The Washington Consensus

To a certain extent, the current dilemma or situation mirrors the dilemma or situation faced by American policymakers in the early 1970’s, in the sense that in the 1970’s, American policymakers believed they were headed towards a multipolar world, which meant that the United States “could no longer serve – in effect – as the world’s banker” to borrow from Noam Chomsky. This meant that there was and is “a lot more pressure on corporate profits in the US” and as a result, the “crumbs that were permitted to ordinary people had to be taken away” and “everything had to go to the rich.” 

This translates into the deregulation or ‘un-regulation’ of capital, which means that corporations and the financial sector which underpins them “export jobs to high-repression, low-wage areas – which undercuts the opportunities for productive labor at home” in order to increase corporate profits. All of this, in turn, leads to a “two-tiered society” and a “trickle down” society in the United States. Democratic accountability ends up eroding, and government agencies “provide welfare” to the rich and “subsidize” them. Given that capital was used to bolster narrow interests rather than general productivity and prosperity, the whole of society is running into a myriad of problems which are evident to everyone by now. 

Also, taxation is no longer the most effective and potent source of financing the government because of egregious debt. Central banks are now the key source of financing for many governments, and this means governments are beholden to the self-centered economic planning and self-centered economic model of the financial sector. In turn, these banks demanded changes in public spending, lower taxes on the rich, interest rates that are determined by the banks, de-regulation of currency flows, trade liberalization, privatization of public assets and public capital, de-regulation of market entry, de-regulation of environmental protections, de-regulation of oversight over financial institutions, de-regulation of consumer protections, government subsidies to the rich, and greater security for private wealth. These demands, taken together, form the basic dimensions or elements of what is known as the “Washington Consensus” of the post-World War II era. 

In turn, the “Washington Consensus” has two primary aims or goals, namely, the maximization of the profit and the income of those who wield private wealth. This means private wealth can set interests rates as high as it wants, and it means cutting the wages of laborers and workers in order to achieve these primary aims or goals. In a sense, the whole system and the whole scheme revolves around one basic concept, namely, the control or the removal of control over private wealth. And as Thomas Piketty has demonstrated, the capital-to-income ratio which has emerged as a result of such a system or scheme has translated into the increase of private wealth and the decrease of the income and wages of everyone else over the long run. 

According to the statistics, the share of the world’s wealth belonging to the top 1 percent rose from 30 percent in the year 1989 to about 50 percent of the world’s wealth today. And this divergence will continue unless governments address it. Privatization of public assets and the rise of government debt also means that governments in the West have gotten poorer, while private wealth has seen its income and profit skyrocket since the advent and imposition of the “Washington Consensus” both at home and abroad. And as mentioned before, such a phenomenon whereby private wealth is growing while governments are in decline and are getting poorer have political and social consequences that are adverse and dangerous, unless resources and wealth are distributed and used in both an effective and efficient manner in the rocky and turbulent future that lies ahead.

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