In 1944 forty-four nations signed an agreement in Bretton Woods, New Hampshire, which laid the foundation for what would become the modern international economic system. The so-called Bretton Woods system was built on the commitments to free and open trade, stable monetary exchange markets, and investments in global public goods. One of the motivating factors underlying the Bretton Woods agreement was to prevent the kind of trade protectionism, isolationism, and hyperinflation that had been seen as some of the geopolitical factors ultimately leading to World War II. While the Bretton Woods agreement itself only lasted until 1971, the commitment to liberalized trade, liquid currency markets, and investments in global public goods continued and came to be known collectively as the “Washington Consensus.”
In recent years, however, cracks have begun to emerge in the Washington Consensus under the stress of the Financial Crisis, the COVID pandemic, and increased protectionism and trade wars. At the same time, the Organization for Economic Cooperation and Development (OECD) began the single most significant overhaul of the global tax regime since its inception through its Base Erosion and Profit Shifting (BEPS) project. Over one hundred and forty countries eventually reached near universal agreement on fifteen separate Action Items fundamentally overhauling the international tax regime. This success stands in stark contrast to the otherwise perceived crumbling of the Washington Consensus. Was this merely another notable example of tax exceptionalism? Or could the success of BEPS serve as a model for revitalizing the Washington Consensus?
Professor Rebecca M. Kysar intervenes in this debate in her new article, The Global Tax Deal and the New International Economic Governance. The underlying premise of the article provides that the success of the BEPS negotiations proves the demise of the Washington Consensus, not its survival.
On its face this might come across as a surprising, if not controversial, claim. After all, despite their faults the World Bank, IMF, etc. remain the backbone of the modern international economy and the US dollar remains the world’s reserve currency, etc. Yet the article convincingly proclaims the end of the Washington Consensus by situating the question within the context of broader global macroeconomic and geopolitical trends, in particular a clearly emerging commitment throughout the global community to a more equitable distribution of the benefits of any new global economic order. To this end, Kysar defines a number of features of this new order as contrasted with the Washington Consensus, briefly summarized as follows: (1) replacing the unwavering commitment to open markets and free trade with a general distrust of markets and stronger preference for state regulation, (2) expanding beyond trade and economic liberalization to incorporate global distributional considerations as a core policy goal, and (3) relaxing the commitment to one-size-fits-all global institutions to allow for more regional cooperation and adoption of non-reciprocal duties and benefits.
Ultimately the most powerful impact of the article even by its own terms doesn’t lie in the persuasive power of any of its details but rather in its broader claim that such details are growing almost anachronistic because the global community has already moved past the fundamental tradeoff between efficiency and equity underlying the Washington Consensus. More specifically, to date (for the most part) equitable considerations have routinely lost to efficiency considerations whether framed as open markets, free trade, capital neutrality, or other forms. As a result, calls for equitable proposals have not only failed to gain traction in the face of this “thumb on the scale” for efficiency but worse too often have been dismissed as “payoffs” to “bad” actors precisely because they depart from the efficiency baseline of the Washington Consensus. For this reason, the core thesis of the article that equitable and distributional considerations can no longer be considered departures from the consensus efficiency baseline but rather co-equal components of that baseline proves far more radical than may appear to many at first glance. Without fear of hyperbole, perhaps no other scholar could be better suited to undertake such a profound paradigm shift. Not only is Professor Kysar a widely published and influential expert in the field, but as noted in the article she co-led global tax negotiations for the United States from 2020 through 2021. From this combined perspective, the article does not merely serve as a form of oral history, on the one hand, or a purely theoretical model, on the other, but rather a combination of the best of both worlds—to powerful effect.
Of course, this does not mean there are no details or specifics over which reasonable people could disagree. In particular, some might not buy the contention that the emergence of the Washington Consensus strongly parallels the themes emerging out of the BEPS negotiations. After all, the Bretton-Woods conference explicitly centered on the creation of a wholly new post-War economic system while the BEPS negotiations by their own terms were meant to shore up that same system. Of course, the US Constitutional Convention was similarly convened only to amend the Articles of Confederation yet there can be little doubt an entirely new structure of government was embodied in the Constitution that emerged at its conclusion. It is possible others may doubt the extent of similarity between the international tax system and the international trade system, especially given the pervasiveness of so-called “tax exceptionalism” within those systems themselves which has kept the two mostly distinct since their post-War emergence. Even the best of articles will include details that some could criticize or specific examples that could be nitpicked. But the article by its own terms recognizes this and attempts to avoid getting caught up in the quicksand of these debates by keeping its focus on the unique perspective of what has actually worked in the real world over the past decade. For this reason, perhaps the best compliment I can give to Kysar’s article is that it may not be the piece of scholarship any one of us may have wanted, but it assuredly is the piece of scholarship we all need.
