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Express Tribune
04-08-2025
- Business
- Express Tribune
IMF's Washington Consensus versus Beijing Consensus
Listen to article "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back," said John Maynard Keynes, the founder of Keynesian thought in economics, in the final chapter of his pathbreaking book — The General Theory of Employment, Interest and Money in 1936. Today, Keynes's words may well apply to the economic policies that govern Pakistan. In our case, the defunct economist was a certain John Williamson, who returned to his Lord some four years ago. Dr Williamson, who held a PhD in Economics from Princeton and taught there and at other prestigious universities such as MIT, served as the chief economist for South Asia at the World Bank from 1996 to 1999. He is best known for coining the term "Washington Consensus" — this was a set of 10 economic policy prescriptions, emphasising fiscal discipline, trade liberalisation, and privatisation. In its original form, Williamson had intended the Washington Consensus to be a rough set of guidelines, to be applied with common sense and flexibility in accordance with the specific needs of the country. Unfortunately, Williamson's carefully laid out treatise fell into the hands of the minions of the World Bank and the International Monetary Fund (IMF). These are institutions known for hiring some of the smartest people and then doing their utmost to squeeze all creativity and independence of thought from their new recruits, rendering them automatons committed to the unquestioning enforcement of what they preach. And so it was that Williamson's loose set of guidelines became gospel, immune to doubt, flexibility, or change — to be applied ruthlessly to "saving" sinking developing economies around the world. It is this prescription — the Washington Consensus – that the IMF has foisted on Pakistan. The ten principles of the consensus are: fiscal discipline, cutting subsidies, tax reform, market-based interest rates, competitive exchange rates to encourage exports, trade liberalisation such as reducing duties on imports, encouraging foreign direct investment, privatisation, deregulation, and finally, respect for property rights. All these principles, for some time now, have been pushed down the throat of Pakistan's government. The question is: has the Washington Consensus worked for Pakistan? A simple comparison with China, which followed sufficiently distinct policies to merit the name "Beijing Consensus," may provide an answer. The numbers tell the story. In 1962, China's GDP per capita was $70, while Pakistan's was $90. By 1973, there was a brief reversal: China had $155 and Pakistan still $90. By 1980, China's figure was $308 and Pakistan's $479. This gap continued until 1993, when China decisively began pulling ahead. Today, China's GDP per capita is more than eight times that of Pakistan. To understand why, let's contrast the Washington Consensus as applied to Pakistan with the Beijing Consensus followed by China. Pakistan adopted many Washington Consensus-style reforms, especially under IMF programmes and structural adjustment policies. Here's how they played out: 1) Fiscal discipline: Pakistan struggled with high fiscal deficits. Reforms aimed to reduce government borrowing, but persistent debt and inefficient spending remained challenges. 2) Tax reform: Efforts to broaden the tax base were made, but Pakistan's large informal economy and tax evasion limited success. 3) Privatisation & deregulation: State-owned enterprises were privatised, but outcomes were mixed, some sectors saw efficiency gains, others faced backlash due to job losses and poor regulation. 4) Trade liberalisation: Tariffs were reduced and markets opened, but domestic industries often couldn't compete, leading to trade imbalances. 5) Foreign direct investment (FDI): Policies encouraged FDI, but political instability and weak infrastructure deterred sustained inflows. Despite these reforms, Pakistan's average growth rate hovered around 3% - far below the 7% needed to reduce debt and create jobs. Now, contrast this with the Beijing Consensus: China's model emphasises state-led development, gradual reform, and pragmatic experimentation. Key features include: 1) Strong government role: The state controls key sectors like energy and finance, guiding long-term planning. 2) Incremental reform: Instead of shock therapy, China implemented changes step-by-step, allowing adaptation and stability. 3) Focus on welfare: Development isn't just about GDP – it includes poverty reduction, infrastructure, and quality of life. 4) Export-led growth: China used manufacturing and trade to drive growth, supported by strategic investments and incentives. 5) Merit-based bureaucracy: Officials are rewarded for economic performance, creating incentives for innovation and efficiency. The Beijing Consensus has turbocharged China's growth, transforming it from a neglected backwater into a global economic powerhouse. Since 2000, about 400 million people have been lifted out of extreme poverty in China. The poverty rate has declined from about 40% in 2000 to about 10% today. Contrast this with Pakistan: under the Washington Consensus, poverty has increased from about 35% in 2000 to 45% in 2025. So, what is the lesson here? Any set of policy prescriptions for economic development must not be based on blind dogma, as is the case with the IMF's implementation of the Washington Consensus. Policies must be tailored to the specific circumstances and needs of the country to which they are applied. In this sense, the IMF has rendered a great disservice to Pakistan by compelling us to adopt policies that do more harm than good. THE WRITER IS CHAIRMAN OF MUSTAQBIL PAKISTAN AND HOLDS AN MBA FROM HARVARD BUSINESS SCHOOL
