New York Times - September 7, 2001
World Bank Presses Inquiry on Economist Who Dissents By JOSEPH KAHN
WASHINGTON, Sept. 6 - The World Bank is conducting a disciplinary investigation of one of its highest-ranking economists, who sharply criticized the bank's record on fighting poverty in a recent book and newspaper opinion article.
The economist, William Easterly, came under investigation by the bank's office of business ethics and integrity after he wrote an article in The Financial Times that summarized views expressed in his book, several bank officials said. They said the inquiry, which has not yet concluded, was started because Mr. Easterly did not receive the required permission to write an article in a general-interest publication.
In the article and the book, Mr. Easterly harshly assessed the bank's half-century history of fighting poverty, arguing that it has pursued a long list of failed elixirs and systematically ignored the poor results of its programs.
He said the bank should encourage countries to adopt traditional free-market policies and stop lending to corrupt and incompetent governments.
The investigation of Mr. Easterly, which a bank spokeswoman described as a routine enforcement of the World Bank's media and communications policies, is being conducted at a time when its president, James D. Wolfensohn, has come under attack from numerous critics.
Right-wing economists say he has led the bank far astray of its traditional mission to enhance economic growth around the world, while those on the left say the bank under his leadership remains a top- down institution that does too little to respond to the needs of the poor. Critics have also put pressure on Mr. Wolfensohn to forgive more third world debt.
Several bank officials said that Mr. Easterly's case is one of several recent examples of how Mr. Wolfensohn has sought to assert more control over a raging debate within the bank as he battles outside critics.
The timing of the dispute is particularly sensitive because thousands of protesters are expected to gather in Washington later this month at the annual meetings of the bank and the International Monetary Fund to oppose the way the lending institutions do business.
Some protesters argue that the bank and the I.M.F. have failed to alleviate - and may have worsened - poverty in developing countries. Environmental, human rights and social activist groups have also sought to force the bank, which is controlled by member governments, to disclose more documents and allow the public to express views about policies before they become final.
Separately, President Bush and his top advisers have pressed the bank to rethink its antipoverty strategy. Mr. Bush proposed replacing as much as half of the bank's loans to developing countries with outright grants, a change that the World Bank leadership has resisted.
Two influential opinion journals, Foreign Affairs and Foreign Policy, have lengthy articles in their most recent issues that question the direction Mr. Wolfensohn has taken the bank.
Although many of its critics have conflicting views about what is wrong with the bank and what should be done to fix it, the flurry of internal dissent and outside attacks have sapped morale and created a sense of crisis, several people who work there say.
One close supporter of Mr. Wolfensohn said the bank was "under attack by the forces of reaction," who are trying to undo the changes Mr. Wolfensohn has brought since he took office six years ago.
Mr. Easterly's views are among the most pointed. As a senior adviser in the bank's research group, he has helped shape antipoverty strategy for 16 years.
In his recent book, entitled "The Elusive Quest for Growth," Mr. Easterly argues that the World Bank has systematically failed to raise growth rates in the countries it seeks to help. He wrote that two generations of bank leaders have been deluded by supposed panaceas for growth, like increasing business investment, improving education, limiting population growth, changing government policies and forgiving past loans, all of which ultimately failed to raise growth rates.
The developing world, including Africa, Latin America, South Asia, East Asia outside Japan and former Communist nations in Europe, grew at an average annual rate per capita of 0.1 percent from 1980 to 2000, according to the bank's statistics. East Asian nations grew relatively quickly, but in the other regions, living standards declined.
"Consider the facts and it soon becomes evident," Mr. Easterly wrote in the op-ed page article, "that the $1 trillion spent on aid since the 1960's, with the efforts of advisers, and foreign aid givers, have failed to attain the desired results."
He proposed that the bank instead focus on creating incentives for poor countries to adopt free-market policies, largely by halting loans to nations that do not manage their economies effectively and increasing loans to those that do.
Mr. Easterly declined to comment on his views or the bank's investigation.
The agency's chief spokeswoman, Caroline Anstey, said it supports Mr. Easterly's right to publish his book. She said the inquiry into his newspaper article followed standard practice, and was not intended to suppress dissent.
"This isn't about academic freedom," Ms. Anstey said. "Our guidelines state simply that staff need to inform their managers of contacts with the press, preferably before an interview, but if not, afterward."
