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DSK Replacement Should Come From Developing World

French Finance Minister Christine Lagarde

First Posted: 05/23/11 01:06 PM ET Updated: 07/23/11 06:12 AM ET

Nothing against French Finance Minister Christine Lagarde, who by all indications seems qualified to oversee the International Monetary Fund, but here's a vote for anyone else who is qualified from the developing world.

Let's recap why there is suddenly a vacancy in the highest office of the IMF: Dominique Strauss-Kahn, a man reared in rarefied Parisian suburbs, educated at elite French academies and more recently occupant of an office that entitles him to fly around the globe fraternizing with fellow members of the powerful set, allegedly stepped out of the shower in a $3,000-per-night suite at a deluxe New York hotel. There, he encountered an African immigrant employed as a maid, who was presumably arriving to make the bed and remove the trash.

The alleged sexual assault that followed is uncomfortably close to a workable metaphor for how much of the developing world has long viewed its relations with the Washington-based institutions at the center of the global financial order, the IMF and its sister agency the World Bank. Not without some merit, it must be added.

Why was DSK the one stepping out of the shower and headed for an elegant lunch in a Manhattan restaurant? By dint of many reasons, to be sure, but surely in part because of his good fortune of being born in the capital of a wealthy nation and being the son of parents able to reinforce their own good fortune by sending him to the most exclusive schools. And why was this woman from Africa here on this day? Every life is complex, but one can assume that her decision to come to the United States, rent an apartment in the Bronx and ride the subway to Manhattan so she could scrub the toilets of the global elite amounts to her calculation that this was the best economic opportunity available to her.

This is not a broadside against the World Bank and the IMF, whose histories and world views are far more complex than they are often made out to be by its legions of critics. The two institutions are full of dedicated and well-intentioned people who spend their days trying to build a more equitable economic order and spread the fruits of innovation to more parts of the globe (though the same cannot always be said about the leadership). Rather, it is a recognition that the inequalities that divide nations and the classes within nations are so deep and self-reinforcing that it is going to take some real doing to transform the centers of power into forces for greater good.

That, and the recognition that it would be disgusting to fill a vacancy created by an alleged sexual assault of an African immigrant maid by a European master of the universe with another European -- yes, even a woman -- through the same secret, clubby process that has been used to staff the place since its inception.

Over the weekend, the sense took hold that Lagarde's appointment was gathering unstoppable momentum. But that would be a stay-the-course move. Why not reform from the top down?

For far too long, the IMF and the World Bank have been perceived as institutions intent on perpetuating the privileges of wealthy countries while displaying callous disregard for the lives of ordinary people around the globe. Time and again, a fresh financial crisis in Indonesia, Argentina or Greece has prompted the IMF to prescribe its usual regimen of austerity as the condition for an emergency bailout, requiring government budget cuts, the elimination of subsidies for food and fuel and the cessation of other spending.

This medicine has been served up as a needed salve for a global financial system lacking confidence, which is really a euphemism for the needs of the enormous banks who play an outsized role in the national affairs of the countries that pay most of the IMF's bills: Its policies have ensured that lenders based in the United States, Europe and Japan are not forced to absorb losses on loans made recklessly in pursuit of emerging market riches. Better that ordinary people in Indonesia, Argentina or Greece should lose access to luxury items like rice and kerosene than that shareholders of Deutsche Bank or Goldman Sachs should forego dividends.

One may be tempted to reject that portrayal as cartoonish, but every now and again a window opens up on the views of the people running the ship. Recall the memo that Larry Summers signed in 1991, when he was the chief economist of the World Bank, advocating the bank encourage more toxic waste be transferred from wealthy countries to poor countries. Among the reasons? Poor people earn less than rich people, so the lost wages from their deaths are not as great.

"The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that," the memo asserted. Summers later characterized the memo as a sarcastic retort. Hilarious.

Whatever the tone, the logic of the infamous memo is the same sort that holds as a natural outcome the fact that African immigrants should serve the needs of European and American potenates inside delightful hotels: Every actor pursues their own economic self-interest, and thereby maximizes the greatest aggregate good. So speaks the text book. That is no justification for an attempted rape -- the crime alleged -- but it helps explain how these two individuals found themselves standing opposite one another in the same hotel room.

