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144 Int'l Lab. Rev. 55 (2005)
Circumventing Macroeconomic Conservatism: A Policy Framework for Growth, Employment and Poverty Reduction

handle is hein.journals/intlr144 and id is 65 raw text is: International Labour Review, Vol. 144 (2005), No. 1 Circumventing macroeconomic conservatism: A policy framework for growth, employment and poverty reduction1 lyanatul ISLAM * M acroeconomic policy, as currently understood and practised in many developing countries, is mired in a stabilization trap. It seems to be preoccupied with stability at the expense of growth and with fiscal and inflation targets at the expense of employment.2 As Vines notes, theoretical developments and the ideological climate in industrial countries influence policy advice given to developing countries (2001, p. 137). The notion that there is a universally agreed set of ideas in policy- making was advanced by Williamson (1994, 1999) and termed the Washington Consensus, according to which fiscal prudence was ranked first among ten core propositions,3 but where no reference was made to full employment as a leading objective. Other noted econ- omists dispensed rather similar advice to developing country policy- makers, preaching the virtues of low inflation targets, fiscal discipline, and tight money (Dornbusch, 1993; Fischer, 1993; Harberger, 1984). * Department of International Business and Asian Studies, Griffith Business School, Grif- fith University, Australia. Email: i.islam@griffith.gu.edu.au. 1 This is an abridged and revised version of a paper produced for the Employment Strategy Department of the ILO, Geneva. 2 The conservative nature of macroeconomics as applied to developing countries is explored in McKinley (2001). See also Reich who argues that the current global economic climate is such that central bankers in the world's most powerful economies should eschew their preoccu- pation with low inflation and tight budgets and pursue expansionary fiscal and monetary policy to enhance employment (Reich, 2002, pp. 116-118). 3 Other policy proposals in the Washington Consensus include reorientation of public expenditure towards basic health, infrastructure and education, tax reform, financial liberaliza- tion, unified and competitive exchange rates, openness to foreign investment, privatization, dereg- ulation and secure property rights (or the rule of law). A comprehensive evaluation of the Washington Consensus is beyond the scope of this article given that it focuses on macroeconomic conservatism. For a critique of the Washington Consensus, see Beeson and Islam (2004). Copyright © International Labour Organization 2005