Some Lessons of the East Asian Financial Crisis

I would like to discuss improvements in our understanding of economic development, in particular the emergence of what is sometimes called the "post-Washington consensus." My remarks elaborate on two themes. The first is that we have come to a better understanding of what makes markets work well. The Washington consensus held that good economic performance required liberalized trade, macroeconomic stability, and getting prices right (see Williamson 1990). Once the government dealt with these issues-essentially, once the government "got out of the way"-private markets would allocate resources efficiently and generate robust growth. To be sure, all of these are important for markets to work well: it is very difficult for investors to make good decisions when inflation is running at 100 percent a year and highly variable. But the policies advanced by the Washington consensus are not complete, and they are sometimes misguided. Making markets work requires more than just low inflation; it requires sound financial regulation, competition policy, and policies to facilitate the transfer of technology and to encourage transparency, to cite some fundamental issues neglected by the Washington consensus.