Earlier this month, the G7 Economic Resilience Panel released a report that questioned the wisdom of market-led development, as promoted by the so-called Washington Consensus, and advocated a new economic paradigm (NEP)—the Cornwallis Consensus—in which the state would play a major role.
Mariana Mazzucato, a member of the panel and the author of The Entrepreneurial State: Debunking Public vs. Private Sector Myths, summarized the different approaches in a recent article in Project Syndicate:
Whereas the Washington Consensus minimized the state’s role in the economy and pushed an aggressive free-market agenda of deregulation, privatization, and trade liberalization, the Cornwall Consensus (reflecting commitments voiced at the G7 summit in Cornwall last June) would invert these imperatives. By revitalizing the state’s economic role, it would allow us to pursue societal goals, build international solidarity, and reform global governance in the interest of the common good.
Mazzucato’s view of the relationship between the state and the market, in the process of economic development, is in sharp contrast with Peter Bauer’s emphasis on limited government, the rule of law, private property, and free trade as key factors in creating economic and social harmony. The role of government, according to Bauer, is to safeguard persons and property so that free markets can widen the choices open to people and improve their lives.
The fact that governments are coercive by nature, while markets, bounded by a genuine rule of law, are consensual, should put people on guard against the idea of an “entrepreneurial state.” In particular, assigning a large role to the state in the process of innovation and technological advance is not risk free.
Nevertheless, Mazzucato’s views are gaining widespread attention, and the G7 panel’s Economic Resilience Report is sure to be discussed at the G20 summit this weekend, when leaders consider the challenges facing the global economy, including the COVID-19 pandemic, climate change, inequality, and “economic fragility.”
This blog post considers Mazzucato’s case for a NEP, which diminishes the role of markets and enhances the power of the state, and whether that paradigm offers a better chance of achieving economic resiliency than the market-liberal model favored by Bauer. In doing so, I will also examine Mazzucato’s portrayal of the “Washington Consensus” to see if accurately describes the idea John Williamson first introduced in 1989.
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