Climate Crisis Should Be the Final Blow to the Washington Consensus

The G-7, a group of leading industrialized nations composed of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, represents between 30 and 45 percent of global GDP. That makes it perhaps the diplomatic forum with the most concentrated power in the world, still able to set the global agenda and potentially tilt the global trajectory back toward shared democratic and economically liberal values. After this month’s United Nations climate summit, known as COP26, the G-7 is rising to the challenge of moving beyond the economic and political model of the Washington Consensus that underpinned their global strategic vision from the 1980s until recently. That model is characterized by the prescribed shrinking of the state wherever possible and the elevation of deregulated global markets. Today, though, under the threat of climate crisis, the G-7 is moving toward a radically different approach to international democratic economic governance.

The new approach, which the G-7 leaders this June dubbed the “Cornwall Consensus” advocates for public-private partnerships, public investment, proactive state-led governance in domestic markets, and intergovernmental cooperation among the leading democracies of the G-7 and their friends and allies. As COP26 proves, these endeavors have never been more important. The aim, fundamentally, is to deliver better outcomes than those expected from markets alone, in areas ranging from climate change to labor standards and supply chain resilience.

The Western world had scarcely recovered from the 2008 financial crisis and was still reeling from the political upheaval in the United States when COVID-19 hit, cruelly exposing fragilities and fractures in the global economy. There is now a shared consensus among the leaders of the G-7 nations that laissez-faire free markets do not deliver the kind of economic outcomes nor the kind of economic and political stability and resilience that we need in the face of the looming climate crisis.

The ideology of the Washington Consensus has produced systemic economic inequality globally and within nations themselves, which has undermined the legitimacy of even long-standing institutions in some of the most entrenched democratic cultures in the world. It has contributed to critical supply chains shifting to cheaper offshore locations, leaving us with systemic shortages of medical supplies in the midst of the worst public health crisis in a century. And its influence has mostly negated the progress on climate goals made by some Western countries by providing an ideological justification for the most damaging practices and shifting them to other parts of the world.

The focus of this year’s G-7 has been “resilience,” an understandable choice after two years of pandemic-induced disruption. The most significant shift away from the Washington Consensus is in the shared understanding that building resilience requires active, state-led governance, both domestically and, more importantly, in the international arena. The G-7 is shifting away from the pursuit of unbridled economic growth though deregulated globalization, toward managed cooperation to ensure economic stability, the integrity of supply chains, and the international management of health and environmental crises.

The COVID-19 disasters have highlighted the need for change. The only great success story for the West to emerge over the past decade has been its success at developing and deploying COVID-19 vaccines. Western-developed vaccines have the highest clinical efficacy, and, due to the transparent and rigorous testing regimes in which they were developed and approved, they also have the highest levels of trust globally.

But while these vaccines carry the names of Western private companies, Western governments have blundered with their rigidly orthodox approach to intellectual property regarding the vaccines from a global public health point of view. And all of the Western-developed vaccines, relying on many different technologies, have only been possible due to decades of state investment in fundamental research, and they were only able to be manufactured as quickly and at the scale they were because governments intervened to support the manufacturers with de facto blank checks. Moreover, the most effective vaccination campaigns among comparable developed nations have occurred in those countries, such as Japan and South Korea, where the state retained an active role in coordinating and managing the deployment of the vaccines, while also subsidizing the costs of inoculation.

To be sure, free market competition absolutely played a role in the West successfully developing a number of different vaccines, optimal in different kinds of deployments. And private companies absolutely enabled the scaling of vaccine production to meet public needs—at least in the West. But neither the myriad technologies underpinning the vaccines nor the astonishing deployment effectiveness seen in most Western countries would have been possible without the state playing the central role of coordinating efforts toward the public good.

Conversely, the most egregious failures to respond to the public health demands of the pandemic have occurred where states proved unwilling to act, most visible in the unequal distribution of vaccines toward rich and globally powerful countries, while even at the end of 2021 many poorer countries are struggling to find the doses they need. It also shows in the adverse health outcomes in both vaccine-rich and vaccine-poor countries where the leadership refused—for political reasons—to impose precautionary health measures such as social distancing and compulsory mask-wearing.

There is a role for the state in improving the outcomes of economic activity and ensuring continuity and resilience for all citizens. This is not only a role but a responsibility. The countries whose governments took that responsibility seriously did the best in the pandemic. The countries whose governments failed to do so lagged behind in their outcomes.

And rising to these responsibilities is not about ideology. It has nothing to do with authoritarian versus democratic political structures, nor about left- or right-wing ideals. China eventually acted very effectively in containing the virus after overcoming its initial impulse to cover up the outbreak. Equally, New Zealand, Taiwan, South Korea, Japan, and the Nordics, excluding Sweden—among the most democratic countries in the world—also had some of the best coronavirus-management outcomes. The countries that did best were ones where the government acted, and where it was trusted by its citizens to act in the collective public interest of all.

The G-7 is looking to learn these lessons so they can be applied to broader economic and political needs, placing empiricism above ideology, and that is remarkable. Above all, they should apply these lessons in dealing with climate change.

Many solutions to the existential threat posed by climate change will be market-based, but the private sector and the markets they operate in must be marshaled toward wider, more sustainable, and more inclusive goals. Governments must ensure that the supply chains critical to the green transition are diversified and reliable, and particularly that digital information infrastructure is secure and resilient against both human and natural threats. Governments must ensure adequate levels of investment to achieve the green transition in good time and ensure that the global push to achieve this is not weakened by countries cheating at and undermining the global rules of trade and labor standards. Governments must ensure that the dividends of the green transition are distributed equitably among all those who labor toward it, both within societies and across borders. It does not seem likely that democracy and international cooperation can survive another polarization between the wealthy and the poor of the kind seen under the Washington Consensus economic orthodoxy.

The Cornwall Consensus is an ambitious political project, but it has to be. Such is the scale of the challenges faced by the Western world over the next half-century that, for people around the world, only proactive engagement by Western governments can maintain our way of life, our democracies, and the health, wealth, and well-being of our children. Much work remains to be done, but we are finally heading down the right path.