LORD HOWE held most of the great offices of state in Britain, presiding over many of the most controversial departures which took place under Margaret Thatcher. Yet he confided to a senior official once that he had only ever had one sleepless night over policy. It came in 1979, when the Government abandoned exchange controls. What would happen, he worried, if it caused a collapse of confidence in the markets? What would happen if Britons and foreign investors alike took it as the opportunity to shift their cash en masse abroad? Denis Healey called it a "reckless, precipitate and doctrinaire step" to dismantle controls that had been erected largely in the 1930s as the world economy teetered.
It was in many respects one of the boldest adventures in British economic policy, and helped set the pattern of events for the world over the years that followed. Under Thatcher and Ronald Reagan, Britain and America were wedded in the pursuit of free markets, liberalised capital flows and a global economy.
Their successors have not only never questioned those orthodoxies: they have taken them to every corner of the globe, encouraging countries which had only just peeked out from behind the Iron Curtain, or were emerging slowly into the capitalist world from under-development. They became, after the Latin American debt crisis of the 1980s, the only policy prescription on offer, the remedy that was stamped with the approval of the US government, the International Monetary Fund and the World Bank as the "Washington Consensus".
Yet now, the wind is blowing in the other direction after the implosion of the Asian tigers and the collapse of Russian reform efforts. After two decades when the Anglo-Saxon economic policy prescription has been in the ascendant, with nothing to touch it, attitudes have changed, with Malaysia re-imposing currency controls, and Hong Kong intervening in the stock market and acting to prevent currency speculation. A senior Hong Kong official in Washington to discuss the move, Andrew Sheng, was characteristically understated. "There is now a healthy debate," he said, "about whether the Washington Consensus will really work."
That debate has put economists, international organisations and governments at each others' throats, and on its outcome hangs the fate of many nations and the international economic order itself.
The key proponents of the Washington Consensus are Larry Summers - the brilliant young economist who serves as deputy secretary of the US Treasury - and Stanley Fischer, a Rhodesian-born economist who left MIT at the same time that Mr Summers left Harvard to become number two at the International Monetary Fund. They have spearheaded the Washington Consensus in good times and bad, and in particular have led the efforts to tackle the complicated crises that have struck half the world in the last year.
When crises hit, the recipe from the West was broadly the same everywhere: cash from the IMF but on condition of tougher monetary policy, spending cuts, more open markets and an end to crony capitalism. It was nasty medicine, and often politically painful.
It also drew fire from the economic establishment in America. Jeffrey Sachs was, with Mr Summers, the youngest ever to receive tenure from Harvard: they got their posts on the same day in 1983 and studied together as graduates. But Mr Sachs, back at Harvard after giving economic advice to countries around the world, thinks Mr Summers and Mr Fischer botched the recovery of Asia. The packages were too tight, too uniform, too penalising.
What Asia needed was time and more money, he has argued. And on one occasion in Cambridge this March, he argued it with Mr Fischer present, at a seminar chaired by Paul Krugman, another in the Sachs- Summers generation of economists. Mr Fischer lost his temper, according to reports. That may partly be because he feels that a group of his younger colleagues are ganging up on him: both Mr Krugman and Jagdash Bhagwati, another talented young trade economist, have suggested that capital controls have a role to play in the management of short-term capital crises. …