| Wolfensohn: transparency of ambition and charm
The World Bank was born to deal with the ravages of world war in Europe. The much larger Marshall Plan for the reconstruction of Europe soon overtook it. In searching for a new role, it focussed on the development of the world's poor countries. Its mandate then was economic development through judicious lending to these countries. The bank would have the expertise to evaluate projects.
Because loans were to governments, it soon began to evaluate the economic policies of countries to reassure itself that borrowing countries were pursuing economic policies that would ensure the safety of the World Bank loans. When the International Monetary Fund began to lend to countries hit by sudden crisis (like the oil price shock of 1972 or loss of markets) with conditions for structural adjustment, the World Bank joined in laying down conditions to be followed by countries to which it gave loans.
These were 'structural adjustment' conditions. While the IMF conditions were for the macro economy, the bank's conditions largely related to the sector to which loans were given. Because of the calibre of its officials and the research it was able to undertake, the bank also began to make suggestions on privatization, institution-building, enabling frameworks and so on, areas that would affect the ability of countries to service its loans.
It was not a bank in any conventional sense. It had no depositors and lent only to governments. Though a subsidiary institution, the International Finance Corporation was created for lending to the private sector. The World Bank is a development organization that lends money to cure market failures and finances projects that other lenders keep off from.
It has a board of governors and executive directors representing shareholding countries. They are wholetime employees of the bank who sit in the bank premises and meet every two weeks with the president and his executives. They approve all loans, though the bank president and his staff decide which loans are to be put up for sanction. The pedantic, intrusive and rulebound oversight by the board, the sluggish caution of the bank because of the fear of post mortems by its inspection panel and increasing non-governmental organization assaults, led to the bank becoming overly centralized and with absurd rules that were difficult and time-consuming to change.
There is no one-country-one-vote principle like the United Nations. Voting rights are proportionate to financial contributions to the bank, giving the United States of America the largest number of votes and a veto on decisions it does not agree with. The two top jobs in the IMF and bank are shared between Europe and the US respectively, with no transparency or consultation on the selection.
Hence presidents of the World Bank were never chosen for competence in lending to poor countries for their development, knowledge of third world problems, ability to generate enthusiasm for helping the world's poor and experience in running a large and chaotic bureaucracy. Selections have been payoffs for financial support during elections, repayment for past services, cosy retirement benefit to a crony, as a shelf to place unwanted high officials or to the best networked candidate. A broader search could have found far more suitable presidents.
Its achievements despite such constraints are a tribute to highly competent staff. They are experts on different aspects of development and on different countries. They are in the way of bank presidents who steer the bank in other directions.
Other powerful stakeholders are shareholding countries and their executive directors and NGOs since the Eighties. The least powerful are the borrowers. They have no say in the selection of the president. The transparency, good governance and meritocracy that the bank pushes its borrowers to introduce in their governments are absent in the selection of its president.
Sebastian Mallaby in The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations (Penguin, 2004), has penned a fascinating portrait of James Wolfensohn, who has been president of the World Bank for 10 years. Unlike earlier presidents, Wolfensohn badly wanted the job for 15 years and frenetically canvassed for it. From an Australian (who became American to qualify for the World Bank presidency) Jewish immigrant family of modest means, he became captain of the Australian Olympic fencing team, a Harvard MBA, a cellist good enough to play at Carnegie Hall with the greatest musicians of his time and among the most successful merchant bankers in New York who accumulated a fortune of $100 million before he was 50. Egotistical and self-promoting, with a temper and an inability to accept advice from subordinates, he also had immense charm and ability to turn around almost any situation to his advantage. He had never run a large organization. His skills were in networking, wooing clients, good contacts, focussed energy and a very good memory, but not in the minutiae of banking. He was no intellectual, visionary or social scientist. He was very personable, with cultural appetites and an exotic Aussie charm.
He had been an amateur participant in development discussions on the boards of the Population Council and the Rockefeller Foundation. Robert McNamara, whom he had charmed, wanted him as successor in the bank but the job went twice to others who had no particular interest in the job.
For the bank he developed three goals: sharpening the management, escaping from the dead end of structural adjustment then being imposed on borrowers, and rebuilding the bank's relations with shareholders, NGOs and borrowers. Over 10 years, he brought about significant decentralization, sent many top World Bankers to the field and upgraded the bank's technology to make decentralization effective. He could not change the managerial ethos too much. In the clannishness of the bank, staff are desperate to keep their jobs because of the money and the security. They resist major changes in evaluation procedures to make it a meritocracy.
He reached out to NGOs but their contradictory demands and bias against development investments did not help. His relations with the US treasury, especially under the second Bush, were stormy. With borrowers he began to move away from structural adjustment conditions to country ownership of comprehensive development programmes, with participatory planning by NGOs and governments. He attempted a major shift in the work of the bank from the emphasis on mere development and poverty alleviation, to empowerment and participation, a shift that is still to take full hold.
His two terms as president of the World Bank end in June 2005. Mallaby shows that Wolfensohn is easy to dislike for his ego-centred brashness, and to like for the transparency of his ambition, egomania and charm. These 10 years have witnessed the most rapid development of the poorest countries. But the bank was only a small part of the reason. While somewhat changing its caution and rigidity, he took too long to bring even small changes.
The next president must face the reduction in borrowing by the 'safe' borrowing countries like China and India because of soaring private investment and internal generation. The bank will be lending to smaller and less well-run countries, particularly in Africa. He will have to simplify the bank rules; preserve core values that the NGO movement and Wolfensohn have forced on the bank, like environment protection and anti-corruption, reform the inspection panel, get longer term donor commitment to the soft loan window, and enable the World Bank to move faster in delivering for the world's poorest people.
These tasks would be much better done if the next president were chosen transparently and with inputs from the borrowers. But the Americans will probably select Carly Fiorina or some such unsuitable candidate who, going from her history as CEO of Hewlett-Packard, may well change the bank for the worse.