The new Washington Consensus

The "Washington Consensus" is a neoliberal economic doctrine promoted since the 1980s by organizations such as the World Bank, the International Monetary Fund, and the U.S. Treasury that favors the creation of global supply chains through investment in developing countries. This doctrine advocates a capitalist system based on economic integration and global free trade, and assumes that markets allocate capital productively and efficiently, regardless of the values of the nations involved. The application of the Washington Consensus has produced controversial results, but it has helped lift hundreds of millions of people in Asia, Africa, and Latin America out of poverty by shifting production to countries with lower production costs. These shifts have lowered the price of goods, but they have also brought new risks as the businesses of Western companies, including strategic ones, have become increasingly dependent on these global supply chains. The doctrine also had political implications, namely improving cooperation among nations through economic integration with the goal of making autocratic regimes more open.

Beginning in 2010, there was a growing awareness in the West that the uncritical application of the Washington Consensus was over strengthening the economic power of nations like China, which was progressively consolidating itself as the systemic rival to Western democracies. As a result, the U.S. first and then gradually other Western countries slowed down the process of offshoring production, especially high-tech ones, seeking to diversify sources of supply and, where this was not feasible in a short period of time, implementing de-risking policies. This process has almost stopped in recent years due to natural and geopolitical systemic events such as the pandemic and the conflict between Russia and Ukraine. These events have exposed the fragility of global supply chains by showing how they can pose a security risk to the West, as exemplified by Russia's energy blackmail of Europe. It is unfortunately foreseeable that climate change and China's increasingly assertive and security posture will set the conditions for generating new systemic events of similar magnitude.

At the same time, the fragility of supply chains has continued exponentially to increase over the past three decades due to the digital transformation, which has profoundly changed the strategic global and national infrastructures on which our societies are based, such as financial or electrical infrastructure. Although such infrastructures are more efficient, faster, and cheaper, they halt when the digital system that delivers the service comes to a halt. If autocratic states control critical elements of the supply chains that provide core parts of such digital systems, they could use them as a geopolitical threat  or launch cyberattacks that could bring thousands of strategic infrastructures to a halt by exploiting hidden vulnerabilities in digital systems that are conveniently embedded in the supply chain. The SolarWinds attack, considered the most serious in the history of information technology, gives a rough idea of the potential consequences of such an attack.

This risk environment is driving the Biden administration, the European Commission, and other like-minded countries to implement a coordinated investment policy to relocate technology production, starting with the microchip supply chain, to make it more secure and more resilient. This is a lengthy, complex, and expensive process, but it is inevitable. Some have called it the "new Washington consensus" Compared to the old consensus, it has some fundamental differences. It will not be U.S.-centric because it will be more effective the more it will be able to create a broad economic integration space composed of nations that share the same values. It must be able to coordinate public investment policies in this space and to guide those investments coming from the private sector. No epochal challenge such as clean energy or quantum computing production will be met by the public sector alone, as the space economy teaches us. The goal is to create secure and resilient supply chains for these new strategic technologies within this economic space. The "Partnership for Global Infrastructure and Investment" discussed at the Japanese G7 Summit is a first step in this direction. The new consensus will have to take into account the caution of emerging demographic nations, including India and Brazil, which see China as the possible center of a new world order and want room to maneuver if this occurs. The creation of the economic space is the techno-diplomatic challenge that awaits Western countries in the near future, and for Italy this can be a unique opportunity to locate parts of the production of such strategic technologies in our country. These will be able to guarantee prosperity, security and a right position to Italy and Europe in the future world order.