The Rise and Fall of the Washington Consensus as a Development Paradigm

Research the health-illness continuum and its relevance to
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A thorough explanation of the relationship between the health-
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promote the value, dignity, and flourishing of patients is
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The Rise and Fall of the Washington Consensus as a
Paradigm for Developing Countries
CHARLES GORE *
United Nations Conference on Trade and Development, Geneva,
Switzerland

Summary. Ð The introduction of the Washington Consensus
involved not simply a swing from
state-led to market-oriented policies, but also a shift in the ways
in which development problems
were framed and in the types of explanation through which
policies were justi®ed. Key changes
were the partial globalization of development policy analysis,
and a shift from historicism to
ahistorical performance assessment. The main challenge to this
approach is a latent Southern
Consensus, which is apparent in the convergence between East
Asian developmentalism and Latin
American neostructuralism. The demise of the Washington
Consensus is inevitable because its
methodology and ideology are in contradiction. Ó 2000 Elsevier
Science Ltd. All rights reserved.
Key words Ð development theory, development policies, World
Bank/IMF policies
1. INTRODUCTION
Developing countries is an international
practice. The essence of this practice is the
mobilization and allocation of resources, and
the design of institutions, to transform national
economies and societies, in an orderly way,
from a state and status of being less developed
to one of being more developed. The agencies
engaged in this practice include national
governments of less-developed countries, which
have adopted ``development'' as a purpose to
which State power is put, and governments of
richer countries, which disburse o�cial devel-
opment aid to support and in¯uence this

process; a variety of non-governmental orga-
nizations concerned to animate and channel
popular concerns; and international intergov-
ernmental organizations, such as the organs of
the United Nations and the World Bank, many
of which have been expressly set up to resolve
various development problems. Often it is the
last group who have acted as the avant-garde of
development practice. It is because of their
activities, as well as the widespread tendency of
governments to copy successful practice else-
where, that it is appropriate to describe devel-
oping countries as an international practice.
But it is by no means global in scope. Indeed
the practice of developing countries is only
done in a particular set of countriesÐthose
which in the 1950s and 1960s were generally
called ``underdeveloped'' or ``less developed''
countries, but which now generally identify
themselves, and are identi®ed by others, as
``developing countries.''
This paper discusses trends in the body of
knowledge which guides and justi®es the prac-
tice of development. It examines, in particular,
the ideas propagated by international develop-
ment agencies, and focuses on the shift in
thinking which occurred in the 1980s with the
introduction and widespread adoption of an
approach to the practice of developing coun-
tries known as the ``Washington Consensus.''
In broad terms, this approach recommends that
governments should reform their policies and,
in particular: (a) pursue macroeconomic
stability by controlling in¯ation and reducing

®scal de®cits; (b) open their economies to the
rest of the world through trade and capital
account liberalization; and (c) liberalize
World Development Vol. 28, No. 5, pp. 789±804, 2000
Ó 2000 Elsevier Science Ltd. All rights reserved
Printed in Great Britain
0305-750X/00/$ - see front matter
PII: S0305-750X(99)00160-6
www.elsevier.com/locate/worlddev
* This paper is an extended version of comments made
at the Berlin-Brandenburgische Akademie der Wissens-
chaften Conference on ``Paradigms of Social Change''
held in Berlin on September 3±5, 1998. I would like to
thank John Toye, Gabrielle K�ohler, Richard Kozul-
Wright and two anonymous referees for critical com-
ments on an earlier draft. The arguments and interpre-
tations are those of the author. The views expressed do
not necessarily re¯ect those of UNCTAD. Final revision
accepted: 17 October 1999.
789

domestic product and factor markets through
privatization and deregulation. Propagated
through the stabilization and structural
adjustment policies of the International
Monetary Fund (IMF) and World Bank, this
has been the dominant approach to develop-
ment from the early 1980s to the present. The
paper examines the introduction of the Wash-
ington Consensus as a paradigm shift, and
assesses the con®guration of development
thinking in the 1990s and pressures for a
further paradigm shift, particularly in the light
of the East Asian ®nancial crisis and recent
attempts to construct a ``post-Washington
Consensus.''
The paradigmatic nature of the Washington
Consensus is most clearly evident in the work
of John Williamson (1990,1993,1997), who
coined the name and also set out a speci®c
formulation of the approach at the end of the
1980s. This formulation was founded on an
attempt to summarize, with particular reference
to policy reform in Latin America, ``the
conventional wisdom of the day among the
economically in¯uential bits of Washington,
meaning US government and the international
®nancial institutions'' (Williamson, 1993, p.
1329). Williamson never explicitly identi®es the
Washington Consensus as a paradigm. But the
way he describes the approach conforms in
many respects with Thomas KuhnÕs notion of
one.
1
Thus, he argued that the Washington

Consensus is a ``universal convergence,'' and
that it constitutes ``the common core of wisdom
embraced by all serious economists'' (William-
son, 1993, p. 1334). He codi®ed the approach as
a set of 10 axiomatic generalizations which,
given certain values, are generally shared by
scholars and practitioners concerned with
economic growth in developing countries; and
he listed remaining analytical problems on
which normal economic science needs to focus.
Finally, he dismissed those who challenged the
consensus view as ``cranks'' (p. 1330). As he put
it,
[T]he superior economic performance of countries
that establish and maintain outward-oriented market
economies subject to macro-economic discipline is
essentially a positive question. The proof may not be
quite as conclusive as the proof that the Earth is not
¯at, but it is su�ciently well established as to give
sensible people better things to do with their time than
to challenge its veracity (p. 1330).
The structure of the revolution in thinking
which occurred with the introduction of
Washington Consensus policies is usually seen
as a shift from state-led dirigisme to market-
oriented policies. Such a switch undoubtedly
occurred. But it is not a su�cient description of
the nature of the change as a paradigm shift. As
Kuhn shows, when paradigms change, there are
usually signi®cant changes in the ``methods,
problem-®eld, and standards of solution''
which are accepted by a community of practi-

