Most academic monographs go unread and uncited, adding a line to some professor’s CV and little else. A few articles impact their field, but almost none affect public discourse. So, when an economist coined the phrase “Washington Consensus” to designate a rather mundane list of sound policies, no one could have expected that metonym would come to embody all the anxieties, prejudices, and inconsistencies of the Left. Still more incongruously, it found few defenders on the Right. Today, the weight of new evidence calls for an overdue reconsideration of the Washington Consensus, one that helps us understand how much of the world converged on the path to less poverty and richer lives.

For decades after the Great Depression, most countries in Latin America sought economic growth behind walls of capital controls, import substitution, and industrial policy. While not a complete failure, by the 1970s the region’s uneven and disappointing progress depended increasingly on foreign borrowing. That scheme culminated in a debt crisis overwhelming much of Central and South America in the early 1980s. Having reached a political and social dead end, ministers and officials from Mexico to Argentina began searching for alternatives. 

Their efforts had caught the attention of John Williamson, a peripatetic economist who taught on three continents before accepting a fellowship at the Peterson Institute. At a seminar in 1989, Williamson noted that policies had improved across much of Latin America. After a participant asked him to clarify this progress, Williamson penned an essay, “What Washington Means by Policy Reform,” highlighting ten points of general agreement regarding sound policy. These fell into three categories: stabilize, privatize, and liberalize. 

The Consensus called first for fiscal policy that could corral inflation. This meant balanced budgets should be the rule, at least outside of recessions. To cut spending, governments were to end consumer subsidies and instead focus on public goods like healthcare, education, and infrastructure. On the revenue side, the ideal tax system relied on a broad base and low marginal rates in order to minimize the deadweight loss and misallocation endemic to more targeted regimes. Second, Williamson urged nations to exploit their comparative advantage and find a role in the world economy. To accomplish this, monetary authorities should cease over-valuing their exchange rates, and opt for openness in both trade and foreign direct investment. Last, regulators had to forsake the temptations of dirigisme and let markets function. That meant allowing lenders to set their own interest rates, privatizing many state-owned enterprises, cutting regulations that inhibited competition and innovation, and protecting property rights.

At first glance, this program appears comprehensive, but the “consensus” in the Washington Consensus had its limits. Should nations enforce labor restrictions like minimum wage and overtime? Should the central bank pursue inflation targeting or a dual mandate? How much income should the state redistribute in the form of transfer payments? On these and many other subjects, Williamson kept his own counsel. The point had been to delineate areas of agreement between legislators, regulators, and economists. He understood that when a diverse set of parties with competing interests converge on a course of action, the results are usually superior to a plan devised by any single actor.

Despite those deliberate omissions, synergies still allowed the Consensus to exceed the sum of its parts. Opening up foreign direct investment eased privatization. Privatization enabled balanced budgets. Balanced budgets limited inflation, which encouraged foreign direct investment. The common denominators were respect and restraint: leaders had to trust that firms and citizens knew better than the bureaucrats how best to allocate their own labor and resources. That’s why the Consensus’ first beneficiary was always likely to be the poor. After all, funding for primary education and basic healthcare does far more to reduce poverty than subsidies for diesel fuel and national airlines. 

In short, Williamson promoted policies that enabled sustainable growth in developing countries with respect for their autonomy and an emphasis on raising prospects for the least fortunate. The Left never forgave him.

The Washington Consensus became an ill-defined but all-purpose pejorative for many of the usual suspects. For all the sophistication of his work in linguistics, Noam Chomsky proffered a simplistic narrative that “[Mexico in the 1990s] was highly praised as a prize student of the rules of the Washington consensus and offered as a model for others—as wages collapsed, poverty increased almost as fast as the number of billionaires, foreign capital flowed in.” In the early 2000s, the Canadian journalist Naomi Klein opined that “in Argentina, they actually just call this ‘el modelo‘—the model. Everybody knows what the model is. It’s the so-called Washington Consensus. The legacy of inequality was so dramatic that the sales pitch of “Just wait for the trickle down” wasn’t working anymore.” Few paeans to Hugo Chavez have aged worse than a 2006 valorization from the Pakistani socialist Tariq Ali in The Guardian: “The struggle spearheaded by the Bolivarian Republic of Venezuela against the Washington consensus has attracted the fury of the White House.” Even today, the Financial Times can still caricature the Consensus as “the view that neoliberal globalization would lift all boats, all the time.” 

By and large, economists on the Left never went quite so far off the deep end. Instead, they spent decades making the perfect the enemy of the good. Joseph Stiglitz’s article “Challenging the Washington Consensus” spent rather more time affirming it. Stiglitz called for greater funding to education, noted that East Asian countries like South Korea and Taiwan industrialized without tariffs or subsidies, and credited devaluation with jump-starting Russia’s economy in the late 1990s. Paul Krugman sought a greater focus on inequality, only to channel his inner Williamson by acknowledging that “the answer is deliberate policies to help the poor, not a reversal of liberalization.” Dani Rodrik found that “most of the items in Williamson’s original list were relatively simple policy changes … that did not require deep-seated institutional change,” but failed to recognize this as a feature and not a bug. While flawed, the forgoing criticism stayed somewhat tethered to reality. In contrast, Ha-Joon Chang actually penned the following sentence without irony: “The effect has been devastating: in the wake of the neoliberal experiment, we find extraordinary misery, inequality, and despair on a scale unknown in recent human history.” Apparently, 30 million victims of Mao Zedong’s famine missed the cutoff for “recent.”

