RICHARD STENGEL: Good evening. I want to welcome you. I'm Rick Stengel. I'm the editor of Time Magazine. And I'd like to welcome you to the council's History Makers Series, which is sponsored by Home Box Office, HBO. And I want to thank HBO and our good friend Richard Plepler for sponsoring this series.
The idea of the series is a -- is a fascinating one, which is to take a historical personage who will talk about a critical juncture in his or her life and how -- I think in the case of our speaker, changed the trajectory of history. And the -- (laughter) --
JAMES D. WOLFENSOHN: (Laughs.) That's a modest claim.
STENGEL: Well, I'm a big flatterer. (Laughter.)
And the -- I'm also the bad cop tonight, because I have to tell you if you have cell phones, turn them off. Don't even make them vibrate; just turn them off completely.
And I'm about to introduce our speaker. And about a half an hour from now, I think we'll have questions from the audience. So I'd like to introduce the great and good Jim Wolfensohn. And he most famously was a two-term president of the World Bank -- I believe only the third two-term president since the founding of it after World War II. He's also a man who was an extraordinary investment banker at a number of firms, and then later created his own firm.
But he's also a man with a -- with a very balanced life, much more so than some of us. I'm very envious in that way. He was an Olympic fencer for his native Australia. He also was famously chairman of Carnegie Hall and the Kennedy Center.
I think you're the only person who violated the old joke about how to get to Carnegie Hall --
STENGEL: -- practice, practice, practice. No, be the chairman of Carnegie Hall, and then you can play the cello in Carnegie Hall with Yo-Yo Ma, as Jim did. (Laughter.)
And after his stint of two terms at the World Bank -- you were the representative for the Quartet in Gaza, which we will talk a little bit now -- about now. And he -- and Jim's book, "A Global Life," I believe is for sale outside. And it's a very, very appropriate title because in reading the book, I ended up staying up way too late last night reading it.
In many ways, you're the prototype of the first sort of global citizen of the 20th century. You were born in the back of beyond in Australia. And in fact, the book opens with a wonderful anecdote that takes place on a farm outside of Sydney.
So to begin with, I'd just -- I'd love to start about with how you became this sort of visionary of globalization even before we had that word, and then what transformationally you've seen from those early days to sitting here at the council.
WOLFENSOHN: Well, thanks very much -- (inaudible). I'd like to be able to say at the age of 10 I really understood the significance of international banking and international business, but I didn't, of course. And what I was concerned about in those early days was getting through high school and getting through university, like anybody else.
But as I discovered when I finally got through university and became a lawyer and was looking then for a career -- and having come to study postgraduate at Harvard for a while, I went back to Australia. And it seemed to me that, having had the opportunity of coming to study in this country, that the way we were headed globally was for a very much more integrated international community, and that to live in that community in Australia would not have been the optimum place. I mean, it's a marvelous place to live and I adore it, but it is quite a distance away, and in those days it had 12 million people. So it was not exactly the center of the world, although a remarkable country.
But what was so, I think, extraordinary for someone like me was that I -- I came at a time when the jet started. When I made my first trip to the united States in a piston engine aircraft, in 1957, I flew back in a jet. There was no Internet. There was no connectivity of the type that we know today. The international financial markets had no eurodollar. There was no real coming together in the sense of the euromarkets. There was London and there was Frankfurt and there was the United States, but they were essentially domestic markets which serviced the international market.
And so I was lucky enough to grow up at a time when very much of these things was changing. And I recognized -- without, of course, being able to predict where it was going, I recognized that there was a real opportunity to participate at an international level as distinct from a national level. And I became one of those very privileged people who grew up and helped develop some of these markets.
It was accidental, really, but it was a very interesting moment, one that this audience has lived through. But we very often forget just how 50 years ago it was a series of national markets, with a few internationally-minded bankers, has become today an integrated global market, and all in the space of 50 years.
STENGEL: In fact, we'll get to this about the World Bank in a moment, but it seems like you always wanted to get out of the office, unlike bankers who sort of wanted to stay in the office.
WOLFENSOHN: Well, that is true, but that was the other aspect that I was very fortunate to be able to do, was that when I came overseas, particularly when I came to New York, I had the great privilege of catching the eye of David Rockefeller, who has become a revered friend of mine, and David told me, when I came to New York to run a small bank here, that the important thing to do was to become involved in the community.