tioners (Kuhn, 1970, p. 103). As a consequence,
``the proponents of competing paradigms
practice their trades in di�erent worlds...[they]
see di�erent things when they look from the
same point in the same direction'' (p. 150). In
examining the introduction of the Washington
Consensus as a paradigm shift, what matters is
not simply the substantive di�erences with
earlier approaches, but also the nature of the
change in the disciplinary matrix and world-
view.
Here it will be argued that together with the
swing to market-oriented policies, there was a
deeper shift in the way development problems
were framed and in the types of explanation
through which development policies were
justi®ed. This involved changes in the spatial
and temporal frame of reference of develop-
ment policy analysis. In brief, these changes
were: the partial globalization of development
policy analysis; and a shift from historicism to
ahistorical performance assessment.
2. THE PARTIAL GLOBALIZATION OF
DEVELOPMENT POLICY ANALYSIS
Specifying development policy problems
involves both explanations of development
trends and normative judgements about how
the world should be. For each of these activi-
ties, an important decision which must be made
is deciding the policy frame, i.e. what elements
should be included when viewing a problem
and what elements excluded.

2
The framing of
policy issues has various aspects but one which
critically a�ects the practice of developing
countries is whether policy problems are seen
within a global or national frame of reference.
Explanations and normative judgements can
each be elaborated within a national or global
frame of reference, and so the thinking which
underpins the practice of developing countries
can be wholly national, wholly global, or some
combination of both (Figure 1). The full
globalization of development policy analysis
will be understood here to mean a shift from a
WORLD DEVELOPMENT790
national to a global frame of reference both for
explanations and normative evaluations.
Before the propagation of the Washington
Consensus in the 1980s, mainstream explana-
tions of the development process and evaluative
judgements of the goals of development were
both conducted within a national frame of
reference. First, economic and social trends
within countries were explained, in the main-
stream, on the basis of conditions within the
countries themselves, i.e. as a result of national
factors. Particular external relations might be
necessary to start the process, or to close ``gaps''
which threatened its breakdown. But the key
ingredients of a successful development process

were usually identi®ed through analyses of
sequences of change within already industrial-
ized countries, which were then applied in less
developed countries without any reference to
their di�erent external situation. Second,
development policies were geared toward the
achievement of national objectives. This orien-
tation was often simply taken for granted in
development policy analysis. But it was also
in¯uenced, more or less strongly, by political
and economic nationalism. According to John-
son (1967), key features of economic policy in
new StatesÐnamely, the desire for greater self-
su�ciency and early industrialization, the pref-
erence for economic planning and public
control, and hostility to foreign investmentÐ
can all be traced to the mutual supporting rela-
tions between nationalism, aid policy, and ideas
about the development problem formed in the
1930s. Those ideas became part of a common
understanding and language of national and
international policymakers after WWII.
There were, of course, major controversies
both over the meaning of development and the
means of achieving it. In the 1950s and 1960s
there were debates about development strategy
(for example, balanced or unbalanced growth),
the nature of dualistic development processes,
and the role of human capital. Moreover, in the
1970s the earlier focus on economic growth
with structural change was strongly challenged
by those who pointed to the need to focus on
social objectives, notably income distribution,
poverty, employment and basic needs satisfac-
tion.

3
But these disputes actually served to
reinforce the normative and explanatory frames
of development policy analysis as being
national. Whatever objectives were taken to be
central, national objectives were the focal
concern. Moreover the development strategy
debates essentially examined the articulation
and sequencing of internal (national) ingredi-
ents which could facilitate or accelerate the
national development process.
An important countercurrent to mainstream
development policy analysis before the 1980s
came from structuralist and dependency theo-
ries elaborated in Latin America (see Kay,
1989). Like the dominant approach the
normative concern of these theories was
national, and indeed strongly informed by
nationalist concerns. But their analytical
perspective was global in scope and this
underpinned their critiques of mainstream
thinking. Both structuralist and dependency
theorists emphasized the importance of center-
periphery relations as determining or condi-
tioning the national development process. But
some strands within dependency theory,
Figure 1. Four main combinations of explanatory and normative
framework in development policy analysis.
RISE AND FALL OF THE WASHINGTON CONSENSUS 791

instead of indicating how national development
was a�ected by the articulation between inter-
nal and external factors, simply put forward an
antithesis to the mainstream approach, arguing
that external factors were the only ones that
mattered, and then deduced that by delinking
from the world economy, an ``authentic''
development process, solely founded on inter-
nal factors, could be made to occur.
In the late 1970s and early 1980s, the growth
rate of most developing countries, with the
notable exception of some countries in East
Asia, collapsed. The economic crises which
beset most developing countries lent weight to
arguments that mainstream development prac-
tice had failed. But at the same time the East
Asian success neutralized those versions of
dependency theory which argued that devel-
opment would always be blocked on the
periphery, and also Latin American structu-
ralism, which allegedly was wedded to inward-
oriented import-substitution policies in
contrast to East AsiaÕs alleged outward-orien-
tation. In this situation, arguments which
emphasized the positive role of free markets in
development attracted greater attention. These
ideas had always been an element within
development policy analysis, represented, for
example, by early critiques of protectionism,
such as G. Haberler and H. Myint, Milton
FriedmanÕs support of free enterprise, and P.T.
BauerÕs dissection of mainstream thinking
(Bauer, 1971). The uptake of these ideas was
not strong however until the late 1970s and

