POL201YLecture 9November 22th, 2010
The Washington Consensus
Liberalism: Belief in the importance of individual freedom
•Freedom from interference instead of freedom of interference.
•People just have to make sure the state does not infringe in their freedom
•They fear a despotic state
•Freedom needs to be produced, it is not equally distributed and it is not
•Freedom is not a pre-existing condition, it is government generated.
•They support broad ethnic, social, differences. State need to intervene in order to
•Adam Smith: nations are strongest when individuals are free to do what they will
oThe market would naturally regulate itself and produce more than the
heavily restricted markets generated by the government
oThe role of government was limited to securing the goods that the market
cannot provide because there is no profit in them (public goods)
•Restatement of the economic liberal theories of Adam Smith minus the labor theory
of value. First coined in 1938. Idea that market would work out on its own without
•Keynes’ economic policy was implemented in 2008 by all governments to get out of
oHe believed the government should intervene in the market. (CHECK
POL201YLecture 9November 22th, 2010
•Increase in production
•Decrease in prices. Problem
•Research in agriculture led to the development of
o1943: mexico imported half of the wheat that it consumed.
o1956: mexico was self sufficient.
o1964: mexico is exporting $1/2m of wheat
•Governments implement ISI policies and some countries can’t keep up. They are
forced to turn to the IMF and the World Bank to get money. Because the price of oil
increased and they need oil.
•1982-1985: most of the developing countries are either currently taking loans or have
taken loans from the IMF and World Bank. In exchange for those loans, those
countries are forced to accept structural adjustment programs (starting in the 1970s
and 1980 many developing countries saw their room for deciding economic issues
•What the structural adjustement programs are
•Conditionality structural adjustement :
oGovernments are supposed to become democratic, and they have to
implement free market economic policies.
oFree market economic policies that government are forced to take when they
take loans from the WB and the IMF are called the Washington Consensus
• Fiscal discipline (for other countries, not for the US)
o(normally) Balanced budget, where there is room for short term deficit if that
is going to contribute to macro economic stabilisation. Fiscal deficits are ok if
they are just temporary. Deficits produce inflation, payment deficits, capital
•Public expenditure priorities
oThey go to the IMF and WB because countries have not enough money
Liberalism: belief in the importance of individual freedom. Classical liberalism: freedom from interference instead of freedom of interference, people just have to make sure the state does not infringe in their freedom, pre-existing condition, they fear a despotic state. Modern liberalism: freedom needs to be produced, it is not equally distributed and it is not, freedom is not a pre-existing condition, it is government generated, they support broad ethnic, social, differences. State need to intervene in order to produce freedom. Idea that market would work out on its own without any push/pressure: keynes" economic policy was implemented in 2008 by all governments to get out of the crisis, he believed the government should intervene in the market. (check. They are forced to turn to the imf and the world bank to get money. Because the price of oil increased and they need oil.