Washington Consensus is being challenged by Beijing Consensus: Ex-US Treasury Secretary

WASHINGTON: China, a rising power, has demonstrated its ambition to fill a leadership void left by a US retreat from global priorities, a top American economist has said, underlining that the Washington Consensus is being challenged by "Beijing Consensus".

Lawrence H Summers, a former chief economist of the World Bank and ex-US Treasury Secretary, said that 25 years ago a third of the world lived in poverty, and after the fall of the Berlin Wall, the American model of market-led globalisation was widely regarded as the right mechanism to promote global development.

"Today, fewer people around the world live in extreme poverty, but the Washington Consensus is being challenged by the Beijing Consensus,” he said in his keynote address at the Center for Global Development’s annual Global Development Changemaker Dinner.

The Washington Consensus is a set of neoliberal economic policy prescriptions made by the Washington, D.C.–based institutions such as the IMF, World Bank, and the US Treasury Department to developing countries that faced economic crises.

The term was first used in 1989 by English economist John Williamson.

With President Donald Trump visiting China, Summers addressed the changing power dynamics among key global leaders and discussed rethinking global development for the 21st Century.

"China is a rising power, and has demonstrated its ambition to fill a leadership void left by a US retreat from global priorities and an ‘America First’ brand of politics,” said Summers, who served as the Treasury Secretary under former president Barack Obama.

Summers emphasised that while US Treasury has said that the World Bank, in which the US is dominant, should scale back its scope, the new China-led Asian Infrastructure Investment Bank - of which the US is not a member – is expanding rapidly, pursuing billions of dollars of investments in the developing world.

"And as the US plans to scale back its global economic engagement, China is doing the opposite – recently going from an aid recipient to a net aid donor," the former treasury secretary said.

"In the past, if you were to discuss rich countries' commitment to helping poor countries, that conversation would have focused on foreign aid. But today, effective global development strategy is about so much more than just aid,” he said.

The policies and programmes of governments across a range of areas including migration, climate change, trade and technology policy wield enormous influence on global progress, he said, underlining that domestic decisions made in a handful of wealthy countries can have an outsized impact on the developing world.

"What the US, Germany and Japan decide to do can lift millions of people out of poverty – or not,” he added.

"And effectively promoting global development is about not just policies but about actions as well,” Summers said.

On the Paradise Papers leak, he said, it shows how disharmonious tax regimes can deprive already-starved governments of needed resources.

"These are solvable problems, but they take political will, domestic policy change, and global cooperation. Only one won’t work,” Summers said.