And he told me I should try and rescue the customs house. Well, I had no idea what the customs house was, but I said, yes, David, of course I would love to do that. And then he said, well, and I'll put together a little board for you, and it will be myself and John Loeb and Whitney Seymour and a group of people that were just somewhere in the stratosphere, so far as I was concerned. And he said, we'll make you chairman of it. And I thought, well, that was pretty egalitarian of him to put me in that job.
It was typical of David, but it was more typical of this country. The remarkable thing about the United States -- different from England and even different from Australia, which didn't have that understanding of the linkage between private sector and public purpose -- the remarkable thing about this country and this very institution -- speaking in front of its leader here -- is such an institution which has grown up, which is publicly supported but which is involved in international issues; not directed by government, it is a private activity.
And one of the great things about the United States is that even to a young Australian, if you're prepared to get involved beyond your business and get involved in cultural or social or other activities, the United States is a unique place to do it. And that is how I realized that you could have sort of a double life. And they feed on each other, the business and nonbusiness lives. And they're not separate. They're unified.
And so I just have become a tremendous fan of this country. Obviously I live here, and my kids are American and all that. I even have an American wife, I'm happy to say -- (soft laughter) -- although we've only been married nearly 50 years, but -- (chuckles) --- but it is -- it is true that what is unique, I think, about our country, this country, is its capacity to do both things, to be both professionally directed but also to take part in the broader community.
STENGEL: Let's talk about the public purpose years. In 1980 you were almost named president of the World Bank, and then Bill Clinton named you head of he World Bank in 1995. At that time there was a lot of criticism of the World Bank from NGOs and human rights organizations, and we'll get to the criticism from the other end as well.
But I'd love you to talk about how you found it and even to go back and talk a little bit, for those of us who are not that conversant with it, is -- you know, what is the real mission of the World Bank, going back to Bretton Woods and how you, I think, in a lot of ways tried to restore that original mission in a modern way?
WOLFENSOHN: Well, the Bank was started at the time of Bretton Woods, just after World War II. And its objective then was to be a bank for reconstruction and development, but it was focused on those countries which needed reconstruction after World War II. And they included Europe, and they included Japan, and they included countries that very quickly became recognized as industrial nations that could essentially look after themselves.
But in those early years and that perhaps early decade, the Bank played a very significant role. It put together the fast train in Japan, it -- many, many things that it did in Europe and in Asia.
But then -- I won't say it ran out of things to do. I suppose it could have continued to do that. But the board recognized that there was a whole new world emerging, which was the so-called developing world. And as I think everyone here knows, by the year 2000, we were dealing with the so-called rich world of a billion people and the developing world of 5 billion people. And the people in the rich world, who had the dominant shareholding in the Bank, decided that this would be their instrument to help the developing world, in addition to whatever aid they did directly. And so it mutated to be this type of institution.
And in the period over the last years, of course, that has changed too, because even some of those countries are now changing their role, the most obvious one being China. After World War II, China and India were less than 2 percent of the global GDP. Today it's perhaps 12, 14 percent of global GDP, and China is the number-two economic power in the world.
So it's changed, and we may get to this later, but the idea of the Bank is to try and deal with those countries where the financial work markets are less positive and where nonetheless there are a lot of people who need help. And so that's -- that was the Bank, and that was the institution that I came into in 1995.
But it was not an institution that was hugely popular with civil society. In fact I arrived in the year where the campaign was "50 years is enough," which was a very nice welcome. (Chuckles.) But I inherited the "50 years is enough," and somehow it became a little longer.
STENGEL: So let's talk, Jim, a little bit about the hallmarks of your tenure there, a couple of which we talked about before. But one is the sort of decentralization of the Bank and getting people out in the field. But another one that, you know, continues to this day is concern with corruption and reckoning with the fact that aid can sometimes be exploited by those people who are getting it. And you really became focused on that too.
WOLFENSOHN: Well, I thought that the first thing was -- within 10 days of getting to the Bank, Elaine and I went to Africa. And you didn't have to be a genius to recognize that the first country I went to was Mali and -- which was then the second poorest country in the world. And I went there feeling, you know, this is going to be terrible, until the Malian president told me that they used to have a kingdom that went from there through Africa, and that the place Timbuktu had a -- had a university in the 1500s. I had always heard the word Timbuktu as -- I thought it was a made-up word. My father would say, "Go to Timbuktu," and I thought that was, you know, something he'd made up. But I discovered there was a Timbuktu and I discovered that there was a culture and I discovered that it was a deep culture.
