1. Macroeconomic Factors and Growth: Theory and Case Studies Lecture 2: The Struggle for a „Post-Washington Consensus“
Bernhard Seidel

2. 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

3. Main Sources
Gore, Charles (2000), The Rise and Fall of the Washington Consensus as Paradigm for Developing Countries. In: World Development 28, 5, pp
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

4. 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

5. 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

6. 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

7. Main objective of development: Transformation of Society
Increase in GDP per capita
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

8. 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
Consensus building: supports political and social stability by acceptance of policies and institutions
Dr. Bernhard Seidel
September 2003

9. Key Aspects Private sector development Public sector development
Community development
Family development
Individual development
Dr. Bernhard Seidel
September 2003

10. Private Sector: Strong, competitive, stable, efficient
Legal infrastructure
Competition law and enforcement conditions
Bankruptcy law
Commercial law
Regulatory framework
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

11. 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

12. Communities development
Priority of local level
Conditions
Preferences
Circumstances
Participation and commitment
Development effectiveness
Dr. Bernhard Seidel
September 2003

13. Family and Individual Development
Autonomy in decision about children
Female education
Garantuee of nutrition
Provision of health service
Individual
Education
Health
Dr. Bernhard Seidel
September 2003

14. 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
Preserving natural resources
Encouraging savings and investment
Providing and financing schools
Use and renewal of natural resources
Dr. Bernhard Seidel
September 2003

15. Political Approaches II
Economic management
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

16. New Agenda as Post-Washington Consensus
Reducing vulnerability of countries to crises
Completing first-generation reforms
Introducing second-generation reforms
Income distribution and social sector
Dr. Bernhard Seidel
September 2003

17. 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 built-in-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

18. 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

19. Completing First-Generation Reforms
Labor market reform
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

20. Second-Generation Reforms
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 technology
Encouraging venture capital
Property rights (problem: informal sector)
Bankruptcy law
Political reform (balance of power between president and legislature
Creating and maintaining institutional infrastructure of a market economy
Providing public goods
Internalizing externalities
Dr. Bernhard Seidel
September 2003

21. 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
Okun‘s big trade-off
Total income
Washington consensus
Source: Williamson (2003)
Equity
Dr. Bernhard Seidel
September 2003

22. 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