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Three decades ago, the British economist John Williamson coined the phrase “Washington consensus” to describe a collection of free-market pro-globalization ideas that American leaders (among others) were promoting around the world.
Now, however, there is a new label in the air: the “Cornish consensus.”
Don’t laugh. This is really the title of a file advisory note circulated ahead of the G7 leaders’ meeting in Cornwall on Friday. Written by a committee of academics and policymakers from each of the seven countries, it sets an “ambitious agenda for better progress since the pandemic.”
He document it contains some grandiose vague and sound ideas, such as “greater equity and solidarity in responses to world health.” But it also makes more detailed proposals, such as the creation of a “Data and Technology Council” similar to the “Financial Stability Board” to oversee the global Internet and a “CERN (European Nuclear Research Organization) for climate “.
Either way, the note suggests that the recent G7 corporate tax deal should herald a new phase of Western collaboration along new ideological lines.
What should investors conclude? Many can be mocked. After all, G7 meetings are usually purely ceremonial matters, and the memories that accompany them are mere ritual symbols. And, in any case, it is unlikely that the proposals of the “Cornish consensus” will be adopted in the near future, however sensible they may seem.
But it would be foolish for any company or investor to ignore this ritual display. As anthropologists often point out, symbols are important, even when they appear “empty” or divorced from reality, as they reflect and reinforce the group’s assumptions about how the world should work. As such, this last note offers a snapshot that provokes reflections on how these assumptions change.
This matters, especially because some investors and corporate leaders are struggling to respond to life change as they began their careers when the Washington consensus reigned supreme. Humans are always creatures of our cultural environment, even though we treat our beliefs as if they were the “natural” way of thinking.
Here are five key points to keep in mind. First, Western leaders today are afraid of political forks. Thirty years ago, political figures such as Margaret Thatcher and Ronald Reagan assumed that the globalization of the free market would benefit everyone. Current leaders are concerned that the fruits of the free market be distributed so unequally that it provokes a popular (and, in fact, populist) reaction. “Inclusion” is one of the new buzzwords.
Second, G7 leaders also recognize that globalization and competition in the free market create vulnerabilities and efficiency. Previously, they expected individual corporate incentives to create an optimized cross-border supply system. They now know that global supply chains are threatened by a collective action problem, as companies tend to concentrate activity on nodes that make perfect sense for each individual, but wreak havoc if they break down. Therefore, “resilience” is another buzzword.
Third, the G7 debate haunts him a 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 technology, but also for medical and mineral equipment. Delayed, Western governments have accepted that it was a terrible strategic mistake to allow global chip production to be concentrated in central Taiwan. They don’t want to repeat the mistake.
Fourth, there is a subtle but profound re-establishment of the relationship between business and government. In the Washington consensus, companies were seen as independent actors competing with each other, without state involvement. Now all that is being talked about is “partnership” between government and business.
Free enterprise is still praised, but “partnership” is the framework for tackling the great social challenges of the moment, whether it’s a vaccine hunt, climate change, or technological competition with China.
Finally, the economy is being redefined in Biden White House and elsewhere. Instead of a narrow focus on refined quantitative models, emphasis is now placed on issues that were previously treated as simple “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 leap to the left of American politics or a short-term reaction to the pandemic.
Possibly, but I suspect not. After all, what is driving 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 ideas of free market that followed the collapse of the Soviet Union. And supporters of this new dispensation can be found across the political spectrum. It was a British Conservative government, after all, that organized the advisory group that produced the Cornwall consensus note.
So whether you love the new zeitgeist or not, you can’t ignore it. History shows that when intellectual assumptions change, they do so in slow, elliptical pendulum oscillations that can last a long time. And sometimes ritual artifacts are important. This Cornish consensus note can be one.
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