Towards a New Consensus
Analyzing Bolivian Poverty
Reduction Strategies
“It is fair to say that nobody really believes
in the Washington Consensus anymore.”
From: “Goodbye Washington Consensus,
Hello Washington Confusion?”
Dani Rodrik
Harvard University
January 2006
Long wave: depressive phase
•
•
•
•
Lower growth
Increased unemployment
Regressive redistribution
Decaying “techno-economic paradigm,” or
“mode of regulation” (“Fordism”)
• Laissez-faire, Washington Consensus
policies
• “Real business cycles” types of economic
theory
Long wave: expansive phase
•
•
•
•
•
•
Higher growth
Increased employment
Progressive redistribution
Consolidated techno-economic paradigm
Policy optimism, New Consensus
(Post-)Keynesian, (post-)structuralist
theory
Changed focus
From policy deconstructionism:
• Deregulation
• Decontrol
• Denationalization
Changed focus
To policy constructivism:
• Policy sovereignty
• Structural change
• Social justice (economic ethics,
distributive justice)
New focus
New instruments
Indebtedness policy
Policy sovereignty
Investment policy
Structural change
Income distribution policy
Social justice
Indebtedness policy:
regulation of financial flows
From :
Cycles of massive inflows and euphoria
followed by
capital flight and debt crises
To:
Desendeudamiento and
regulation of international capital flows
Foreign saving = trade deficit = a knowable
variable  t
Investment policy:
output structure matters
Structure matters
• Natural resource exports = low growth
• Primary specialization = high inequality
• Employment intensity = poverty reduction
elasticity of growth
Investment policy
xt 1   d t  xt
1
Income distribution policy:
tax and expenditure reform
• Increasing inequality in most countries
during the low growth phase
• Latin America: Most unequal income
distribution, low tax/GDP ratio, regressive
tax reforms
Income distribution policy
yt  Vt xt
New Consensus model
Gross
outputs
Income
Income
distribution
distribution
policy Vt
X t
Public
income
s
Saving
propensity
Investment
efficiency
Sectoral
investment
Private
incomes
Public
Investment
investment
policy z g
allocation
Saving
propensities
Indebtedness
policy 
t
Public
saving
Foreign
debt
t
Private
investment
allocation
Private
saving
Base scenario: Estrategia Boliviana de
Reducción de la Pobreza
(Poverty reduction 200-2015: 5.7 points, from 50.3 percent to 44.6)
25,000
Millions of bolivianos
20,000
15,000
10,000
5,000
0
1997
1998
1999
2000
2001
1. Food staples agriculture
5. Small and medium industry
9. Transport
2002
2003
2004
2005
2006
2. Exports crops agriculture
6. Petroleum processing
10. Infrastructure and services
2007
2008
2009
2010
3. Petroleum, gas and mining
7. Construction
11. Public administration
2011
2012
2013
4. Big industry
8. Commerce
12. Finances
2014
2015
Poverty minimizing structural change
(Poverty reduction 2000-2015: 10 points, from 50.3 to 40.3 percent)
40,000
35,000
30,000
Millions of bolivianos
25,000
20,000
15,000
10,000
5,000
0
1997
1998
1999
2000
2001
1. Food staples agriculture
5. Small and medium industry
9. Transport
2002
2003
2004
2005
2006
2. Exports crops agriculture
6. Petroleum processing
10. Infrastructure and services
2007
2008
2009
2010
3. Petroleum, gas and mining
7. Construction
11. Public administration
2011
2012
2013
4. Big industry
8. Commerce
12. Finances
2014
2015
Redistribution policies
•
Millennium tax [and expenditure] reform: Tax rate 8.1 percent (4.6
percent of GDP)
Rawlsian tax reform: Tax rate 16.7 percent (9.5 percent of GDP)
Undercollection: 3.6 percent of GDP
•
•
60
50
Percentage
40
30
20
10
0
2000
1. EBRP
2001
2002
2003
2004
2. Millennium investment policy
2005
2006
2007
2008
3. Millennium tax reform
2009
2010
2011
2012
4. Millenium employment strategy
2013
2014
2015
5. Rawlsian tax reform
Millennium employment strategy
Employment maximizing investment strategy
• Strong similarity with poverty minimization
Similar GDP and poverty reduction
Similar changes in output structure
Stronger focus on Food staples
agriculture (weaker on Small industry)
• Confirmed cross-country by World Bank
study (Perry et al. 2006)