The fate of the Washington Consensus, once talisman

Once upon a late-20th-century lecture circuit, the phrase “Washington Consensus” (WC) did the work of a talisman: 10 tidy policy prescriptions that promised macro stability, market-led growth, and a path out of crisis for beleaguered states. John Williamson, who coined the term in 1989, formulated its 10 commandments: fiscal discipline; reordering public spending toward pro-growth priorities; tax reform to broaden the tax base and lower rates; liberalisation of interest rates; competitive exchange rates; trade liberalisation through lowering tariffs; liberalisation of inward foreign direct investment; privatisation of state-owned enterprises; deregulation to remove barriers to entry and competition; and securing property rights. These were presented as near-universal remedies, administered by institutions in the West that watched the global macro-economy like physicians with a single, favoured prescription, summed up in the words liberalise, privatise, and deregulate. Three decades on, the prescription seems obsolete, overtaken by the onrush of global events.

Its shaping, its legacy

The Washington Consensus was never merely technocratic; it carried a political history. Adopted in moments of crisis, its reforms arrived bound up with conditionality, bargaining power, and a belief that markets, once set free, would generate growth that trickled down. The core tenets of the “consensus” emerged from the ideological crucible of Reaganomics and Thatcherite structural adjustment programmes. These principles — fiscal austerity, deregulation, privatisation, and trade liberalisation — were adopted with little critical scrutiny by the Bretton Woods Institutions (the World Bank and the International Monetary Fund, or BWIs) and their regional counterparts such as the Asian Development Bank during the mid to late 1980s. Their embrace was largely a response to the debt crises and macroeconomic instability that afflicted many developing countries at the time.

Yet, the consequences of this orthodoxy were far-reaching and, in many cases, deeply destabilising. The Asian financial crisis, which erupted in Bangkok in 1997, and the global financial meltdown of 2008, were among the most visible symptoms of the Consensus’s systemic flaws. Equally telling were the breakdowns of the WTO ministerial meetings in Seattle (1999) and Cancún (2003), which exposed the deepening rift between developed and developing nations — a divide the Doha Round never managed to bridge.

One of the most damaging legacies of the Consensus was its categorical rejection of industrial strategy. Promoted by the BWIs on behalf of industrialised nations, this taboo was reinforced through WTO rules on Trade-Related Investment Measures (TRIMs), intellectual property (TRIPS), and subsidies — all of which constrained the policy space for developing countries seeking to nurture domestic industries. Another pillar of WC dogma was deregulation in favour of an idealised “free market”, even in contexts where market institutions were weak or non-existent — as was the case across much of Africa and the least developed countries. For decades, the IMF advanced the notion that inequality was irrelevant so long as growth occurred and would eventually “trickle down”. In practice, however, Structural Adjustment Programmes proved particularly harmful to the poorest nations, which lacked even the minimal institutional foundations upon which the WC’s assumptions were built.

Compounding these issues was the manner in which the WC was conceived — largely in western capitals, without meaningful consultation with the developing countries that would bear the brunt of its implementation. The results were mixed enough to invite reappraisal, even during the WC’s heyday. Some countries — parts of East Asia, Pinochet’s Chile — found ways to combine market openings with strong state direction and industrial strategy. Others — several Latin American cases, some post-Soviet transitions — suffered debt crises, inequality spikes and social backlash.

A loss of faith

The conditionalities imposed by the BWIs and the rigidity of WTO rules led to widespread discontent, manifesting in street protests across the Global South throughout the 1990s and beyond. The backlash against globalisation — whether from the anti-capitalist left in earlier decades or the far right after 2008, with its toxic blend of white supremacy, racism, and anti-immigration sentiment — can be traced, at least in part, to the failures of the WC and the global financial crisis it helped precipitate. Movements such as MAGA and Brexit reflect this disillusionment.

Ironically, none of the countries that successfully industrialised — neither the United States nor Japan before the Second World War, nor South Korea, Taiwan, or Singapore in the post-war era — adhered to the WC’s prescriptions during their formative years. Their success was rooted in state-led strategies that prioritised industrial policy, precisely the kind of intervention the “consensus” sought to delegitimise.

The WC may have dominated the late 20th century, but its time has passed. The task now is to craft a new consensus — one that is inclusive, context-sensitive, and responsive to the realities of a multipolar, digital, and ecologically fragile world.

We must revisit the policy mix that enabled the rare post-war success stories — South Korea, Taiwan, and in its own way, China — to ascend into the ranks of advanced economies. This does not mean a wholesale return to 20th-century models, but rather a thoughtful adaptation of their core principles to contemporary challenges. Education, public health, infrastructure investment, and “infant industry” protection remain as vital today as they were then. But new imperatives — digital trade, climate resilience, and AI governance — demand fresh thinking and innovative frameworks.

We are witnessing two new trends: one, the emergence of a “post-Washington consensus” that insists on public accountability, social safety nets, and the politics of redistribution; the other, the Beijing counter-narrative, where state-led intervention, targeted industrial policy, and limited political liberalisation offer an alternative template.

If the late 20th century was the triumph of liberalisation, the mid-2020s have seen its theatrical undoing in the form of the Trump tariff tempest — sweeping, erratic and punitive. Protectionism is being brandished as an instrument of geopolitics and domestic politics alike. Supply chains are being reconfigured, not so much for efficiency but for dominance and national security. The implicit bargain that underwrote the WC — that free markets would be the engine of prosperity, and supply chains the neutral plumbing of global commerce — has been strained by a revived appetite for economic nationalism, and the wielding of sovereign power as a battle-axe rather than a shield.

Tariffs and industrial subsidies signal a re-politicisation of economic policy. They reveal that Trump’s America is willing to accept short-run costs and global friction to reclaim perceived strategic advantage. If in 1990 the default was “liberalise”, in 2025 the default is “what will protect our interests?”

The shattering of a myth

Has the world moved to a new consensus? Not exactly. What has emerged is less a single set of new verities and more an acceptance that policy must be politically context-sensitive. A pragmatic eclecticism now rules: fiscal prudence still matters, but so does targeted public investment; markets are powerful allocators, but they need rules, institutions, and buffers; trade is growth-enhancing, but national security can justify strategic decoupling and politics can justify tariffs.

The neat ideological narrative — liberalise, privatise, deregulate — has given way to a toolbox from which policymakers pick instruments with explicit geopolitical and distributional aims. In that messy landscape, success will come from the hard work of designing policies that fit national capacities, global constraints, and political realities.

That is not the end of globalised liberalisation; it is the end of the myth that there is a ready-made template that every nation subscribes to. The struggle to grow and prosper is still every nation’s struggle. But each has to find its own path forward amid the policy mess into which all have been plunged.

Shashi Tharoor is a fourth-term Member of Parliament (Congress) for Thiruvananthapuram (Lok Sabha), the award-winning author of 28 books and the Chairman of the Parliamentary Standing Committee for External Affairs