Will the Beijing Consensus Follow the Washington Consensus to Oblivion?
By Henry Hing Lee Chan

Will the Beijing Consensus Follow the Washington Consensus to Oblivion?

Apr. 12, 2016  |     |  0 comments


The pace of economic growth in China after its 1979 opening up was unprecedented in the history of economic development. China’s GDP per capita rose from USD 193 in 1980 to USD 949.2 in 2000 and subsequently to USD 7,600 in 2015. China’s over 10 percent annual average nominal growth in GDP per capita over a period of 36 years has captured the imagination of a good number of developing countries. From a country at the periphery of the global economy, China has become the world’s largest trading nation and the second largest economy. All around the world, there are scholars examining China’s rise. Attempts to decipher the secret development recipe of China is a popular pastime of many observers.

In 2004, Joshua Cooper Ramo, a noted observer, published a paper titled The Beijing Consensus with the United Kingdom’s Foreign Policy Center (Ramo, 2004). Ramo was a former senior editor and foreign editor of Time magazine and later became the vice chairman of Kissinger Associates, the consulting firm of the eminent former US Secretary of State Henry Kissinger. His distinguished background in China affairs and the strong argument presented in the paper immediately drew the world’s attention and placed the Beijing Consensus as the preeminent non-academic theory of China growth story. Ramo claimed his analysis of the Beijing Consensus was based on more than one hundred off-the-record discussions around 2004 with leading thinkers in Chinese universities, think-tanks, and the government. That time was right after the Asian crisis of 1998 in which the then preeminent Washington Consensus was poked full of hole.

The Beijing Consensus is simply three theorems about how to organize the place of a developing country in the world. Just like the Washington Consensus before it, it contains many ideas that are not all about economics. They are also about politics and the global balance of power.

The first theorem repositions the value of innovation and states that the only cure for the problems of change is more change and more innovation. Experimentation and failure are okay as they provide lessons for change. Mistakes in the system, incompetence, or corruption are seen as chances for change. There is no one single plan that works for different countries in different stages of development, and the only true path to success is one that is dynamic. The first theorem enshrines Deng Xiaoping’s pragmatic idea that the best path for modernization is one of “groping for stones to cross the river,” instead of trying to make one big shock-therapy leap.

The second theorem is one of the truisms of development, which is that the results of policy actions are usually unpredictable. Chaos is often impossible to control from the top and the government may need a whole set of new tools to control the negative consequences unleashed by the first theorem. This argues in favor of some degree of state control so that bad experiments can be turned off before they cause too much damage. If innovation is at the heart of the first theorem of the Beijing Consensus, the second theorem is about trying to create an environment for development that is sustainable and equitable.

Finally, the Beijing Consensus contains a theorem of self-determination, one that stresses using leverage to move big, hegemonic powers that may be tempted to tread on your toes and hurt your financial sovereignty. This includes not only financial self-determination, but also a shift to the most effective military strategy, which Ramo suggests is more likely to be an asymmetric strategy rather than one that seeks direct confrontation. Unlike the Washington Consensus, which largely ignores questions of geo-politics, Ramo argues — particularly in the Chinese context — that geo-politics and geo-economics are fundamentally linked.

The Beijing Consensus is a broad philosophic set of prescriptions that is flexible enough to be barely classifiable as a doctrine. It does not believe in uniform solutions for every situation. It is defined by a ruthless willingness to innovate and experiment, by a lively defense of national borders and interests, and by the increasingly thoughtful accumulation of tools of asymmetric power projection. It is pragmatic and ideological at the same time, a reflection of an ancient Chinese philosophical outlook that makes little distinction between theory and practice.

To put Chinese growth model in more concrete terms, Chinese scholar Zhang Weiwei wrote in 2006 that the Chinese model is essentially:

• down-to-earth pragmatic concern with serving the people
• constant trial and error experimentation
• gradual reform rather than neo-liberal economic shock therapy
• a strong and pro-development state
• "selective cultural borrowing" of foreign ideas
• a pattern of implementing easy reforms first, difficult ones later
(Zhang, 2006)

One can easily see the Chinese model as described by Zhang Weiwei as essentially the Beijing Consensus without the geo-political dimension of theorem three. To put the Beijing Consensus in more concrete policy terms, the economist John Williamson of the Peterson Institute wrote in 2012 that Beijing Consensus consists of 5 points and he put parenthesis to indicate its contradiction with the dominant western ideas in the same area:

• incremental reform (as opposed to a big bang approach)
• innovation and experimentation
• export-led growth
• state capitalism (as opposed to socialist planning or free market capitalism)
• authoritarianism (as opposed to democracy or autocracy)
(Beijing Consensus, 2015)

One can easily see the key difference between the Beijing Consensus and predominant western ideas on the structure of government and the economic system organization and reform approach based on Williamson’s dissection of the Beijing consensus. Interestingly enough, the proponents of the Beijing Consensus and its most avid interpreter are American scholars. In fact, the Beijing Consensus was never dissected and discussed in China extensively. Perhaps it reflects the Chinese penchant for deeds over words or they are pragmatic enough not to antagonize their American intellectual counterparts.

The twin crises of 2015 in China’s stock and currency markets exposed the weakness of the Chinese economy and cast a lot of doubt on the continued validity of the Beijing Consensus, with many observers predicting that it will follow the Washington Consensus into oblivion. We will look at the similarities and differences between the two consensus and put up a guess on the future trajectory of the Beijing Consensus.


