"Why Can't the World Bank Be More Like a Bank?" Background to WSJ Op Ed Piece, June 1, 2005 James S. Henry and Laurence J. Kotlikoff

With Dr. Paul Wolfowitz's ascension to the World Bank's Presidency this month, we've continued the proud tradition of having the Bank run by white male Americans whose primary careers and reputations have had virtually nothing to do with economic development, certainly not in poor countries.

Previous World Bank presidents have included a long line of successful Wall Street investment bankers (James Wolfensohn (Salomon), George D. Woods (First Boston)), commercial bankers (A.W. Clausen (B of A), Lewis T. Preston (Morgan), Eugene R. Black (Chase), car company executives/ Defense Secretaries (Robert S. McNamara), newspaper publishers (Eugene Meyer (Wash Post)), Wall Street lawyer-bankers (John J. McCloy (Chase)), and long-time US Congressmen (Barber B. Conable).

Such backgrounds may have honed their management skills -- although commercial banks, newpapers, car companies, and the US Congress have never been noted for managerial excellence. But all of these gentlemen certainly needed a great deal of on-the-job learning with respect to all other aspects of the World Bank job. As a group, they were also rather more sensitive to the concerns of Wall Street than of Poor Street.

In Dr. Wolfowitz's case, there has at least been,  thanks be, no Wall Street in-breeding.  He also has a strong background in international relations, not only as Deputy Secretary of Defense and Dean of the John Hopkins School of International Relations,  but also as Assistant Secretary of State and Ambassador to Indonesia back in the 1980s.

He may have been a bit palsie-walsie with former dicators like Indonesia's Suharto and the Lee family dynasty that still runs Singapore. But that is hardly unique among World Bank Presidents. And we also know that, in the best neo-Straussian tradition, he is also capable of being a radical Wilsonian democrat when it suits him -- at  least in the case of Iraq and several other carefully-selected Middle Eastern countries.  

Finally, regardless of what we may think of Wolfowitz' naivete' about Iraq, the fellow is clearly a quick study, and is evidently not shy about rethinking conventional strategies and shaking up entrenched bureaucracies. These attributes, rather than specific experience, may be precisely what the World Bank needs most at this point.

They may also be precisely what the G-8 needs, as it meets next week in Canada to consider some  rather fuzzy-headed  proposals to sharply expand the First World's commitment to development aid.

Of course "ending poverty" is a noble, apple-pie objective that is as good as any other at getting former Deputy Defense Secretaries, Treasury Secretaries, economists, and rock stars alike to wander through African backstreets and huddle down around the camp fire, singing "Cum By Ya."   

But the point is that unless we deal with the structural reasons that poverty exists in the first place, some of which -- like First World agricultural subsidies,  lousy lending, and "pirate banking's" role in Third World tax evasion  -- are not very pretty, and will not be solved just by increasing aid budgets -- we won't "end" poverty.  We will simply pour more money down the same "development industry" rat holes that now consume more than half of every "phantom aid" dollar. 

Indeed, in the long run, we may even risk expanding poverty, because handing out doles to a perpetual underclass is a recipe, not for ending poverty, but for eventually ending aid.

In the spirit of welcoming Dr. Wolfowitz to his new position, BU's  Professor Larry Kotlikoff and I have suspended disbelief, and have produced the following semi-Swiftian proposal for "Making the World Bank a Real Bank."  Download WSJArticle.pdf

Of course our proposal needs refinement. It is intended in part just to stimulate debate.  However, it is not as if the existing international systems for financing development and distributing aid to the world's poor, much less marshalling their life savings and helping to transmit their remittances back home are perfect. If they were, there would be no need for this discussion in the first place.

                                    (c) SubmergingMarkets.Com 2005

 

 

Comments

[Nils Andersson]

Nils Andersson
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Wall Street Journal
Letters to the Editor

2005-06-07

Dear Sirs,

I read the editorial “Why Can’t the World Bank Be More Like a Bank?” by James Henry and Laurence J. Kotlikoff with great interest. Their main point was the benefits of giving residents of third-world countries ATM-cards where the underlying funds be kept outside the country, so the residents’ money would be safe against their own governments. Additionally, the suggestion was that aid be given by topping up these accounts with aid money. The implication was that the residents keep the bulk of their money in these offshore accounts.

I think this is a great idea, which would indeed have all the benefits listed in the article. But why restrict this idea to third world countries? Stripping the “aid” part, the same idea would work wonders for residents of almost any country, including the US.

The problem is, the US government would never allow it, precisely because of the loss of control. It is technically legal for US residents to do this, but subject to reporting requirements. If it became common, it would be outlawed. For the same reasons of fear of loss of control, third world governments – and most governments generally – would not accept this idea either. Unfortunately.

Nils Andersson