Washington Consensus
Based on Wikipedia: Washington Consensus
The Ten Commandments That Reshaped the Developing World
In 1989, a British economist named John Williamson sat down to write what he thought would be a straightforward summary of economic policies. He had no idea he was about to coin one of the most controversial phrases in modern economics—one that would eventually make him cringe every time he heard it.
The phrase was "Washington Consensus."
Williamson meant it as a simple description: here are ten economic policies that most experts in Washington seemed to agree on. But the term took on a life of its own, becoming a lightning rod for debates about globalization, inequality, and whether rich countries were bullying poor ones into adopting policies that hurt ordinary people.
To understand why this matters, we need to go back to a time of genuine crisis—and the desperate search for solutions that followed.
The Lost Decade and the Search for Answers
The 1980s hit Latin America like a freight train. Economists call it "La Década Perdida"—the Lost Decade—and the name barely captures how devastating it was.
Multiple disasters struck at once. Oil prices skyrocketed after the Organization of the Petroleum Exporting Countries, known as OPEC, flexed its muscles. Countries that had borrowed heavily in the 1970s suddenly found themselves drowning in debt. Interest rates in the United States climbed higher and higher, making that debt even more crushing. And when lenders got nervous, the flow of foreign credit dried up completely.
Many Latin American countries had spent decades pursuing what economists call "import substitution"—essentially trying to build up domestic industries by making imported goods expensive through tariffs and restrictions. The idea was to become self-sufficient. But when the crisis hit, these economies couldn't pivot quickly to selling goods abroad to earn the foreign currency they desperately needed.
Compare this to East Asian countries like South Korea and Taiwan. They had taken a different path, building industries focused on exports from the start. When oil prices spiked, they could ramp up their sales to the rest of the world. They weren't immune to the shock, but they weathered it far better.
Latin American governments faced an impossible choice. They couldn't borrow more money. They couldn't easily earn it through exports. Something had to give.
Enter the Washington Consensus
John Williamson worked at the Institute for International Economics, a think tank in Washington, D.C. In 1989, he gathered what he saw as the common ground among the major economic institutions based in the American capital—the International Monetary Fund, the World Bank, and the United States Treasury Department.
He distilled their shared views into ten policy prescriptions. Here they are, stripped of jargon:
First: Don't spend more than you earn. Governments should avoid running large budget deficits. If you're constantly borrowing to pay your bills, you're setting yourself up for disaster.
Second: Spend on things that help people and grow the economy. Instead of subsidizing industries or politically connected groups, put money into education, healthcare, and infrastructure—roads, bridges, power grids.
Third: Reform your tax system. Cast a wide net so everyone pays something, but don't set rates so high that people hide their income or flee the country.
Fourth: Let markets set interest rates. Governments shouldn't artificially hold down the cost of borrowing. Rates should be positive after accounting for inflation—meaning savers actually earn something—but not crushingly high.
Fifth: Keep your currency at a competitive level. If your money is overvalued, your exports become too expensive for foreigners to buy.
Sixth: Open up to trade. Drop the quotas and licenses that restrict imports. If you need to protect some industries, use low, simple tariffs rather than complex bureaucratic barriers.
Seventh: Welcome foreign investment. Let companies from other countries build factories and create jobs in yours.
Eighth: Privatize state-owned businesses. Governments generally aren't good at running airlines, steel mills, or telephone companies. Sell them off.
Ninth: Cut red tape. Abolish regulations that prevent new businesses from starting or existing ones from competing—unless those rules genuinely protect safety, the environment, or consumers.
Tenth: Protect property rights. People won't invest in something if they fear the government might take it away. Make sure the legal system clearly defines who owns what.
Who Really Wrote This Playbook?
Here's where the story gets complicated. The name "Washington Consensus" suggests these ideas were cooked up by Americans and imposed on hapless developing countries. Williamson came to hate this implication.
"It is difficult to think of a less diplomatic label," he later admitted.
But multiple scholars have pointed out that Latin American economists and politicians developed many of these ideas themselves, based on their own analysis of what had gone wrong. Joseph Stiglitz, a Nobel Prize–winning economist who later became one of the Consensus's sharpest critics, acknowledged that "the Washington Consensus policies were designed to respond to the very real problems in Latin America and made considerable sense."