early 1980s, when a new approach to develop-
ing countries, which was later labeled the
Washington Consensus, emerged as the main
alternative to national developmentalism.
4
The frame of reference for this new approach
was, like the Latin American countercurrents
of the pre-1980s, partially global and partially
national. But rather than combining normative
economic nationalism with a methodological
internationalism, the Washington Consensus
was its mirror image. It combined normative
economic internationalism with a methodolog-
ically nationalist form of explanation which
attributed what was happening within countries
mainly to national factors and policies
(Figure 2).
In this new approach, the key norms which
played the decisive role in de®ning development
practice were the norms of a liberal interna-
tional economic order (LIEO). In most general
terms, these norms involve a commitment to
free markets, private property and individual
incentives, and a circumscribed role for
government. But they can be speci®ed in
di�erent ways, according to di�erent interpre-
tations of the precise content of the LIEO. For
example, in the early 1980s, laissez-faire liber-
alism was strongly advocated. This entailed
liberalization of both external and domestic
economic relations. But at the start of the
1990s, this extreme market fundamentalism

was softened with the emergence of the so-
called market-friendly approach to develop-
ment (see, notably, World Bank, 1991). This
Figure 2. The con®guration of development policy analysis:
1950±1990.
continued strongly to advocate liberalization of
external trade and capital movements. But, the
scope of domestic economic liberalization was
limited, in particular, by recognizing more fully
the legitimacy of state intervention in cases of
market failure.
These norms were propagated through two
types of persuasive argument: ®rst, arguments
about the intrinsic ethical superiority of
economic liberalism; and second, theoretical
and empirical analyses which demonstrate that
conformity to the norms of a LIEO (variously
de®ned) would lead to better outcomes, not
simply for the world community as a whole, but
also for individual nation-states within it. The
latter, which have served as the principal form
of argument supporting the new approach,
have mainly been articulated on a terrain in
which promoting the national interest has been
narrowly equated with promoting economic
growth and increasing personal economic
welfare. Important developmentalist concerns
such as constructing national unity and realiz-
ing national sovereignty are thus excluded. On

this narrowed ground, attention and publicity
has been given to analyses which show that
national policies which are in con¯ict with the
norms of LIEO, including many elements at the
heart of earlier development practice, such as
protection of infant industries, managed inter-
est rates and selective credit, have been harmful
to national interests, and thus constituted
domestic mismanagement and ``irrationalities.''
At the same time, the policies of the East Asian
newly industrializing economies which had
actually achieved rapid and sustained growth
have been described in ways which suggest that
they conformed to the requisite liberal norms.
5
For both con¯icting and conforming policies,
their impact on the e�ciency of resource allo-
cation has been identi®ed as the main mecha-
nism by which domestic policies a�ect
economic growth.
While the normative frame of reference of the
new approach was global in scope, the
explanatory arguments which sought to prove
the instrumental superiority of the LIEO were
characterized by methodological nationalism.
That is to say, in explaining economic trends
within countries, they partitioned in¯uences
into external and internal factors and attributed
most of what was happening to internal
(national) factors and, in particular, to
domestic policy.
6

In making the case for trade
liberalization and export promotion, for
example, conditions of global demand are
generally ignored and, through the ``small
country'' assumption, it is typically assumed
that foreign markets are always available, and
at prices largely independent of a countryÕs
exports. Empirically, the most common
approach to prove the dynamic bene®ts of
outward-orientation has been crosscountry
regression analyses which establish the statisti-
cal relationships between indicators of national
economic change and a series of national vari-
ables, which include, in particular, indicators of
national policy. The essence of this methodol-
ogy is areal correlation between dependent and
independent variables, to identify the extent to
which variation in the former between a given
set of national territories matches variation in
the latter between the same territories. This can
be done at a certain point in time or for periods
of time (e.g. by using growth rates over 20
years). In either case, speci®c histories are
®ltered out and it is assumed that relationships
which pertained in the past will continue into
the future. Economic trends are necessarily
attributed to the behavior of the national
factors.
In the 1990s, changes in the nature of the
external environment are increasingly being
used to explain why liberalization, coupled with
the right macroeconomic fundamentals,
``works.'' Thus it is argued that in an increas-

ingly globalized world economy, in which there
is the globalization of production systems,
increasing reliance on trade and increased
availability of external ®nancial ¯ows, coun-
tries which do not follow Washington
Consensus policies will be especially penalized,
as they will be cut o� and thus excluded from
the intensifying (and implicitly bene®cial)
global ®eld of ¯ows. Concomitantly, those
countries which do follow the right policies will
be rewarded, as they can capture foreign direct
investment which brings technology and
market access, and they can also supplement
national savings with international capital
¯ows, thus reaping the bene®ts of the new
external environment. In this way, the case for
liberalization is rooted in the rhetoric of the
globalization. But the analysis remains meth-
odologically nationalist as it retains the
distinction between external and internal
(national) factors, and still attributes country
trends largely to domestic policy (see, for
example, IMF, 1997; World Bank, 1997).
Globalization is something which is happening
to the external economic environment of
countries; it is outside them.
RISE AND FALL OF THE WASHINGTON CONSENSUS 793
3. THE SHIFT FROM HISTORICISM TO
AHISTORICAL PERFORMANCE
ASSESSMENT

The curious combination of global liberal-
ism
7
and methodological nationalism which
underpins the way in which development is seen
in the new paradigm has been buttressed by a
second key shift which occurred in develop-
ment policy analysis at the end of the 1970s.
This can be characterized as a shift from
historicism to ahistorical performance assess-
ment.
Theorizing on development strategy from the
1950s to the 1970s was historicist in the general
sense that it was founded on an attempt to
understand rhythms, patterns and laws of
development.
8
This understanding was based
on historical analysis of long-term sequences of
economic and social change, which had occur-
red in the past in already-industrialized coun-
tries and which were expected to re-occur,
particularly if the right policy interventions
were made, in ``less developed'' countries. Such
theorizing most typically understood develop-
ment as a societal and economy-wide transition
from a ``traditional'' (rural, backward, agri-
cultural) society to a ``modern'' (urban,
advanced, industrial) society. This process was
seen as a sequence of stages of growth, a
process of modernization, or recurrent patterns