And -- but with 53 countries in Africa, as you know, many of them have not developed well. Many of them are led by people that have more personal motives than perhaps national motives, or at least an unbalanced personal motive, put it that way. And so when I went to Africa, I realized that, you know, here was a continent which today is close to a billion people, which by 2050 will have 2 billion people, which will be two-ninths of the world. And then they will have a per capita income of, let's say, $4,000 per capita at a time now that China and India will be 30(,000 dollars) to $40,000 per capita and we'll be 90(,000 dollars) to $100,000 per capita. And so I didn't know those numbers precisely then, but I did realize that here is a hunk of a billion people who needed help.
And then I discovered that there were other countries that needed help, in Latin America and in Asia, and that in those days, it looked as though China and India needed a lot of help. And in fact, they were the biggest clients of the Bank. We had lent them 3 (billion dollars) to $4 billion a year.
And so for this period of time, I had the recognition that, first of all, there were more countries than I knew existed; secondly, that the aid was being parceled out in very ineffective ways, far too many institutions, even NGOs, and that there was very little accountability. And I had discovered, after about a year, you didn't have to be a genius to see that there was a lot of corruption.
And the word "corruption" had never been used by a Bank president in a speech --
WOLFENSOHN: -- until that time. And I started to write my second annual meeting speech. And the general counsel came to me, a wonderful man, an Egyptian, and he said: Come out of your office. I have to talk to you.
So I went out of my office and we went into this sort of -- into a room not dissimilar to this and went over in the corner and he said: You cannot use the "c word."
WOLFENSOHN: And I said: What the hell is the "c word"?
He said: Corruption.
And I said: Why can't you use the "c word"?
And he said: Well, perhaps a third of your members of your board represent countries that are corrupt -- (chuckles) -- and if you take them on, that's not perhaps the easiest thing to be talking about at the annual meeting.
So I made a speech about the cancer of corruption. And what was interesting was, that six months later, every one of my directors made a speech about corruption -- (chuckles) -- saying, it's not us, it's them. But it was one of those things which broke the glass, if you like. This nicely contained institution where it was doing projects, money was being stolen, there was -- there was certainly some very effective work being done. But I think I had the opportunity and the great privilege and many colleagues who backed me up in saying, let's open this up and judge it by its effectiveness as distinct from just the amount of money that we possess.
STENGEL: Well, let's talk about the effectiveness of aid. I mean, that's a debate that is going on now, and I think we'll get to that in a few minutes. But your concentration in areas like Africa, in the Middle East to try to rectify the imbalance, you know, the disequity in income and all of that, they're -- they are still places on the planet that are way behind: what -- I mean, if you look back now and you think, well, how would I have done it differently in places like Africa and the Middle East?
WOLFENSOHN: I think the most important thing I did -- (clears throat) -- excuse me -- in that context was to take the decision-making away from Washington and London or Geneva where we used to have the meetings and insist that when we were coming up with the plans for the countries, it would be done in the countries themselves.
And I also insisted that the representatives of the Bank, the vice presidents, all had to spend time in the field so that that they knew the countries in which they were operating.
And you didn't have to be a genius to see that, because what you really needed to do was not to sort of send money by check. You needed to embrace the communities in which you are operating and make them accountable for what it was that was being done. And more than that, you wanted them to suggest what should be done, and you wanted them to participate in the proposals and in the decision-making so that you can have some measure of accountability, and more than that, so that you could have civil society with you.
I remember my very first meetings in Africa with civil society. And they refused to meet with me publicly. The first meeting I had they were -- came up the back stairs of the hotel into my room because they didn't want to be seen with me. And they didn't want anyone to know that they were consorting with the president of the World Bank. And that was of course lunatic because the people in civil society knew a hell of a lot more about many of the issues than we did.
And so it was -- you didn't have to be a genius to see the need to bring this together. But it wasn't easy because there were many prototypes that people had. And in particular about the Bank, they thought the Bank was this big organization that didn't have a clue, had people from Washington who didn't understand what was going on, had no sensitivity to the local environment. And so I think if I did anything, it was to change that.
