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Wednesday, March 7, 2012

The next World Bank leader

Special to The Japan Times

HONG KONG — Robert Zoellick announced that he would leave the World Bank in June when his five-year term as president ends. Now is the time for Japan, China, India, the Europeans — if they can think beyond their own plight — and anyone who believes in good global governance to get together and insist that Zoellick's successor be chosen transparently and through open competition and merit.

The World Bank, and the world of 7 billion people whom it serves, deserve better than the antics of U.S. President Barack Obama's Treasury department clearly preparing for yet another American to take over.

Major news agencies, as if with one voice of an authorized U.S. Treasury leak, announced that the front-runners were former treasury secretary, former Obama economic adviser, former president of Harvard University, former World Bank vice president for economics — yes, that is all one man — Larry Summers, and U.S. Secretary of State Hillary Clinton. Some reports claimed that there was another potential candidate, Treasury Secretary Timothy Geithner himself.

Who knows what is going on, except that Geithner in his lordly way announced that the United States would nominate a candidate in the next few weeks.

Clinton has repeatedly denied that she wants the World Bank job, and recently reiterated that after years in the public spotlight she wishes to step down as secretary of state soon to regain her privacy.

The two male American candidates do not stand scrutiny. Geithner has spent too long with big banks. I was unsure whether to laugh or to cry when a Geithner supporter said that the Treasury secretary's father had worked for the Ford Foundation and taken his family with him on foreign postings to India, Thailand, Zambia and Zimbabwe, so the younger Geithner had first-hand experience of issues of economic development.

Summers, with his intellectual might of being a tenured Harvard professor at 28, does not suffer anyone he considers a fool. He has twice had his philosophical musings — if one is being kind to call them that — turn into notorious foot-in-mouth incidents that should disqualify him: the first was a memo when he was World Bank vice president suggesting the economic case for dumping toxic waste in under-polluted African countries; the second was when he was president of Harvard and asked — "to provoke you," he said — why women were underrepresented in tenured positions in science and engineering at top universities. After the outcry following the latter incident, he resigned as Harvard president.

As Treasury secretary, Summers and his predecessor and mentor Robert Rubin were responsible for lifting restrictions on banks that had been in place since the Great Depression. He hailed the new financial freedoms as, "a system for the 21st century." Many economists claim the relaxations laid the ground for the greed that brought the world close to financial meltdown in 2008. Behind the scenes, Summers also lobbied the Clinton administration against reductions in greenhouse gases and against signing the Kyoto Protocol.

When Summers became Obama's so-called economic tsar, he worked to trim the stimulus package to boost the U.S. economy, and also was in an ongoing battle against former Fed Chairman Paul Volcker in the latter's efforts to draw lines to prevent banks from indulging in the kind of speculation that led to the financial crash.

China has already pointed to the promise of an open merit-based selection of the next World Bank president, but unless it makes more fuss or is joined by other economic heavyweights, it will be nothing like enough to deflect Geithner's steamroller. Bookmaker Paddy Power has opened the betting, with Summers odds-on favorite at 4/11, followed by Hillary Clinton and Susan Rice, U.S. ambassador to the United Nations, each at 9/2, and Geithner and Kemal Dervis, the former Turkish minister and head of the United Nations Development Program at 9/1. The other Clinton, Bill, is rated at 66/1.

Simultaneously, a small chorus of discontents unharmoniously urged abolition of the World Bank: rightists howling that privileged "Lords of Poverty" should be replaced by capitalism and free markets to bring the world out of poverty; leftists denouncing the bank along with the International Monetary Fund and rich bankers as a globalized plot to grind the faces of the world's poor.

This is unfair to the bank, a very different organization from the International Monetary Fund. As economist John Maynard Keynes noted, the IMF is more like a bank, focused on financial matters, and the bank is more like a fund with a global purview over economic development and poverty-reduction. Zoellick expressed its task: "the development of market economies in an open international system — fostering growth, opportunity, and hope and overcoming poverty within a better political and security order."

Globalization, capitalism and free markets are not the complete answer to meet the development prospects of poor countries. This can be seen even in countries, spectacularly China and impressively India, where economic reforms have lifted growth and brought hundreds of millions of people out of poverty. China, as the World Bank pointed out in a major report at the end of February, needs to make major reforms or its great growth will come to a spluttering halt. One important role for the bank is in making such critical reports pointing to defects and deficiencies and giving early warning about economic problems ahead.