of structural transformation.
9
All countries
were expected to go through such patterns of
development, and development agencies sought
to ensure or accelerate the arrival of a better
future for whole societies through interventions
in these long-term processes of historical
transformation.
With the shift to ahistorical performance
assessment, the focal object of enquiry has been
to describe and explain national ``performanc-
es'' of various types. Not surprisingly but now
taken-for-granted, the key word in the
discourse propagated by international devel-
opment agencies since the start of the 1980s has
been ``performance.'' Attention has been
particularly paid to economic performance, but
also agricultural performance, industrial
performance, trade performance, ®nancial
performance, ®scal performance, poverty
performance, human development performance
and so on. Using these various standards,
countries have been partitioned into good and
bad performers, and ranked according to their
performance in various new leagues of nations.
Moreover comparative performances have been
explained by reference to national factors and
national policy.
It is according to these performance stan-
dards that past development policies have been

criticized because they do not ``work'' and
narratives have been constructed about the
e�ectiveness of the Washington Consensus. A
succession of countries which have undertaken
policy reform in the requisite way and achieved
good short-term growth results have also been
identi®ed as, and dubbed, ``success stories.''
These stories have acted as exemplars for the
new paradigm, providing not only practical
rules-of-thumb guidance on how policy reform
should be undertaken, but also proof of the
validity of the Washington Consensus.
The transition from historicism to ahistorical
performance assessment started in the 1970s,
and was initially animated by those who sought
to re®ne the de®nition of development by
adding social aspects. E�orts to measure
poverty based on the quality of life and satis-
faction of basic needs were particularly
important in this regard. Michael LiptonÕs
book Why Poor People Stay Poor was a key
text in propagating a performance-oriented
approach. The uptake of the notion of urban
bias, a concept which was forged within debates
about how to achieve redistribution with
growth but which became central to the
neoliberal paradigm, can be attributed to its
performance-based de®nition, and the vitriolic
debates of the late 1970s, particularly with
Byres, can be interpreted as an attempt to
sustain a historicist view (see, for example,
Byres, 1979). In the 1980s, these initial moves
toward performance assessment were over-
taken by, and later incorporated in, the
discourse and practice of structural adjustment.

Adjustment involved improving the perfor-
mance of national economies by increasing the
e�ciency of resource allocation. The central
criterion used to measure performance was
current or recent GDP growth rate, and
macroeconomic stability, indicated by ®scal
and external payments balance and low in¯a-
tion. The dynamics of long-term transforma-
tions of economies and societies slipped from
view and attention was placed on short-term
growth and re-establishing ®nancial balances.
The shift to ahistorical performance assess-
ment can be interpreted as a form of the post-
modernization of development policy analysis.
It re¯ects, in particular, the questioning of
grand narratives of historical transformation
which was central to the appeal of the post-
modern ethos in the 1980s.
10
Before the shift,
development agencies acted as handmaidens of
``progress,'' ``modernization,'' ``industrialisa-
tion,'' or the emancipation of people from
oppression, exploitation, disease and drudgery.
After it most agencies re-oriented their work to
monitor and seek to improve ``performance,''
often through local problem-solving and local
social engineering designed to make economic
and social institutions ``work'' better. Adjust-

ment also entailed the abandonment of grand
long-term government-directed designs for
whole societies and a shift to decentralized
decision-making, laissez-faire and local social
engineering. But ironically, this shift away from
holism could not be achieved without a holistic
approach. Everything has been made subject to
the rules and discipline of the market. The
vision of the liberation of people and peoples,
which animated development practice in the
1950s and 1960s, has thus been replaced by the
vision of the liberalization of economies. The
goal of structural transformation has been
replaced with the goal of spatial integration.
4. THE CONFIGURATION OF
DEVELOPMENT POLICY ANALYSIS IN
THE 1990S
The collapse of communism in Eastern
Europe and the Soviet Union has served as
con®rmation of arguments which predicted the
impossibility of central planning and reinforced
the apparent superiority of a market-oriented
development approach. Since the late 1980s
however there have developed two important
challenges to the Washington Consensus. The
®rst is the UNDP's sustainable human devel-
opment (SHD) approach. This approach takes
up some of the themes of the UNICEF critique
of the dominant approach, Adjustment with a
Human Face, originally published in 1987, and
has been elaborated through the annual Human
Development Report, which ®rst appeared in
1990 (UNDP, Various years). The second is a

latent ``Southern Consensus,'' which is founded
on analyses made from the perspective of
countries undertaking late industrialization and
seeking to catch up with richer countries in the
global economy. This Southern Consensus does
not exist as a political reality. Nor has it, as yet,
been articulated analytically. Its existence is
apparent however in the convergence between
the policy conclusions of Latin American
neostructuralism, initially set out by ECLAC in
1990, and the deeper understanding of East
Asian development models, which is described
in ESCAP (1990), but has been most thor-
oughly reconstructed by UNCTAD in its
annual Trade and Development Report (partic-
ularly 1994, part 2, chapter 1; 1996, part two;
1997, part 2, chapters V and VI; and 1998, part
1, chapter 3).
11
These two challenges to the Washington
Consensus have shaped development thinking
and practice in di�erent ways. Indeed devel-
opment policy analysis is now characterized by
a double dialectic. The clash between the
Washington Consensus and the sustainable
human development approach acts to rein-
force and conserve the key elements of the
current paradigm, and in particular its ahis-
torical approach and its combination of
normative internationalism with methodologi-
cal nationalism, whilst the clash between the
Washington Consensus and ideas within the
two strands of the Southern Consensus serves

to undermine these elements and creates
tensions and pressures for a further paradigm
shift.
The key feature of the sustainable human
development approach which distinguishes it
from the Washington Consensus, is that it
espouses a di�erent set of values. Whereas the
Washington Consensus focuses on the promo-
tion of GDP growth, and has been imple-
mented through a top-down, donor-
conditionality-driven and outside-expert-led,
approach, the sustainable human development
approach argues that the ultimate test of
development practice is that it should improve
the nature of peopleÕs lives, and advocates that
it should be founded on participation and a
more …
Eleven
MAKING THE WORLD
A BETTER PLACE
CHAPTER OUTLINE
‘The best of all possible worlds’? 355
TNCs and corporate social responsibility 357
‘The business of business is business’ 357
Approaches to CSR 358
International CSR and GPNs 358
Types of code of conduct 361
How effective are codes of conduct? 362
States and issues of global governance 363
Global–national tensions 363

