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The Post-Washington Consensus
NANCY BIRDSALL is President of the Center for Global Development. FRANCIS FUKUYAMA is Olivier Nomellini Senior Fellow at the Freeman Spogli Institute for International Studies at Stanford University. They are the editors of New Ideas in Development After the Financial Crisis (Johns Hopkins University Press, 2011), from which this essay is adapted.See more by Nancy BirdsallSee more by Francis Fukuyama
The last time a global depression originated in the United States, the impact was devastating not only for the world economy but for world politics as well. The Great Depression set the stage for a shift away from strict monetarism and laissez-faire policies toward Keynesian demand management. More important, for many it delegitimized the capitalist system itself, paving the way for the rise of radical and antiliberal movements around the world.
This time around, there has been no violent rejection of capitalism, even in the developing world. In early 2009, at the height of the global financial panic, China and Russia, two formerly noncapitalist states, made it clear to their domestic and foreign investors that they had no intention of abandoning the capitalist model. No leader of a major developing country has backed away from his or her commitment to free trade or the global capitalist system. Instead, the established Western democracies are the ones that have highlighted the risks of relying too much on market-led globalization and called for greater regulation of global finance.
Why has the reaction in developing countries been so much less extreme after this crisis than it was after the Great Depression? For one, they blame the United States for it. Many in the developing world agreed with Brazilian President Luiz Inácio Lula da Silva when he said, "This is a crisis caused by people, white with blue eyes." If the global financial crisis put any development model on trial, it was the free-market or neoliberal model, which emphasizes a small state, deregulation, private ownership, and low taxes. Few developing countries consider themselves to have fully adopted that model.