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26 I Cover story bne August 2020
None of the members of the Moscow Consensus would suggest that Russia has fixed all of its problems, but their focus is on the dynamic and not the level the country is at. Thanks to extreme prudence in macroeconomic policy, the country has become more stable and the subsidy the government earns from raw material exports means money
is continuously being invested into infrastructure, even if much of it is stolen.
Washington Consensus
The Moscow Consensus is a reaction
to the Washington Consensus. British economist John Williamson coined the latter term in 1989, listing 10 principles that emerging markets should follow
if they want to become successful countries.
It refers to a set of free-market economic policies supported by prominent financial
economies from having high fiscal deficits relative to their GDP.
2. Diversion of public spending from subsidies to important long- term growth supporting sectors like primary education, primary healthcare, and infrastructure.
3. Implementing tax reform policies to broaden the tax base and adopt moderate marginal tax rates.
4. Selecting interest rates that are determined by the market. These interest rates should be positive after taking inflation into account (real interest rate).
5. Encouraging competitive exchange rates through a freely-floating currency exchange.
for world order and police that order with international organisations like the UN and Nato.
Russia objects to many of these points – especially the political ones – and it is increasingly being joined by other countries. An illiberal wave has swept through Central Europe that
is increasingly closer to the Moscow Consensus than it is to the Washington version. And, if anything, China’s version of values goes even further than the Moscow Consensus; at least Russia has adopted a managed democracy, whereas China rejects democracy as
a political system completely.
Moscow vs Washington Consensus If we compare the two systems then it quickly becomes apparent that few Western countries actually stick religiously to the Washington Consensus principles. It also becomes clear that the Moscow Consensus has not grown out of an ideology, but is to a large extent a reaction to the Washington Consensus.
Democracy
Democracy is not officially part of the Washington Consensus, but it stands
at the heart of the idea because a free market and a free people are intimately intertwined.
In 1991 Russia abandoned the totalitarian communist system and became a democracy. However, Russia’s version is a “managed” or “sovereign democracy” that was the brainchild of Putin’s advisor Vladislav Surkov, who coined the term in a speech in 2006.
According to Surkov, a sovereign democracy is: “A society's political
life where the political powers, their authorities and decisions are decided and controlled by a diverse Russian nation for the purpose of reaching material welfare, freedom and fairness by all citizens, social groups and nationalities, by the people that formed it.” In other words: people have a vote but that is balanced against the state, which remains in control for the benefit of the people. This idea was born out
of the context of the chaotic 90s when the state had basically collapsed.
“The Washington Consensus is a set of free-market economic policies supported by prominent financial institutions”
institutions such as the International Monetary Fund, the World Bank and the US Treasury that has become the benchmark for orthodox values against which a country like Russia is judged.
Essentially, the Washington Consensus advocates free trade, floating exchange rates, free markets and macroeconomic stability. The 10 principles originally stated by John Williamson include
10 sets of relatively specific policy recommendations.
To this list we should add the more recent political points that are the basis of the conflict between Russia and the West and are fuelling a return to a Cold War split between East and West.
These are the 10 specific principles originally set out by John Williamson 31 years ago:
1. Low government borrowing. The idea was to discourage developing
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6. Adoption of free trade policies. This would result in the liberalisation of imports, removing trade barriers such as tariffs and quotas.
7. Relaxing rules on foreign direct investment.
8. The privatisation of state enterprises. Typically, in developing countries, these industries include the railways, oil, and gas.
9. The eradication of regulations and policies that restrict competition or add unnecessary barriers to entry.
10. Development of property rights.
Add to this the political points:
1. Democracy is the best system with the individual vote as the fundamental unit of politics.
2. The “leading” nations are responsible