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A British economist three decades ago John Williamson He created the “Washington Consensus” with the aim of describing a collection of free market and pro-globalization ideas that American leaders (among others) were promoting around the world.
Now, however, a new label is up in the air: “Cornwall Consensus.”
Don’t laugh. That’s really the title of a title advice note it was expanded on Friday before a meeting of G7 leaders in Cornwall. Written by a committee of academics and politicians from seven countries, it sets out “an ambitious agenda for better progress in the pandemic.”
The document it has some vague and lavish ideas, such as “greater equity and solidarity in global health responses.” But it also makes more specific proposals, such as the creation of a “Data and Technology Committee” similar to the “Financial Stability Board” to monitor the Internet worldwide and “CERN (European Organization for Nuclear Research) on climate technology”.
In any case, the note suggests that the latest tax agreement on G7 companies should herald a new phase of Western cooperation along new ideological lines.
What should investors conclude? Many can make fun of you. After all, G7 meetings tend to be mere ceremonies, and the memories that come with them are mere ritual symbols. And the “Cornwall Consensus” proposals, however, are unlikely to be accepted in the near future, even if they seem reasonable.
But it would be foolish for any business or investor to ignore this ritualistic exhibition. As anthropologists have often pointed out, symbols are important, even if they appear “empty” or divorced from reality because they reflect and reinforce hypotheses about how the world should work. Therefore, this last note provides an attractive way to think about how these hypotheses change.
This is important, especially since some investors and corporate leaders are struggling to respond to the changing zeitgeist, as they began their careers when the Washington consensus prevailed. We humans are always creatures in our cultural environment, yet we treat our beliefs as if they were a “natural” way of thinking.
There are five key points to highlight here. First, Western leaders fear political fears. 30 years ago, political figures like Margaret Thatcher and Ronald Reagan considered it normal that free market globalization would benefit everyone. Today’s leaders are concerned that the fruits of the free market are being distributed so irregularly that a popular (and populist, in fact) reaction is emerging. “Inclusion” is one of the new fashion words.
Second, G7 leaders also acknowledge that globalization and free market competition create vulnerabilities and inefficiencies. Previously, individual business incentives were expected to create an optimized cross-border supply system. They now know that global supply chains are under threat of a collective action problem, as businesses tend to concentrate activity on nodes that make sense for each individual, but if they break down they create havoc. “Resilience” is therefore another fashion word.
Third, the G7 debate is being pursued Fear of China. Beijing is not mentioned by name in the Cornwall Consensus Memorandum. But there are many calls to diversify global supply chains, not only for advanced technologies, but also for medical and mineral equipment. In the end, western governments admitted that it was a huge strategic mistake to concentrate global chip production in central Taiwan. They don’t want to repeat the mistake.
Fourth, it is a subtle but yet profound reset of the relationship between business and government. In the Washington consensus the companies were independent actors competing with each other, without state involvement. Now, the whole discussion is about “collaboration” between government and business.
Free enterprise is still praised, but “cooperation” is the framework for tackling the major challenges of today’s society, whether it’s vaccine hunting, climate change, or technology competition with China.
Eventually, the economy is being redefined Biden White House and elsewhere. Instead of focusing on refined quantitative models, it now emphasizes issues that were previously treated as mere “externalities” —environment, say, or health or social factors.
Cynics (or free market fans) may say that all of this reflects only a short-term backlash in the face of the temporary left in American politics or the pandemic.
Maybe, but I suspect not. After all, what drives this ideological change is not only Covid-19, but also the rise of China, the threat of climate change, and the evaporation of western hubris around free market ideas after the fall of the Soviet Union. And the adherents of this new dispensation can be found on the political spectrum. After all, that was the British Conservative government organized The advisory team created the Cornwall Consent Note.
So if you love or hate the new zeitgeist, you can’t ignore it. History shows that when intellectual assumptions change, they do so in slow elliptical pendulum swings that can last a long time. Sometimes ritualists are very important. This Cornish consensus note may be one.
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