Page 88 - Azerbaijan State University of Economics

B.N.Babayev: The rise of new institutional economics and assessment its contributions to the
post Washington consensus

In this paper I will critically assess the contributions of the NIE to the PWC.
This paper argues that the rise of the NIE has provided theoretical ideas for the
PWC, but it is debatable how the contributions of the NIE are effective to tackle
development challenges. I will use the following structure to support the argument.
First, this paper will briefly summarize the issues behind the PWC. Second, this
article will describe the rise of the NIE and its fundamental contributions. Third, it
will assess the contributions of the NIE to the PWC. The paper will also assess how
the contributions of the NIE to the PWC are capable to tackle the challenges of the
Washington Consensus and development. Finally, it will conclude the issues
described and assessed in this essay.
Before describing the rise of the NIE, let us review the issues which
encouraged the development community to benefit from the contributions of the
NIE. These issues are related to the decline of the Washington Consensus and the
emergence of the PWC. The development agenda related to the neo-classical
economic thought of 1980s supported non-intervention of states to markets and saw
the state intervention as an inhibiting factor for the activity of markets and
development (Mosley et al. 1991: 4). Therefore, the development prescriptions of
1980s in the developing countries were related to execution of policies that
envisaged minimum participation of states in development processes (Waeyenberge,
2006: 26). Williamson (1993: 1331-1333) prepared a list of reforms on economic
liberalization for developing countries in 1989 that created the foundations of the so-
called Washington Consensus. This list of economic reforms supported “structural
adjustment programs” in developing countries which was referred to as the
Washington Consensus (Waeyenberge, 2006: 26).
Nevertheless, the policies of 1980s which eliminated state‟s role in market and
economic development resulted in unsuccessful outcomes in most developing world.
Frances Stewart (1991: 1847-1848) described in his paper how “structural adjustment
programs” within the Washington Consensus exacerbated the economic indicators in
most developing countries by explaining the negative consequences of reforms with the
poor „macro-performance‟ levels of developing countries. The World Development
Report in 1989 showed that the “development strategies” used within the implemented
programs were not successful and it proposed “the role of state” in terms of building
infrastructure and conditions to improve the ongoing programs.
The unintended results of the policies on economic liberalization created a
need to use additional strategies to foster development in the developing countries.

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