More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus

Today I would I like to discuss improvements in our understanding of economic development.In particular,Iwould like to use this opportunity to discuss the emergence of what is sometimes called the “Post-Washington Consensus.” My remarks elaborate on two themes.The first is that we have come to a better understanding of what makes markets work well.TheWashington Consensus held that good economic performance required liberalized trade, macroeconomic stability, and getting prices right. Once the government handled these issues – essentially, once the government “got out of the way” – private markets would produce efficient allocations and growth. To be sure, all of these are important if markets are to work. It is very difficult for investors to make good decisions when inflation is running at 00 percent. But the policies advanced by the Washington Consensus are hardly complete – and they are sometimes misguided. Making markets work requires more than just low inflation. It requires sound financial regulation, competition police and policies to facilitate the transfer of technology, and transparency, to name some fundamental issues that the consensus neglects. At the same time that we have improved our understanding of the instruments to promote well-functioning markets, we have broadened the objectives of development to include other goals like sustainable development, egalitarian development, and democratic development. An important part of development today is seeking complementary strategies that advance these goals simultaneously. In our search for these policies, however, we should not ignore the inevitable tradeoffs. This is the second theme of my remarks.