The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

After the American Financial Overstretch 173
Whatever one may believe about the details of the Washington Consensus 40 –
and some of its elements undoubtedly remain valid today – it is odd for the former
British premier to have believed in infallible markets, based on a consensus reached
in the 1980s, only to decide they are not, based on a new consensus in 2009.
It is also remarkable that the British premier believed he could continue in office
as his country’s leading politician even as he turned tack from supporting yesterday’s
consensus, which turned out to be wrong, and embraced a new consensus
diametrically opposed to it. In response to the ease with which someone can give
up one political consensus that he supported only yesterday and switch allegiance
to another, it is tempting to say that of course people are free to change their minds;
they are not free to alter the fact that only yesterday, they held a different opinion,
which is wrong today. 41
Gordon Brown’s statement is disconcerting. It implies that members of the political
elite only follow the general consensus of an era; when that consensus no longer
prevails, they change their views and line up behind the next consensus with great
40 The term was coined in 1990 at a conference in Washington DC. It also describes the position
of the International Monetary Fund and the World Bank regarding the conditions that should be
met by debtor countries. The Consensus requires debtors to implement the ten following structural
adjustment policies:
– fiscal discipline,
– public expenditure priorities towards education, health and infrastructure, reduction of subsidies,
– tax reform to lower tax rates and broaden the tax base,
– market-determined, positive interest rates to prevent capital flight and attract foreign capital,
– competitive exchange rates to promote exports,
– trade liberalization to open up national markets to foreign suppliers,
– openness and improvement of conditions for foreign direct investment,
– privatization of public corporations and institutions,
– deregulation and de-bureaucratization and a reduction in state intervention,
– legal protection of private property.
Deregulation is only mentioned here in ninth place. This condition was especially important for
the development of financial markets, however.
41During his term of office as chancellor, Brown had failed to respond to warnings from the
British Financial Services Authority (FSA) that tighter regulation of the financial services industry
and, most importantly, a better British deposit guarantee scheme was needed. After the severity
of the financial crisis, Brown told the Guardian that, in retrospect, he wished that he had
pushed harder over the past 10 years for more responsible worldwide market regulation. In this
interview, Brown took “full responsibility” for all his actions, but refused to give in to demands
from the Conservative opposition for an apology. Reported as per the article “Kurswechsel in
Großbritannien. Wetteifern um harte Regulierung” [U-turn in Great Britain. Vying for tough
regulation], Frankfurter Allgemeine Zeitung, 18 March 2009, No. 65, p. 13.