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Whether the decisions of the recently held London Summit of G-20 will provide a way out of the present worldwide depression is not certain, one thing, however, is crystal clear: Thatcher-Reagan approach based on Mises-Hayek-Friedman thinking has been buried fathoms deep. Obviously, the much trumpeted ultimate wisdom, the Washington consensus that has formed the basis of ongoing globalization has vanished in the thin air. In our country where a band of economists with their received wisdom have been lambasting and lampooning Jawaharlal Nehru and his economic ideas day in day out, there is bound to be a rethinking on and review of all that has happened on the economic front since 1991.

Releasing the official statement of G-20 Summit, British Prime Minister Gordon Brown who had presided over it, underlined that ‘old Washington consensus is over and today we have reached a new consensus.' Elaborating it, he told The Guardian in an interview: ‘40-year-old prevalent orthodoxy known as the "Washington consensus" in favour of free markets had come to an end.' He went on to add: ‘Laissez-faire has had its day. People on the centre-left and the progressive agenda should be confident enough to say that markets were efficient and could work things out by themselves are gone. That doesn't mean to say that what government does is always right. What it means is that both government and markets have got to be underpinned by values.'

The point that the Washington consensus deserved to be consigned to the dustbin of history had been hammered by Brown and other European leaders for quite some time. Just before the G-20 Summit opened in London, he underlined it twice. On 24 March, he said to the European Parliament: ‘I propose that we in Europe take a central role in replacing what we once called the old Washington consensus with a new principled economy for our times.' Six days after, on 30 March, he informed a press conference at his official residence: ‘The world is coming together and the result of this week will show that global problems ... require global solutions. I believe the world will rise to the challenge and defeat those who say protectionism is an option.'

The Washington consensus was formulated by John Williamson in 1990 as a result of an agreement between various economic departments of the US administration and international financial institutions. It was to be imposed, to begin with, on Latin American countries and, later, on other developing countries. As Joseph Stiglitz said, no consultation was held with developing countries and their specific circumstances were not taken into account. In fact, as Stiglitz asserted, it was a consensus between the 15^th street (where the US economic departments are located) and the 19^th street (where IMF head quarters stand) of Washington, D.C.

The Washington consensus (termed also as neo-liberalism or market fundamentalism) had ten points, namely, fiscal discipline; redirection of public expenditure priorities in order to get high returns, tax reform to lower the marginal rates and broaden the tax base; liberalization of interest rates; competitive exchange rate; liberalization of trade; encouragement to free inflow of foreign direct investment; privatization of public assets, undertakings, facilities, etc.; deregulation in order to abolish barriers to entry and exit of firms whether indigenous or foreign; and guaranteeing secure property rights. Subsidies, poverty alleviation schemes and welfare programmes were regarded as wasteful expenditures and they were to be done away with as early as possible. The role of state in the economy was to be kept as small as possible and the economy was left to be driven by "magic of the market place." In America, Glass-Steagall Act of 1933, separating investment and commercial banking, was abrogated. Similarly other regulatory mechanisms were discarded. Consequently, ground was gradually prepared for the present crisis.

In India, privatization of public sector undertakings began with full speed. The government gave up its responsibility for removal of regional backwardness and income and wealth disparities. Consequently, new investments since then have mostly gone to southern and western states of the country while others have sunk in greater backwardness, poverty and wretchedness. Rise in criminalization of all sorts and growing terrorism, regionalism, communalism and casteism are, to a large extent, a reflection of this. In politics, the mushroom growth of political parties based on caste, religion and region is due to this changing character of Indian economy.

Para 21 of G-20 leaders' statement rightly discards the Washington consensus and states: ‘we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity.' It flows from the fact that leaders ‘start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today's population, but of future generations too. We believe that the only sure foundation for sustainable globalization and rising prosperity for all is an open economy based on market principles, effective regulation, and strong global institutions.' It is obvious that Thatcher-Reagan advocacy of unrestrained operation of market has been rejected. Market should remain but with proper regulations. State will not be relegated into background. If state remains, public sector enterprises and social welfare programmes and protection of labour will also be there. Privatization will require rethinking and there will be no dilution of public sector ownership over banks in India as suggested by the Raghuraman Rajan Committee. The G-20 statement has, thus, disapproved unrestrained disinvestment of public sector undertakings, going on since the 1990s.

The next paragraph (no. 4) spells out the broad objectives of G-20. To quote, ‘we have today pledged to do whatever is necessary to:

•  restore confidence, growth, and jobs;
•  repair the financial system to restore lending;
•  strengthen financial regulation to rebuild trust;
•  fund and reform our international financial institutions to overcome this crisis and prevent future ones;
•  promote global trade and investment and reject protectionism, to underpin prosperity; and build an inclusive, green, and sustainable recovery.'

A close reading of the statement makes obvious the consensus that, from now-on-wards international economic institutions will not be dominated by US-led developed countries nor will they work towards giving priority to their interests. Emerging markets and developing countries will have adequate representation and role in decision-making and management of these institutions. This flows from the commitment that ‘We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.'

Leaders have recognized that ‘Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis.' In this connection, one may recall the abrogation of the Glass-Steagall Act of 1933 and the formation and operation of hedge funds. They have, therefore, pledged ‘to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.' Further, ‘We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace.'

It has been resolved to set up a new Financial Stability Board, with representation of the entire G-20 on it, which will alongside IMF so that the latter does not work arbitrarily. The financial resources at the disposal of IMF are to be augmented and SDR will be made more effective so that the role of dollar as the only international currency diminishes.

The Summit has pledged itself to the revival of the Doha Round of Development, accelerating the pace towards achieving Millennium Development Goals and redeeming the pledges to Overseas Development Agencies.

So far, it is all right. The main problem is its implementation, which is not going to be easy. Paul Taylor in his piece "Can we trust the G-20? Maybe..." (International Herald, April 7) has written: ‘Promises, promises. The last time world leaders pledged not to take protectionist measures during the financial crisis, 17 of the 20 signatory nations imposed some form of trade restriction within two months.'