[Capítulo III: Entendiendo la República Ineficiente] Dutch tulips and emerging markets
[http://www.pkarchive.org/crises/DutchTulips.html]
ANOTHER BUBBLE BURSTS
During the first half of the 1990s, both economic and political events in developing countries defied all expectations. Nations that most thought would not regain access to world financial markets for a generation abruptly became favorites of private investors, who plied them with capital inflows on a scale not seen since before World War. Governments that had spent half a century pursuing statist, protectionist policies suddenly got fee market religion. It was, it seemed to many observers, the dawn of a new golden age for global capitalism.
To some extent the simultaneous reversals in government policies and investor sentiment were the result of external factors. Low interest rates in the advanced countries encouraged investors to look again at opportunities in the Third World; the fall of communism not only helped to discredit statist policies everywhere but reassured investors that their assets in the developing world were unlikely to be seized by leftist governments. Still, probably the most important factor in the new look of developing countries was a sea change in the intellectual zeitgeist: the almost universal acceptance, by governments and markets alike, of a new view about what it takes to develop.
This new view has come to be widely known as the "Washington consensus," a phrase coined by John Williamson of the Institute for International Economics. By "Washington" Williamson meant not only the U.S. government, but all those institutions and networks of opinion leaders centered in the world's de facto capital—the International Monetary Fund, World Bank, think tanks, politically sophisticated investment bankers, and worldly finance ministers, all those who meet each other in Washington and collectively define the conventional wisdom of the moment.
Williamson's original definition of the Washington consensus involved ten different aspects of economic policy. One may, however, roughly summarize this consensus, at least as it influenced the beliefs of markets and governments, more simply. It is the belief that Victorian virtue in economic policy--free markets and sound money--is the key to economic development. Liberalize trade, privatize state enterprises, balance the budget, peg the exchange rate, and one will have laid the foundations for an economic takeoff; find a country that has done these things, and there one may confidently expect to realize high returns on investments.
To many people the rise of the Washington consensus seemed to mark a fundamental turning point in world economic affairs. Now that the dead hand of the state was being lifted from Third World economies, now that investors were becoming aware of the huge possibilities for profit in these economies, the world was set for a prolonged period of rapid growth in hither to poor countries and massive capital flows from North to South. The question was not whether optimistic expectations about growth in the big emerging markets would be fulfilled; it was whether advanced countries would be able to cope with the new competition and take advantage of the opportunities this growth now offered.(1)
And then came the Mexican crisis....
Keep reading The Unofficial Paul Krugman Web Page
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Posted by Alberdi & Urquiza to Capítulo III: Entendiendo la República Ineficiente at 8/05/2004 04:46:00 PM
ANOTHER BUBBLE BURSTS
During the first half of the 1990s, both economic and political events in developing countries defied all expectations. Nations that most thought would not regain access to world financial markets for a generation abruptly became favorites of private investors, who plied them with capital inflows on a scale not seen since before World War. Governments that had spent half a century pursuing statist, protectionist policies suddenly got fee market religion. It was, it seemed to many observers, the dawn of a new golden age for global capitalism.
To some extent the simultaneous reversals in government policies and investor sentiment were the result of external factors. Low interest rates in the advanced countries encouraged investors to look again at opportunities in the Third World; the fall of communism not only helped to discredit statist policies everywhere but reassured investors that their assets in the developing world were unlikely to be seized by leftist governments. Still, probably the most important factor in the new look of developing countries was a sea change in the intellectual zeitgeist: the almost universal acceptance, by governments and markets alike, of a new view about what it takes to develop.
This new view has come to be widely known as the "Washington consensus," a phrase coined by John Williamson of the Institute for International Economics. By "Washington" Williamson meant not only the U.S. government, but all those institutions and networks of opinion leaders centered in the world's de facto capital—the International Monetary Fund, World Bank, think tanks, politically sophisticated investment bankers, and worldly finance ministers, all those who meet each other in Washington and collectively define the conventional wisdom of the moment.
Williamson's original definition of the Washington consensus involved ten different aspects of economic policy. One may, however, roughly summarize this consensus, at least as it influenced the beliefs of markets and governments, more simply. It is the belief that Victorian virtue in economic policy--free markets and sound money--is the key to economic development. Liberalize trade, privatize state enterprises, balance the budget, peg the exchange rate, and one will have laid the foundations for an economic takeoff; find a country that has done these things, and there one may confidently expect to realize high returns on investments.
To many people the rise of the Washington consensus seemed to mark a fundamental turning point in world economic affairs. Now that the dead hand of the state was being lifted from Third World economies, now that investors were becoming aware of the huge possibilities for profit in these economies, the world was set for a prolonged period of rapid growth in hither to poor countries and massive capital flows from North to South. The question was not whether optimistic expectations about growth in the big emerging markets would be fulfilled; it was whether advanced countries would be able to cope with the new competition and take advantage of the opportunities this growth now offered.(1)
And then came the Mexican crisis....
Keep reading The Unofficial Paul Krugman Web Page
--
Posted by Alberdi & Urquiza to Capítulo III: Entendiendo la República Ineficiente at 8/05/2004 04:46:00 PM
posted by Pablo Presas at 7:48 p.m.
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