Regulating the global financial system 365
The established ‘architecture’ of the global financial system
365
Towards a new global financial architecture? 367
Regulating international trade 369
The evolution of world trade regulations 369
Battles within the WTO 371
Regulating TNCs 374
International guidelines and multilateral agreements 374
Dealing with problems of tax avoidance 375
Burning issues: global environmental regulation 378
The evolution of climate change initiatives 378
Where are we now? 379
A better world? 380
Alternative economies? 380
To be ‘globalized’ or not to be ‘globalized’: that is the
question 383
Eradicating extreme poverty: the UN Millennium Development
Project 384
Goals, aspirations and collective will 384
A moral imperative 387
11_Dicken-7E_Ch-11.indd 354 19/11/2014 10:46:32 AM
MAKING THE WORLD A BETTER PLACE 355
‘THE BEST OF ALL POSSIBLE WORLDS’?
As we have seen, the world has changed dramatically over the
past several decades.
It is, in very many ways, a different place. But is such a
‘globalized’ world a ‘better’
world? Voltaire, the eighteenth-century French writer, wrote a
wonderful satirical

novel, Candide, in which the eponymous hero lives in a world
of immense suffer-
ing and hardship, yet whose tutor, Dr Pangloss, insists that
Candide’s world is ‘the
best of all possible worlds, where everything is connected and
arranged for the
best’.1 Today, such a Panglossian view is held by those to
whom an unfettered capi-
talist market system – based on the unhindered flow of
commodities, goods, ser-
vices and investment capital – constitutes the ‘best of all
possible worlds’. Although
they might agree that globalization is a savage process, they
also argue that it is a
beneficial one, in which, they claim, the winners far outnumber
the losers.2 But it
is arguable that ‘now is the best time in history to be alive’.3
Certainly, there is considerable divergence in the views of
ordinary people in
different parts of the world. For example, a poll of 34,500
people in 34 countries,
commissioned by the BBC World Service in 2008, concluded
that
in 22 out of 34 countries around the world, the weight of
opinion is
that ‘economic globalization, including trade and investment’ is
grow-
ing too quickly … Related to this unease is an even stronger
view that
the benefits and burdens of ‘the economic developments of the
last
few years’ have not been shared fairly … In developed
countries, those
who have this view of unfairness are more likely to say that

globaliza-
tion is growing too quickly … In contrast, in some developing
coun-
tries, those who perceive such unfairness are more likely to say
globalization is proceeding too slowly.4
There is, in fact, a highly differentiated geography of attitudes
towards globalization.5
Without doubt, large numbers of people in the developed
economies, and also
in the rapidly growing economies of East Asia, have benefited
from much
increased material affluence: ‘The average person is about eight
times richer than
a century ago, nearly one billion people have been lifted out of
poverty over the
past two decades.’6 There has been immense growth in the
production and con-
sumption of goods and services and, through international trade,
a huge increase
in the variety of goods available. But the evidence discussed in
Chapters 7 to 10
suggests a very different reality for a substantial proportion of
the world’s popula-
tion, not only in the poorest countries and regions, but also
among certain sectors
of the population in affluent countries, who have not benefited –
or have bene-
fited very little – from the overall rise in material well-being.
The fact remains that
there is vast inequality between the haves and the have-nots (or,
as some have put
it more ironically, between the ‘have-yachts’ and the ‘have-
nots’). And that gap has
been widening, despite the operation of precisely those

globalizing processes that
are supposed to create benefits for everybody. For many,
insecurity has become the
norm, much exacerbated by the impact of the 2008 financial
crisis:
PART THREE WINNING AND LOSING IN THE GLOBAL
ECONOMY356
Globalization increases objective and subjective insecurities
among a
great many workers and producers … different faces of
economic
globalization can be expected to have different implications for
risk.
For instance, some faces of globalization more than others are
visible,
direct, and palpable with respect to job risks – for instance, via
threats
of outsourcing by companies rather than via trade competition.7
What can or should be done? How can the world be made a
better place for all,
including those at the bottom of the heap? There is no simple
answer. Choices are
never unconstrained:
Our choices … are shaped by systems and structures over which
we,
as individuals, have no control. Economic, political,
technological and
social dynamics make some choices available and remove others

from
the table.8
We are all deeply embedded in specific contexts, structures and
places and con-
strained by our knowledge and resources. As we have seen, the
map of such con-
straints is immensely uneven; for many people, in many parts of
the world, the
exercise of choice is extremely limited. More broadly, of
course, it depends on
one’s political and ideological point of view. It is about
values.9 It is about where
we want to be. In terms of ‘making the world a better place’,
one person’s ‘utopia’
is another person’s ‘dystopia’.
For example, GCSOs vary widely both in their agendas and in
how these agendas
are pursued: from vociferous, often violent, confrontation
through to more reform-
ist movements. Anti-capitalist groups advocate the replacement
of the capitalist
system,10 although precisely what the alternative should be
varies between groups.
For some, it would be a democratically elected world
government; for others, a
structure in which the means of production and distribution
were controlled by
a nationally elected government. For some, it would be a system
of locally self-
sufficient communities in which long-distance trade would be
minimized. This is
the position, for example, of the ‘deep green’ environmental
groups. For some, the
focus is on ‘fair’, rather than ‘free’, trade – although who