Daniel Yergin and Joseph Stanislaw, in their book about the global shift toward markets, wrote that these prescriptions were "developed in Latin America, by Latin Americans, in response to what was happening both within and outside the region."
One figure deserves special mention: Hernando de Soto, a Peruvian economist who championed the importance of property rights for the poor. His insight was that millions of people in developing countries had no legal title to their homes or businesses. Without that legal recognition, they couldn't use their assets as collateral for loans, couldn't invest with confidence, couldn't build wealth. Kate Geohegan of Harvard's Davis Center has credited de Soto with helping inspire the entire Washington Consensus framework. Williamson himself acknowledged that de Soto was "directly responsible" for the property rights recommendation.
The Consensus That Wasn't
Almost immediately, Williamson's carefully defined ten points began morphing into something else entirely.
Critics started using "Washington Consensus" as shorthand for a much more extreme ideology—what's sometimes called "market fundamentalism" or "neoliberalism." This broader interpretation included ideas Williamson had deliberately left out: minimal government involvement in welfare and income redistribution, completely free movement of money across borders, and a dogmatic faith that markets always know best.
Williamson was horrified. In his original formulation, he had consciously excluded capital account liberalization—the idea that countries should allow money to flow in and out freely. He knew this could be destabilizing. He hadn't endorsed supply-side economics or called for gutting social safety nets.
"I of course never intended my term to imply policies like capital account liberalization... monetarism, supply-side economics, or a minimal state, which I think of as the quintessentially neoliberal ideas. If that is how the term is interpreted, then we can all enjoy its wake."
The distinction matters enormously. Williamson's original ten points were, in his words, "motherhood and apple pie"—broadly accepted principles that most economists, left or right, would find unobjectionable. The broader neoliberal agenda was something far more controversial.
Yet the conflation persisted. When people foam at the mouth about the Washington Consensus, they're usually attacking the extreme version—the one Williamson insists never actually enjoyed consensus in Washington or anywhere else.
What Actually Happened When Countries Tried It
The evidence on whether these policies worked is, to put it charitably, mixed.
A 2020 study found that countries implementing Washington Consensus policies saw real gains in their gross domestic product per person over five to ten years. That's good news.
But a 2021 study looking specifically at Brazil, Chile, and Mexico—three major economies that embraced these reforms—found "mixed results." Yes, these countries achieved much more stable economies. Inflation, which had ravaged Latin America in the 1980s, came under control. But economic growth was "heterogeneous and generally disappointing."
In sub-Saharan Africa, the picture was even more complex. Another 2021 study found that implementing these policies led to declining incomes during the 1980s and 1990s. It was only after 2000 that growth picked up. The crucial factor? Countries that managed to implement "pro-poor policies alongside market-oriented reforms" did much better.
Williamson himself, reflecting on decades of experience, summarized the results on growth, employment, and poverty reduction as "disappointing, to say the least." He blamed three factors: the reforms didn't include mechanisms to prevent financial crises, which proved devastating. The reforms were incomplete—countries often adopted some policies but not others. And the prescriptions paid too little attention to inequality.
Argentina: The Poster Child of Failure
No country illustrates the controversy better than Argentina.
In the 1990s, Argentina was the star pupil of Washington Consensus reforms. The country privatized industries, opened its markets, and pegged its currency to the United States dollar. In October 1998, the International Monetary Fund invited Argentine President Carlos Menem to address its annual meeting and share Argentina's success story.
Three years later, Argentina's economy collapsed spectacularly. The crisis of 1999 to 2002 wiped out savings, sparked riots, and cycled through five presidents in a matter of weeks. Critics point to Argentina as proof that the Washington Consensus was fundamentally flawed.
Defenders argue that Argentina didn't actually follow the prescriptions properly—that the rigid currency peg was precisely the kind of policy the Consensus warned against, and that Argentina's fiscal discipline was more illusion than reality.
Who's right probably depends on which version of the Washington Consensus you're talking about.
The Political Backlash
Whatever the economic merits, the political consequences were unmistakable.
By the late 1990s, Latin Americans were angry. The promised prosperity hadn't materialized for ordinary people. The middle class was shrinking. Trade unions had lost power. Social programs had been cut.
The result was a sharp turn to the left. Hugo Chávez won the Venezuelan presidency in 1998, promising to roll back market reforms. Evo Morales became Bolivia's first indigenous president in 2006, explicitly rejecting what he called the "neoliberal model." Rafael Correa swept to power in Ecuador on a similar platform.