The same economist John Williamson of Peterson Institute was the intellectual originator behind the Washington consensus. He listed in 1990 the initial ten points while working at the World Bank, and his list was compiled as a framework for understanding Latin America’s chronically disastrous debt workouts. He was fairly surprised to see his list being applied globally in the 1990s in places as diverse as Indonesia and Kazakhstan. The reason that his list, quickly named the Washington Consensus, quickly gained endorsement as the recipe for development was that it fit the preeminent social thinking of market supremacy and financial leadership role in development after the collapse of Soviet Union and the resurgence of US economy after Reagan conservatism.

Element of the Washington Consensus:

Part 1. Macroeconomic stabilization:
• fiscal discipline
• redirection of public expenditure to health, education and infrastructure
• tax reform, broadening the tax base, and cutting marginal tax rate
• unified and competitive exchange rates
• secure property rights

Part 2. Privatization, deregulation and liberalization:
• deregulation
• trade liberalization
• privatization
• elimination of barriers to foreign direct investment
• financial liberalization
(Lee, 2013)

The Asian crisis of 2008 shuttered the Washington Consensus. Perhaps it is not surprising as the original idea was developed in the Latin American context and the model failed a basic test of suitability for most countries. A common reason cited for the failure is the poor policy sequencing of the recommended measures. The Beijing Consensus was formulated in the aftermath of the failure of the Washington Consensus and theorem one was clearly directed at avoiding the repetition of the failure of the Washington Consensus. Emphasizing environmental validity in pursuing development reform is a generic statement that should not be challenged in any circumstances.

The role of an enlightened powerful state in theorem two is going to be the acid test for the Beijing Consensus, and whether the outcome of the economic transition will work out as planned is going to be the determining factor of the viability of Beijing Consensus. If China can engineer a soft landing and deliver its goal of a smooth transition, a powerful development state model certainly merits a revisit in academic world. If the economic landing is hard, then whether a powerful developmental state model can deliver continue prosperity for a country in transition from middle income to high income will be placed in doubt.

An interesting way to look at theorem two is the degree of state involvement in development. The Williamson version of state capitalism is probably to the extreme left on the scale and the Ramo version is closer to the center but still tilts to the far left. In developed countries, the share of government in GDP has been going up in the last 150 years despite occasional social movements of trimming down government. This irony points out the natural tendency of the growing government role in an increasingly complex world such that the government must address issues arising from market failure, information asymmetry, and growth leadership. Hence the more benign version of theorem two of stressing the role of the market in addition to the government’s role in development should not be challenged too.

The third theorem is the least economical and it stresses that independent action is a common quest of any sovereign states. This third theorem should not be challenged again, in any circumstances.



China’s rise is enough to remake the world, and the Beijing Consensus is already drawing a wake of new ideas that are very different from those coming from Washington.

We see the basic difference between the Washington Consensus and the Beijing Consensus from the discussion. If we stick to the original version of the Beijing Consensus of Ramo, it is premature to pronounce the demise of the Beijing Consensus. The Williamson interpretation of the Beijing Consensus is a little too specific and controversial, in fact, theorem one and two in the original Ramo version and Zhang Weiwei’s China model have provided room for its modification to retain theorem validity. The avowed claim of shifting away from export led growth to domestic origin growth by the Chinese government is the best case in point.

It is not difficult to see the problems of both Washington Consensus and Beijing Consensus on hindsight. Washington Consensus suffers from a close to blind faith on market efficiency in third world countries which do not enjoy existing good market mechanism. Liberalization alone cannot address the issue of poor national capacity; Washington consensus does not address capacity building measures for third world countries. Also, the recommended specific policy measures suffer from policy coordination and sequencing problems, and the Asian crisis of 1998 exposed the weakness of the Washington Consensus. In the case of Beijing Consensus, the three theorems are too coarse and devoid of specific policies recommendations. Its philosophical type of developmental approach leaves too much room to the practicing countries and the outcome depends really on the wisdom of these countries’ leaders. The unwanted build-up of excess capacity and over leverage of financial system in China between 2009-2012 are good demonstration of such issues. Although both Washington Consensus and Beijing Consensus claim to be third world development guidepost, they both possess significant weaknesses.

No matter what happens to China’s reforms in the end, China’s rise is enough to remake the world, and the Beijing Consensus is already drawing a wake of new ideas that are very different from those coming from Washington. The emergence of a Beijing consensus for development also marks an important change for China, a shift from a reform process that was young and susceptible to externalities to one that is now self-fulfilling and more determined by its internal dynamics. China is writing its own book now and the world is watching. What is happening in China is not only an issue for China today, it has begun to remake the whole landscape of international development.

References

Beijing Consensus. (2015, December 17). Retrieved March 26, 2016, from https://en.wikipedia.org/wiki/Beijing_Consensus

Lee, K. (2013). Toward a theory and how to escape the trap. In Schumpeterian Analysis of Economic Catch-Up (pp. 189-192). Cambridge, UK: Cambridge University Press.

Ramo, J. C. (2004, May 11). The Beijing Consensus. Retrieved March 26, 2016, from http://fpc.org.uk/fsblob/244.pdf

Zhang, W. (2006, November 2). The allure of the Chinese model. Retrieved March 26, 2016, from http://www.sinoptic.ch/textes/articles/2006/20061102_zhang.weiwei_chinese.model-en.pdf

Leave a Reply

Your email address will not be published. Required fields are marked *