My previous post on the comparative merits of import substitution (ISI) and the Washington Consensus (WC) has resuscitated some counter-arguments that I thought had long been laid to rest. Three in particular:
1. “ISI was responsible for the debt crisis of the 1980s.” This confuses micro and macroeconomics. The debt crisis was the result of a macroeconomic imbalance: an excess of aggregate spending over aggregate incomes. The relative price “distortions” that were the hallmark of ISI do not necessarily produce macroeconomic imbalances (cf. India throughout the heyday of its ISI regime); nor do macroeconomic imbalances require relative price distortions (cf. Greece today).
2. “Latin American countries did not try hard enough to implement WC policies in the 1990s.” This is probably the most disingenuous comment of all. It does great injustice to the efforts of Latin American policy makers, who led a real revolution in policy making. It is also disturbingly reminiscent of the old chestnut about “communism didn’t fail because it was never tried.”
3. “The check is in the mail.” In other words, just give it more time and we will see the positive results of the WC eventually. The obvious riposte to this is to point to the experience of Asian countries that seem to get quick results from unorthodox but well-targeted reforms. Isn’t it obvious that this experience should be a better guide to growth-promoting policies than the WC?