An audience with the king of world banking
Faisal Islam Sunday March 16, 2003 The Observer
He was not elected President of the World, James Wolfensohn reminded hectoring global parliamentarians gathered in Athens last week, just President of the World Bank.
This snappy soundbite is Wolfensohn's all-purpose shield against awkward journalists, frustrated politicians and campaigning groups. Particularly when they point out that his organisation has failed to abolish or even significantly reduce world poverty in six decades. He may head up the planet's chief development institution, which channels as much as £20 billion of aid and loans at projects, but he alone cannot solve destitution, disease and natural disaster. But at this moment it is problems of a man-made variety which exercise his organisation - war jitters, reconstruction, and collateral damage from the world economy sending more fragile nations into a tailspin.
'As a possible war in Iraq is commanding the world's attention, we must not divorce international security concerns from what is the greatest long-term political challenge of our time: the fight against poverty,' he said. 'Over the next 25 years seven billion of a world population of eight billion will live in developing countries, and unless we pursue equitable development the pursuit of peace is likely to be evasive.' The former Olympic fencer speaks with the passion of an Oxfam campaigner, but dig a little deeper and there is the sturdy realism of one of Wall Street's top bankers. But is it all rhetoric? Was the replacement of the much loathed and generally ineffective 'Structural Adjustment Policies' with 'Poverty Reduction Strategy Papers (PRSPs)' just PR? Despite the rhetoric, the Bank retains an impressive array of critics.
Development campaigners see it as just one fork of a neo-liberal trident of global institutions (with the International Monetary Fund and the World Trade Organisation) controlled by the US Treasury that conspires to foist free markets and privatised electricity companies as 'conditionalities' for its loans and rig geo-economics against the world's poor. Or it's a waste of taxpayers' money used to fund kleptocracies, failed states and subsidise corruption. Or both at the same time. But Wolfensohn was adamant that his organisation has moved on from what the Bank says are 'old clichés'.
'Some of the things the Bank has done in the past have not been well-advised. The old days of arriving from Washington with a bill of particulars on how you want people to operate has long since gone - it's much more consultative now. I don't remember the last time I had a discussion about the issue of inappropriate conditionality; governments today know what they want to do. And sometimes the governments ask us to impose conditions so that they can blame us for things that they want to do themselves.'
Wolfensohn is possessed of a not insignificant ego, say former colleagues, no doubt inflated by the likes of Bono of U2, calling him the 'Elvis of economics'.
'The Bank listens to criticism and acts on it rather than being wholly defensive and say we know everything. I think all my colleagues try and ask what's behind all these demonstrations instead of closing our ears. We've been much more open and it's allowed me to build friendships with people like Bono, who I think has respect for what we're doing rather than antagonism,' he says.
'All shook up' is a fair description of Wolfensohn's effect on the Bank in his first few years. He simultaneously opened up the Bank's decision-making process and changed its strategy, turfing out whole layers of management, a combination that should have led to open rebellion. But the Bank's evolution has impressed many sceptics.
Whereas deception and double-crossing within the UN Security Council is one manifestation of 'hard globalisation', the real battle is there to be won in the soft underbelly of global governance. The fluffy areas of world trade, agricultural subsidies, debt cancellation and pharmaceutical patents comprise the 'progressive globalisation' agenda. And it may be for wimps, but Wolfensohn thinks its vital.
'An environment in which people don't have any hope or don't have any expectations are places in which terrorism can flourish,' he says, lamenting the fact that the rush to war has left Afghanistan stranded. 'While there is shooting it gets headlines and has a lot of prominence, and then when it gets to issues of reconstruction the television crews leave and go to the next spot, and there's less publicity and it goes off the radar screen and so the second fundraising is always less good than the first one, and then it gets even smaller,' he says.
But the imperative for development has rarely been so vivid. As the world's most powerful nations prepare a £200bn fighting machine against Iraq, there are promises of only hundreds of millions for reconstructing Afghanistan. Britain has set aside 'whatever it takes' - at least £1.75bn for war, but just £6.5m for post-war reconstruction. The total cost for this war is likely to be at least four times the total of aid to developing countries.
Wolfensohn points to initial successes in Afghanistan. 'The biggest thing we did in Afghanistan was that in the first three months we got all the kids back into school, and it was a miracle we did, and the second one was [cheap] pharmaceuticals.'
But neglect has allowed the narcotics trade to flourish to 'within 10 per cent of its peak production' while prices have surged from $100 to $500 per kilo.
Iraq's fate might be different 'because of the interest in oil', he says. 'I believe that there is an implicit assumption that any reconstruction would be paid for out of its oil, but we have not looked into that. The primary requirement is going to have to be to provide sustenance and health to the people of Iraq,' he says.
But the debate is wider than just Iraq. So there is a political battle to be fought over the strategic importance of aid, and trade liberalisation. Post-Marshall Plan Europe is the key example. Meeting directly with groups of MPs is part of building the global political structures that will boost development far more than the $20bn of aid given by the World Bank. 'There's something wrong with $350bn of agricultural subsidies against $50bn of development assistance. We wouldn't be doing the job we should be doing for our clients if we didn't analyse the effect of this. Otherwise our critics could correctly say we are instruments of the rich countries to beat up the poor,' he says.
Wolfensohn has moved the Bank further than that into the 'social development' arena of culture and religion. He employs sociologists and anthropologists.
But the Bank's mandate of halving poverty requires understanding of more factors than budget deficits and health spending. It's culture that explains the incredible multibillion-dollar emittances of migrants to their countries of origin, which may soon overtake development aid in its importance as a cross-border capital flow. And debt relief may be grounded in sound economics, but conflict alleviation is required for the process to reach its full potential.
'There's been a redirection of the institution in a much more comprehensive approach and significantly increased concern at the human level, the place we start being the impact on poverty as opposed to starting with projects and seeing if there's an impact on poverty,' he says.
The Bank now has its fingers in many pies. Its adoption of a more holistic model of development will be tested in the coming months in Iraq and in Brazil. If that vacancy for President of the World ever does arise, you get the impression Wolfensohn would be interested.
Name James David Wolfensohn
Title President of the World Bank
Born Sydney, Australia, 1 December, 1933
Career Australian air force pilot, investment banker at Salomons, Schroders and his own firm. Appointed President of World Bank by Bill Clinton in 1995 and reappointed in 2000
Education BA, University of Sydney, MBA Harvard Graduate School of Business
Family Married to Elaine, an education specialist. Two daughters and one son
Other interests Honorary knighthood, former Olympic fencer, cello player
What they say
'I always ask who is the Elvis of economics, who is the King? Mr Wolfensohn is like Elvis' - Bono, lead singer of U2
'His changes have been significant. By the time I arrived at the Bank, James Wolfensohn was well on his way to trying to make the Bank more responsive to developing countries' - Nobel Prize winner Joseph Stiglitz, former World Bank chief economist
'He does not welcome criticism or tolerate dissent' - Critical memo from senior Bank staff, leaked in 2001