Time of India
30-07-2025
- Business
- Time of India
IMF could do with a bigger crisis than it forecasts
The world economy has not fallen apart in 2025, which may be either a relief or a worry, depending on how you look at it. After a chaotic first half of U.S. policy upheaval and trade shocks that unleashed a wild but brief rollercoaster on financial markets, the International Monetary Fund 's assessment is that global growth and inflation remain pretty much on even keel. Explore courses from Top Institutes in Please select course: Select a Course Category MBA Data Science Product Management Others Project Management Management Technology others Digital Marketing Leadership Artificial Intelligence Data Science CXO Data Analytics healthcare Healthcare Finance Design Thinking Cybersecurity PGDM Public Policy Degree Operations Management MCA Skills you'll gain: Analytical Skills Financial Literacy Leadership and Management Skills Strategic Thinking Duration: 24 Months Vellore Institute of Technology VIT Online MBA Starts on Aug 14, 2024 Get Details IMF economists make the case that economic activity around the world is still relatively subdued compared with historical averages and inflation slightly elevated. But these quibbles are essentially within margins of error in its midyear global forecasts. Revising up a prior outlook that was made in the white heat of April's U.S. tariff turmoil, the IMF on Tuesday reckoned the world will sail on with a 3.0% expansion this year and 3.1% next - the latter two tenths slower than 2024 but exactly the average growth rate of the past 10 years. Live Events Virtually every major economy's expected growth was nudged up, with the only exception being a marginal shaving of the forecast for Japan's 2026 expansion. To put it mildly, this is not the singular economic shock some feared in April as trade war drums sounded loudly. And even the IMF's outlook back then was well shy of the deep recession many were fretting about. To be fair to the IMF, it's been chasing a moving target on tariffs just like everyone else. Despite greater clarity on Washington's endgame over the past week, the issue would have been still in the air as the Fund was formulating these forecasts. But it's hard to escape the fact that as the largest economy in the world embarks on a unilateral protectionist push that upends decades of multilateral agreements and conventions, there's little obvious or immediate economic fallout. That must feel uncomfortable for a doyen of multilateralism such as the IMF - not least given its decades-long espousal of the so-called 'Washington Consensus', the orthodox economic policies that put free and open trade at the apex of its prescriptions. STILL HURTING Explaining the Fund's relatively benign forecast update, IMF chief economist Pierre-Olivier Gourinchas noted that a sharp drop in the dollar flattered the overall global picture, both statistically and by loosening financial conditions broadly. Gourinchas also cited multiple "crosscurrents" blurring the outlook - such as the frontloading of imports to beat the tariffs, offsetting fiscal stimuli in Europe, tax cuts in the United States and softer energy prices worldwide. And he added that even though a bullet had been dodged, an effective U.S. tariff rate of 17% would still reverberate around the globe. "It's going to continue hurting with tariffs at that level, even though it's not as bad as it could have been," he said, referring to the 24% rate assumed back in April. Different IMF scenarios highlighted what could yet go wrong. But as the full recovery in financial markets since April already nods to, President Donald Trump 's tariff war and use of trade levies as a revenue-raising tool to reduce income taxes has fallen into place with relatively minor macro costs so far. The risk for the IMF is that after years of holding free trade up as central to economic progress and stability, the lack of a clear impact from such a breach of orthodoxy undermines that very case both in America and abroad. What's more, other aspects of the Washington Consensus - such as independent central banking or even capital controls - may now be seen as less canonical than previously assumed too as a result. Trump, of course, is already pushing the central bank taboo. And yet again the IMF felt the need to push back. "This is really a core plank for macroeconomic stability overall," Gourinchas said of central bank independence on Tuesday. "That's one of the hard-learned lessons of the last 40 years." Not unlike difficulties pro-European politicians in Britain had identifying the precise damage caused by the Brexit referendum in its immediate aftermath, there's a chance the real cost of unraveling global policy orthodoxies similarly take years to realize. A slow burn rather than an instant crash. For the IMF and supporters of an open rules-based multilateral order, a bigger crisis than the one that's unfolding or that they are forecasting may have been more useful longer term. The opinions expressed here are those of the author, a columnist for Reuters Economic Times WhatsApp channel )
