Wolfowitz’s Resignation Offers Chance to Reform World Bank

The tedious drama of Paul Wolfowitz and his ethical shortcomings at the World Bank came to an end a few hours ago. He will resign as president of the Bank effective June 30, not entirely soon enough. Still, his departure is welcome, as it was from the Pentagon, but his tenure proved that the problem isn’t just one man. The World Bank needs to be reformed, and the international community has a chance to fix it now.

The first and most obvious reform needed is to the process by which the president of the institution is selected. Being a pal of the President of the US just isn’t good enough. The World Bank staff is a cosmopolitan bunch of economists and support people. They are not going to respect anyone who is not an economist running things. One could argue that management skills trump the need for an economics background, but the professionals at the Bank disagree. By this standard, Mr. Wolfowitz is not qualified to run the World Bank since he has no real bacgkround in the field.

The next reform needed is a change in the balance of power at the Bank. It is run like a corporation, and each nation’s vote is in proportion to its investment in the bank. The US, with the biggest stake, gets the most votes. There is nothing inherently wrong with this, but the G7 control roughly 43% of the votes. Clearly, policy favors First World interests. Some kind of counter-weight is needed on the grounds that the appearance of fairness will bolster the legitimacy of the Bank's policies.

Building on that, one needs to ask just what the World Bank’s mission is in the 21st century? Back in 1945, when the bank’s founders were deciding just what it would do, the global capital markets were horribly underdeveloped. Today, the situation is vastly different. Indeed, there are nations that don’t bother with the World Bank any more (Brazil and Mexico to cite but two recent examples); the private sector can provide loans that don’t require vast political and social change as part of the package.

Given that the world has changed in the last 60 years, there is a sound intellectual case for shutting down the World Bank, or at least privatizing it. While current economic conditions make this plausible, the world economy does hit bumps from time to time (e.g., 1997’s currency crises). When it does, the World Bank and the IMF offer a safety net worth keeping. If other purposes are to be served, it might be a good idea to define what they the minute the new World Bank president takes over the office.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

Home