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Economic Commentary  
 

Prime Minister Meles Zenawi declared that "The Washington Consensus" is dead. Abiye G. Abebe, a certified financial analyst and project manager as well as a quality control professional in Minnesota, United States (geta_gacha@ yahoo.com), says not yet. Taking off from Margaret Thatcher's famous remark, partisans of this development model during its "heyday" in the 1980s and early 1990s claimed that the alternative to the Washington Consensus was TINA - that is, "There is no alternative".

After the Death of Washington Consensus

 

The Washington Consensus broke with economic strategies involving heavy participation by government and positioned the unfettered market as the driver for development. Imposed on developing countries in the form of "structural adjustment" and funded by the International Monetary Fund (IMF) and the World Bank, the Consensus reigned until the late 1990s, when the evidence became clear that on all key criteria of development - sustained growth, poverty reduction, and reduce inequality - it simply was not delivering.

By the first half of this decade, the Consensus had undergone a process of unraveling, although neo-liberalism remained the default mode for many economists and technocrats who had lost confidence in it, simply out of inertia.

Samples of victims of the Washington Consensus that we should remember in silence for a minute were: Close to 160,000 farmers in India who have taken their lives in 2007. Indian economist Utsa Patnaik has described this as "victims of a collapse in rural livelihoods and incomes" because of the steep decline of farm product prices.

Lee Kyung Hae, a farmer from South Africa who burned himself to death at the barricades in Cancun, Mexico, in September 2003, became a milestone in the development of farmers' resistance globally. Committed under a banner that read "WTO Kills Farmers", Lee's suicide was designed to draw international attention to the number of suicides by farmers in countries subjected to liberalization.

It was true that the Washington Consensus was ugly for Africa, which suffered net outflows of funds. Each year during the late 1990s, African countries paid 162 million dollars more than they received in new loans, up from 60 million dollars in 1990.

There was little hope of balancing accounts by attracting inflows of foreign direct investment. Africa's share fell from 25pc of all multinational corporate investments during the 1970s to less than five per cent during the late 1990s. The tiny amounts in Sub-Saharan Africa in recent years can be attributed in large part to investments in oil in Angola and Nigeria.

Profit repatriation and transfer pricing, whereby foreign investors steal money from developing countries by mislabeling invoice inputs drawn from abroad, meant that, such investments drained more from Africa than they contributed. In a blame-the-victim analysis, the neo liberal magazine the "Economist" has termed Africa as 'the hopeless continent'.

Meles urged donors to concentrate on the millennium development goals (MDG) instead of the policy conditions they impose as their criteria for development assistance. Nevertheless, the implementations of his proposals look doubtful. The G20 meeting in mid-November, 2008, on the international financial crisis was where illusory post neo-liberalism was on display. Dominique Strauss-Kahn, managing director for the IMF, has suggested "fiscal stimulus equal to two per cent of gross domestic product" across the world, "everywhere, anywhere it is possible".

In reality, though, the IMF was simultaneously treating South Africa (SA) - and even wealthier Seychelles - like a typical third world debtor deserving of a full neo-liberal work-out. For at precisely the same moment, on November 15, the IMF lent Seychelles 26 million dollars to cure a sickness (currency collapse) caused, in turn, by IMF prescriptions.

The Seychelles lifted long-standing currency exchange controls, prompting a 48pc slide in the value of the rupee. The IMF said the government had made a good start, but it urged it to take further steps "in order to secure substantial primary surpluses over the medium term", according to one report.

The South African case is even more telling; on October 22, 2008, the IMF filed several lengthy reports that: The SA government should run a budget surplus; the government should adopt privatization for 'infrastructure and social needs', including electricity and transport; the Reserve Bank should maintain existing inflation targeting and raise interest rates; the Treasury and Trade Ministry should remove protections against international economic volatility, especially financial and trade rules; and the Labour Ministry should remove worker's rights, including 'backward-looking wage indexation' to protect against inflation.

Instead of conceding the need for exchange controls and import controls on luxury goods in order to restore payments and trade account balances, the IMF had one solution, contrary to Strauss-Kahn's rhetoric: "Tighter fiscal policy to avoid exacerbating current account pressures." The sharp contrast of these policies that the developing world is required to implement, against the policies the developed world used, to counter the crisis.

Even if we pretend that the Washington Consensus is dead, given the need for global legitimacy to promote their interests in a world where the balance of power is shifting towards the South, western elites already found more attractive an offshoot of European Social Democracy and New Deal liberalism that one might call Global Social Democracy (GSD). This is likely to be promoted by the west as an alternative replacement policy to the Washington Consensus.

Considering the pragmatism of Meles and the macro economic problems the country is in, I will not be surprised if such a policy proposal is accepted by Ethiopia. Thus Ethiopian progressive opposition forces should seize this opportunity to kill reforms to neo-liberalism.

Even before the full unfolding of the financial crisis, partisans of GSD had already been positioning it as alternative to neo-liberal globalization in response to the stresses and strains being provoked by the latter. A prominent personality associated with it is Gordon Brown, prime minister for the UK who led the European response to the financial meltdown through the partial nationalization of the banks.

Brown was widely regarded as the godfather of the "Make Poverty History" campaign in the United Kingdom. While he was a chancellor, he proposed what he called an "alliance capitalism" between market and state institutions that would reproduce at the global stage what he said Franklin Roosevelt did for the national economy: "Securing the benefits of the market while taming its excesses." This must be a system that "captures the full benefits of global markets and capital flows, minimizes the risk of disruption, maximizes opportunity for all, and lifts up the most vulnerable - in short, the restoration in the international economy of public purpose and high ideals," according to Brown.

