Three decades ago, British economist John Williamson coined the phrase “Washington Consensus” to describe a set of liberal, pro-globalization ideas that American leaders (among others) were promoting around the world.
Now, however, a new label is in the air: the “Cornwall Consensus”.
Do not laugh. That’s really the title of a memo released ahead of the G7 leaders’ meeting in Cornwall on Friday. Written by a committee of academics and political decision-makers from each of the seven countries, it defines an “ambitious agenda for a better exit from the pandemic”.
The document contains vague and grandiose ideas, such as “greater equity and solidarity in global health responses”. But it also makes more detailed proposals, such as the creation of a “Data and Technology Council” akin to the Financial Stability Board “to oversee the global Internet and a” CERN (European Organization for Nuclear Research) for climate technology ”.
Either way, the note suggests that the recent G7 tax deal should herald a new phase of Western collaboration along new ideological lines.
What should investors conclude? Many might laugh. After all, G7 meetings tend to be purely ceremonial affairs, and the memos that accompany them are just ritual symbols. And the proposals of the “Cornish Consensus” are, in any case, unlikely to be adopted in the near future, however sensible they sound.
But it would be foolish for any business or investor to ignore this ritual display. As anthropologists often point out, symbols matter, even when they seem ’empty’ or out of touch with reality, as they reflect and reinforce the group’s assumptions about how the world should work. As such, this latest memo offers a stimulating insight into the evolution of these hypotheses.
This is important, especially since some investors and business leaders are struggling to react to the times, having started their careers when the Washington Consensus reigned supreme. We humans are still creatures of our cultural environment, but we treat our beliefs as if they were the “natural” way of thinking.
There are five key points to note here. First, Western leaders today fear political pitchforks. Thirty years ago, politicians such as Margaret Thatcher and Ronald Reagan took it for granted that liberal globalization would benefit everyone. Today’s leaders are concerned that the fruits of the free market are distributed so unevenly that it sparks a popular (and even populist) backlash. “Inclusion” is one of the new buzzwords.
Second, G7 leaders also now recognize that globalization and free market competition create vulnerabilities as well as efficiency gains. Previously, they hoped that individual company incentives would create an optimized cross-border supply system. Now they know that global supply chains are threatened by a collective action problem, as companies tend to concentrate activity in nodes that make perfect sense to each individual, but create havoc if they do. break. “Resilience” is therefore another buzzword.
Third, the G7 debate is haunted by fear of China. Beijing is not mentioned by name in the Cornwall Consensus Note. But there are multiple calls to diversify global supply chains, not only for advanced technologies, but also for medical equipment and minerals. Late on, Western governments recognized that it was a terrible strategic mistake to allow global chip production to concentrate in the Taiwan hub. They don’t want to repeat the mistake.
Fourth, there is a subtle, yet profound, reset in the relationship between business and government. In the Washington Consensus, companies were seen as independent players competing against each other, without state involvement. Now everyone is talking about a “partnership” between government and business.
Free enterprise is still praised, but “partnership” is the framework to face the great societal challenges of the moment, whether it is the hunt for vaccines, climate change or technological competition with China.
Finally, the economy is being redefined, in Biden’s White House and elsewhere. Instead of a narrow focus on refined quantitative models, the focus is now on issues previously treated as mere “externalities” – the environment, for example, or health or social factors.
Cynics (or free market enthusiasts) might say that all of this only reflects a temporary lurch to the left in American politics, or a short-term response to the pandemic.
Maybe, but I suspect not. After all, what is driving this ideological shift is not only Covid-19, but also the rise of China, the threat of climate change, and the evaporation of Western pride around the free market ideas that followed it. collapse of the Soviet Union. And supporters of this new dispensation can be found across the political spectrum. After all, it was a Conservative UK government that organized the advisory group that produced the Cornwall Consensus Note.
So whether you love or hate the new zeitgeist, you can’t ignore him. History shows that when intellectual assumptions change, they do so through slow, elliptical pendulum swings that can last for a long time. And sometimes ritual artifacts are of great importance. This Cornwall Consensus Note may be one of them.