Global Policy Forum

Zoellick Charts Inclusive Course At World Bank


By Bob Davis

Wall Street Journal
October 9, 2007

The World Bank's new president, Robert Zoellick, has put an end to a staff insurrection at the bank by styling himself as the opposite of his predecessor, Paul Wolfowitz, a former Pentagon official. Three months on the job, he has become the un-Wolfowitz. Where Mr. Wolfowitz relied on a few recruits from the Bush administration, Mr. Zoellick hasn't hired a single one. While Mr. Wolfowitz froze out bank staff, Mr. Zoellick meets with the bank's 24 vice presidents every morning. Now, Mr. Zoellick must show he can revamp the world's largest poverty-fighting institution, which risks irrelevance in a world where even poor countries have easy access to credit and as many as 230 competing institutions run by billionaires, celebrities and individual nations. In that effort, he may have to take on the very staff that he has wooed, a 10,000-strong army of international technocrats known for successfully resisting change. In a speech tomorrow, a week before the bank's shareholders descend on Washington for their annual meeting, the 54-year-old Mr. Zoellick will lay out his agenda for the bank, building partly on ideas of Mr. Wolfowitz and his predecessor and trying to avoid the criticism leveled at both of them for failing to follow through on grand announcements. In short, Mr. Zoellick proposes to use free trade to try to spur economic growth and social cohesion in Arab nations, to re-energize efforts to rebuild impoverished nations emerging from civil wars and to boost environmental programs and regional development in China, India, Brazil and other fast-growing developing nations. His mantra: "Inclusive and sustainable globalization."

Conservative critics argue that the bank no longer has a role to play in China and other nations that can finance development projects from their bulging financial reserves or from global markets. They say Mr. Zoellick already has gone soft. Pointing to Mr. Zoellick's goal of increasing lending and other services to developing nations, Allan Meltzer, a Carnegie Mellon economist, says he already "has shown he won't make major reforms at the bank." Mr. Meltzer chaired a commission in 2000 that recommended overhauling the bank so it focused on giving grants -- not loans -- to the world's poorest nations But Mr. Zoellick, in an interview, insists that continuing do business with these "middle income" countries, even though they have money or can easily borrow on world capital markets, will give the bank influence over their policies so their growing economic might won't seem as threatening to the U.S. and wealthy nations in Europe. "Frankly, we need more ways in the world for countries to work together on common problems, not fewer," he says. The left is bound to grow critical as well as Mr. Zoellick emphasizes free trade as a recipe for prosperity. Free-trade skeptics, including many bank economists, say some African countries rely on European subsidies for cheap food imports and need tariffs to fend off competition from China. The bank's past prodding of nations to lower barriers to trade and investment has made it a perennial target of antiglobalization demonstrators. "The extent to which trade leads to more growth is a subject of controversy among economists," says Nobel-Prize winner Joseph Stiglitz, a former World Bank chief economist who has grown critical of the institution. "But there is little controversy that successful development requires far more than just trade liberalization."

Created in 1944 to rebuild a war-shattered Europe, the World Bank has morphed into an institution that lends money and dispenses advice to Latin America, Africa and Asia for roads, clinics and schools, and helps bail out those nations when they run short of credit. The bank finances itself largely by borrowing in financial markets at favorable rates because it is backed by the world's governments and then lending at slightly higher rates to developing nations. Overall, the bank lends about $24 billion a year to poor nations. Mr. Wolfowitz's tenure was short and unhappy. Promising to root out corruption after he was named president in 2005, he halted projects in Africa and Asia accused of graft. His campaign sharply divided the staff, many of whom felt that he was grandstanding and playing politics. When the staff leaked memos indicating that Mr. Wolfowitz helped his girlfriend, a bank staffer, get a plum assignment and a big raise -- the kind of nepotism that Mr. Wolfowitz was decrying in African nations -- pressure mounted. Although Mr. Wolfowitz said he had acted properly, he resigned earlier this year. "There are a lot of people who for different reasons don't want to confront the issue" of corruption, says Mr. Wolfowitz. "I hope nobody will draw the lesson that reform is too difficult and shouldn't be undertaken."

