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The Quiet Revolutionary Who Saved the World Bank

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics
February 17, 2012
Financial Times

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Jim Wolfensohn, the master networker who led the World Bank into this century, lined the window of his office with silver-framed photographs of the global elite. Paul Wolfowitz, the neoconservative defence expert who succeeded him, replaced them with vicious-looking ornamental daggers from Asia. Robert Zoellick, who on Wednesday announced he will retire after a five-year stint as president, is less flashy and less bellicose; his window ledge is covered with stacks of neat manila folders and phalanxes of books. But Mr Zoellick has presided over an unheralded triumph. Quietly, the World Bank has done a power of good.

The Bank under Mr Zoellick has adapted nimbly to the new world that globalisation has wreaked. The dynamism of middle-income countries, coupled with the internet, has replaced a hierarchical global order with a flat network; and the Bank has understood. Where it once imposed prescriptions on the Third World, it now shares knowledge with respected clients from the new world. Where it once hoarded data, it now displays it on the web.

The old leftist tirades painted World Bankers as "Lords of Poverty" – fat-cat economists who justified austerity for poor countries with mysterious spreadsheets. The new face of the Bank is the Piper PA-31 Navajo aircraft that took aerial photographs of Haiti after the 2010 earthquake. The Bank immediately uploaded the photographs so that 600 engineers in 21 countries could brainstorm about the best way to rebuild Haiti's capital. The reign of the World Bank's in-house experts ended. Open-sourcing ruled instead.

Two years ago, having opened up its treasure trove of data, the Bank staged a contest called Apps for Development. Software developers dreamed up ways to make the data more useful; one app helped pregnant women with mobile phones to access health advice. One decade ago, the Bank was routinely accused of indifference to the views of local people. Today Mr Zoellick talks of empowering the most humble netizen to provide feedback on projects.

The Bank has also embraced the rise of the new powers. Nearly half the Bank's senior vacancies are filled by candidates from developing countries, and it appointed a Chinese chief economist to head up its brains trust. When Mr Zoellick persuaded the Bank's shareholders to back its first capital increase in two decades, developing countries provided more than half the money – a rare example of the emerging powers accepting that their new economic muscle implies new responsibility.

The Bank's new collaborative mindset has not made it less thrusting, and this is just as well.

As Martin Wolf has written recently, the more private wealth expands, the greater the challenge of providing public goods commensurately; we cannot enjoy iPads if pollution, epidemics, crime and environmental degradation threaten life and limb. Because private actors have no incentive to supply public goods, and because nation states have a hard time supplying global goods, the handful of competent multilateral institutions must fill a huge void.

The Bank under Mr Zoellick has boosted the volume of financing while holding costs stable. In some areas it has been especially effective; it is probably the most innovative player in the struggle against climate change. It has raised more than $6bn from governments to spur gains in energy efficiency; by leveraging that sum with private money, the Bank claims to have backed $50bn worth of projects in 45 countries. The scale is big enough to matter, but the spending is discriminating enough to derive lessons. By backing multiple approaches, the Bank aims to push the boundaries of knowledge, which is itself a public good.

Or take economic stability – another elusive public good. When developing countries faced a cash crunch after the collapse of Lehman Brothers, the Bank quickly doubled its lending, recapitalising Banks and plugging gaps in the global system such as the dearth of trade finance. As the world economy plunged, Indonesia's government wanted to counter with a stimulus, but feared that bond investors would stage a run on its currency. The Bank provided a credit line to Indonesia, allowing it to run a budget deficit without fear of capital flight.

It's always tempting to despair of multilateral institutions. Their tasks are unlimited, and their work is never done. But the Bank under Mr Zoellick shows that they can move with the times and make real contributions. May his successor have the energy to soldier on.

The writer is a senior fellow at the Council on Foreign Relations and author of The World's Banker

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

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