Reuters
30-07-2025
- Business
- Reuters
IMF could do with a bigger crisis than it forecasts
LONDON, July 30 (Reuters) - The world economy has not fallen apart in 2025, which may be either a relief or a worry, depending on how you look at it. After a chaotic first half of U.S. policy upheaval and trade shocks that unleashed a wild but brief rollercoaster on financial markets, the International Monetary Fund's assessment is that global growth and inflation remain pretty much on even keel. IMF economists, opens new tab make the case that economic activity around the world is still relatively subdued compared with historical averages and inflation slightly elevated. But these quibbles are essentially within margins of error in its midyear global forecasts. Revising up a prior outlook that was made in the white heat of April's U.S. tariff turmoil, the IMF on Tuesday reckoned the world will sail on with a 3.0% expansion this year and 3.1% next - the latter two tenths slower than 2024 but exactly the average growth rate of the past 10 years. Virtually every major economy's expected growth was nudged up, with the only exception being a marginal shaving of the forecast for Japan's 2026 expansion. To put it mildly, this is not the singular economic shock some feared in April as trade war drums sounded loudly. And even the IMF's outlook back then was well shy of the deep recession many were fretting about. To be fair to the IMF, it's been chasing a moving target on tariffs just like everyone else. Despite greater clarity on Washington's endgame over the past week, the issue would have been still in the air as the Fund was formulating these forecasts. But it's hard to escape the fact that as the largest economy in the world embarks on a unilateral protectionist push that upends decades of multilateral agreements and conventions, there's little obvious or immediate economic fallout. That must feel uncomfortable for a doyen of multilateralism such as the IMF - not least given its decades-long espousal of the so-called 'Washington Consensus', the orthodox economic policies that put free and open trade at the apex of its prescriptions. Explaining the Fund's relatively benign forecast update, IMF chief economist Pierre-Olivier Gourinchas noted that a sharp drop in the dollar flattered the overall global picture, both statistically and by loosening financial conditions broadly. Gourinchas also cited multiple "crosscurrents" blurring the outlook - such as the frontloading of imports to beat the tariffs, offsetting fiscal stimuli in Europe, tax cuts in the United States and softer energy prices worldwide. And he added that even though a bullet had been dodged, an effective U.S. tariff rate of 17% would still reverberate around the globe. "It's going to continue hurting with tariffs at that level, even though it's not as bad as it could have been," he said, referring to the 24% rate assumed back in April. Different IMF scenarios highlighted what could yet go wrong. But as the full recovery in financial markets since April already nods to, President Donald Trump's tariff war and use of trade levies as a revenue-raising tool to reduce income taxes has fallen into place with relatively minor macro costs so far. The risk for the IMF is that after years of holding free trade up as central to economic progress and stability, the lack of a clear impact from such a breach of orthodoxy undermines that very case both in America and abroad. What's more, other aspects of the Washington Consensus - such as independent central banking or even capital controls - may now be seen as less canonical than previously assumed too as a result. Trump, of course, is already pushing the central bank taboo. And yet again the IMF felt the need to push back. "This is really a core plank for macroeconomic stability overall," Gourinchas said of central bank independence on Tuesday. "That's one of the hard-learned lessons of the last 40 years." Not unlike difficulties pro-European politicians in Britain had identifying the precise damage caused by the Brexit referendum in its immediate aftermath, there's a chance the real cost of unraveling global policy orthodoxies similarly take years to realize. A slow burn rather than an instant crash. For the IMF and supporters of an open rules-based multilateral order, a bigger crisis than the one that's unfolding or that they are forecasting may have been more useful longer term. The opinions expressed here are those of the author, a columnist for Reuters -- Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn. Plus, sign up for my weekday newsletter, Morning Bid U.S.
Forbes
23-07-2025
- Business
- Forbes
What Is The San Francisco Consensus, Silicon Valley's AI Prophecy?