decides what is ‘fair’ is a
crucial issue. For the more nationalist–populist groups, and for
some labour unions,
the agenda is one of protecting domestic industries and jobs
from external compe-
tition (especially from developing countries) and restricting
immigration. For some,
the objective is removing the burden of debt from the world’s
poorest countries or
improving labour standards in the developing world (especially
of child labour). The
problem is that, very often, these agendas are contradictory.
Not surprisingly, GCSOs have themselves attracted considerable
criticism from
some quarters, questioning their legitimacy and, in some cases,
their abilities to
further economic and social development goals for the poor.
Although the prolif-
eration of GCSOs has ‘unquestionably projected the
globalization debate into the
popular political consciousness in important ways … the
movements themselves
have a severe democratic deficit: representing humanity
ultimately requires legiti-
mation through some sort of people’s mandate’.11 Nevertheless,
GCSOs undoubt-
edly force people – including politicians and business leaders –
to recognize, and

to engage with, the uncomfortable reality that both the benefits
and the costs of
globalization are very unevenly distributed and that there are
severe and pressing
problems that need resolution:
The advocatory movements of global civil society are the
originators,
advocates and judges of global values and norms. The way they
create
and hone this everyday, local and global awareness of values is
by spark-
ing public outrage and generating global public indignation over
spec-
tacular norm violations. This they do by focusing on individual
cases.12
In fact, the major responsibility for making the world a better
place lies with two
dominant sets of actors/institutions: TNCs and states. The
central argument of
this book has been that, among the multiplicity of actors
involved in the global
economy, these two – whether in conflict or collaboration – are
responsible for
much of the shaping and reshaping of the global economic map.
As such, they
bear the primary responsibility for improving the lives and
livelihoods of people
throughout the world. For that reason they form the focus of the
next two sections
of this chapter. First, we will look at the role of TNCs in terms
of their corporate
social responsibility (CSR). Second, we will focus on states in
the context of global
governance issues.

TNCs AND CORPORATE SOCIAL RESPONSIBILITY
‘The business of business is business’
This statement, generally attributed to Milton Friedman, the
free market econo-
mist, implies that the primary purpose of firms is to maximize
shareholder value. In
other words, the only actors who matter are the shareholders
(stockholders): the
ultimate owners of the company. Everybody and everything else
– employees, cus-
tomers, suppliers, members of the communities in which the
company’s facilities
are located, the environment – are not the company’s direct
concern. This is the
ideology of business that dominates the USA and the UK
economies in particular:
the neo-liberal model of free market capitalism. It is
demonstrated most clearly
in the context of company takeovers, where the views of
employees are usually
ignored, even though they are much more directly engaged in
the company than
many of the shareholders (which are predominantly huge
financial institutions for
whom a firm is simply part of a broader portfolio), and have
more at stake (their
incomes and livelihoods). In fact, such a narrow view of
business responsibilities

ECONOMY358
is far from universal. In many European countries, for example,
a broader concept
of stakeholder capitalism exists in which other actors
(‘stakeholders’, such as labour,
consumers, suppliers) are explicitly recognized as having
legitimate interests in
business decisions.
Issues of corporate responsibility impinge on virtually all
aspects of modern life
and span the entire spectrum of relationships between firms,
states and civil soci-
ety.13 We cannot explore all of these. Instead we will
concentrate on those aspects
of CSR that have an explicitly international dimension.14
Approaches to CSR
Rob van Tulder and his colleagues identify four approaches to
CSR (Figure 11.1),
each of which reflects different degrees of relationship to the
social environment
and to external stakeholders:15
•• Inactive CSR is essentially that embodied in the ‘business of
business is business’
philosophy: ‘the only responsibility companies (can) have is to
generate profits …
no fundamental ethical questions are raised about what they are
doing’ (p. 143).
•• Reactive CSR is slightly different: it ‘shares the focus on
efficiency but with
particular attention to not making any mistakes … entrepreneurs
monitor

their environment and manage their primary stakeholders so as
to keep
mounting issues in check … Entrepreneurs … respond
specifically to actions
of external actors that could damage their reputation’ (p. 143).
•• Active CSR ‘represents the most ethical entrepreneurial
orientation.
Entrepreneurs … are explicitly inspired by ethical values … on
the basis of
which company objectives are formulated. These objectives are
subsequently
realised in a socially responsible manner regardless of actual or
potential social
pressures by stakeholders’ (p. 145).
•• Proactive CSR occurs where an entrepreneur involves
‘external stakeholders
right at the beginning of an issue’s life cycle’ (p. 145). It
implies active and
ongoing discussion with stakeholders: a ‘discourse ethics’
approach.
International CSR and GPNs
As we have seen throughout this book, the production,
distribution and consump-
tion of goods and services are primarily organized within GPNs,
usually controlled
and coordinated by TNCs. Such networks raise hugely important
questions, par-
ticularly regarding relationships between lead firms and
suppliers and the treatment
of labour throughout the network. In Chapter 8, we discussed
the developmental
implications of involvement (or non-involvement) in GPNs for
people and busi-

nesses in local economies using the criterion of various types of
upgrading. Of these,
social upgrading relates specifically to work and labour
standards. This includes a
whole spectrum of social, economic and ethical issues,
including pay, work condi-
tions, occupational health and safety, and human rights.
Questions of CSR, there-
fore, are intrinsically involved in the operation of GPNs.16 We
examine some specific
examples in the cases of agro-food (Chapter 13) and clothing
(Chapter 14).
The primary mechanism for attempting to ensure social
upgrading in GPNs is
the code of conduct. Such codes have proliferated to the extent
that they often over-
lap in highly confusing ways. In 2006, for example, it was
estimated that there
were around 10,000 different codes of labour practice.17 Two-
thirds of the 100
largest firms in the world operated a code of conduct by the
early 2000s.18 A
major reason for such proliferation is the increased
geographical extent and
organizational complexity of GPNs:
Codifications are triggered by intrinsic motivations …
[including] …

the greater strategic need to coordinate and control the firm’s
activities
spread over a large number of countries and constituencies …
This is
often the area of ‘internal codes of conduct’ or ‘codes of
ethics’. The
strategic need for the formulation and implementation of
external
codes of conduct as a coordination mechanism becomes bigger
when
firms engage in sourcing out activities to dependent affiliates
(off-
shoring) or to independent suppliers (outsourcing) in developing
countries, where the governance quality is often relatively low
and the
cultural and institutional distance … is relatively high. A large
number
of (procurement) codes thus addresses supply chain issues such
as
human rights, labour standards or the right to association … In
this
case firms have an incentive not only to formulate codes of
conduct,
Pro/interactive
Corporate societal
responsibility
‘Interactive duty’
In/outside–in/out
‘Doing the right
things right’