And it was also to say that if you're trying to bring a country along, it's not just in a project. You have to deal with trying to bring a comprehensive program, train the people and get the younger people with education so that they can deal with this. If you're putting up schools, recognize that you have to have roads to get to them. If there are women that you want to get there, then you have to have toilets for women, that you have to deal with the family structure so that the women can get away. And the moment you've dug into these things, you realize that you didn't solve the issues of development by a single project. You needed something that would envelop the society, that would allow you to have a comprehensive approach and that that, you couldn't do sitting at a desk in Washington. That had to be a societal movement that you could encourage, but it was not going to be successful unless the society led it. And so that worked in many countries. In other countries, there were leaders who had different views and who were basically on the take. And that was tough.
STENGEL: And what happened in those circumstances? Would you cut off aid? How would you --
WOLFENSOHN: In the end, that's exactly what we did do. We've -- we tried to pin down where aid was stolen, confront the local management or the local government, and then cut it off. But I must tell you that that is not very easy to do because you have a lot of political forces which then line up against you from some of the bigger countries who will come and say you can't do something in this country. If you've got a country in French Africa, it wasn't surprising if you got a call from Paris. I'm not saying that specifically, but it's the sort of thing that you did.
So being president of the World Bank, you also discover that you're not president of the world. You're an employee of a lot of governments. And it keeps you down to earth a bit. But the wonderful thing about it is that they, the leaders, can spend so little time on the Bank that the leadership in the Bank has a pretty interesting instrument to play with.
STENGEL: I wonder if you'd navigate for us this -- the debate about development aid that has been occurring over the last few years. Bill Easterly, who's a former member of the -- of the World Bank, and people like Dambisa Moyo are saying on the one hand, aid actually doesn't help the people it's designed to. It either corrupts them or emasculates them.
On the other hand, folks like Jeff Sachs who say the problem is, is that we don't give enough aid. Where do you fall in that argument? And I'm sorry I've oversimplified --
WOLFENSOHN: No, no, no. Well, I'm glad you have. But I think -- I think the important thing which I was referring to and which I think is critical is that the responsible party should not be the World Bank or the African Development Bank or the donor.
The responsible party has to be local. You have to make it available to a local management team or group that consists not just of the local government, but of the local government and civil society; and, by the way, private sector, which is crucially important in terms of bringing this along.
And for me, the -- it was just too easy for some of the critics to say, well, let's just shoot the bank. I don't get paid by them anymore, so I -- I get a pension, so I suppose I should be very sensitive to them. But the critical thing is that there are 10,000 people in the bank. And of that 10,000 people, there are many thousands who have devoted their lives to development and who really are perhaps the most experienced people on everything from education to health care to putting in drains to building schools to building roads.
And the notion that you would just say, just wipe them out, is to me, I think, a very trivial and really not very substantial commentary. I know Bill Easterly (sp) says it, and a few others do say it.
I would say that the important thing is to make that group effective. To just say wipe it out and let it all go, I think, is frivolous. But I do think that some of the criticisms of projects being badly run, of money being lost or stolen, and ineffective development, are valid, which is why we started a decade ago a group that would come in inside the bank and review project; and not only review projects that they chose but be open to outsiders in the countries themselves who would say, we think that project is lousy. And they would file a complaint with this group. And that group would send them to do a study to look at it and do a report on it.
So I'm not saying it's perfect, but we don't have that in our government here in the United States. It might be a good idea, but it doesn't -- it doesn't happen. But at least we tried to do it.
STENGEL: You know, it was quite stunning when you mentioned a couple of answers ago that when you started at the World Bank, China and India were the two largest recipients. One of the issues now for the World Bank is the role of China as a development bank itself. The World Bank gives away, I think --
WOLFENSOHN: Thirty (billion dollars) or 40 billion (dollars).
STENGEL: Thirty (billion dollars) or 40 billion (dollars). And that's now lunch money for the Chinese government. So if you're -- if you're a mineral-rich country or a developing nation that has some resources, you could go to China and get enormous loans for, I assume, a smaller rate and with fewer strings attached than you can with the World Bank. What does that to the role --
WOLFENSOHN: That is -- that is actually not quite true. What both China and India have done some five years ago, the Chinese convened the very first meeting of developing country heads of state in Beijing. At the same time, there were 400 businessmen went to Delhi. They arranged between themselves that they'd have a private-sector group in Delhi and they would have the leadership in Beijing. And these were very effective meetings.