Eric Schmidt, billionaire and co-founder of Schmidt Futures, at the Raise summit in Paris, France, ... More on Tuesday, July 8, 2025. The annual conference gathers global leaders and key speakers in tech and AI. Photographer: Nathan Laine/Bloomberg © 2025 Bloomberg Finance LP Just as the Washington Consensus dictated economic orthodoxy for developing nations throughout the 1990s, a new doctrinal framework is crystallizing among the power brokers of Silicon Valley. They have coalesced around a staggering prediction: Artificial intelligence will fundamentally transform all aspects of human activity within a mere three to six years. This prophecy—dubbed the "San Francisco Consensus" by former Google CEO Eric Schmidt—transcends typical Silicon Valley hyperbole. It represents Silicon Valley's equivalent of Washington's economic rulebook, a shared conviction driving trillion-dollar investments and strategic priorities among those actively constructing our AI future. Unlike the Washington consensus, which mandated fiscal austerity and economic restraint, Silicon Valley's calls for unprecedented investment and acceleration. Tech leaders are not advocating belt-tightening. They are pouring billions into AI infrastructure at a breathtaking pace, with the conviction that they are financing humanity's next evolutionary leap. "I call it a consensus because it's true that we agree... but it's not necessarily true that the consensus is true," Schmidt said at the RAISE summit in Paris earlier this month. This paradox captures both the fervor of belief and the inherent uncertainty in technological prophecy. What makes this consensus consequential is not the belief itself, but who believes it. They are the architects constructing our digital future. When the people controlling trillions in capital and computing resources share a conviction, reality has a curious way of conforming to their expectations. Schmidt frames the San Francisco Consensus as three simultaneous technological revolutions amplifying each other: The Language Revolution Large language models like ChatGPT have inverted the traditional human-computer relationship. Instead of humans learning machine languages, machines now understand ours. Language has become the universal interface for human-AI interaction. This goes beyond AI mimicking human prose, although watching it compose Shakespearean sonnets about cryptocurrency is entertaining. It represents a fundamental shift in accessibility, democratizing technological power in ways previously unimaginable. The priesthood of programmers is giving way to a world where anyone who can articulate their needs can harness computational power. The Agentic Revolution If the Language Revolution concerns AI understanding us, the Agentic Revolution involves acting independently in our world. We are witnessing the transition from AI as glorified calculators to autonomous actors. They were tools. Now they are agents. Schmidt envisions a near future where entire business workflows—from purchasing real estate to resolving contractual disputes—are managed by interconnected AI systems. Imagine digital agents negotiating, collaborating, and executing complex tasks with the efficiency of a bureaucracy but without the delays or regulations. This shift from passive tools to active agents represents a profound reconceptualization of how computational systems integrate into human affairs. The question is no longer what computers can calculate, but what they can achieve. The Reasoning Revolution The centerpiece of this technological triptych is AI's metamorphosis from pattern-matcher to genuine reasoner. New models by Google as well as OpenAI outperform graduate students in mathematics. This development might alarm academic departments but delight undergraduates struggling with differential equations. This represents the leap from machines that can mimic human outputs to systems that genuinely cogitate—plotting, analyzing, and problem-solving with remarkable acuity. We are witnessing the transition from impressive mimicry to unsettlingly human-like thought. The consensus timeline is breathtakingly compressed: Within months: Programming jobs and skilled roles begin vanishing faster than Taylor Swift concert tickets, transforming labor markets overnight. Within 3-6 years: Widespread artificial general intelligence (AGI) emerges, with machines rivaling our brightest minds across intellectual domains. In a decade: Artificial superintelligence (ASI) arrives. AI systems make discoveries beyond human comprehension. Picture explaining quantum mechanics to your golden retriever. Now imagine you are the retriever! Reality Reckons However, not everyone is drinking the algorithmic Kool-Aid. Why? Silicon Valley's prophecy graveyard is crowded. Flying cars, ubiquitous VR, Web3. The list goes on. Detractors say the San Fran Consensus could be another case of technological exuberance outrunning reality. They have a point here. After all, the epistemic bubble is real. When surrounded by true believers in Palo Alto, reality distortion fields form. This consensus may reflect groupthink among tech elites accustomed to deference. So are the hurdles. Reliability issues make current AI resemble temperamental toddlers at times. Replit's CEO, Amjad Masad, publicly apologized after its autonomous agent erased a production database. ChatGPT is said to have caused multiple hospitalizations for Jacob Irwin, a 30-year-old on the autism spectrum, because it fueled his time-travel fantasy. Are these bugs to fix? Maybe. But these instances represent fundamental challenges to trustworthy AI that the Consensus promises. The Consequential Consensus Whether prophetic or destined for technology's unfulfilled promises museum, the San Francisco Consensus is already redirecting capital flows and strategic priorities. Look at the infrastructure gold rush. Specialized chips and data centers are proliferating at breakneck speed. The self-fulfilling power of the collective belief of Silicon Valley elites is at full display here. Perhaps we will read about the San Francisco Consensus in textbooks someday.
