Wolfowitz in the World Bank: Do not go native!
This is a rather personal blog. I am a World Bank alumnus. I worked there between 1975 and 1980, when Robert McNamara was President. After I left the ''Bank” (there was only one), I did occasional consultancy work not only on specific projects but also on broader policy issues. In 1982, I wrote an essay on the long McNamara reign and the challenges facing the two Bretton Woods institutions in the era of the crushing developing countries debt. All this to say that I have a long standing interest in Bank matters and held strong views on those.
Thus I believe that the World Bank has long lost its conceptual leadership and policy influence. Its words and deeds are increasingly irrelevant to the major challenges facing the developing world.
This may sound like an exaggeration. After all, Bank’s lending program is growing, as are its profits. Bank’s pronouncement receive large press coverage and its senior staff is treated with all due respect by media and the policy establishment. Yet, like in an old gold-mining town, this is little more than a make-believe façade, behind which the structure is slowly but surely crumbling.
Lest you think this is just a rant of a reactionary old-timer, consider the following. McNamara, widely seen as the best President in the history, defined in the late 1970s rehabilitation of Africa and poverty eradication as the two priorities of the Bank. A quarter of a century later, the outgoing President James Wolfensohn spelled out the two major global development issues: Africa and poverty elimination. Despite all the efforts of “the best and the brightest” among the Bank staff (and they are really smart and dedicated), innumerable reports, high-level meetings and impressive studies, on the ground, where it really counts, few concrete results can be claimed. Actually, not only Africa’s growth continues to lag but its human right record worsened considerably (Rwanda genocide is the worst since the World War II and Congo remains a mass slaughterhouse) and AIDS exploded from an epidemic into a pandemic, threatening the very social fabric of South Africa.
As for the conceptual leadership, it would seem that over the last few years James Wolfensohn did little more than to cling to the coattails of Bono and Bob Geldof. Their words are heartfelt and their involvement can only be praiseworthy. However, it is doubtful whether the development policy should be reduced to debt reduction and increase in official assistance.

It should be clear by now that the problem goes well beyond the shortsightedness of governments and the general egoism of the Western public opinion. It is the entire international development policy apparatus that is structurally deficient. The Bretton Woods set-up of international financial institutions, including the IMF, the World Bank and the regional development banks, has long outlived its usefulness. Paradoxically, this view is both widely shared and commonly ignored.
The great and the good generally recognize the magnitude of changes in the world economy. Trade, monetary and capital flows are now largely unimpeded and broadly integrated. Private direct investment and financial inflows dwarf public aid and official assistance. They reach practically every corner of the globe in all sectors and all business sizes. Information about and knowledge of opportunities and risks in the developing world is no longer confined to few official institutions and elite universities but it is widely distributed across financial sector, NGOs, specialized service providers, academia and, last but not the least, global and local medias. Yet somehow, our cognoscenti have curious blind spot when it comes to drawing specific conclusions about the international financial institutions. Some seven years ago, I asked Larry Summers, then a Treasury Secretary, during a small policy seminar, whether the time has not come for a root-branch re-appraisal of the IMF and the World Bank. He told me that this was not the time as the global financial system was in crisis and crisis management took precedence. Yet he knew as well as anybody that the inadequacy of the two institutions contributed to and most likely exacerbated the crisis. And since our “exchange”, things have not improved: financial crisis remain endemic and international financial institutions under sustained fire from ever increasing army of critics.

There is no convincing explanation for this blind spot. After all, international financial institutions are controlled by financial authorities, which have overseen not one but a whole series of fundamental reforms of financial services. Today’s commercial and investment banks as well as financial markets bear little resemblance to their forebears of fifty years ago. There is no logical reason why the development banks should have remained the same.

What is urgently needed is not just another reorganization, a traditional gambit of any new Bank President, but a fundamental re-appraisal of the international financial institutions set up: the questioning of their basic objectives, their positioning within the global financial system, their governance and their modus operandi. Here are some of the key questions that need to be addressed:
- Is the rationale for a separate existence of IMF and the World Bank? Why not merge the two organizations?
- What are the respective role and responsibilities of global and regional development institutions? What can be done to transform them into a coherent network?
- What can be done to make international institutions more cost-effective? This is not just a question of staff costs but also of the whole administrative oversight by present shareholders.
- What lessons can be learned from the tsunami solidarity movement? At the least, it demonstrated that public opinion can be rapidly and massively mobilized for a development cause.
- How to integrate the notion of political development into the strategies and operations of international financial institutions (EBRD experience could provide an useful guide in this area).

A frequently leveled accusation against Wolfowitz is that he is not a bona fide member of the development policy establishment. In light of the track record, both conceptual and operational, of the latter, this is not necessarily a liability. I would even venture to say that this is actually an asset. In the past, Wolfowitz has shown the willingness to challenge the conventional wisdom and question long-established and widely held views and approaches. Let’s hope that he will not succumb to temptation to “go native” and retain his ability as a change agent.