‘Doing well by
doing good’
Medium-term profitability
and sustainability
Active
Corporate social
responsibility
‘Positive duty’
or virtue based
Inside–out
‘Doing the right things’
‘Doing good’
Long-term profitability
Corporate self-
responsibility
Inactive
‘Utilitarian’
legal compliance
Profit maximization
Inside–in
‘Doing things right’

‘Doing well’
Narrow
(internal) CSR
Economic
(wealth-oriented)
Broad
(external) CSR
Social
(welfare-oriented)
Scope
Nature of responsibility
Reactive
Corporate social
responsiveness
‘Negative duty’
Outside–in
‘Don’t do things wrong’
‘Doing well and
doing good’

Quarterly profits and
market capitalization
Figure 11.1 Differing approaches to CSR
Source: based on van Tulder with van der Zwart, 2006: Table
8.1; van Tulder et al.,
2009: Table I
ECONOMY360
but also to implement them. Extrinsic motivations for [TNCs]
are
gaining in importance as well: the risk of reputation damage
triggered
by critical NGOs precipitates [TNCs] to formulate international
codes of conduct or principles of ‘corporate citizenship’.19
Figure 11.2 sets out the different kinds of CSR supplier strategy
associated with
the four types of CSR discussed above (see Figure 11.1). The
upper part of Figure
11.2 sets out the variations in supply chain relationships
between different CSR
positions; the lower part shows how codes of conduct strategy
may vary. The codes
are classified along two dimensions:20
•• Specificity includes ‘how many issues it covers, how focused
it is, the extent to
which it refers to international standards and guidelines, and to

what extent
aspects of the code are measured’ (p. 402).
•• Compliance ‘is generally enhanced by clear monitoring
systems in place, com-
bined with a more independent position of the monitoring
agency and the
possibility of these organizations to formulate and implement
sanctions’ (p. 402).
Corporate self-
responsibility
Inactive Reactive Active Pro/interactive
Corporate social
responsiveness
Corporate social
responsibility
Corporate societal
responsibility
Price only.
Strong competition for
customers.
Active use of power
position in chain.
Suppliers responsible
for labour conditions.
Price and quality.
Suppliers responsible
for labour conditions.

Fair prices and high
quality.
Suppliers selected on
basis of approach to
e.g. labour conditions.
Joint responsibilities.
Prices and quality
set together.
Definition of fair wages
and labour conditions
based on consultation
and strategic dialogues.
CSR only if not too
costly and does not
mean higher
purchasing prices.
Cost, control, risk
aversion.
Below 5% CSR of
purchases.
Buy
Global
Internal Specific supplier General supplier Joint/dialogues
Low Medium/high Medium/low High
Low Medium/low Medium/high High
Low Medium/low Medium/high High

Cost, control, quality.
Below 25% CSR of
purchases.
Make or buy
Global
Control and quality.
Target of 25–60%
CSR of purchases.
Make
Regional
Co-development
and quality.
Target of 60–100%
CSR of purchases.
Cooperate
Local
CSR only if needed
and/or available and
does not mean higher
purchasing prices.
Upgrading according
to own standards.

Upgrading according
to joint and/or open
standards.
Chain
liability
Chain
responsibility
Type of code
Specificity
Compliance
Implementation
Supply chain relationships
Codes of conduct strategy
Figure 11.2 Types of CSR strategy towards suppliers
Source: based on van Tulder et al., 2009: Table II; van Tulder,
2009: Table 4

Firms positioned at the left-hand side of Figure 11.2 tend to opt
(if they do so at
all) for internal corporate codes or for codes drawn up in
collaboration with other
firms without prior dialogue with non-firm stakeholders. On the
other hand,
firms positioned towards the right-hand side of Figure 11.2 tend
to participate in
more open agreements with non-firm stakeholders. The pressure
from GCSOs
is to move as many firms as possible to that more open,
cooperative position.
Much will clearly depend upon the relative bargaining power of
the participants as
well as the ‘social conscience’ of firms. There has certainly
been some movement.
Even among the hard-line business-is-business community there
is now a consid-
erable (albeit often reluctant) recognition that companies do
have broader social
responsibilities.
Hence, there has been a rush to formulate corporate
responsibility statements.
Some of this may well be altruistic, in other cases mere self-
interest. However, it
is difficult to avoid the conclusion that a major catalyst for CSR
has been the
increasing pressure on TNCs to recognize their social
responsibilities and to con-
form to acceptable ethical standards.21 For example, there is no
doubt that such
pressures led to such leading companies as Apple and Nike to
publish a list of their
global suppliers in their CSR reports. This was an
unprecedented step for compa-

nies which had always been highly secretive about their supply
networks.
Types of code of conduct
There are four major types of code of conduct:
•• Codes devised by individual TNCs, or groups of TNCs, with
no involvement
of other stakeholders. Example: the Global Social Compliance
Programme
established by Wal-Mart, Tesco, Carrefour and Metro.
•• Codes drawn up by coalitions of interest groups in specific
industries, such as
clothing.22 Example: the Global Alliance for Workers and
Communities
involving Nike, and Gap, together with the World Bank and the
International
Youth Foundation.
•• Codes formulated by TNCs in association with some of their
stakeholders.
Examples: Global Framework Agreements (GFAs) between a
TNC and a
global labour union federation;23 the UK Ethical Trading
Initiative (ETI), an
alliance of companies, NGOs and labour unions.24
•• Codes established by international NGOs. Example: the UN
Global
Compact,25 which is based upon the ILO Declaration of
Fundamental
Principles and Rights to Work. Figure 11.3 sets out its 10
principles.
All such codes are, of course, the outcome of complex

