Transcript Market Revolution

The Washington Consensus and its
aftermath
The power of markets: Adam Smith
and the Wealth of Nations
• “The invisible Hand” distributes goods and
resources where they are most productive
and demanded
The market revolution:
background
• 1930s-1960s: heroic period of state
intervention
• John Maynard Keynes and counter-cyclical
state action
• state ownership--”national champions”,
regulation
1970s--the party ending, views
changing
• over-extended states, slow growth
• inefficiencies apparent in Communist
world, and state enterprises everywhere
• Hayek and Milton Freidman win Nobel
prizes, becomes mainstream
1980s--the revolution arrives:
“British American Capitalism”
• Thatcher privatizes national industries-airlines, telecom, utilities, transport, etc.
• Reagan follows--tax cuts, deregulation
• airlines (‘78), banks, telecom, etc.
Chilean “miracle”
• 1973 After Allende coup, Pinochet imposes
free market model
• Workers thrown out of work
• Then Chilean economy booms, still . . .
• 1990 Pinochet steps down
“Socialism with Chinese
Characteristics”
• 1978 Deng Xiaoping reverses course
• “glorious to be rich”--colored cats
• household responsibility system
• 1980 “Special Economic Zones” created,
then expanded
India: no more “Hindu rate of
growth” and “permit Raj”
• post-independence models: socialist England and
USSR
• state-ownership and discouraging foreign investment
• Massive regulation
• Production for protected domestic market alone
• 1991 PM Rao, and successors implement reforms
• investment, growth, trade increase
Russia—failed reform?
• 1985 Gorbachev’s perestroika
• then the sales of national assets—”crony
capitalism”
The world follows the neoliberal
“Washington Consensus”
• trend around the world to:
•
•
•
•
privatize govt owned industries
cut protective tariffs or subsidies
deregulate
lower taxes/benefits
• Some places less than others--
Continental Europe still defending the “welfare state”
• tax-financed health care, education, retirement, transport,
childcare, and more
Tax rates as % of GDP
• Sweden: 53.2%
• U.S: 29.8%
Latin America today: rejecting the
“Washington consensus”
• Venezuela—Hugo Chavez expanding the
role of the state
• Bolivia—Evo Morales—nationalizes oil
and gas
• Most of LA follows, more or less
good and bad of markets
• benefits of markets:
• distributing products and resources efficiently--the invisible hand
• rewarding ingenuity and effort
• problems with markets:
•
•
•
•
can ignore claims of justice, need, and other ideals
can boom and bust
do not provide “public goods”
often require governing rules to function
working out a balance?
• should we have publicly financed higher
education, health care, social security?