She said the inquiry involving Mr. Easterly had not concluded, so it was unclear if he would be disciplined.
Several other people who work at the bank say its top officials have recently taken a hard line on employees who violate guidelines for communicating with the press.
In one recent case, Robert Wade, a professor at the London School of Economics who has served as a paid consultant to the bank, was cited for violating disclosure policies when he wrote an opinion piece supportive of a bank lending program in China that was canceled under pressure from outside critics.
"They are going to be tough on anyone who says anything that has not already been vetted," Mr. Wade said.
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Financial Times - September 7, 2001
The failure of development In spite of billions of dollars spent on aid to poor countries, there has been no real progress, says William Easterly
While the industrialised west is preoccupied with recession, the rest of the world has much greater economic woes. Contrary to conventional wisdom, aid to the developing world has been a big disappointment.
Consider the facts and it soon becomes evident that the $1,000bn spent on aid since the 1960s, with the efforts of advisers, foreign aid givers, the International Monetary Fund and the World Bank, have all failed to attain the desired results.
Sub-Saharan Africa has not emerged from a decades-long economic crisis; Asia remains the home of the majority of the world's poor; Latin America has known only erratic and low growth; the Middle East has not converted oil riches into sustained development. It is little wonder that protesters have demonstrated so vehemently against the international organisations. Each of the different actors in the development aid community has contributed to this debacle. The first culprits were the economists whose attitude was "build it and they will come". We thought that certain objects associated with prosperity in the industrialised world - dams, roads, schools - could bring success to the developing world.
Later, fads changed to include institutional magical objects. Thus we urged governments to embrace democracy, constitutions, independent judiciaries, decentralisation to local governments and other magic bullets. None of them worked.
The second culprits were the recipient governments that resisted development and the aid lenders that tried to change their attitudes. The donors failed to realise that conditional loans were a minor factor in politicians' incentives. Governments in many poor countries were torn by conflict over redistribution of the existing pie between regions, political factions and ethnic groups. Or the landed and industrial elite, to whom power was more important than development, were afraid to invest in the masses that might demand their share of power.
Multilateral lenders thought it enough to issue recommendations to supposedly malleable governments. The popular slogan was "adjustment with growth". The experiment was tried several times: in the 1980s and 1990s, the IMF and World Bank made 958 conditional loans; during the past decade alone these institutions gave 10 or more conditional loans each to 36 poor countries. Yet with a few notable exceptions, government mismanagement usually continued in these countries. The growth rate of income per person of the typical member of this group during the past two decades was zero. Conditional lending did not cause the zero growth but it certainly failed to deliver "adjustment with growth". Governments were not so malleable after all.
To make matters worse, the conditions on the loans were not enforced. Thus indiscriminate donors and multilateral lenders were culprits number three. They created the myth of tough conditionality that developing world citizens blamed for their woes when in fact the bad old governments continued to ruin the economy.
Unfortunately, with some exceptions, multilateral and bilateral agencies had incentives to continue lending even when recipient government actions destroyed any hope of economic growth. Sometimes donors and multilaterals gave aid and loans only because the function of donors and multilateral agencies is to give aid and loans. Sometimes aid lenders gave loans to enable old aid loans to be repaid. Sometimes donors gave aid because the recipient countries were political allies of the donor countries. Recipient governments promised the multilateral agencies that this time they would reform, like alcoholics promising never to drink again.
The ultimate conditional loan was the conditional debt forgiveness package - itself a sign that the previous conditional loans had not worked. Forgiveness of developing world debt has been called for by such diverse figures as Bono from the rock group U2, the Dalai Lama, Pope John Paul II and President George W. Bush. But, again, this could be pouring good money after bad: if governments mismanaged the original loans, will they manage wisely the proceeds of debt forgiveness?
The failure is so widespread that pointing the finger at any single organisation is futile. The economists, international organisations and aid donors all had an interest in overselling "solutions" to economic development that were supposedly easy to implement. But there is a multitude of things that one has to get right for economic development, which is why success is rare.
Every component is complementary to every other: equal rights before the law, contract enforcement, stable politics, accountability of public officials, low corruption, trust between market participants and so on. Progress on any one is likely to fail without progress on all.
The best the foreign aid community can do is to support genuine change on those precious occasions when it happens.
This article was originally published in the some editions of the Financial Times on July 4 2001
The writer is senior adviser of the World Bank's research group.