Economic Theory, Russia and the Fading “Washington Consensus”

Less than ten years ago John Williamson of the Institute for International Economics summarized a recipe for structural adjustment and development in Latin America into ten ingredients. According to Williamson the recipe was "generally applicable" elsewhere, and universally agreed upon in Washington institutions. Stiglitz,within his new position at the World Bank, has offered interpretations and advice that somewhat contradict the established consensus. While he is no longer alone among US economists in voicing criticism against Washington orthodoxy, he is likely to have a double impact: first, because he speaks from within the citadel of international financial institutions; and second, because the issues of "moral hazard", incentives and information asymmetries play an important role in the current analysis of what has happened in global financial markets: and this is exactly where Stiglitz, as an economic theorist, has more to say. We discuss the case of Russia in this framework. We suggest that the year 1998 should be seen as the turning point that marked the end of the Washington Consensus and hopefully the start of the building of a new development policy agenda. This agenda will be based on a reconsideration of the roles of the state and of markets in economic theory and policy.