Money is not the issue, at least on a global scale, and is certainly not China's problem. Cross-border capital flows in 2010 were $4.4 trillion. The issue is whether the money goes to the right places. Many poor countries, covering large areas of Africa and Latin America and densely populated Asia, are off the map as far as capital markets are concerned. Even in rapidly growing countries, including India, there are issues of getting development money to the right places, especially education, protection of the environment and infrastructure in a very broad sense.

The World Bank is a medium-sized player in capital markets since it can package loans of $50 billion in a good year. But it has a vital catalytic role to play in giving good advice and involving other investors to bring more bucks to any party.

The bank is also three times as big as the IMF in terms of professional staff with a plethora of experts in almost every subject under the sun, making the bank a hothouse of economic, environmental, financial, scientific and social expertise, with Ph.Ds, though fewer MBAs, from almost every country on earth. The bank, nevertheless, has problems in its internal organization.

My experience was that the great economic and scientific minds were often politically naive, while the top management at the bank was unduly politically sensitive in two damaging ways. At lower levels, people win promotion to manager or director positions on merit.

But managing director and sometimes vice presidential jobs were subject to political lobbying. In this Japan played an important part with the ministry of finance seeking to create amakudari positions in the World Bank. Shamefully, the bank gave way in return for Japanese funding; China, and other countries then joined the bandwagon. Perhaps it was inevitable, given Washington's demands that it nominate the president, sometimes disastrously.

Since the bank is owned by its 187 shareholder governments, it is also careful about criticizing them. When forest fires were raging over Indonesia, spreading pollution over Southeast Asia, the bank's environmental experts were not allowed to breathe any suspicion of relatives of the then Indonesian president for sparking them.

Nancy Birdsall, head of the Washington-based Center for Global Development, in a stimulating comment on the center's website praised Zoellick for "an impressive performance in calming the waters and putting the bank back on course," but she upbraided him for not getting to grips with key tasks for the bank and the world.

These include: protecting the global commons and global public goods, like the environment, water, fisheries and food supplies, and global health against pandemics; removing the high-hassle costs of lending to middle-income countries; and trying to find an answer to fragile, flailing, failing and weak states. Birdsall says that a good World Bank president has almost a monopoly on the power to get things done if he or she has a vision and drive to tackle the big issues.

The best choice for Zoellick's successor would be a "Big Beast," someone with a powerful passion for making the world a better place and a personality transcending petty national politics. There are few around. Former U.S. President Bill Clinton is the outstanding figure.

Former British Finance Minister and Prime Minister Gordon Brown's charmless bullying reputation undercuts his passion, whereas former British Prime Minister Tony Blair oozes charm without substance. Hillary Clinton might make it, but she lacks the development passion and the charm of her husband.

Former President Lula da Silva would find it hard to leap from Brazil to the world. From the world of business, only Microsoft's Bill Gates stands out, though Birdsall suggests Nandan Nilekani, cofounder of India's Infosys Technologies would be a good choice.

The alternative would be someone with respected bank experience and understanding of national and international politics. Dervis, former World Bank vice president for the Middle East, is one. Trevor Manuel of South Africa and Ernesto Zedillo of Mexico are others. Shengman Zhang, former World Bank managing director has escaped Paddy Power's attention this time round, possibly because he defected to the big bucks of Citi (and is Hong Kong-based chairman of Citi's Asia-Pacific operations).

The outstanding person would be Nzogi Okonjo-Iweala, if she were prepared to give up her job as Nigeria's finance minister to return to the bank where she was effectively number two to Zoellick. Birdsall commends Okonjo-Iweala.

Prime Minister Manmohan Singh of India, where is your voice? Do you remember at the IMF and World Bank annual meetings in Bangkok in 1991, when we talked, you insisted that the rich nations should not be "the directorate of the world." I used your interview as the lead front-page story on the daily newspaper of the meetings over the objections of my American and British colleagues, who asked who cared what India thought. Is this the case today that India is of no global consequence?

But please, President Barack Obama, if you have any shaft of vision remaining, spare the World Bank Summers or Geithner, and remember the commitment to open and merit-based selection: the world deserves nothing less.

Kevin Rafferty was managing editor at the World Bank 1997-1999.

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