Mint
07-07-2025
- Business
- Mint
Arun Maira: Dedication to the state's purpose is the key lesson we must learn from China
India is at a crossroads. Both the political Left and Right agree that the economy needs substantial reform, but disagree on the direction. The progressive Left wants more socialism with more liberal democracy; the conservative Right wants more free-market capitalism and seems willing to tolerate curbs on liberty. The Middle seems muddled. The 20th century was a test of competing economic ideologies—socialism versus capitalism; and competing forms of governance—liberal democracy versus authoritarianism. When the Soviet Union collapsed in 1991, victory was declared for the Washington Consensus of free market capitalism and liberal democracy. India's reformers adopted the Washington formula in 1991. By and large, they gave up on socialism, abandoned industrial policies aimed at growing domestic industries and opened the Indian market for foreign companies without technology-transfer requirements. China did not yield. It stayed its socialist course with single-party governance and continued to build domestic industries. Also Read: Ajit Ranade: The success of 'Made in China 2025' alarmed the West The growth of China's economy is a miracle, economists say. In the 1980s, China and India's economies were comparable in size and per capita income. Now, China's per capita income and GDP are about five times India's. China's high-tech manufacturing sector has grown 48 times larger. The US, meanwhile, has grown alarmed with China's remarkable economic growth and industrial strength despite Beijing not following Washington's economic formula. That consensus has ended even in Washington, where ideological cracks have appeared with increasing inequality and unrest among workers in the US. The US is pressing India to come closer to it. India is wary. China shares a border with India that has seen the two armies skirmish. India must become self-reliant and stronger much faster than it has so far. Reforms must result in faster income growth among the Indian masses and stronger domestic industries. India's leaders should study China for lessons before pushing harder with economic reforms based on the West's failing model. Also Read: China began de-risking its economy well before Trump's trade fury US capitalism and Chinese socialism: Three recent books offer insights into how socialism and capitalism have been combined to achieve China's inclusive and fast growth. China's leaders are good learners, says German political economist Isabella M. Weber in How China Escaped Shock Therapy: The Market Reform Debate. Like Mahatma Gandhi, they kept their minds open, allowing ideas to come in from all directions without being blown off their feet. They listened to Western economists but applied only what suited China. Weber says, 'The famous Harvard development economist Dani Rodrik represents the economics profession more broadly when he answers his own question of whether 'anyone (can) name the (Western) economists or the piece of research that played an instrumental role in China's reforms" by claiming that 'economic research, at least as conventionally understood" did not play 'a significant role." Chinese economist Keyu Jin, a professor at the London School of Economics who grew up in China and experienced the Chinese system from within, explains how the Chinese socio-economic-political system works in The New China Playbook: Beyond Socialism and Capitalism. She explains why Western economic models, which strip out cultural and social forces from economics, cannot comprehend how China works—or even how Western economies work. She makes visible the 'invisible hand' that free-market economists cannot explain. She explains why the Chinese government keeps financial markets and the private sector reined in to ensure the market produces welfare for all, especially poorer and least powerful citizens. She says, 'The number of financial crises in China is exactly zero. It is also an oddity (from a Western perspective) that despite the nation's preternatural economic growth, its stock market has been one of the worst performing in the world." Also Read: Chinese history shows how a closed economy could squander a nation's greatness The Chinese government has added citizen satisfaction and environmental sustainability to GDP as a measure of its own performance (and of local governments). Though private firms grew nine-fold in China from 2000 to 2019 (their number now exceeds the US's by far), 'A more striking fact," says Lin, 'is that private owners with state connections owned about a third of the capital registered by these companies, showing how pervasive equity linkages between state and private businesses have become in China's corporate sector." While the government has reduced the number of state-owned enterprises and pushed the remainder to add profits to their social objectives, it also demands that private firms comply with societal needs. Large, private, property and tech firms that strayed from the socialist path have been cut down. Three distinctive features of China's governance: The purpose of the state, throughout China's long history from imperial times to the Communist era, has been the welfare of citizens. The best emperor was seen as one who provides the most welfare to all citizens, not one who wins the most wars. The leadership of the Communist Party has continued this role, says Chinese political scientist Zheng Yongnian in The Chinese Communist Party as Organizational Emperor: Culture, Reproduction, and Transformation. Jin explains further (in The New China Playbook) how the ruling party's commitment to this role has shaped Beijing's socio-economic policies, resulting in widespread support for the party even among the young. Also Read: Rahul Jacob: Manufacturing is crying out for a reality check The governance of China is highly decentralized. Local communities are given freedom to craft solutions suited to their needs; the performance of local party officials is measured by the satisfaction of their communities with progress. Chinese leaders and economists are 'systems thinkers.' They see the economy as only a component of a complex social system. For them, the purpose of economic growth is the production of societal well-being, especially for less powerful people. Whenever the economy begins to fail this purpose, reforms are made to bring it back to its socialist moorings. India must not slavishly follow Western models. Nor can India be China. India must find its own way to create a more equitable society. The author is a former member of the erstwhile Planning Commission and the author of 'Reimagining India's Economy: The Road to a More Equitable Society'.