But the amount of money which they then indicated that they were going to put up for development aid was $10 billion from the Chinese and somewhat less, actually, from the Indians. Where the Chinese have huge amounts of money is for both industrial projects and for natural resource development. But it rarely comes as a free gift. It is tied to the control of the resources. And, in fact, if you go to Africa now -- and I've just had another trip there because I keep it -- there are now 750,000 ethnic Chinese living in Africa. And the interesting thing is that when you see a road being built, it's not being built by Africans; it's being built by Chinese.
And so in terms of bringing about the development or the passing on of capacity, it really isn't happening in the way that I believe it should. And that is, I think, characteristic. It doesn't mean that they're not doing a terrific job and lending money and helping. I think they are. But there is always a motive to it. And even if you look at the projects, which the Chinese have been engaged in, they're either projects which are utilizing their skills, which are great; but before that happened, it was usually the house for the president and it was a sports stadium and it was a few things that were always identified with China.
What has happened since China moved from being the largest borrowing country now to have 2-1/2 trillion or more reserves is that that is swinging around and China is now the second-largest economy in the world.
And what will happen, I think, in institutions like the Bank and the Fund, is that whereas previously it was assumed that there would be an American running the bank and maybe a European running the IMF, I have very little doubt that in the coming years that's going to be challenged significantly by these countries, who will demand both a greater sense of ownership but also a greater sense of leadership. And I think it's a good thing, actually.
STENGEL: I'd like to get back to the -- to the Jim Wolfensohn narrative for a second. How did the -- your second term come about? And what was -- it was -- it was unusual; not unprecedented. Was that something that -- you knew you wanted to serve again? Was the Clinton administration certain that they wanted to have you? How did that --
WOLFENSOHN: Well, President Clinton and I had -- I don't want to -- I don't want to enlarge my relationship with the president, but I did get to know him pretty well. And interestingly, Larry Summers, who had wanted the job when I got it, was then secretary of the Treasury. And so it was Larry that appointed me -- he advised the president -- to my second term. And that happened before the Republicans came in.
So President Bush inherited me -- I don't think terribly warmly, in terms of the Republican administration. And I used to go quite often to events at the White House; in the -- in the period of the Bush administration, I was never once invited. So I can only assume that they either forgot me or they were not terribly thrilled at that -- at my being there.
I was invited -- I did go there twice afterwards. One was for the retirement of Kofi Annan; the other was for the retirement of the Federal Reserve leader, Alan Greenspan. But I discovered subsequently I was on their list, not the White House's. (Laughs.)
So I don't think there was a tremendously close relationship. But what was then dramatic was that President Bush asked me to take on the Middle East, which I can only assume he couldn't get a Republican to do. (Laughter.)
STENGEL: Well, I'm glad you made the segue, because I was about to. Let's talk a little bit about the year that you spent working on Middle East policy, and particularly in Gaza. And your book is quite candid about the disappointments and your relationship with then-Secretary of State Condoleezza Rice. And again, going forward, I mean, obviously, a lot is happening in the Middle East at the moment. If you could --
WOLFENSOHN: Well, I had -- I had the privilege of working for the Quartet, which was the United States, Russia, the European Union and the United Nations. And that gave me a little bit of protection. And for a little more than a year, I was involved there at a time that there was a change in thinking. And, as you know, there was Arik Sharon in leadership, and there was a withdrawal from Gaza.
I had previously gotten to know the Arab world very, very well in my 10 years at the Bank, and I would say got to know Arafat particularly well. Indeed, he came -- the only private home he had dinner in in Washington was at our place. And my wife didn't forgive me for some time. But anyway, she did eventually.
But I had the -- I had this great opportunity of working with the Arabs during my period at the Bank and built, I think, a pretty substantial relationship with them. So that was a help.
Where I was in trouble was with the Israelis, because the Israelis had a direct relationship with Condi -- Condoleezza -- the secretary of state. And they really didn't want any outsider in that, because it was a direct relationship between the Israelis and the United States. And really, the Quartet was something that was around there that was not intended, I believe, to be anything very substantial.
