Question Clay Finance & Economics

What are the main flaws in Washington Consensus?

What are the main flaws in Washington Consensus?

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The Washington Consensus is a term coined by Williamson in 1989 (Williamson, 1993). The term describes a set of ten economic principles embodying ideals associated with neoliberal and globalisation polices, including free trade, free markets, and floating exchange rates (Williamson, 2004). Although widely embraced, evidence exists that it is flawed. For example, following adoption in Latin America, the annual economic growth per capita reduced from 2.6% per annum to 1% per annum (Gallagher, 2011). Numerous criticisms have been levelled against the Consensus, including the way it supports universal free trade, low government spending, and support for privatisation.

Free trade is not always beneficial; developed western countries must have agreed, otherwise the multi-fibre agreement and the subsequent Agreement on Textiles and Clothing (ATC) would never have existed (Brambilla, Khandelwal and Schott, 2010). Free trade has also hurt Columbia; following their signing of a free trade agreement with the US, Columbia’s economy lost US $75 million (Gallagher, 2011). Conversely, the utilisation of trade restrains and controls may support developing new industries, as seen when Brazil developed an aviation sector providing to Embrear (Gallagher, 2007). Without some protective measures, new industries may never emerge, leaving weak economies tied exclusively to low income primary industries (Hermes and Lensink, 2013).
Fiscal policies limiting low government spending may restrict investments to support growth, slowing economic development. Furthermore, austerity may cut welfare and education budgets, increasing problems of poverty and reducing long term viability of the workforce.

Privatisation may also be harmful. Privatised firms prioritise shareholder interests over social concerns, as seen in Bolivia. Following privatisation of the Bolivian water industry prices doubled, and the poorest citizens lost access to clean water (Shultz, 2005).

This shows that while the Washington Consensus may have many supporters, there are also some potentially serious flaws in its underlying assumptions.


Brambilla, I., Khandelwal, A.K., and Schott, P.K., 2010. China’s Experience under the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing. In: R.C. Feenstra and S.-J. Wei, (eds.), China’s Growing Role in World Trade. Chicago: University of Chicago Press, pp.345–387.

Gallagher, K., 2007. Understanding developing country resistance to the Doha Round. Review of International Political Economy, 15(1), pp.62–85.

Gallagher, K., 2011. The end of the ‘Washington consensus’. The Guardian. [online] Available at:

Hermes, N., and Lensink, R., 2013. Financial Development and Economic Growth: Theory and Experiences from Developing Countries. Abingdon: Routledge.

Shultz, J., 2005. The Politics of Water in Bolivia. The Nation. [online] Available at:

Williamson, J., 1993. Democracy and the ‘Washington Consensus’. World Development, 21(8), pp.1329–1336.

Williamson, J., 2004. A Short History of the Washington Consensus. In: From the Washington Consensus towards a new Global Governance. Barcelona: Fundación CIDOB. [online] Available at: