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Proof needed that ‘Washington Consensus’ is dead

The international community faced a critical question after Prime Minister Gordon Brown and US President Barack Obama announced earlier  this year that the economic orthodoxy known as the Washington Consensus was dead. Would it really abandon the policies that were the orthodoxy’s mainstays?

Under the Consensus, deregulation, liberalisation and privatisation were foisted on poor countries by donor governments, the World Bank and the International Monetary Fund with scant regard for the social consequences.

The prevailing mantra was that the markets alone could deliver progress and social benefits. 

It was not a view shared by farmers and manufacturers in poor countries who found themselves competing with subsidised produce and cheaper products from richer nations, while faced with the sudden removal of state assistance. 

G20 finance ministers meeting in London in September did make one inroad, demanding tougher regulation of the banking industry in recognition of the key role that the lack of oversight in that sector played in the worldwide financial meltdown.

Now, a new report from Christian Aid, Getting Back on the Rails: The Private Sector and Development, argues that policymakers must also address the other shortcomings of de-regulation, liberalisation and privatisation that poor countries have had to endure for the last few decades.

Read our report

‘Washington Consensus policies have severely restricted the ability of governments to make the right policies, introduce the right regulations and build the right institutions for their economic prosperity and social progress.’ says report author Matthew Coghlan.

‘For too long now the underlying assumption has been that regulation is an obstacle to investment, trade and economic growth. But, while the explosion of private sector activity that the Consensus unleashed created enormous wealth, it frequently made poverty worse too.’  

One potential benefit of the current financial crisis, he says, is that new ways of thinking about the global economic system must now be explored. New policies, regulations and institutions are needed to ensure that markets – to which the poor must have access - function fairly.

If it is properly but pragmatically regulated, he said, the private sector could be transformed into an engine for eradicating poverty and helping poor countries to develop in a sustainable way.

‘The private sector has in many cases, but not all, been a force for good,’ says Coghlan ‘It has created jobs for the poor and paid their wages, and it has expanded markets and opportunities for small businesses. But there is a great deal more that it could do, if strengthened and guided, to help tackle poverty.’

While multinational companies (MNCs) are often praised for their capacity to diversify economies and increase productivity, they account for only a small proportion of total employment in the world.

‘They must use their enormous resources to do more, most obviously by creating new jobs for poor people and providing them with better wages and conditions, ‘ says Coghlan.

‘They must also show leadership in advocating the right policies, regulations and institutions to strengthen the link between business activity and poverty eradication.’

Other measures that the private sector, including small – and medium– sized enterprises (SMEs) as well as MNCs, should take, he says, include:

· Sharing skills and technology with the poor so that they can upgrade their employment and enterprises
· Offering finance to the poor to enable them to establish businesses so they can afford health care and education.
· Better managing of the assets, such as land and forests, that they share with poor communities, who are more dependant on them
· Producing essential goods for and providing necessary services to poor people at affordable prices

At the same time, the report adds, the poor need protection from the pursuit of profit. Businesses must be prevented from adversely impacting on poor communities, and they must be held accountable for any harm that they cause.

And developing country governments and civil society organisations must ensure that the poor, while having access to markets, are safeguarded by appropriate policies, regulations and institutions from the private sector.

‘As long as private sector development strategies do not align profit making more closely with welfare improvements, no solution to poverty will be found,’ warns Coghlan.   

Report at: http://www.christianaid.org.uk/images/getting-back-on-the-rails.pdf

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Notes to Editors:

· Christian Aid works in some of the world's poorest communities in nearly 50 countries. We act where the need is greatest, regardless of religion, helping people build the life they deserve.

· Christian Aid has a vision – an end to poverty.  Our new drive, Poverty Over, explains what we believe needs to be done – and can be done – to make that vision a reality.    Details at www.christianaid.org.uk

For more press information, pictures or case studies, please contact Andrew Hogg at 0207 523 2058


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