I managed, however, to build a pretty good relationship with Arik Sharon, and I was there at the time of the withdrawal from Gaza. And so I became very much involved in that, because we were also concerned with development of Gaza. And so we did a number of things in terms of preparing Gaza for the period after the withdrawal, and I think they were very useful.
And then a couple of things happened. First of all, Arik Sharon had one stroke and then a second one, from which he's still not recovered; and the Palestinian leadership also changed. And so I was there during this period.
And then in the end, the United States decided that we should close the office. And I had no idea why we should close the office, so I fought it, but we did. I guess it was in May-June. And apparently, the reason was that there was going to be an invasion by the Palestinians in West Bank and -- to take over Gaza. It lasted less than 24 hours, but our office was then closed.
And they then asked me back to do the job. And for various reasons, I decided that it probably wasn't a very good idea, and Tony Blair took the job. And he doesn't spend -- he doesn't spend a lot of time on it, put it that way. (Laughter.)
STENGEL: Yes. You're being very discreet now.
Question time from members. Please -- there's a microphone that will pass around -- please identify yourself and your affiliation. The thing I forgot to mention at the beginning: This is all on the record, so you can ask anything you want. Questions, please.
The gentleman right here in the third row.
QUESTIONER: Thank you. Tony Walton, Standard Chartered Bank. So, Jim, as you look at what's been happening in the last 10 days in Tunisia, Egypt, is this going to be contained? Is it going to spread? And if it's going to spread, how is it going to spread and where?
WOLFENSOHN: Well, I'm very sorry that I missed the head of the Council on Foreign Relations this morning, who was for an hour and a half on television, as I know, because I would have then been able to answer this more effectively. (Laughter.)
But it does very much seem that the issues which I've actually been involved in since I left the Bank, which are the issues of Arab youth particularly, are now coming to the fore in a very real way. If you know the numbers, there are 350 million or so Arabs in the region; 105 (million) to 110 million of those are between the ages of 15 and 27 -- 29. They need roughly 5 million jobs a year; they're getting 2-1/2 (million) to 3 million jobs a year. Many of them are getting trained overseas, but essentially for the wrong professions. And at the lower end of the employment scale, labor is being brought in from outside the region.
So you have a buildup of many of the both privileged and those that have worked their way to get a job not having jobs. And a country in which there has been a divisive element between those that are in and those that are out was Egypt -- is Egypt -- but it is true in other parts of the region. And you can go through the region, and there are obviously many differences between the countries in terms of their population component and the number of foreigners that are there, but if you take -- if you take Jordan, for example, the majority of people probably are Palestinians, which doesn't help in terms of stability.
So the region is ready for an expression of disaffection, particularly by this young group. And behind the 105-110 million, there are probably 110 (million) to 120 million under the age of 15. So you have this huge young population. And I wish I'd heard our leader this morning, to see whether anything I'm saying is correct or not; but anyway, it's what I -- it's what I -- what I believe to be a fundamental problem. And I think that goes across the region.
The other thing which is fascinating is that whereas once the young people that were going abroad were young Egyptians or young Saudis or young something else, when they go overseas they're all members of the Arab group: the Arab Club. And they're all linked together by Internet, so that the linkage is not just national, going back and seeing your friends; the linkage today is transnational, it is pan-Arab, and it is facilitated by technology. So you have a group which is feeding ideas to each other which is no longer just a group of nationals that come back and are from privileged families. This is the group that is now growing every year, and in many cases are frustrated by not having work.
So, my own belief is that this is likely to spread. I don't know with what pace it spreads, and I'm sure that there will be conditions put in the way of it by governments and by many military or other ways of trying to buy it off. But I think the genie is out of the bottle, and it's unlikely that you're going to see it put back in very quickly.
I wish I had heard you this morning.
STENGEL: Yes. Right over here on the third row on this side.
QUESTIONER: Thank you. Thank you very much. Muhesh Kotescha (ph). Mr. Wolfensohn, it's great to hear you again talk about the World Bank. My question is regarding your experience over the 10 years you were there coming as a private banker. As you know, private markets have a lot of money that is going to emerging markets. The World Bank is no longer the game in town, as it were, for money itself. So the role of the Bank, it would seem to me, is greater in risk mitigation, in facilitating investments and advisory activities and less in providing funding. Yet MIGA has a capital of 1 billion (dollars), whereas World Bank has a capital of 190 billion (dollars).
