35 years of the “Washington Consensus”: the context of today’s environment as a need for a new “consensual” paradigm

By Selami XHEPA, Mimoza AGOLLI

Abstract
The paper aims to critically examine the basic principles underlying the reforms that guided the economic transition to a market economy in the early 1990s. Conceived as a recipe for economic policy reforms that are often labeled as liberal or ultra-liberal, their focus was in fact on establishing economic discipline over public finances and controlling inflation. Imported from the reform agenda required of Latin American countries at the end of the “lost decade” of the 1980s, the “Washington Consensus” menu was enriched for the former communist countries with additional recipes related to the realization of one of the most profound structural transformations that had ever occurred in the modern history of the economy. As such, the reforms that became known as the “Washington Consensus” responded to a specific historical context and aimed to realize both these structural changes in ownership, but also to establish macroeconomic stabilization, controlling public debt and inflation, in particular. These in fact remain serious challenges even in today’s global macroeconomic context, except that this time these imbalances have affected the developed economies themselves, known as the “global north”, imbalances which stand at threatening levels. The result of these reforms was unprecedented economic growth on a global scale driven by the deepening of the globalization process and the construction of a global value chain by minimizing production costs, a massive reduction in poverty and consequently an increase in social well-being, as measured by many indicators. But one of their unintended results is the strong social changes dominated by a decline in the middle class of society and the growth of two extreme poles: the rich and the poor. Social polarization is an evident reality in most societies. This process has also affected Albanian society where income inequality has been deepening. The developments of the 21st century have clearly created a new and more complex context, adding new elements to the political, economic and social ecosystem. The growth of populism and political polarization is causing the liberal world order to suffer serious cracks. Climate change, pandemics, the fragmentation of world markets and the threat of access to economic resources, especially rare minerals, strategic rivalry for technological superiority, etc., require a new institutional framework to address them. In the socio-economic plan, technological and demographic changes are radically transforming the operation of markets, in particular labor markets. Society seems to be atomizing, and, in the absence of social protection structures, social cohesion is at risk. It is very evident that a third pillar, society, needs to be added to the discussion of whether the solution should be found in the state or the market, a debate that stems from the agenda of the “Washington Consensus”. The fundamental question we pose in this paper is: how did the principles of the “Washington Consensus” function and to what extent did they achieve their original goals? What is the current economic and social context and what could be some new principles that could be embodied in a new consensual development doctrine? The main reference will be the relationship with the Albanian economy and society, but also placed in a broader framework of global developments.

Keywords: Economic transition; Market economy;Economic reform; Washington Consensus;Social ecosystem

https://doi.org/10.58944/tooz4787