Industrial policy and the Washington Consensus

WASHINGTON has given the "finger" to the Washington Consensus, and this is a bipartisan consensus to boot. Not that the European Union, Japan, South Korea or China are different. Yet, here we are, with many decision-makers and economists whose opinion matters still believing in the Washington Consensus. Let's look at some recent articles. From The New York Times, Bloomberg and Financial Times from May 7 to 18 are — "How China Rose to Lead the World in Cars and Solar Panels," "Biden Hits Chinese Electric Vehicles, Chips and Other Goods with Tariffs," "Global Chips Battle with $81 Billion Subsidy Surge," "South Korea Plans $7.3 Billion Program to Support Chip Industry," "Australia Budget Will Boost Critical Minerals, Treasurer Says," "Giant Batteries are Transforming the Way the US Uses Electricity," and "What Can and Can't Be Learned from Singapore."

The most important one is from David Leonhardt from The New York Times on May 19 — "A New Centrism is Rising in America." He writes about the strange bipartisan centrism on some economic issues like tariffs and protectionism. "A defining quality of the new centrism is how much it differs from the centrism that guided Washington in the roughly quarter-century after the end of the Cold War, starting in the 1990s. That centrism — alternately called the Washington Consensus or neoliberalism — was based on the idea that market economics had triumphed. By lowering trade barriers and ending the era of big government, the United States would both create prosperity for its own people and shape the world in its image, spreading democracy to China, Russia and elsewhere. That hasn't worked out. In the US, incomes and wealth have grown slowly, except for the affluent, while life expectancy is lower today than in any other high-income country. Although China, along with other once-poor countries, has become richer, it is less free — and increasingly assertive. The new centrism is a response to these developments. It is a recognition that neoliberalism failed to deliver. The notion that the old approach would bring prosperity, as Jake Sullivan, Biden's national security adviser, has said, "was a promise made but not kept." In its place has risen a new worldview. Call it "neopopulism." And it is not the consensus, except here in the Philippines where bad ideas don't die but must be killed. I am proud that I have repeatedly pointed out since I started writing this column in 2020 how out of date and failed the Washington Consensus is.