A world of complaint
Financial Times; Aug 28, 2001
THE WORLD BANK'S DECLINING INFLUENCE IS BLAMED BY MANY ON THE FAILINGS
OF ITS PRESIDENT, SAYS STEPHEN FIDLER
If the World Bank were a private company, the 1990s should have been a
decade of record profits and the institution a growth stock. With the
decline of communism, governments worldwide became disillusioned with
the public sector as an engine of growth and embraced market-based
capitalism. From Latin America to eastern Europe, political leaders
slashed barriers to trade, privatised state-owned enterprises and
deregulated markets. Governments beat a path to the World Bank's door,
seeking out its unequalled expertise in the field of development and its
money. The bank's potential for influencing global events appeared to be
on the verge of an unprecedented expansion.
It did not happen. Instead, the World Bank has found itself in crisis,
its power severely diminished and its global role under attack from
across the political spectrum. Critics now speak freely of closing the
institution altogether, or at least of radically shrinking it. Poised
for spectacular growth 10 years ago, the World Bank is now groping for
relevance precisely when profound change in the global economy should
have placed it centre stage.
Under these conditions, what would a private company do? Easy: fire the
chief executive officer. But not the World Bank. Its president, James D.
Wolfensohn, was reappointed for a second, five-year term, to June 2005.
Yet critics, inside and outside the bank, accuse Mr Wolfensohn of
presiding over a tragic deterioration of the world's premier development
institution, which they describe as rudderless and lacking strategic
direction. They blame Mr Wolfensohn's personal failings: a phenomenal
temper, a constant need for approval, and an inability to resist the
latest development fad. They allege that Mr Wolfensohn's attempts to
make the bank friendlier to myriad outside constituencies - in
particular, to non-governmental organisations - have made the
institution softheaded, less analytical, and so less relevant. They also
say that Mr Wolfensohn's poor stewardship and lack of focus have
weakened the bank's internal organisation.
Sebastian Edwards, a UCLA professor and former World Bank senior
economist, points out that the high volume of private capital flowing to
developing nations has seriously diminished the importance of the
institution. But, he says, Mr Wolfensohn's actions have accelerated the
trend. "It's happened faster because of him," Prof Edwards argues. "What
Wolfensohn has done has been incredibly frivolous."
In the six years since his appointment, Mr Wolfensohn has completely
overhauled the bank. He has appointed 36 of 38 vice-presidents, while
three out of its five managing directors were brought in from outside.
Bank documents show that about a quarter of its 10,000 employees have
joined in the past three years.
But many are critical of the internal changes. "He has been unwilling or
unable to set up a management structure beneath him to compensate for
the fact that he can't run the institution on a day-to-day basis," says
a former senior US government official. Others criticise Mr Wolfensohn
for promoting favourites and ignoring World Bank regulations when they
do not suit him.
Mr Wolfensohn rejects the complaint that he is ill-suited to the job but
accepts that "it is fair to say that I'm much better on the outside than
on the inside."
"He's a relationship guy," says one World Bank official. "He has
enormous credibility with influential and powerful people around the
world." Another official commends Mr Wolfensohn for having done a
"fabulous job communicating with the outside constituencies: the
governments of the industrialised countries and the NGOs."
But this kinder, gentler image has exacted a heavy price. Critics charge
that, under pressure from NGOs and other interest groups, the World Bank
has surrender its intellectual integrity, rushing to embrace the latest
fashions in development thinking. No initiative embodies this trend
better than Mr Wolfensohn's "Comprehensive Development Framework",
launched in January 1999 - a "holistic, long-term and country-owned
approach that focuses on building stronger participation and
partnerships to reduce poverty".
Critics charge that the CDF represents a capitulation to NGOs. Many
borrowing governments complain that it is inappropriate for the World
Bank to anoint non-elected, self-styled representatives of civil society
to interfere in bank programmes. "I am deeply troubled by the distance
the bank has gone in democratic countries toward engagement with groups
other than governments in designing projects," lamented Larry Summers,
the former US Treasury secretary, at a private retreat of bank country
directors in May. Mr Summers, also the former chief economist of the
World Bank, said there was little evidence that giving weight to local
communities resulted in improved decision-making. "I am concerned," he
said, "that the move toward empowerment rather than an economic approach
is standing in some ways for a reduced emphasis on the analytic element
in the bank's work. If that is so, it seems to be a troubling
development."
