It’s enough to give a financial journalist a case of the bends.
In 1997, I covered the collapse of Asia’s emerging economies and the end, it seemed, to the “authoritarian” model for development. The intrusive hand of the state, which for years subsidized export-driven growth at the expense of consumer spending, had given way to fatal levels of corruption and dollar-denominated debt. With the help of the International Monetary Fund, which offered bail-out packages conditioned on painful reforms--dismantled trade barriers, banking and currency reform, privatization--the situation stabilized.
Western journalists, including this one, reported Asia’s turnaround as vindication of the “Washington Consensus,” the reform model championed by the U.S. Treasury Department. A few years later, I was in the Middle East, writing critically about how Arab economies were slipping toward the same abyss that nearly swallowed their Asian counterparts. Entrenched mercantilism had rendered a once fertile regional economy parched of liquidity, with no banks and credit markets worthy of the name and intramural trade all but non-existent. Absent aggressive neoliberal reforms in the face of galloping population growth rates, I argued, the Middle East was heading toward disaster. [See political cartoons about the economy.]
Then, in 2004, everything changed. Led by Egypt with its impressive cadre of youthful technocrats, much of the region embraced the Washington Consensus and its free market conceit. Trade barriers were whittled down, private banks proliferated, and currencies floated freely. Most significantly, regimes unburdened themselves of the industries they once controlled, a transfer of assets from public to private hands that rivaled the spirit, if not the scope, of the privatization drive that remade the economies of Asia.
One again, the financial press applauded what was, if nothing else, a politically bold reform agenda. Previous attempts at deregulation in the Arab world--cutting bread and petrol subsidies, for example--had fueled riots. And on paper at least, it was a stunning success: Pan-Arab gross domestic product grew at an average pace of about 5 percent from 2004 to 2010, well above the global average for developing economies and about twice the region’s ominously rapid rate of population growth. The value of foreign investment rose along with the volume of inter-Arab trade, once illiquid stock markets traded briskly, liberalized currencies held their value and inefficient government-run companies were sold off.
Unemployment, however, remained stubbornly high. Privatization and the inevitable shedding of redundant payrolls failed to generate enough new demand to absorb an army of young job-seekers throughout the Arab world. Couple that with the corrupt way in which prized public assets were transferred to regime cronies and the stage was set for the epic unrest that convulses the region today.
Meanwhile, the United States, the very seat of the Washington Consensus, is struggling with the wreckage of untrammeled deregulation: the subprime loan crisis, the hollowing out of blue-collar employment, staggering public and household debt, the neglect of a national infrastructure by corporations concerned more about shareholders’ welfare than the citizens they serve. Compare this with China, where GDP growth has averaged 10 percent a year for the last two decades and tens of millions of people have been delivered from poverty due to economic policies that have more in common with the illiberal Asia of the 1970s and 1980s than they do with Clinton-era neoliberalism.
Where does this leave an increasingly unstable Middle East? Should its next generation of leaders, be they liberal or authoritarian, secular or theocratic, ditch the reforms of the last half-decade? Should they revive currency controls and import duties, shut down fledgling credit markets and re-nationalize the banks? Such a retreat would strand the Arab economy on the wrong side of history alongside the dictators that did so much to plunder them. [Check out editorial cartoons about the Middle East uprisings.]
However prominent a factor unemployment and corruption have played in the pan-Arab rebellion, a return to Nasser-era statism would only smother the acute entrepreneurial expression of the Arab people. And here perhaps, is where the experience of China--Arabia’s ancient partner on the other end of the Old Silk Road--can be most instructive. Within the next decade or so, China’s currency will trade freely against the dollar and its household savings rate, currently estimated at about 40 percent, will have dwindled to the 6 to 8 percent common among developed economies. Its economy will be driven more by domestic industries like financial services and entertainment rather than manufacturing, and its enormous fiscal surpluses will have been drawn down to accommodate rising demand for imported consumer goods and the needs of domestic infrastructure.
Even today, Beijing has far less control over Chinese commerce, industry and finance than it did a generation ago and it will no doubt relinquish even more as the economy and its consumers mature. It may well turn out that the biggest problem with the Washington Consensus is the presumption that it is uniquely American, when in fact the instinct to level barriers is distinctly human.