From Washington to London: A New Economic Consensus
Background
The Washington Consensus, coined by John Williamson (1990), was a set of 10 economic policy prescriptions promoted by international financial institutions like the IMF and World Bank.
It guided global economic reforms during the 1990s–2000s — especially in developing countries transitioning to open-market economies.
Its principles emphasized liberalisation, privatisation, deregulation, and fiscal discipline, leading to what came to be known as “hyper-globalisation.”
The 10 Principles of the Washington Consensus
Fiscal discipline (reduce deficits).
Prioritise public expenditure (focus on health, education, infrastructure).
Tax reform (broad base, low rates).
Market-determined interest rates.
Competitive exchange rates.
Trade liberalisation (reduce tariffs).
Encourage FDI (remove barriers).
Privatisation of state enterprises.
Deregulation (promote competition).
Secure property rights.
Decline of the Washington Consensus
Lost credibility after the Global Financial Crisis (2008).
China’s rise as a state-led capitalist economy challenged the model.
Critics argued it led to:
Deindustrialisation in the West,
Income inequality,
Job losses,
Political backlash and populism.
Western countries themselves began questioning the “market-knows-best” ideology.
Emergence of the London Consensus (2023–2025)
Drafted by 55 leading international economists including Dani Rodrik, Olivier Blanchard, Andrés Velasco, Ravi Kanbur, Tim Besley, etc.
Originated from discussions at the London School of Economics (LSE) in May 2023.
Offers a new framework for economic policymaking suited to challenges like climate change, AI, populism, and erosion of liberal democracy.
Five Core Principles of the London Consensus
1. Focus on Wellbeing
Go beyond GDP as a measure of progress.
Include social cohesion, dignity, trust, and non-material dimensions.
Governments must intervene when markets fail, especially in curbing monopolies and ensuring fair taxation.
2. Make Growth Matter
Growth should be inclusive and job-generating, not just high in numbers.
Economic expansion must benefit the broad population, not merely the elite.
3. Build Resilience
Governments should act as insurers of last resort.
Provide social safety nets and welfare systems to protect individuals from shocks like:
Pandemics,
Trade wars,
Technological disruption.
4. Put Politics First
Recognises that politics shapes economics.
Instead of viewing politics as an obstacle, it must be treated as an enabler of sustainable reforms.
Avoid purely technocratic policymaking detached from democratic realities.
5. Invest in State Capacity
A capable and trusted state is essential for markets to function effectively.
Build legal, regulatory, and institutional frameworks that inspire investor and citizen confidence.
Strengthen delivery of public goods — education, health, policing, defence.
Limitations of the London Consensus
Lacks actionable prescriptions — provides broad principles rather than specific policies.
Opposes the idea of universal “best practices”, which might limit its practical implementation.
Unclear whether it will gain global institutional backing like the Washington Consensus once had from the IMF–World Bank nexus.
Significance and Implications
Marks a paradigm shift in global economic thinking — from market primacy to balanced state–market partnership.
Resonates with India’s mixed economic model — growth with social welfare, state capacity, and resilience.
May influence:
Development policy frameworks (UN, G20, World Bank reforms),
Re-evaluation of GDP-based progress,
Future international economic aid conditionalities.