15 March 2005Guardian
James Wolfensohn, the president of the World Bank, has announced his intention to leave, and the search is on for a new head of the world's most important multilateral organisation promoting development. The choice is especially important now, when poverty in developing countries is finally being recognised as our greatest problem and challenge.
The World Bank's designation as a "bank" understates its importance and its multifaceted roles. It does lend money to countries to undertake a variety of projects, and to help them through crises (such as the $10bn it provided to South Korea in 1997-1998). It has been, and is, playing a vital role in global post-conflict reconstruction.
But the bank also provides grants and low-interest loans to the poorest countries, particularly for education and health, and advises these countries on development strategies. It has often joined with the International Monetary Fund (IMF) in strong-arming countries into accepting this "advice": unless they do, they will not only be cut off by the IMF and the World Bank, but also by other donors, and capital markets will be discouraged from providing funds.
Sometimes - its critics often say - the advice provided by the IMF and the World Bank is misguided. This was certainly true in the 80s and early 90s, when rightwing ideology dominated, producing a one-size-fits-all prescription entailing privatisation, liberalisation, and macroeconomic stability (price stability), with little attention to employment, equity or the environment.
The term "bank" is a misnomer in a second sense: while the World Bank refers to its members as "shareholders", it is hardly a private bank. The World Bank is a global public institution. But, while the G7 countries, which dominate voting at the bank, all declare their commitment to democracy and good governance there is a yawning gap between what they preach and what they practice.
Indeed, the entire process of choosing these international institutions' leaders is an anachronism that undermines their effectiveness and makes a mockery of the G7 commitment to democracy. This process, established 60 years ago, is framed by an agreement that an American would lead the World Bank and a European would lead the IMF. The US president would choose the bank's head, and Europe would collectively decide on the IMF leader, with the understanding that the other side would exercise its veto only if a candidate were totally unacceptable.
Within the US, all major presidential appointments must be ratified by the Senate; even if rejections are rare, the vetting process is important, for the president knows that he can go only so far. But the presidency of the World Bank is a rare presidential plum - an appointment that is not subject even to congressional hearings.
How can advice on democratic reforms be taken seriously when the institutions that offer it do not subscribe to the same standards of openness, transparency and participation that they advocate? Why should the search for Wolfensohn's successor be limited to an American? Why is the search process going on behind closed doors?
The two names that have been floated so far are particularly disturbing. To put it bluntly, consideration of the US assistant defence secretary Paul Wolfowitz or former Hewlett-Packard CEO Carleton Fiorina has been highly controversial. Even if convention allows the American president to appoint the World Bank's head, the organisation's success depends on the confidence of others. Neither Wolfowitz nor Fiorina has any training or experience in economic development or financial markets.
There are some absolutely first-rate individuals who could step into the job, people with a command of economic development, intellect and personal integrity. Such potential candidates include former Mexican president Ernesto Zedillo, a Yale PhD who now teaches there and has been strongly supported in an editorial in the Financial Times; Arminio Fraga, a Princeton PhD and former head of Brazil's central bank; and Kemal Dervis, a former World Bank vice-president who has successfully managed one of Turkey's crises as finance minister.
It is time that the G7 countries back up their democratic rhetoric with action. Many stood up to the US as it pushed for the war in Iraq. They were right to be sceptical about US claims of imminent danger from weapons of mass destruction.
What is at stake here is no less important: the lives and wellbeing of billions in developing countries depend on a global war on poverty. Choosing the right general in that war will not assure victory, but choosing the wrong one surely increases the chances of failure.
© Joseph Stiglitz is professor of economics at Columbia University and a Nobel prize winner
Project Syndicate
