Although Burma has recently made efforts to increase social spending, critics of the IMF's brand of fiscal restraint caution that it could prevent Burma from making the big, long-term capital investments that are needed to build up the underlying transportation, health, and education infrastructure upon which future productivity depends. For example, the 2008 Spence Commission on Growth and Development warned that the IMF tends to see public investment as a short-term stabilization issue, and has failed to grasp its long-term growth consequences. If low-income countries are stuck in a low-level equilibrium, then putting constraints on their infrastructure spending may ensure they never take off."
On trade policy, the IMF and World Bank will echo Burma's ASEAN partners and advise it to lower its trade protection rapidly, even before its new and small industries are strong enough to compete in international markets, thus threatening to block its future industrial development. And the apostles of the Washington Consensus are also likely to advise Burma to focus on its present (static) comparative advantage in natural resources extraction rather than adopting a strong industrial policy to develop its future (dynamic) comparative advantages in manufacturing and services.
By contrast, other critics of the Washington Consensus model, such as the United Nations Conference on Trade and Development (UNCTAD), encourage developing countries to increase public investment and build strong developmental states with institutions capable of executing effective industrial policies. Opponents of industrial policy are correct in pointing to some very unsuccessful previous efforts in developing countries. But they are often selective in their criticisms, ignoring successful cases, and do not account for why industrial policies worked so well in the U.S., Europe, and East Asia but failed so badly in Africa and elsewhere. UNCTAD argues that history says more about how industrial policies should be implemented -- not if they should be implemented.
Stiglitz cautions other developing countries: "Don't do as the U.S. says, do as the U.S. did." By this he means that rather than following the Washington Consensus advice for rapid global integration, developing countries should do what the rich countries did: develop domestic industries first, then open up gradually later on.
One problem facing Burma's leadership is that much of this history of what the rich countries did during their own early decades of economic transformation into manufacturing and services is no longer taught in most university economics departments. History shows that, although each case is unique, all countries that have industrialized successfully have usually done so first behind high levels of trade protection and subsidy support -- often for decades at a time -- and only liberalized their trade once their firms were able to be competitive in overseas markets, not before. Britain, the United States, Europe, Japan, Singapore, Hong Kong, South Korea, Taiwan, and China assigned a strong role to the state with temporary trade protection, public development banks or central bank policies that provided long-term, cheap commercial credit and extensive public technology policies to advance R&D and innovation -- almost precisely the opposite of the Washington Consensus advice of today.
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