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Tuesday, July 3, 2012

Modest idea for protecting Earth's common resources

Special to The Japan Times

RIO, De Janeiro/washington — A middle-ranking Brazilian delegate to the Rio+20 summit declared confidently that "The International Monetary Fund and World Bank are run by and for the benefit of the Rothschilds." To my surprise, other higher-ranking delegates, including heads of delegations from smaller states agreed with him. (Indeed, "the Rothschild family" is the "favorite answer" on Yahoo.com to "Who owns the World Bank?")

Jim Yong Kim, who took over on Sunday as president of the World Bank, should be worried. At the very least, the bank has failed to get the message across about its mission and importance, and is probably also failing in its task.

This is little short of a disaster for the bank and for the 2 billion-plus poorest people in the world. At a time when the global economy is slowing in all directions and when the multilateral system that has underpinned recent rapid growth is under threat, it is important that the World Bank rediscover its role and its soul.

There is a lot of rubbish talked from right and left, and from all continents, about what the bank is and should be. I wasted several hours of my life listening to leftwing so-called development experts from the United States, Europe and South Africa damning the bank, claiming that "90 percent of its staff are neoliberal economists" and that previous presidents of the bank had spent "most of their adult life trying to get rich, and getting rich and getting powerful."

From my own experience working inside the bank, its professional staff — from 168 countries — are among the most talented in the world. Some of them are economists who have a variety of views on the global condition. Most are experts in a host of specializations from agriculture, ecology and environment to transport, technology and zoology via most of the burning development issues in between.

I have seen them working in the field: All, whatever their country of origin, care about development issues without any of the cynicism or political calculation that mark discussions among the bank's government shareholder owners. They do suffer from several political deficits. They can be naive about the devious ways of developing country politics, including corruption.

More damagingly, the internal politics of the bank curbs their honesty. In the 1970s, Basil Kawalsky, a talented South African, almost got fired because he dared to mention corruption in the infant Bangladesh in a preparatory economic report to which Bangladesh objected.

Joseph Stiglitz, the bank's chief economist, was damned for daring to speak out against the IMF's savage austerity in the Asian financial crisis.

"Stiglitz is finished: He'll never get another job," said a senior bank staff member, declaring that Stiglitz had committed the mortal sin of criticizing the IMF. Stiglitz won the Nobel Prize, is in the forefront of critical economic thinking, and the World Bank lost a creative enfant terrible who could have established it as the center for brainstorming big economic issues.

Nancy Birdsall, founder president of the Center for Global Development (CGD) and a former director of the World Bank, says that "developing countries don't trust the World Bank" because the old industrialized countries that set up the bank in the dying days of the Second World War to be an agent for their reconstruction don't want to yield their political power on the bank's board. Despite the belief about the Rothschilds, governments are the owners and shareholders of the bank: America is the only country with a blocking 15 percent vote, followed by Japan with 7 percent and China. Small Pacific islands have voting shares of 0.04 and 0.03 percent.

The World Bank needs a global view on the pressing issues facing humanity. In spite of the achievements of growth in lifting more than a billion people out of poverty, the popular economic nostrums are failing to solve pressing problems.

The last few World Bank presidents have accepted a diminished role for their institution on the assumption that private sector capital will provide funds. Given that there are trillions of dollars floating round the capital markets and the bank has only $50 billion to $60 billion a year, this might seem reasonable. But it is shortsightedly optimistic and led to the bank doing less than it should. Some countries have prospered with the infusion of private capital. China clearly has. But others, even some fast-growing ones, have lagged.

India is a case in point, in desperate need of infrastructure funding, but private capital has not come to get the roads built to the farms where 40 percent of the crops are wasted for failure to get them to market in time. More obviously, fragile, weak, failing and war-torn states have been left behind, and private money is not interested.

Even within the success stories of great growth, there are failures and failings, including massive sprawling, soulless polluted cities with mansions for the rich and endless slums for the poor.

There is also a steady destruction of the fragile fabric of planet Earth. The failed U.N. summit in Rio de Janeiro last month surely proves that it is high time for the world to devise an updated economic model — since the current versions, from finance-dominated free-market capitalism to China's state capitalism with market characteristics are leading fragile planet Earth to the brink of destruction. The Rio+20 meeting, supposedly about sustainable development, demonstrated that the global political system is the most broken part of the world we live in.

