensus
Source: Williamson (2003)
Equity
Priorities
– 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
Dr. Bernhard Seidel
September 2003