Some 40 years since its conception, the shortcomings of Washington consensus politics are glaringly clear for all to see. The aftershock of global financial crisis (GFC) lifted the curtain on deregulated and unbridled free market economics, revealing an inability to prevent high and persistent levels of unemployment compounded with continuing low wages and economic inequality. The major casualty of the Washington consensus have been families, communities and societies.
Washington consensus was conceived by committed US elite market economists endorsing the view that the US Treasury and the Bretton Woods twin sisters, the International Monitory Fund (IMF) and the World Bank, are the vehicles for world economic growth through an unimpeded global flow of goods and services. This post-World War II model of development was conceived to stimulate an economic model supporting the largely deregulated liberal US economy.
The fundamentals of Washington consensus were free trade, minimum government intervention in economic activities and the privatisation of government agencies and activities. However, not all worked out to plan as the global financial crisis (GFC) was the result of the Washington consensus model going wrong. Government left the role of governing to traders through the deregulation of the financial markets which allowed the derivatives market to balloon. The truism that financial market regulation is the role of government, not that of traders, was lost in the rhetoric of unbridled growth.
The rise of China represents a fundamental departure from the Washington consensus model. China has no intention of embracing Western values and institutions such as representative democracy or deregulated market capitalism, all of which are open to speculative manipulation. Since 1979 when it opened its market to the US, China has steadily grown to become an economic and political global powerhouse. China has evolved from its communist roots into a modern day socialised capital economy rooted on a platform of a mandarin ruling class namely the modernised “communist” party drawing on Confucian values.
China’s renaissance has made it a dominant power on the world scene, challenging the US’s dominant global power held for more than half a century. Such challenge is perceived by the US and its allies as a serious concern. The political, social and economic new reality is that China influences and shapes the agenda of Asia, particularly symbolised by its growing influence over the South China Sea.
In effect, Chinese economic, commercial and political reach has far exceeded all western expectations. China now has its own World Bank. It accounts for more than 40 per cent of global transactional commerce and is fully integrated into the global economy. It also controls 42 percent of global e-commerce and processes 11 times more mobile payments than the US, which in turn will have consequences on the structure of future banking. In effect, payment will be between the consumer and the retailer with no intermediary role for banks. As the second largest economy of the world, China's unicorn start-up enterprises are each valued at over $1 billion and account for 53% of the global total. China is amongst the top three economies in the world for venture-capital investment in the key areas of digital technology, including virtual reality, autonomous vehicles, 3D printing, robotics, drones, and artificial intelligence (AI). The Chinese form of socialised capitalism is well aligned with the digital future all will face.
In contrast the Washington consensus model continues to promote shareholder focused capitalism which Western businesses prefer, but is a philosophy which belongs to a different era and is not aligned to 21st century needs.