Wednesday, April 16, 2014
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Good Governance Begins At Home

The whole sorry Wolfowitz affair looks like it is finally drawing to a close. It is hard to believe that he will stay on much longer at the World Bank, and it is time to start thinking more closely about the future of that institution. From the first, I was critical of the way he was chosen because I have long opposed the “old boy” agreement between the United States and Europe, by which the US always appoints the head of the World Bank and Europe the head of the IMF. This unspoken arrangement dates from the founding of the Bretton Woods institution at a time when colonialism was still alive, and makes no sense in the twenty-first century.

There are reports that European leaders have told the US that if they get Wolfowitz to step down quickly and quietly, they will be allowed to choose Wolfowitz’s successor. It’s easy to see why the US and Europe want to stick to business as usual, but such a deal would amount to a wasted opportunity. I can think of no better way to restore confidence in these two venerable institutions than to finally open up the way their presidents are selected.

One of the lessons of the Wolfowitz debacle is that it does actually matter how stakeholders and employees feel about the Bank’s leadership. The world was prejudiced against him from the start because of his involvement in the Iraq War. But people were willing to give him a chance. Some said that perhaps he would be another Robert McNamara, the US defense secretary who helped mire America in the Vietnam War, but used his service to the Bank as penance.

At first, there was reason for hope: Wolfowitz was forceful in arguing for debt forgiveness and an end to agricultural subsidies. But he also hired old friends and political allies – many of whom did not have experience in development – and sealed himself off from his staff, alienating the very people whose support he needed. As we learned from the case of Larry Summers at Harvard, relationships inside institutions (not just with donors and funders) matter. In this respect, Wolfowitz, while by all accounts an intelligent and pleasant person, did not do himself any favors.

Worse, Wolfowitz did not seem to have a grand vision for the Bank. Instead of a development strategy, there was simply an expansion of the anti-corruption agenda initiated by his predecessor, James Wolfensohn.

As the World Bank’s Chief Economist under Wolfensohn, I had argued that failing to deal with corruption risked undermining growth and poverty alleviation. By the time I left the Bank, these ideas were widely accepted, and I was pleased that Wolfowitz supported continuing the Bank’s efforts. But the fight against corruption was always to be only one part of a more comprehensive development agenda that was required. Indeed, aid effectiveness could be undermined just as much by incompetence as by corruption.

Sadly, the anti corruption agenda of the Bank became politicized. There was a push to give money to Iraq – a country rife with corruption – while other countries were accused of corruption without adequate hard evidence or specific details. And here, too, an opportunity was lost. The aims of the campaign were laudable, but it generated hostility and ill will, undermining its effectiveness.

The World Bank, in its efforts to support democracy and good governance, must insist on the highest standards of due process: charges of corruption should be treated seriously, and the evidence turned over to national authorities for use in open, transparent, and independent proceedings. This is something for Wolfowitz’s successor to bear in mind. If anti-corruption campaigns are to be seen as effective, they must be fair and transparent.

The same is true of the selection of the World Bank’s president. There is still a chance to snatch victory from the jaws of defeat. What has been a sad and sorry saga could have a happy ending if Wolfowitz’s successor is chosen in an open, transparent process. This, one hopes, is the silver lining in the cloud now hanging over the World Bank.

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