Joining Brown in articulating the Global Social Democratic discourse has been a diverse group consisting of, among others, the economist Jeffrey Sachs, George Soros, Kofi Annan, the sociologist David Held, Nobel laureate Joseph Stiglitz, and Bill Gates. There are, of course, differences of nuance in the positions of these people, but the thrust of their perspectives is the same; to promote a reformed social order and a reinvigorated ideological consensus for global capitalism.

Global Social Democracy has not received much critical attention, perhaps because many progressives are still fighting the last war against neo-liberalism. A critique is urgent, and not only because GSD is neo-liberalism's most likely successor. More importantly, although GSD has some positive elements, it has, like the old Social Democratic Keynesian paradigm, a number of shortcomings.

The Global Social Democracy shares neo-liberalism's bias for globalization, differentiating itself mainly by promising to promote globalization better than the neo-liberals. This amounts to saying, however, that simply by adding the dimension of "global social integration," an inherently socially and ecologically destructive and disruptive process can be made palatable and acceptable. Proponents of the GSD assume that people want to be part of a functionally integrated global economy where the barriers between the national states and the international have disappeared.

Would they not in fact prefer to be part of economies that are subject to local control and are buffered from the vagaries of the international economy?

Indeed, today's swift downward trajectory of interconnected economies underscores the validity of one of anti-globalization movement's key criticisms of the globalization process.

Ethiopian progressive political forces should remember John Maynard Keynes's famous article on national self-sufficiency, cautioned against nationalistic "silliness, haste and intolerance", yet argued forcefully for the national - not global - economic revival.

"I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel - these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national," said Keynes.

The GSD shares neo-liberalism's preference for the market as the principal mechanism for production, distribution, and consumption, differentiating itself mainly by advocating state action to address market failures. The kind of globalization the world needs, according to Jeffrey Sachs, in his The End of Poverty, would entail "harnessing . . . the remarkable power of trade and investment while acknowledging and addressing limitations through compensatory collective action."

This is very different from saying that the citizenry and civil society must make the key economic decisions; and the market, like the state bureaucracy, is only one mechanism of implementation of democratic decision-making.

The GSD is a technocratic project, with experts hatching and pushing reforms on society from above, instead of being a participatory project where initiatives percolate from the ground up. While critics of neo-liberalism accept the framework of monopoly capitalism, which rests fundamentally on deriving profit from the exploitative extraction of surplus value from labor, is driven from crisis to crisis by inherent tendencies toward overproduction, and tends to push the environment to its limits in its search for profitability. Like traditional Keynesianism in the national arena, GSD seeks in the global arena a new class compromise that is accompanied by new methods to contain or minimize capitalism's tendency toward crisis.

Just as the old Social Democracy and the New Deal stabilized national capitalism, the historical function of Global Social Democracy is to iron out the contradictions of contemporary global capitalism and to re-legitimize it after the crisis and chaos left by neo-liberalism. GSD is, at its roots, a social management.

While progressive forces were engaged in full-scale war against neo-liberalism, reformist thinking was percolating in critical establishment circles. This thinking is now about to become policy, and Ethiopian progressive parties must work hard to engage it. Hence, if the pragmatist Meles and the ruling party show the tendency of accepting the policy without a fight, progressive Ethiopian opposition parties should use this opportunity to push the centre-left EPRDF to the left into fighting the new reformist policy. These should be done for the sake  and benefit of the Ethiopian public.

Progressive forces should boldly aspire once again to paradigms of social organization that unabashedly aim for equality and participatory democratic control of both the national and the global economies as prerequisites for collective and individual liberation.

Ethiopian progressive parties should realize that globalization has failed to provide capital as an escape route from its accumulating crises. With its failure, we are now seeing capitalist elites giving up on it and resorting to nationalist strategies of protection and state-backed competition for global markets and global resources, with the US capitalist class leading the way. Hence, the new consensus might not be pushed aggressively down the throat of Africa, as its predecessor.

The leaders of the opposition parties should remind the ruling party that the solution lies in an alternative source of hard currency finance. For instance, China provides condition-free loans to several of Africa's regimes. More hopefully, Venezuela was considering a proposal to replace and displace the IMF, as happened in Argentina in 2006, in which case repaying the IMF early or even defaulting would be feasible.

The crucial ingredient for establishing an alternative African strategy to fight reforms to the Washington Consensus, which could come from the left, is pressure from below. This requires the consolidation, coordination and increased militancy of two kinds of civil societies.

The forces devoted to the debt relief cause have often come from what might be termed an excessively polite, civilized society based on internationally-linked NGOs which rarely use a 'tree shaking' strategy in order to do 'jam making'. These forces react via short-term 'IMF Riots' against the system, in a manner best understood as uncivilized society.

Progressive forces in Ethiopia could embark upon 'non-reformist reform' challenges, by identifying sites where the logic of reform to neo-liberalism can be turned upside down.

The most striking case might have been the South African 'bond boycott' campaign of the early 1990s. In this case, activists in dozens of townships offered each other solidarity when collective refusal to repay housing mortgage bonds was the only logical reaction. This was forewarned of the 1995-96 'El Barzon' ('the yoke') strategy where of more than a million Mexicans who were in debt when interest rates soared from 14pc to 120pc over a few days in early 1995 simply said, 'can't pay, won't pay'.

That slogan was also heard in Argentina in early 2002, following the evictions of four presidents in a single week due to popular protest. The ongoing pressure from below compelled the government to default on 140 billion dollars in foreign debt, in a bid to maintain some of the social wage, the largest such default in history.

 
 
 
 
 
   
   
   
 
 
 

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