Economists have drawn a direct line between Washington Consensus policies and the rise of these populist leaders. Whether you see this as a healthy democratic correction or a tragic wrong turn depends largely on your politics.
Death of a Consensus
The 2008 financial crisis seemed to deliver the final blow.
When the American housing bubble burst and took the global economy down with it, governments everywhere abandoned free-market orthodoxy and embraced massive intervention. Central banks printed money. Governments ran enormous deficits. The invisible hand had failed; the visible hand of the state stepped in.
After the 2009 G-20 summit in London, British Prime Minister Gordon Brown declared: "The old Washington Consensus is over."
A reporter from the Washington Post asked John Williamson directly: Is Gordon Brown right?
Williamson's answer captured the whole frustrating debate:
"It depends on what one means by the Washington Consensus. If one means the ten points that I tried to outline, then clearly it's not right. If one uses the interpretation that a number of people—including Joe Stiglitz, most prominently—have foisted on it, that it is a neoliberal tract, then I think it is right."
At the 2010 G-20 summit in Seoul, world leaders announced a new "Seoul Development Consensus"—a more flexible, pragmatic approach that acknowledged different countries might need different policies. The Financial Times wrote that the document would "do little more than drive another nail into the coffin of a long-deceased Washington consensus."
What Was Missing All Along
Looking back, critics have identified glaring gaps in the original ten prescriptions.
There was nothing about building institutions—the courts, regulatory agencies, and civil service organizations that make markets actually work. You can privatize a telephone company, but without a competent regulator, the new private monopoly might be just as bad as the old government one.
There was nothing about inequality. The prescriptions might grow the overall economic pie, but who got the bigger slices? In practice, the benefits often flowed to those who were already well-off.
There was nothing about safety nets. What happens to factory workers when their plant closes because of foreign competition? What about farmers who can't compete with subsidized American corn? The theory said they would find new, better jobs. The reality was often unemployment and poverty.
And there was nothing about financial crises. The Asian financial crisis of 1997, the Russian default of 1998, the Argentine collapse of 2001, the global meltdown of 2008—these catastrophes caused more human suffering than years of steady growth could repair. A development strategy that ignored the risk of crisis was like a fire safety plan that forgot to include exits.
The Phrase That Haunted Its Creator
John Williamson never escaped the monster he created.
"The phrase 'Washington Consensus' is a damaged brand name," he said in 2002. "Audiences the world over seem to believe that this signifies a set of neoliberal policies that have been imposed on hapless countries by the Washington-based international financial institutions and have led them to crisis and misery. There are people who cannot utter the term without foaming at the mouth."
Yet in the same breath, he defended his original ideas: "The basic ideas that I attempted to summarize in the Washington Consensus have continued to gain wider acceptance over the past decade, to the point where Lula"—Brazil's left-wing president—"has had to endorse most of them in order to be electable."
This is perhaps the most telling observation. Even leaders who rose to power attacking the Washington Consensus often ended up adopting substantial parts of it. They maintained fiscal discipline. They kept inflation low. They didn't nationalize everything in sight. The consensus, or at least the original version of it, had become the baseline.
What It All Means
The Washington Consensus story is really about the limits of economic prescriptions. There's no universal recipe for development. Context matters. History matters. Institutions matter.
The original ten points weren't crazy. Fiscal discipline, investment in health and education, property rights, competitive exchange rates—these are reasonable ideas. The problem came when they were treated as a checklist, applied rigidly to countries with wildly different circumstances, and used to justify much more extreme policies that weren't in the original formulation at all.
The broader lesson might be this: be suspicious of anyone offering simple answers to complex problems. Economic development involves tradeoffs, uncertainties, and unintended consequences. The confident experts in Washington in the 1980s were certain they knew what developing countries needed. They were partly right and partly wrong, in ways that took decades to fully understand.
John Williamson tried to summarize a consensus. What he got instead was a controversy—one that reveals as much about how ideas spread and mutate as it does about economics itself. The phrase he coined became a symbol, a slogan, a shorthand for forces far beyond anything he intended.
It's a reminder that in economics, as in so much else, the story you tell matters as much as the policies you propose. And once you name something, you can never fully control what that name comes to mean.