How the ‘Washington Consensus’ allowed the global core to exploit the global periphery though unfair exchange from a World Systems Theory lens.

What is ‘The Washington Consensus”?

A neoliberal economic plan to introduce the free market to periphery states in the form of Structural Adjustment Policies (SAPs) which made less economically developed states (LEDS) increase funding in their industrial and manufacturing sector. This was done while state recipients of Structural Adjustment Loans (SALs) had to cut their health spending by 25% and education by 50% for some of the poorest citizens on earth. This was masked as a form of ‘development’ but saw the devaluing of developing states currencies and a lower standard of living.

How did “The Washington Consensus” affect trade?

One of the prerequisites of SALs was for periphery states to embrace free trade thus opening their economy to the world, SAPs would mean that their economy was suddenly transformed into one like their western counterparts. This in turn made recipient states reliant on Western trade in order to stay afloat. Periphery states that received SALs had to take on SAPs such as reducing their tariffs to 10-20% which allowed other states to export goods to them at very low rates. This is while developed states such as the United States (US) kept their tariffs high on agricultural products and continued to subsidies their agriculture sector.

Through these means developed states have made periphery states dependent on agricultural imports which are cheaper than produce grown in those less developed states due to western agricultural subsidies. This has lead to the top ten agricultural exporters being core states, the majority of which are Western. This partnered with other SAPs such as the introduction of foreign direct investment (FDI), privatisation and deregulation allows for periphery states domestic economies to be taken over by core states.

What affects of “The Washington Consensus” can we see today?

Since SAPs brought their recipient periphery states into the free market dependency has only grown, both in terms of food and aid. Since the implementation of SALs the states that inhabit the core, semi-periphery and periphery have changed, as they do depending on power and economic influence. One of these changes has been China’s move to the core. Since then China has gained a massive amount of influence in Africa and now holds a monopoly on most of the African Union’s (AU) economy. This level of economic control has given China, now a core state, a huge amount of fiscal power over the AU. The AU now have no choice but to back China on the international stage in exchange for their continued ‘support’.

In exchange for this ‘support’ China not only has a fiscal monopoly but exploits AU states open economies. Through FDI China has opened mines in a variety of African states, for example Zambia. FDI from China has been shown to have a negative effect on the standard of living on Zambians as well as the erosion of trading regulations and working conditions. This is further highlighted in the Democratic Republic of the Congo (DRC), where China have purchased both the rights to copper and cobalt mining. Cobalt being a highly sought after material, as it is used in virtually all rechargeable lithium-ion batteries, China takes it from the DRC at a very low price, this shows the amount of unequal exchange that can be brought about by a lack of FDI regulation, via The Washington Consensus, as the cobalt market “will hold an aggregate global market value of $12.93 billion between 2019 and 2025”. Despite being the top global producer of cobalt the DRC only sees roughly 15 per cent of the revenue as their revenue from cobalt is $1.9 billion, the rest goes to technological manufacturers after being distributed by China, a clear example of unfair exchange.

A similar situation can be seen in Haiti, but not so blatantly. Haiti has a very high rate of food dependency with a huge 36.12 per cent of their imports being food, agriculture or animal products, and the US being their single biggest importer. Conversely, a huge 83 per cent of Haiti’s exports go to the US, 89 per cent of which are textiles.

Before SAPs Haiti was virtually self sufficient when it came to rice, this was until they were encouraged to liberalize their economy by The Washington Consensus. By 2010 Haiti was importing 80 per cent of their rice, which has had an overwhelmingly negative impact on rural Haitians. Because of this effect Haitians have been forced to produce textiles, in order to survive in their own states now free market economy, which are in demand in core states like the US.

Both the examples of the AU, and Haiti, on a smaller level show how states that have received SALs in accordance with The Washington Consensus have been pushed to the periphery due to mounting economic pressure form core states.

Despite Bill Clinton, former US President and later the United Nations’ (UN) Envoy to Haiti, saying that the US supply of rice to Haiti was “a mistake”  the US has continued its export of the product. In 2015 Haiti is receiving its largest imports of rice from the US, supplying 90 per cent of their rice. This costs Haiti almost two thirds of the aid sent to them by the US, and once all other imports from the US are taken into account the US has made a profit out of this periphery state, this exploitation has stemmed entirely from the SAPs imposed by The Washington Consensus causing an unfair exchange.

What does it all mean?

Without major international trade reform such as debt forgiveness regarding the $15 billion structural adjustment lending in sub-Saharan Africa alone, and help from core states, self sufficiently for the periphery states will not be achievable.

What little action has been taken since the Doha 2001 round table we have seen as well as international inaction towards the US and China’s FDI in Haiti the AU, respectively can be expected to continue as the demand for fast fashion and minerals such as cobalt grows.

Written by Josh Trood