The pressure for the resignation of World Bank President Paul Wolfowitz continues to mount, but Wolfowitz and the man who appointed him, George W. Bush, seem to think they can tough it out. Their odds don't look too good, but one never knows. It may turn out that, as in the Don Imus case, the outcome will depend on whether the pressure appears (to the authorities) like it will die down or continue.
“Paul Wolfowitz, thank you for your leadership of the World Bank,” President Bush said at a White House ceremony on Wednesday, apparently not noticing how alone he stood in this assessment of Wolfowitz's tenure at the Bank.
The issues now being considered by the Bank's board go beyond the Wolfowitz's role in the hefty salary increase received by his girlfriend, and extend to such allegations as appointments of highly paid cronies and pushing the Bush Administration's agenda with regard to family planning and global warming.
The case is also interesting because in some sense it can be seen as Europe departing from a 63-year tradition of letting Washington control the World Bank, as has been the arrangement since 1944. As I noted in the column below, this is a very small step for the Bank into the 21st century, and one that is not likely to boost its legitimacy in the developing world, which is suffering from its policies but has practically no power within the institution.
Bringing the World Bank into the 21st Century
April 25, 2007, Sacramento Bee
April 25, 2007, San Diego Union-Tribune
Here in Washington, Word Bank employees agitating for the dismissal of their embattled chief executive, Paul D. Wolfowitz have taken to wearing blue ribbons in order to demand "good governance" at the World Bank. The deciding factor in whether he keeps his job may be whether the authorities - who in this case includes Wolfowitz's sponsor, George W. Bush - think the pressure will continue or fade away.
Wolfowitz's role in arranging of a controversial pay and promotion package for his companion is the proximate cause that set this scandal in motion. The appearance of nepotism at the highest levels of an institution that lectures poor countries about governance was apparently too much for many people, including World Bank staff, to ignore.
But Wolfowitz's troubles reflect much bigger problems at the Bank and its smaller but still dominant sister institution, the International Monetary Fund. The majority of the world, in developing countries, have fewer votes than the United States and almost no voice within the Fund or the Bank. The Europeans plus Japan, who technically could outvote the United States, never do so. Amazingly, this reflects the world of 1944, when these institutions were created. At the time, the United States was practically the only power in the developed world, and many of the countries now included in the Word Bank were still colonies of Europe.
The World Bank is thus seen in much of the world as a neo-colonial institution, and all its preaching about "governance" seems little more than a way for the Bank to cover for the failure of its own economic policy prescriptions. The Bank has little to show for its tens of billions of dollars of development lending. The vast majority of the countries that have followed its policies have suffered a sharp slowdown in economic growth over the last 25 years, and a resulting decline in progress on social indicators such as life expectancy and infant and child mortality.
While corruption is bad and "good governance" is by definition good, failed economic policies - the abandonment of development strategies, anti-growth monetary and fiscal policies, indiscriminate opening to trade and investment flows, the pressuring of governments to prioritize the needs of foreign corporations - are much more likely causes of this long-term economic development failure. After all, countries like South Korea managed to achieve some of the most rapid and successful economic growth and development in world history without cleaning up corruption. South Korea went from a per capita income level of Ghana in 1960 to that of Europe today, while two of its presidents during this successful development trajectory went to jail for corruption involving hundreds of millions of dollars. And the United States didn't exactly have good governance while the robber barons held sway during the latter part of the nineteenth century, when we were the fastest-growing developing country in the world.
A report released this month from the IMF's own Independent Evaluation Office has found that nearly three-quarters of aid money received by Sub-Saharan African countries since 1999 was not spent, at the urging of the IMF. This has outraged health and other advocacy groups like Doctors Without Borders, who expect this money to be spent to save people's lives in desperately poor countries, where thousands die every day from lack of adequate health care and nutrition. The World Bank has to share the blame for this scandal since most of its lending is contingent on IMF approval, and their joint "creditors' cartel" is in fact the source of much of the Bank's power over poor countries.
This week the German government joined the call for Wolfowitz's resignation, in a rare break with Washington. Wolfowitz's appointment in 2005 was deeply offensive to the Europeans. Here was an architect of the Iraq war, which most of Europe considered an illegal and extreme manifestation of the Bush Administration's unilateral arrogance. Making him head of the World Bank was a public display of how little the Europeans' opinion mattered.
Now Europe may help force him out. But the Bank is unlikely to recover much legitimacy in the rest of the world, whose hundreds of millions of people bear the burden of its mistakes and have no significant representation in its decision-making.