‘THE Washington Consensus’ was based on the belief that the market forces, supported by macro-economic stability, liberalization of trade and privatization of economic activity, will spur economic growth in the poor countries, generate employment and help reduce poverty through investment in education, health, nutrition, reproductive health, water and sanitation.

The poor countries were rapped on knuckles to transform their economies on the dotted lines through Structural Adjustment Programmes, funded by the international financial institutions (IFIs).

Any poor country which was sceptical of a fast track approach of a change in the economic structures was advised by one IFI or the other that the structural change will cause only a temporary loss in employment which could be taken care of by “social safety nets.” In the long run, it was only the poor country which will benefit in terms of high rate of growth, an increase in employment and a reduction in poverty.

The results of the restructuring of the economies spread over one and a half decade are, however, dismal. It has accelerated unemployment and deepened poverty – whether measured in terms of income, nutrition intake or social indicators – in most of third world countries.

According to the ILO’s Report titled “ Global Employment Trends, 2004 ”, “ the global employment performance did not improve despite a pick up in economic growth”. The total unemployment in the world increased from 140.5 million individuals in 1993 to 185.9 million individuals in 2003. The increase in unemployment was particularly pronounced in the third world countries.

The increase in unemployment and poverty in the developing countries was visible despite a rise in average per capita income growth moving up from 0.5 per cent in 1980s to 1.5 in 1990s and further to 3.4 per cent since the year 2000.

An increase in GDP or average per capita income did not impact upon an increase in employment or a reduction in poverty. This is because it is a mere question of how an increase in the national income is shared between the rich and the poor.

There may be a situation in which average per capita income may increase but a rise in the income of the poor may be absolutely small or even negative, if greater share of incremental national income and wealth goes to the rich class. The absolute definition of the World Bank and the International Monetary Fund, however, does not take into account the distributional aspect by taking an increase in average per capita income as a justification of the polices inherent in “the Washington Consensus”.

This deliberate sidelining of distributional aspects in the reform programmes in poor countries has already led and is further leading towards greater concentration of income. Just to cite a few examples, the ratio of richest 20 to poorest 20 per cent in the national income between 1980-94 which stood at 4.7 moved to 4.8 in 1998 in Pakistan, 4.4 to 5.1 in 1999 in Sri Lanka, 16.2 to 17.9 in 1998 in Venezuela, 10.3 to 18.4 in 2000 in Peru, 5.3 to 8.4 in 1996 in Nigeria.

The redistribution of income and a falling rate of unemployment have plagued the globe with civil strife, food riots, crimes and terrorism. Therefore, Hernando De Soto in his book “Mystery of Capital” decries “ these whispers of alarm, disturbing though they are, have thus far only prompted American and European leaders to repeat to the rest of the world the same wearisome lectures: stabilize your currency, hang tough, ignore the food riots and wait patiently for the foreign investors to return”.

The same point is emphasized by Mark Duffield an economist, who says that “rather than promoting stability, globalization has helped illiberal and quasi-feudal forms of political economy to expand”.

In his remarkable special contribution to the UNDP’s Human Development Report, 2003, Joseph E. Stiglitz, the Noble Laurete, ascribes unemployment and poverty to the policies imposed on the globe by ‘the Washington Consensus’. He argues that “neither theory nor evidence supports the view that opening markets to short-term speculative capital flows increases economic growth.

But there is considerable evidence and theory that it increases economic instability, and that economic instability contributes to insecurity and poverty. Such forms of capital market liberalization might in some ways increase globalization. But they do not enhance growth – and even if growth increased slightly, this form of it might increase poverty, especially in countries without adequate social safety nets”.

The growing poverty and unemployment in the third world countries can also be traced to the trade liberalization programme and openness of the economy. About 90 per cent of labour force in the third world countries is employed in informal sector comprising small scale cottage industries and agricultural enterprises.

The sector is characterized by low wage rates and long working hours. The opening up of the economies to the global markets has adversely affected the informal sector. However, the displaced labour force employed in the sector could not move from low productivity protected sector jobs to high productivity export sector jobs. There are two reasons for it.

First, export markets in areas of comparative advantage such as agriculture continue to be effectively closed by the developed world by providing huge subsidies to their agricultural produce and imposing strict quarantine restrictions.

These practices negated the very theory of openness and comparative advantage that the authors of the policy have flaunted on the poor countries. Second, high productivity export sector required huge investment which small scale producers could not make.

Instead of increasing development assistance to poor countries to facilitate transformation of their economies, the developed world reduced foreign assistance to the poor countries.

The net official development assistance from aggregate 26 members of Development Assistance Committee of OECD fell from 0.33 per cent of GNP in 1990 to 0.25 per cent in 2003.

The nearly S500 billion that the US will spend this year on the military will never buy lasting peace if the US continues to spend only one thirtieth of that, around $16 billion, to address the plight of the poorest of the poor, whose societies are destabilized by extreme poverty”.

The eight goals and eighteen targets contained in the UN Millennium Declaration made in the year 2000 to rid the world of unemployment and poverty cannot be achieved by the third world countries unless the developed world discharges its obligations to reduce debt of poor countries, increases aid, allows uninhabited trade, facilitates unrestricted immigration of required labour force to the developed world and effects technology transfers.

It should recognise that the recipe of free market and openness of the economies by the poor countries and an increased expenditure on social sectors needs a reappraisal in the light of the outcomes of the policy.

It is in this background that the Human Development Report, 2005 vehemently pleads: “ various diplomatic formulations and polite terminology can be found to describe the divergence between progress on human development and ambition set out in the Millennium Declaration. None of them should be allowed to obscure a simple truth: the promise to the world’s poor is being broken”.

One hopes that the third party advice of a large number of eminent economists, academia and the UN system will find weight with the rich countries to deflect from a rigid enforcement of “the Washington Consensus” on the poor countries as the only panacea for the globe and respond positively to the advice of the third party. If not done, the global security which is already under threat will collapse hook, line and sinker.