The Third World has entered an era of ideological flux. The inadequacies of neo-liberalism have spawned a widespread questioning of this dominant worldview. Intellectuals and political movements search for an alternative path that offers the hope of a more desirable, yet practicable, future. In response, the World Bank has spearheaded a shift from an unpopular and inefficacious Washington consensus to a more politically and socially astute 'post-Washington consensus' akin to social liberalism. This shift, though blunting the attack on neo-liberalism, has moved the debate on legitimate development strategies to the left and towards more statist policies. Proponents of 'socialism for the twenty-first century', a return to developmental states, and social-democratic paths vie for support with the now mainstream social liberalism. Social-democratic paths seem to suffer from fewer normative and practical disabilities than other egalitarian paths--at least in relation to middle-income developing countries. A major challenge, however, lies in forging a realistic 'left' alternative in the context of poor, neo-patrimonial states, such as those found in sub-Saharan Africa.
Protests against the Washington consensus
Neo-liberalism is an ideology that revives classical economic and political liberalism in a form deemed appropriate to contemporary conditions. As an ideology, neo-liberalism does what all ideologies do: it popularizes or simplifies complex theoretical or philosophical thought in order to motivate and guide political action. Ideologies constantly evolve, as their advocates appropriate popular ideas fielded by opponents and adapt to changed circumstances. In the developing world since about 1980, the World Bank has been the most influential actor in adapting neo-liberalism to developmental challenges. (1) An initial 'Washington consensus' has evolved into an expansive 'post-Washington consensus'. The former, which held sway in the 1980s and early 1990s, focused narrowly on achieving the goal of economic growth by means of macroeconomic stabilization, economic liberalization, external opening, deregulation, privatization, and minor institutional reform. This narrow neo-liberal approach achieved little success.
Despite their adoption of market-friendly reforms, many developing countries have stagnated or have experienced abrupt economic downturns. Whereas the median per capita income growth in developing countries in the era of state interventionism (1960-79) reached 2.5 percent, it was a disastrous 0.0 per cent in 1980-99 (Easterly, 2001, 135).
Branko Milanovic (2003) similarly accepts that the development record of 1960-1978 is superior on all measures to that of 1978-1998, noting that the best performers in the second period--notably China and India--did not follow mainstream free-market policies but relied heavily on state intervention. As Milanovic concludes, 'something is clearly wrong'.
Critics have also identified several destructive trends associated with neo-liberal reform:
* High and growing inequalities have accompanied market liberalization (Wade, 2004; Cornia, Addison and Kushi, 2004). World income inequality has likely been rising, a trend that is incontrovertible if China is removed from the calculation. Within countries, neo-liberal policies have also been associated with growing inequality and poverty in most cases.
* Market reform diluted democracy, directly by removing important decisions from the public arena and indirectly by fomenting cynicism. International agreements circumscribed governmental power to regulate trade, financial flows, investment, and health and environmental standards. Global financial markets, when liberalized, punished governments that deviated from conservative policies. And inequality, sustained or exacerbated by market forces, fed a growing cynicism regarding the efficacy of democratic institutions.
* Market liberalization generated conditions that were conducive to instability and conflict. …