China and the Beijing Consensus: An Alternative Model for Development

Introduction

In the period since 1989, when economist John Williamson first conceived of the economic and policy recommendations known as the Washington Consensus (Williamson, 1989), this Consensus became generally accepted as the most effective model by which developing nations could spur growth. Embracing ideals of free-market capitalism, which included open trade policies, privatization, and deregulation, the Washington Consensus provided a prescription for development in the Third World. Nevertheless, implementations of the Washington Consensus have had decidedly mixed results: as Serra and Stiglitz contend (Harris, 2008), the Consensus led to multiple currency crises, stagnation, and recession during the financial turmoil of the 1990s and may ultimately have led to the collapse of several nations’ economic systems. The most recent and more severe financial crisis, which began in late 2007 and is still running its course, has further eroded confidence in the Western, neoliberal economic model.

Recently a new strategy has begun to surface, defined in contrast to the Washington Consensus as the Beijing Consensus; and indeed, the Beijing Consensus has little in common with Washington’s model. Instead of prescribing rigid recommendations for the problems of distant nations, the Beijing Consensus is pragmatic—much like China in the post-1979 world—and recognizes the need for flexibility in solving multifarious problems. It is inherently focused on innovation, while simultaneously emphasizing ideals such as equitable development and a “Peaceful Rise” (Ramo, 2004: 4-5). The Chinese model—informal as it may be—is quickly gaining appeal within the developing world and influencing a reassessment of Washington’s antiquated policies. In short, the Beijing Consensus uses China as an alternative model for development in the Third World, and serves as a bellwether to the future of Western dominated development priorities.

Basis for Comparison: The Washington Consensus In Brief

The Washington Consensus (WAC) is at its core based around ten policy recommendations. The recommendations are as follows: (1) Fiscal Discipline; (2) Restructuring Public/Social Expenditure Priorities; (3) Tax Reform; (4) Liberalizing Interest Rates; (5) Competitive Exchange Rates; (6) Trade Liberalization; (7) Liberalization of Inward Foreign Direct Investment; (8) Privatization; (9) Deregulation; and, (10) Property Rights (Williamson, 2004: 3-4). These principles—in particular those regarding liberalization, privatization, and deregulation—are closely associated with the neoliberal ideology, or “market fundamentalism,” which espouses free-market capitalism as its core tenet (Serra and Stiglitz: 3). However, regardless of the true value of the economic policies the WAC suggests, Williamson—the man who coined the term—has come to the following concession: “[The WAC] has been interpreted to mean bashing the state, a new imperialism, the creation of a laissez-faire global economy, [or] that the only thing that matters is the growth of GDP” (Williamson, 2004: 6). Disdain towards WAC policies has been most pronounced within the developing world, where it was felt that the Consensus was simply a new way for the developed North to take advantage of the developing South.

In fact, much of the WAC’s criticism can be linked to the adoption of its principles by the world’s leading economic institutions in Washington, D.C., such as the International Monetary Fund (IMF) and the World Bank (Serra and Stiglitz: 3). In great part, these institutions can be credited with policies that were detrimental for a number of developing nations. The case of Argentina is a perennial example: “The country strictly conformed, perhaps more so than any other ‘emerging market’, to the advice of the [IMF],” however after surging in the early 1990s and then beginning to “lose momentum,” the end result was “complete collapse” by 2001 (Oniz, 2004: 375). Serra and Stiglitz add, “seven years of strong growth [in Latin America] in the early 1990s were followed by seven years of stagnation and recession, so that for the period as a whole, growth under the Washington Consensus was half of what it had been from the 1950s through the 1970s when the region followed other economic policies” (Serra and Stiglitz, 2008: 4).

On the other hand, proponents of the WAC and the neoliberal approach have simultaneously suggested that its policies have played a significant role in the huge economic success that many East and Southeast Asian countries have experienced since the 1970s (Handelman, 2008: 295). However, leading experts on the region disagree with this analysis. Robert Wade contends that the tools by which East Asian countries (such as China) achieved economic success were carried out—in stark contrast to WAC principles—by “relatively authoritarian and corporatist state[s]” (Wade, 1990: 297). Wade instead refers to the “Governed Market Theory of East Asian economic success,” which suggests a deeply different approach to development than that of the pro-privatization, free-market liberalists (Wade, 1990: 297; Serra and Stiglitz, 2008: 4). This method of development has been highly successful, especially in China: “No other country has averaged a growth rate more than 9 percent over a 25-year period…. Consistently high growth rates are an anomaly limited to a handful of economies in East Asia” (Yusuf and Nabeshima, 2008: 35).

Thus, the dichotomy between the Western “regulatory state” and the Eastern “development state” has become acute. In the Western version, the “government [has] refrained from interfering in the marketplace, except to insure certain limited goals,” whereas China has “[intervened] actively in the economy in order to guide or promote particular substantive goals” (as cited in Handelman, 2008: 292-293). Within this framework, China has cut by 235 million the number of its citizens living in absolute poverty, while the World Bank confirms, “China has contributed to 67% of the total reduction of global poverty during the last 25 years” (People’s Daily, 2008).

An Alternative: The Beijing Consensus

“China is writing its own book now. The book represents a fusion of Chinese thinking with lessons learned from the failure of globalisation culture in other places. The rest of the world has begun to study this book.” (Ramo, 2004: 5)

For other developing nations, mimicking even a sliver of China’s success would be success indeed. Where the WAC prescribes the same strict and homogeneous reforms to nearly all developing countries, the Beijing Consensus (BJC) recognizes the need for a unique approach according to each nation’s unique challenges.

The BJC, which first gained notoriety in 2004 when Joshua Cooper Ramo published his paper—The Beijing Consensus—through the United Kingdom’s Foreign Policy Centre, is based upon three overarching ideals of Chinese development, which in turn suggest “how to organise [sic] the place of a developing country in the world”  (Ramo, 2004: 11). These three ideas are summarized below:

I: Innovation

In order to outpace the “friction losses of reform,” government must actively innovate in order to address the challenges introduced by the changing economic and social environment (Ramo, 2004: 12). Another author phrases this as a commitment to “constant tinkering and constant change, and a recognition that different strategies are appropriate for different situations” (Leonard, 2006).

This aspect of the BJC is derived from the emphasis that China has placed on innovation in its own development since 1979. In particular, China has maintained a strong focus on creating effective policies, which solve problems that are actually important to its people. In order to achieve this goal, it has been essential for China to actually gain an understanding of what people want: Ogden writes, “The [Chinese] government itself is known to carry out surveys of public opinion precisely to find out public attitude toward itself,” and therefore to actively gauge the impact and popularity of its policies (Ogden, 2002: 100-101).