The tarmac at the international airport was jammed with the personal aircraft of some of the 100 leaders at the summit. Air Zimbabwe, Sri Lankan Airlines and Royal Australian Air Force jets were among those waiting with engines podded for their leaders to finish enjoying their suites.

Hotels minted money: Rooms, if you could find one, cost $2,000 a night for modest luxury or $300 for a basic place to sleep. Rio's streets were colorful and cacophonously noisy with near-naked indigenous people wearing bright plumes bravely dancing in the rain, and endless bands bashing a green message on homemade drums. World leaders accidentally saw the carnival, safe behind their security cordon and wailing police cars when they ventured out.

The final communiqué seemed complacently unaware of the immense damage being done to Earth. Kumi Naidoo, head of Greenpeace International, summed it up: "No commitments, no timetable, plenty of wriggle-room for governments."

The world is at a dangerous precipice. Since the 1992 Rio Earth Summit, global emissions of greenhouse gases have risen by 48 percent; 300 million hectares of forest have been cut down, with Brazil a leader in despoliation; the world has added 1.5 billion people toward 9 billion by 2050.

More dangerously, the quest for economic growth at all costs has led to gobbling up of resources 50 percent faster than the Earth's fragile ecosystem can replenish them.

A basic problem is that each company and each country, however efficiently it uses resources, thinks primarily of its own needs. China has recently demonstrated this in building huge stockpiles of vital minerals, helping push up prices.

CGD founder Birdsall thinks the time has come to set up a body specifically charged with protecting the global commons, meaning use of natural resources that cross national borders, such as water, land use, energy and food supplies, and climate change. "What is important and special about these issues is that it is not sufficient to have ideal policies in each country, for each country," she says.

"As a global community, we will not adequately address the issues unless we work cooperatively. The easiest example to understand is climate. Even if each nation does what makes sense for it, that may not be sufficient to deal with the broader problem. We don't have an incentive in any one country to limit greenhouse gases sufficiently to take care of the global problem, and no country does."

Birdsall suggests that the World Bank could be the natural home for such a body, perhaps as a special agency.

In the World Bank, she adds, "we have a global institution that is still the premier institution in bringing together money, technical capacity, fiduciary capability — there is no corruption and you can have it as your trustee.

"It also has a set of assets across sectors, which is important in the case of, say, clean energy. There are people embedded there who know about agriculture, infrastructure, environment, ecology, and about countries' political arrangements and capabilities as well. I am not saying that the World Bank is the only institution that could do it, but it is already there."

Birdsall's proposal to create a body to protect the global commons runs up against a series of powerful arguments, not least that there is no international demand or energy to set it up, let alone bring it to life. International institutions already proliferate, some with responsibilities that would overlap with a global commons body, such as the law of the sea and various fisheries agreements. The record of international agreements, even on a narrow front, has hardly been stellar.

Birdsall responds that "The international conventions work better than if they did not exist at all. That is true for sex-trafficking and pandemic disease."

At the big tent bodies, the World Trade Organization, World Bank and International Monetary Fund, weariness has set in. The IMF has partially been rejuvenated by crisis, but it is so preoccupied with crisis that it is far from projecting a workable solution for the underlying global financial challenges.

WTO's Pascal Lamy is a voice crying in the wilderness: Successful conclusion of the Doha world trade round would do much to boost global growth, but political deadlock has rendered Doha defunct.

There is intense suspicion between big countries whose cooperation would be needed to establish a body to protect the global commons.

China and some other rapidly developing countries have money to fund such a global body, but would resent being told to amend their own policies for the global good.

The U.S. doesn't have the money, would resent providing funds, and already bitterly resists any efforts to tell it how to behave to help save the world.

Other potential leaders, such as Europe or Japan are too preoccupied with their own economic messes to think of the world.

It is hard to see a totally new body getting off the ground. But the World Bank exists and is supposedly the leader in global development.

Is it beyond the wit of new president Jim Yong Kim to suggest a new global commons offshoot of the World Bank, and perhaps to tap government and private money, even the consciences of those who have made billions from financial crisis?

Birdsall suggests it could be headquartered in the thick of critical issues of global commons, such as Mumbai (and headed by a Chinese or African) or Shanghai (headed by an Indian or African).

If he does not have such a lively imagination, Planet Earth is going to be an increasingly uncomfortable place for all of us and for our children.

Kevin Rafferty worked at the World Bank in Washington from 1997 to 1999.

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