In an age so riven with partisanship, it is worth a moment to ask how the Consensus never became a cause célèbre on the academic and political Right. A reform agenda centered on privatization and deregulation should have attracted support from any ostensibly pro-business party, but the emphasis on free trade threatened too many vested interests. Think of Ronald Reagan’s quotas on Japanese auto imports, George W. Bush’s steel tariffs, or Donald Trump’s restrictions on Canadian lumber. All three men posed as defenders of American industry while leaving ordinary consumers to bear the costs. Moreover, there was a legitimate suspicion of international organizations like the IMF appearing to wield power over sovereign nations. Academic economists faced a different constraint. However sound the intuition behind the Consensus’ recommendations, it is almost impossible to isolate the effects of any one policy, much less a suite of them, amid changes to things like technology, demographics, and commodity prices. To their credit, many economists fought against their own confirmation bias until the evidence became overwhelming. 

In the early years, the critics appeared to have a point; growth per capita slowed just as many Latin American countries began to cut inflation and regulation. But in this case, the numbers obscured more than they enlightened. Whatever their politics, few economists object to Engel’s Law: the stylized fact that as a country grows richer, the proportion of income spent on food falls. In 2006, two economists at the IMF noticed this occurring in both Brazil and Mexico. Contra Chomsky, from 1984 to 2006, food as a percentage of income plummeted from 48% to 33% in Mexico, while Brazil showed a similar pattern, falling from 30% in 1987 to 22% in 2003. Both countries also saw significant declines in stunted children, along with rapid increases in ownership of consumer goods like air conditioners, personal computers, and washing machines. How to reconcile this improving quality of life with anemic growth? The authors showed that flaws in GDP measurement created a false impression of falling living conditions. When countries liberalize trade, new (and often better) consumer goods arrive. But inflation numbers struggle to capture the benefits of greater diversity and quality, resulting in inflation-adjusted GDP numbers that do not reflect the actual change in living standards. Because the poor spend relatively more on goods and less on services, the benefits from open trade actually reduced inequality in both countries. A different group of economists at the World Bank would later show the same bad accounting understated poverty declines for 11 African countries. 

Flawed as GDP per capita may be, today the positive trends associated with the Consensus have grown hard to deny. Latin American GDP showed a -0.4% decline per year in the 1980s but has 1.2% annual increase since then. This turnaround occurred amid lower taxes, liberalized interest rates, more flexible exchange rates, and privatization. Shifting from price guarantees to cash transfers worked to reduce inequality, not exacerbate it. With more than a little understatement, a top journal recently acknowledged “evidence suggests that countries that more fully adopted the Washington Consensus policies generally had better growth performance.” Another article in that same issue noted a similar shift in Africa’s growth trajectory starting roughly in 2000. Overall, Sub-Saharan African countries that imposed greater fiscal discipline and privatized state-owned firms grew faster than others, even after controlling for factors like debt relief and volatile export prices. Still, another paper examined the effects of 49 unique episodes of reform. Whether by vote or by imposition, the average country that hewed close to the Consensus subsequently enjoyed a 2.5% jump in annual GDP growth.

For all that affirmation, legitimate provisos remain, both inside and outside Williamson’s list. Singapore, Korea, and Taiwan all controlled inflation prior to opening to trade, suggesting that the sequence of reform matters. Developing countries are justifiably angry over the hypocrisy of OECD nations placing tariffs on agricultural imports like rice and sugar. Williamson didn’t touch on immutable factors like culture and geography, but regardless of policy far more foreign investment will flow into Atlantic ports infused with Gezelligheid than into, say, mountainous regions of Central Asia that live and die by Pashtunwali.

Still, across much of the world, a broadly consistent set of reforms has increased trade while drastically reducing inflation and overvaluation. By now, few alternative explanations remain: the trends extended far beyond India and China, and depended on neither demographic dividends nor natural resource discoveries. Instead, they resulted from countless incremental policy improvements. That could mean privatizing Social Security in Bolivia and El Salvador, granting railway concessions in Burkina Faso and Côte d’Ivoire, or, indeed, legalizing crude oil exports in the US.

Academics, journalists, and politicians can and should question our society’s assumptions, scrutinizing beliefs and scanning the horizon for better ideas. But they must steer between the Scylla of blind certainty and the Charybdis of epistemic nihilism by recognizing the accumulated wisdom of the last century. Williamson charted this middle passage when he distilled the broad lessons of sustained growth, providing a compass oriented on the best path forward. The Washington Consensus is the triumph of the good over the perfect, the incremental over the revolutionary, and the practical over the ideal. At a time when far too many citizens still harken to collectivist fantasies, the Consensus offers a forthright narrative in defense of free markets and free people.