Wolfowitz for the World Bank!

My favourite passage in Peter Griffiths’ book “The Economist’s Tale” is one where he ruminates on the nature of the job, and how it sometimes sends World Bank people a little bit batty.

“From time to time, I have to look a Minister in the eye and say something like; if you carry out this policy, I expect that 200,000 children will die in the city this year. However, as a result of the price mechanism put in place, I would expect that in four years’ time, 400,000 children of farmers will live who would otherwise have died. I do not have any conclusive evidence for this conclusion. The process by which I arrived at this estimate would
certainly not pass the peer review process of any Western economics journal. Nevertheless I strongly advise you to take this course of action. There is a kind of rush that comes with having this kind of power, and some people get addicted to it.

Since it would appear from this that the two insititutional hazards of the World Bank are a) arrogance and b) making big and important decisions based on not enough analysis, then you can sort of see how lots of people might think that Paul Wolfowitz, a man whose name does not exactly bring to mind the phrase “now there’s a humble chap who never makes absurdly optimistic projections with disastrous results”, would not be the right choice to lead it.

However, on careful consideration, I disagree (most of this already posted to the Progressive Economists’ Network, hullo lads, so subscribers to that list can stop reading and get on with finding more stuff for me to plagiarise on this blog).

Let me state the case for Wolfowitz as strongly as I can make it:

1. Wolfowitz knows next to nothing about banking. This is very good news, as it means that he will be at the mercy of his staff. Compare Wolfensohn, who knew a hell of a lot about banking, and as a result wasted about five years of everyone’s time trying to reshape the whole place in the image of what he thought a development bank should be.

2. The great danger at the World Bank at the moment is, as I’ve posted before, “Rights Based Lending“. Wolfowitz is likely to continue to lead the charge on this one. However, we have to remember that this man was once ambassador to Indonesia, a post in which he apparently bravely pressed the Suharto regime in the direction of democracy, but cleverly managed to do so without leaving any record in any news source of his having done so or ever materially impeded US trade and aid flows. That kind of “diplomatic” rights-basedness, I doubt will do much harm. More seriously, in as much as Wolfowitz concept of human rights is more or less coextensive with American national interests, it means that he is only a real threat to the WB loans of those states with which the USA currently has a beef. Most of these are basically nasty people who don’t deserve the loans anyway, and I doubt undemocratic but developmental states like Vietnam have much to fear.

3. The other great danger in development policy at the moment is the tendency of people to throw up their hands and claim that all poor countries are so horribly corrupt that we can’t do anything to help them, so we should just keep the money and spend it on sweets instead. You can usually detect that something like this politically and economically convenient bit of “tough love” is coming down the track when someone starts talking about Swiss bank accounts (this is actually a terrible slur on the Swiss banking industry which has massively cleaned up its act over the last twenty years and is really nothing like as dependent on flight capital as it used to be). The facts are that there is corruption in the Third World (there’s corruption in the First World too; we sent Bernie Ebbers to jail not so long ago for a fraud roughly equal to an entire year’s WB budget). But nonetheless, the coefficient of peculation is much less than 100%; money spent, particularly in the context of a well-administered project, does get through. Given Wolfowitz’ record of handing over large sums of money to plausible third world expat rogues who have a habit of not being able to account for it properly, I think he’s gonna be sound on this issue too.

4. Most importantly, the Wolfowitz presidency brings into sharp relief the important fact that the Bretton Woods institutions are not really development agencies or aid agencies. They are, pure and simple, the instruments of Western Capital in the third world. It would certainly be much healthier if everyone dealt with them on that basis. Rather than making excuses for them as well-meaning organisations corrupted by foolish neoliberal ideologies, we should admit that the purpose of these institutions is neoliberalism, and if neoliberalism can’t deliver the goods to the poor of the world, then that’s a reason for giving up on neoliberalism, not an opportunity for “just one more” realignment of priorities.

Add to this the fact that the architect of the Iraq War will in future have to play his Great Games using a chequebook, which is a much less lethal instrument than the cluster bomb, and this looks like a big win for the world. The ball’s in your court, Paul – you’ve got everyone against you, but I think you’ve got the brains, and indeed the track record, to follow in Bob Macnamara‘s footsteps.

To show willing, and to perhaps atone for some of the cheaper shots in this essay, I have arranged for a copy of JK Galbraith’s “The Nature of Mass Poverty” (review forthcoming, I hope), for my money the best thing written on development economics, to be sent to you care of the WB in Washington.