We simply need the institutions that govern the world's money to be representative of the world's people. Yet the way the DSK episode has been absorbed by the power centers reflects a tendency to accept the sorts of assigned roles the IMF and the World Bank generally view people outside the most powerful countries as: cheap hands to be exploited, miserable wretches to be pitied and perhaps aided or, most of the time, rounding errors on the ledger books of a global economy.

The New York Times keeps referring to the alleged rape attempt as a "tawdry" episode, as if implying that DSK was caught consorting with a woman of lower class and ill-repute, brought down by an unclean act -- an embarrassment, as opposed to a crime of violation and brutality.

In France, to judge from the polls and the press coverage, concern seems to focus on claims that DSK was set up -- an exculpatory frame that turns him into the potential victim -- and worries that he is being ill-treated as we glimpse him placed on the hardwood benches of a New York City courtroom or paraded in front of cameras on his way to being arraigned.

"He's not like everyone else," the French intellectual Bernard-Henry Levi reportedly told a German newspaper, expressing his revulsion over seeing his friend DSK led into court in handcuffs.

The French reaction speaks to the deep-seated sense of entitlement that governs the powerful class: The maid and her story are not even in the picture. Let us contemplate the injustice of being yanked from the front of the plane to the courtroom! Did DSK even get to finish his pre-takeoff cocktail?

This is, frankly, one of the rare times I find myself feeling almost patriotically proud over the workings of the American justice system. The New York Police Department appears to be putting its nose to the ground and investigating the case as a straightforward crime, in which one human being allegedly violated the rights of another. Considerations of class and race and national origin appear to be trumped by a straightforward process of fact-gathering and deliberation.

Isn't this how the global financial system ought to work, too, as the IMF sets about finding a replacement for DSK?

The clearest argument for giving prime consideration to someone from the developing world is the name for the process that has governed in the past -- the "gentlemen's agreement" that the World Bank chief must be American, while Europe has claim to the head of the IMF, as if these offices are colonial spoils to be divvied up among empires.

The IMF has in recent years made a show of adjusting the byzantine system through which it allocates votes according to the financial contributions of its members, slightly adjusting upward the shares that accrue to China, Brazil, India and Russia. But that is mere tinkering around the edges. We need something bold, a clear assertion that the gentleman's agreement is no more.

Four years ago, as Wold Bank President Paul Wolfowitz was forced to leave his post under an ethical cloud, prominent academics called for an end to the gentleman's agreement and the adoption of a transparent process to replace him. But the old system was indulged again.

Now, the same calls are being heard again. Over the weekend, the finance ministers of Australia and South Africa released a joint statement urging that DSK's replacement be selected on the basis of merit, not nationality.

"For too long, the IMF's legitimacy has been undermined by a convention to appoint its senior management on the basis of their nationality," the statement declared. "In order to maintain trust, credibility and legitimacy in the eyes of its stakeholders, there must be an open and transparent selection process which results in the most competent person being appointed as managing director, regardless of their nationality."

That's a good start, but better yet, why not urge for the active pursuit of a managing director from the developing world?

To which one might respond that the moment at hand is too fraught with peril to allow political correctness to dictate. Greece is in trouble again. Portugal remains a worry. Spain may yet need a bailout, with awful ramifications for the rest of Europe.

But part of the clubbiness that prevails inside the IMF and the World Bank, not to mention the American Treasury, includes subscribing to the increasingly ridiculous assumption that the West knows best when it comes to prudent financial management. China, whose banking system is oft-described by the power set as a disaster in waiting, has now skirted two global financial crises in a row (Asia in the late 1990s, and the Grand Disaster of 2008) without a domestic meltdown. The knock on China is that relationships and insider deals determine where money goes. How to put this? France, Germany, the United States and Great Britain also seem to have this problem. That's how the good taxpayers of the United States wound up giving money to AIG to bail out Goldman Sachs while letting the executives keep rewarding themselves with bonuses.

India is a growing economic power that happens to be a democracy. South Africa has emerged from apartheid to assume a seat at the table among responsible nations. Latin America is increasingly integrated into the world economy. Surely, somewhere other than Europe or the United States resides a person capable of overseeing the IMF.

Dominique Strauss-Kahn has shined a momentary light on something that was never really hidden to begin with, yet manages to go largely unseen -- the degree to which institutional privilege perpetuates itself to the detriment of most citizens of the world. His demise presents us with an opportunity to address that, one that ought not be squandered.

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