bargaining processes:
They need to be understood as part of a contradictory process,
involv-
ing collaboration and conflict between commercial and civil
society
actors, in which inherent tensions play out.26
ECONOMY362
TNCs clearly have an interest in being seen as having a positive
relationship with
GCSOs, not least because it provides a ‘seal of approval’.
GCSOs need to find ways of
increasing their influence on TNC decision making. But there
are problems for both
of them in too cosy a relationship. In the final analysis, they
have very different aims
and objectives. But that need not mean that such collaboration
is not worth pursuing.
How effective are codes of conduct?
Are such codes mainly a cosmetic exercise? How fully are they
implemented? How
are they monitored? These are the questions commonly posed by
critics, to which
there are no unambiguous answers. Inevitably, there is a good
deal of scepticism
about voluntary codes, whether at the individual firm or
collective level. This is not
only because they are ‘voluntary’, but also because they are

rather marginal in their
scope and effect. Without some degree of compulsion – and the
monitoring of
compliance – there is always the danger that such codes will
amount to little more
than a gesture or that companies will be able to influence how
the process works.
In one sense, of course, anything that contributes to better
conditions for peo-
ple and communities should be welcomed:
Whilst in themselves codes of labour practice are limited, they
do have
a role in wider strategies to promote economic and social rights
of
vulnerable workers. But they are not sufficient (nor have they
aimed)
to achieve more sustainable systems of global production that
address
inherent inequalities and poverty … The issue, therefore, is
whether
and how codes contribute to a wider process that promotes the
rights
of the most vulnerable workers.27
Human rights
Labour standards
Environment
Anti-corruption
Principle 1:

Principle 3:
Principle 7:
Principle 10:
Principle 8:
Principle 9:
Principle 2:
Principle 4:
Principle 5:
Principle 6:
Support and respect the protection of international human rights
within their sphere of influence.
The freedom of association and the effective recognition of the
right to collective bargaining.
Support a precautionary approach to environmental challenges.
Work against all forms of corruption, including extortion and
bribery.
Undertake initiatives to promote greater environmental
responsibility.
Encourage the development and diffusion of environmentally
friendly technologies.
Make sure their own corporations are not complicit in human

rights abuses.
The elimination of all forms of forced and compulsory labour.
The effective abolition of child labour.
The elimination of discrimination in respect of employment and
occupation.
Figure 11.3 Principles of the UN Global Compact
Very often, the impacts are mixed. For example, a study of the
effects of the Ethical
Trading Initiative (ETI) reached the following conclusions:
ETI company codes have had a positive impact in relation to
certain
code principles, particularly health and safety, documented
minimum
(not living) wages and employment benefits. Company codes
were
found to have had little or no impact on other code principles,
par-
ticularly freedom to join an independent trade union, collective
bar-
gaining and discrimination … In general, permanent and regular
workers were found to have fared better from company codes of
labour practice … [However] … whilst there had been positive
impacts on regular workers, codes of labour practice were
failing to

reach more vulnerable casual, migrant and contract workers,
many of
whom were women.28
A detailed analysis of GFAs involving firms from the USA,
Europe and
Japan identified two important factors in how such codes of
conduct tend to be
implemented:29
•• The extent to which the various stakeholders participate in a
code’s formula-
tion. This tends to affect the likelihood of different levels of
implementation
and compliance, the nature of the codes themselves and the
degree of com-
promise involved.
•• A country of origin effect: ‘All Japanese firms scored low on
both specificity and
compliance, indicating inactive codes, whereas the only
examples of high speci-
ficity and compliance, i.e. active codes, could be found with
European firms …
The US companies fall somewhere in between and generally
represent the re-
active CSR strategy. The difference in approach between US
and European
companies is particularly remarkable, but could be largely
explained by the big-
ger involvement of stakeholders. The implementation likelihood
of almost all
European codes is higher than that of their American or
Japanese counterparts.’30
Codes of conduct, therefore, are useful mechanisms in the

progress to greater CSR.
They are clearly better than nothing. But they are insufficient,
not least because
they are partial in terms of both their coverage and their
essentially voluntary
nature.
STATES AND ISSUES OF GLOBAL GOVERNANCE
Global–national tensions
The world’s economy is global; its politics are national. This, in
a nut-
shell, is the dilemma of global governance.31
ECONOMY364
While the world has become much more highly integrated
economi-
cally, the mechanisms for managing the system in a stable,
sustainable
way have lagged behind.32
Virtually the entire world economy is now a global capitalist
market economy although,
as we saw in Chapter 6, there are several variants. The collapse
of the state social-
ist systems at the end of the 1980s and the headlong rush to
embrace the market,
together with the more controlled opening up of the Chinese
economy after
1979, created a very different global system from the one which

emerged after
the Second World War. The massive flows of goods, services
and, especially, finance
in its increasingly bewildering variety created a world whose
rules of governance
have not kept pace with such changes.
In Chapter 3 (see Figure 3.2), we noted the ‘thickening web’ of
public and
private institutions that make up the institutional macro-
structures of the global
economy. Now we focus on the core institutions, a mixture of
bodies established
in different circumstances, and at different times, in the seven
decades since the
end of the Second World War. They consist of widely differing
memberships
(Figure 11.4), with widely different methods of reaching
agreement. Many of
them – especially those set up in the immediate aftermath of the
war, like the IMF
and the World Bank – have power structures and sets of rules
that were put in
place in a very different …

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