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A Booster for the World Bank

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics
October 15, 2007
Washington Post

The presidential corner office at World Bank headquarters has undergone serial changes. Under the master networker, James Wolfensohn, it was a gallery of faces: Yard upon yard of windowsill was forested with trophy photographs. Under the ex-Pentagon man, Paul Wolfowitz, the photos gave way to an ornamental Indonesian dagger. Now comes the workaholic Robert Zoellick. Forget photographs and ornaments; the windowsill is covered with meticulously stacked files.

After the failed presidency of his predecessor, Zoellick is off to a good start. His wonkish style goes over wonderfully: In my straw poll of World Bank insiders, the new boss gets a rapturous thumbs up. He brought nobody with him when he arrived, determined to avoid Wolfowitz’s first error, which was to rely on imported aides detested by the bank staff. But if Zoellick’s first hundred days at the World Bank have been a honeymoon, the reasons go beyond style.

For years the bank has been attacked from left and right, often including its own leaders; its lending has stagnated, and it has been forced into a defensive crouch. But Zoellick has set himself up as an uncompromising booster. He has cut interest rates on loans to middle-income countries to encourage them to borrow more. He is mobilizing money to increase assistance to the poorest. He wants to lend more to the private sector and to provincial governments. Lean, intense and fizzing with impatience, he wants the World Bank to expand.

This is a controversial posture. Critics complain that the bank lends too freely already: It displaces private markets and allegedly throws money at projects without regard for corruption or environmental fallout. But Zoellick’s expansionism is grounded in an understanding of globalization that is beyond reasonable challenge.

Thanks to globalization, as Zoellick noted in a speech last week, 300 million people have escaped extreme poverty since 1990. Yet globalization also has its dark side. A billion people languish outside the circle of progress and prosperity. Climate change is accelerating. Diseases, contraband and violence cross borders with increasing ease. The problem with globalization is that we lack good tools to manage these challenges. The World Bank is one such tool. Therefore it should be expanded, not left to wither.

Equally, the rise of powers such as China and India is basically good news. It pulls millions of Chinese and Indians out of poverty; moreover, by developing new markets and centers of creativity, it boosts living standards across the world. Yet the emergence of new powers also has its dark side. What if China and India undercut Western efforts to fight climate change? What if China’s advance into Africa undermines Western efforts to promote transparency and fight corruption? What if China feels demeaned by the world’s established powers and asserts itself by force?

Again, the best shot at channeling the rising nations’ power constructively is to reduce the political deficit in globalization. If China can be given a stake in global institutions, and if these institutions remain vigorous enough to matter, China will feel a responsibility to help with challenges such as climate change. It will also feel that its economic power is matched by proper political influence. The World Bank is one forum in which this channeling can happen.

Critics want the bank to disengage from China, arguing that a country with more than $1 trillion in foreign exchange reserves has no need for World Bank loans. But Zoellick, who thought hard about how to make China a global stakeholder when he was No. 2 at the State Department, has chosen the opposite route. His goal is to integrate China more completely into the World Bank’s operations. The bank can nudge China toward being a responsible global stakeholder by lending to Chinese projects that fight climate change. It can enlist China as a partner in addressing development challenges in Africa in ways that promote transparency and decent governance.

Critics of the bank exaggerate the narrow objections to expansion while missing the institution’s broad political potential. It’s true that World Bank projects sometimes damage the environment and involve corruption; if you are going to build infrastructure in poor countries, this is unfortunately inevitable. It’s true that World Bank lending can displace private lending, but private capital flows have ballooned massively, so displacement does not seem too terrible a threat. But the larger truth is that there is a political deficit in globalization. Zoellick’s well-chosen ambition is to reduce it a little bit.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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