Mr. Zoellick, a Harvard-trained lawyer, has turned out to be a cannier politician than Mr. Wolfowitz. He has managed to hammer out a few compromises inside the World Bank's 24-member board, which is marked by deep fissures among rich countries, deeply impoverished ones, and those in the middle like China, Brazil and Mexico. One early victory came in his campaign to win pledges of as much as $30 billion from wealthy nations to fund the World Bank's International Development Association, which aids the world's 80 poorest nations. To spur giving by the U.S., Europe and Japan, Mr. Zoellick wanted to double the amount the World Bank itself contributed to IDA to $3.5 billion. But 13 board members-nearly half the board -- signed a petition opposing the move, say bank insiders. Brazil, Mexico, China and other middle-income countries wanted the money to be used for projects in their nations instead. During four weeks of lobbying, Mr. Zoellick won them over by cutting another deal, in which the U.S., Japan France and other rich countries agreed to a cut in bank interest rates on loans to middle-income countries in exchange for their backing for the larger IDA contribution. In the end, the compromise was approved unanimously, although some bank experts wonder whether the larger World Bank donation to IDA will simply encourage wealthy countries to cut theirs.

Tall, thin and serious, Mr. Zoellick learned Washington politics as a protégé to James Baker, U.S. secretary of Treasury and state in the Reagan and first Bush administrations. During those years, Mr. Zoellick worked on remaking the North American Treaty Organization after the end of the Cold War and launching the Asia Pacific Economic Cooperation forum, an economic grouping that links the U.S. and Asia. After a stint at mortgage giant Fannie Mae, which he left before the company was ensnared in an accounting mess, he became U.S. trade negotiator in the George W. Bush administration and negotiated free-trade agreements in Latin America, the Middle East and Asia. Later, he served as deputy secretary of state, working to try to bring peace to sub-Saharan Africa. He left the administration in 2006 for a vice chairman's job at Goldman Sachs Group. Despite his years in the administration, he avoided the association with the Iraq war that handicapped Mr. Wolfowitz at the bank. Mr. Zoellick says he is a "quick draw" on his BlackBerry, which he keeps attached to his belt, nerd style. A history buff, he once invited European Union trade negotiator Pascal Lamy, now head of the World Trade Organization, to tour the Gettysburg U.S. Civil War battlefield in Pennsylvania, to get outside of Washington. He has known German Chancellor Angela Merkel since the early 1990s. Those contacts help him politically. When former U.S. Federal Reserve Chairman Paul Volcker released a report in September criticizing the bank's faltering anticorruption efforts, Mr. Zoellick countered immediately by inviting United Nations Secretary-General Ban Ki-Moon, to a joint press conference to announce a program to help poor countries recover money stolen by dictators.

Mr. Zoellick says he plans to focus more on the Arab world and encourage the kinds of reformers he met when negotiating free-trade pacts with Oman, Bahrain and Morocco and pushing for stronger trade ties among Egypt, Israel and Jordan. Boosting employment is a huge challenge in the Middle East, where the birth rate is high and economic growth isn't. Mr. Zoellick believes that focusing on labor-intensive export industries, like textiles, could help. His theory: The bank can help "create societal cohesion by giving people the chance to have opportunity and development." To come up with specifics, Mr. Zoellick has consulted his onetime economics professor at Swarthmore, Howard Pack, now at the University of Pennsylvania's Wharton School. Mr. Pack says trade liberalization won't work unless other changes are made too, including building better ports and roads and making customs systems less corrupt. Education and social mores are critical, too. When Asian nations in the 1970s and 1980s jumped into textiles and manufacturing, they began with workers trained in manufacturing and women willing to work outside the home. That is often not the case in Arab nations.

Mr. Zoellick also wants to intensify the World Bank's efforts to help impoverished countries recover from civil wars. The bank has struggled for a decade to tailor special programs for such countries, but hasn't made much progress, according to a report by the bank's program-evaluation unit. Jobs in such countries are considered dead ends by bank staffers because projects there so often fail. Civil wars frequently reignite. Sudan, where a 22-year-long civil war ended in 2005, illustrates the challenge. Southern Sudan is the size of France, but has only 5.6 kilometers of paved roads. But as Kenichi Ohashi, the bank's Sudan country director, put it in an email after a recent tour of the region: The bank's experience is with "reform of existing systems with modicum of capabilities, and reconstruction of what used to be functional." Southern Sudan has none of that. Mr Zoellick's says the bank has learned to rev up basic services up quickly -- sanitation pickup, electricity generation -- so that citizens will see progress, rather than flooding the country with development aid. Too much money in government coffers invites corruption and can spur rebels to take up arms again. "I think a lot in probabilities," Mr. Zoellick says. "I have to increase the probability of success."

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