In April 1990, the English economist John Williamson published a paper titled ‘What Washington Means by Policy Reform’.It basically listed 10 “economic policy instruments” that countries needed to adopt and deploy in order to achieve sustainable growth. The so-called Ten Commandments included:Fiscal discipline: Governments must reduce their borrowing requirements by cutting domestic spending and raising tax revenues.Prioritise public expenditure: Governments must redirect spending from subsidies or covering the losses of state-owned enterprises towards education, health and infrastructure investment.Tax reform: Broaden the tax base, ensure moderate rates and remove exemptions.Decontrol interest rates: Make these market-determined.Competitive exchange rates: Move away from overvalued domestic currencies that discourage exports to market-driven exchange rates.Trade liberalisation: Eliminate quantitative restrictions and reduce tariffs on imports.Foreign direct investment: Abolish barriers to entry of foreign firms.Privatise state-owned enterprises.Deregulation: Promote competition and efficiency by scrapping regulations preventing new firms from entering the marketplace.Grant and uphold property rights through secure legal ownership of assets.The Ten Commandments became standard prescription that had the backing of experts at Washington’s global financial institutions, especially the International Monetary Fund and World Bank. They were held as a desirable set of economic reforms, which these institutions also pushed as conditionality that countries had to agree to implement for receiving financial assistance.Frayed consensusThe Washington Consensus – a term that Williamson himself coined to refer to the 10 policy prescriptions – gained wide credibility and traction, more so after the dissolution of the Soviet Union and the fall of communism in Eastern Europe. It also contributed hugely to the “hyper-globalisation” of the world economy during the two decades from the 1990s.That consensus has, however, unravelled since the global financial crisis of 2008 and the rise of China as an economic power. The backlash has, ironically, come mainly from the very countries whose policymakers and thinktanks were the strongest proponents of Williamson’s manifesto.Globalisation, earlier considered an unalloyed force for good, is now seen to have largely benefited the likes of China, Vietnam, Mexico and India. As these economies successfully integrated themselves into global value chains, they have turned into manufacturing and services export powerhouses, even while engendering factory closures and job losses in the West.In May 2023, a group of 55 scholars – among them Tim Besley, Andrés Velasco, Dani Rodrik, Lant Pritchett, Olivier Blanchard, Ricardo Hausmann, Ravi Kanbur, Dave Donaldson and Irene Bucelli – met at the London School of Economics (LSE) to share their thoughts and work towards forging a “new economic consensus for the 21st century”. The project was labelled the London Census after the venue. The policy prescriptions following that have recently been releasedA new consensusWilliamson’s prescriptions were precise, one-size-fits-all and easily understood.Story continues below this adThe London Consensus authors – one of them, Velasco, a former finance minister of Chile and currently Dean of LSE’s School of Public Policy, was an invited speaker at the Kautilya Economic Conclave in the national capital on Friday – are more measured and tentative by comparison.Instead of clearcut commandments, they offer five “core principles” to guide policymaking, particularly in the light of the new economic challenges arising from climate change, transformative technologies such as artificial intelligence, authoritarian populism and waning support for liberal democracy even in the West.The principles are:Focus on wellbeing: That goes beyond GDP and money incomes to also incorporate self-worth, social status, cohesion and other non-materialistic conceptions of wellbeing. Governments must strive to make markets work efficiently, while not shying away from direct intervention if the system limits competition and fails to tax monopoly rents, thereby eroding public trust and confidence.Make growth matter: Citizens trust their governments more when they deliver a growing economy. But the emphasis should be on where and how growth is happening – whether it is creating sufficient jobs and benefiting not just a select few.Build resilience: Governments should act as insurer of last resort to counter volatility not simply at a macroeconomic but also individual household level. Uninsurable idiosyncratic shocks such as the Covid-19 pandemic or the Trump tariffs can lead to people losing jobs, becoming sick or disabled, and running out of savings. A properly functioning welfare state must provide insurance against these contingencies that can have undesirable political consequences as well.Put politics first: The Washington Consensus advocates assumed survival-obsessed politicians to be a significant constraint, preventing benevolent technocrats from implementing the “right” economic policies. The London Consensus authors think otherwise.As societies cope with the fallout from globalisation, transformative technologies, climate change and the growing appeal of populism and polarisation, there is an increasing risk of politics itself becoming the source of economic shocks. Hence the need to get the politics right and viewing it not as a constraint but enabler, rather than fixing the economy and hoping for politics to get sorted along the way.Invest in state capacity: A functional market economy requires an array of supporting legal and regulatory institutions. These provide a stable framework in which private agents can enter into legally binding contracts and do business with confidence. Such state capacity-building is essential for not only providing policing, defence or basic education and health services, but also creating confidence among investors who put their own private and borrowed capital at risk.The limitationsThe London Consensus makes for good reading. It is, moreover, well-intentioned and timely, given that the earlier consensus underpinning globalisation and the international trading order no longer has adherents even among the powers that be in Washington.Story continues below this adThe major limitation of the “new economic consensus”, though, is that it does not offer much by way of concrete and actionable directions for policymakers – which the Washington Consensus did, whether for good or bad.The London Consensus authors have argued against “one-size-fits-all recipes” that tend to be “too rigid or too ideological”. The very notion of international best practice that can be applied across the board would, according to them, do more harm than good.The authors have, instead, merely laid out five general (“core”) principles. Using those principles, “each nation can decide which policies are best, given its unique history and circumstances”.How useful that approach is – and whether it would have backers of the sort the Washington Consensus had in its heyday – remains to be seen.