Is the "Beijing Consensus" Now Dominant?

Executive Summary

This essay examines the content of the "Beijing consensus" approach to development and explores whether the emerging markets and developing countries should embrace it as a model that they should adopt.

Main Argument

Although China has been successful in its development approach, the West should not endorse the Chinese approach as a model for development because:

• • China's advocacy of gradualism is only sometimes, not always, worth adopting.

• • Though often effective, China's emphasis on innovation can be costly not only to multinational companies but also to those who have to pay for reinvention of the wheel.

• • Chinese reliance on foreign demand as a supplement to domestic demand, by accumulating foreign assets with a likely negative yield, deprives the domestic economy of resources that it could be using to much greater effect.

• • While state capitalism does have the underappreciated advantage of assisting the government in achieving rapid recovery from a negative demand shock, it was the increasing role of the market in China's economy that served as the foundation of China's rapid growth.

• • Authoritarianism may appeal to other third-world leaders, but the espousal of national sovereignty irrespective of the merits of the regime or the policies defended may not appeal to the people.

Policy Implications

The West should modify the advice it gives regarding the proper strategies for development to accomplish the following:

• • Supplement export-led growth with a reserve build-up rather than replace it by inward-looking strategies.

• • Accept that the world crisis has reinforced the case for prudential inflow controls on capital.

• • Support activist use of fiscal policy for contra-cyclical purposes, while acknowledging that one cannot start a contra-cyclical policy in the recession.

A major impact of the recent worldwide financial crisis has been to discredit Western views of development—what I once tried to summarize under the somewhat unhappy term of the "Washington consensus"—and instead fortify what has sometimes been referred to (by Westerners rather than the Chinese) as the "Beijing consensus." This consensus has never been codified in the form of a series of propositions similar to those that I originally termed the Washington consensus,¹ but assuming that the Beijing consensus basically refers to the Chinese way of doing things, I shall argue that it would be a mistake for the West to endorse this and abandon the stance that it has now developed. Hence, the main purpose of this essay is to contrast mainstream Western and Chinese views on development policies by examining which model has delivered the goods up to now, what the differences are, and which holds more promise for the future.

Assuming that we do not propose to abandon received Western views, there are a series of issues that are worth discussing. Should the West modify the consensus that has been achieved about the virtues of export-led growth? Does it need to change its views on the limited role of capital flows in promoting development? In light of the crisis, should it favor and welcome fiscal expansion and abandon former demands for fiscal discipline? Does the West regard the international monetary system as ripe for reform, and could its reform help the cause of development? How has the Washington consensus stood up to recent developments?

Has the Beijing Consensus Worked?

I am not among those who dismiss Western efforts to stimulate development since World War II as a colossal failure and who talk of trillions of dollars having gone down the drain while seeking to promote development. On the contrary, there has never been a time in history when development has proceeded so fast and on such a wide front. Whereas in the nineteenth century world per capita GDP rose at an average rate of under 0.9% (a figure itself far higher than ever before in history), this accelerated in the postwar period to about 2.1% per year.² Whereas this growth averaged about 1.2% per year in what were then described as the industrialized countries, it has averaged some 2.9% in the larger group...