From the Washington Consensus to the Warsaw Consensus: ‘shock therapies’ as a neoliberal success story

The article focuses on the years around 1989 when neoliberal economic ideas and policies gained global hegemony. The paradigm shift from Keynesianism to neoliberalism became universal when these policies were implemented in the so-called ‘emerging markets’ which served as laboratories ‘for the most exciting experiment in political and economic organization that is likely to occur in our lifetime’ (according to Milton Friedman on his television programme, Free to Choose ). The term ‘shock therapy’ is key to understanding these policies and the subsequent neoliberal success stories. It came into existence in Latin America in 1986 and was designed to help high-debt and high-inflation countries with radical and irreversible reforms. Like in the Washington Consensus, the key components were austerity, internal and external liberalization, privatization, deregulation and foreign direct investment. The Washington Consensus was originally set up for Latin America, but was then used as a blueprint for economic reforms in Eastern Europe. The article will show this by pointing out the similarities with the ‘Warsaw Consensus’ (the Balcerowicz Plan), a package of radical reforms passed in the autumn of 1989. While the shock therapy partially worked in Poland, at least in bringing down inflation, it failed in the Russian Federation. The comparative study will try to explain why the shock therapies did not work out as planned, but were nevertheless touted as a universal economic recipe. Though the concept was universal, the implementation of neoliberal policies in Poland and other post-communist countries was particular and shaped by the local political and economic context. The article also introduces main international actors like the ‘shock therapist’ Jeffrey Sachs, as well as the feedback effects of his policies on Western media and international financial institutions.