Many think that Mr Wolfensohn's positioning of the bank has accentuated
a lack of focus at the institution, leaving staff unsure about
priorities. In a speech last October to the World Bank's board,
Valeriano Garcia, the outgoing executive director for Argentina,
captured this widely held sentiment: "The strategic thinking of the bank
has been muddled by too many ad hoc initiatives . . . We really need to
be more focused."
These initiatives include: the World Faiths and Development Dialogue,
which brings together leaders of various religious denominations from
around the world with the bank and other development institutions;
support for cultural projects in the Balkans; and the Global Development
Gateway, an attempt to encourage "new economy" ideas in developing
countries.
Some of Mr Wolfensohn's ideas have received praise. For instance, his
efforts to decentralise the institution and push a large minority of
staff into the field have worked well, even though they have multiplied
the bank's management difficulties. Others initiatives - such as a plan
to create an international risk management organisation - have sputtered
into life and then faded.
Mr Wolfensohn defends the World Bank's broader agenda. He says the
institution is applying much more elaborate and expensive safeguards,
for example, to make sure that environmental and resettlement guidelines
are followed. The bank has impressed on its client governments the
importance of such issues as the environment, gender equality and
avoiding corruption. It has been asked to provide debt forgiveness for
the poorest countries and more detailed poverty reduction strategies.
Overall, however, Mr Wolfensohn maintains that the challenges of global
development require this more variegated approach. "They're saying
[that] because I'm interested in religion and culture it's a perfect
example of my idiotic extension in thinking, as though they are driving
forces in the institution that cause all the stress, which is nonsense.
The simple fact is that doing development has become a lot more
difficult."
Ultimately, a good part of the responsibility for the World Bank's
growing agenda and apparent lack of focus lies with its shareholders in
rich countries. "As its own bilateral aid programme has shrunk, the US
has found the World Bank an especially useful instrument for projecting
its influence in developing countries. The bank is a source of funds to
be offered to US friends or denied to US enemies," argues Robert Wade of
the Institute for Advanced Study in Berlin.
Although no other member states come close to matching US power over the
bank, all its influential owners - Britain, France, Germany and others -
have borrowing governments whose interests they purport to sponsor, as
well as key issues (such as the environment) that are viewed as
important by their electorates. Otherwise, accountability and scrutiny
from donor governments are uneven at best and non-existent at worst.
Meanwhile, the few powerful borrowing nations that could exert some
influence are afraid to voice their concerns lest they lose access to
bank finance.
This pressure on the bank is overlaid on what some consider another
source of confusion: the idea that neither the World Bank nor others
have the right recipe for development. The market-oriented economic
reforms introduced over the past decade throughout the developing world
have brought some recovery of economic growth but nowhere near what was
expected.
This frustration reaches right inside the bank. The International
Monetary Fund and World Bank have over the past decade given 10 or more
loans each, with conditions attached, to 36 poor countries. But as
William Easterly, one of the bank's most respected economists, has
pointed out: "The growth rate of income per person of the typical member
of this group during the past two decades was zero." (FT, Personal View,
July 4.)
Mr Summers argues that the institution is torn between appeasing NGOs
and other constituents and the bank's fundamental development
objectives. "If you are a development organisation, you really cannot be
in bad grace with the principal carriers of moral energy around
development," he said at the country retreat in May.
"I think it would be a great tragedy in terms of the bank's potential
contribution to reducing global poverty," he added, "if, in the name of
demonstrating its compassion and moral energy, [the bank] were to lose
sight of the rigorous analytic basis and emphasis on supporting market
forces that have allowed the bank to make such a great contribution to
global poverty reduction efforts over these past 50 years."
To Mr Wolfensohn's critics, he may have already moved too far in this
direction. Mr Wolfensohn himself makes a plea for others to do what many
say he is not able to do himself - separate the institution from its
president. "Put me aside for the moment and say I'm useless . . .
egocentric, insecure, all the things you want to say - but don't damage
the institution because you want to damage me . . . This is too good an
institution to damage in that way. Don't confuse the two, because that's
not doing anybody any good."
A longer version of this article appears in Foreign Policy magazine
www.foreignpolicy.com <http://www.foreignpolicy.com>
Full article at:
http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=01
0828004922
Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland
[EMAIL PROTECTED]