Could you -- and when investors are asked, foreign direct investors, why is it that -- was is the greatest concern, it's political risk. Yet political risk entrenches the seventh solution that they seek. What is your recommendation? What is your thought regarding the role of the World Bank as a provider of capital, versus a facilitator of capital from the private sector?
WOLFENSOHN: Well, I think that for a number of years, until two and a half years ago, it was generally thought that, first of all, the IMF would go out of business. They were reducing their staff by a third. Dominique Strauss-Khan was cutting it back because they had very few borrowers. And the World Bank also thought along the lines that you were describing, although I think they always felt that there was a ton of work to be done in the less privileged countries, particularly in Africa and in certain countries in Asia and certain countries in Latin America.
But some two and a half years ago, that changed. And Dominique Strauss-Kahn then became at the center of the stability of the international system for the IMF. And the World Bank loaned, from one year to the next, I think, two or three times what it had in the previous year, because there was the demand. There was also a great demand in the private-sector areas of the IFC, as I'm sure you're aware, the International Finance Corporation (on ?) the Bank, and a growth in MIGA.
But MIGA has never really taken off, I think, in the sense that you're describing, that it could guarantee the loans of all these doubtful countries. People don't think of insurance in the way that you might think that they might. I'm sure that over the years it will grow, but people are not prepared to pay the premiums so much as perhaps they might. I think the more important thing is not MIGA, I think it is what is happening in the global markets. And there I would say that, at least for now, the IMF and the World Bank are back and active. And the regional development banks, of which there are many, are also back and active. So even though China has a lot of money and India has a growing amount of money and Japan has the second-largest amount of money and there are big pools of capital, I think still you require some expertise. And so I would be very surprised if those institutions went out of business.
STENGEL: Yes. All the way back there.
QUESTIONER: Hi, Jim. Jim Zirin. I thought perhaps you could amplify for us a little bit your view of the role of the social media among Arab youth in the Arab world.
Do you see it more as a vehicle for politicization of youth who were never involved in politics before, or do you see it as a platform for mobilization of dissidents who want to communicate with one another in protest, or do you see it as a means of repressive regimes perhaps cracking down on dissidents because they can tell who it is that's communicating on the Internet?
WOLFENSOHN: Well, I think, personally -- and I just -- a couple of months ago I made a speech at a couple of the Arab universities and had an opportunity to talk to some of the young students and their professors. It seems to me that the Internet has -- which is pretty free in most of the Middle East -- has made a dramatic change in terms of opportunity for both exchange of ideas and the mobilization of forces.
Now, even six months ago I think it was generally thought that the strong regimes would be able to keep this thing under control. And I think the strong regimes thought they could keep it under control. But what has happened now in Egypt, I think, is a bellwether for what is likely to happen in many other countries in the region, and I think it's going to be youth-led.
I don't doubt that there are extremist organizations that may benefit or may even provoke a lot of these things, but I think that the Egyptian thing is not being promoted by radical Islam, it's being promoted by young people who feel that the deal that is being offered to them is not the deal that they want for the future: that they cannot be a modern country, that they cannot be enfranchised, they cannot have the future that they want. And even wealthy families are now, as we were commenting before, encouraging their kids to go in the streets to be part of it.
So I think that there is a dramatic change occurring. We have to worry whether it will be taken over by radicals or by radical Islamic movements, but at the moment I think what's happening in Egypt does not indicate for the moment that that is the case. I hope it's not the case.
STENGEL: Yes, the young lady over there.
QUESTIONER: Diana Taylor, Wolfensohn and Company.
WOLFENSOHN: Have you got the question I told you to ask, Diana? (Laughter.)
QUESTIONER: Yes, as a matter of fact I do. Why is that you're such a -- anyway.
Do you think that over the years, our government has had any viable alternatives to some of the regimes that we have supported in the Middle East?
WOLFENSOHN: Well, in hindsight, I think you'd have to say that we haven't always (met ?) as effectively as we might have. But we have had very different geopolitical background in terms of our decision making. And I think if you look at the situation we're now in in Egypt, as an example, and we may well find in other countries where we have very strong identity and strong relationships, that some of the young people are going to come out and say, why the hell was the United States not there earlier helping us to try and get rid of this corrupt regime? My guess is that we're going to hear quite a lot of that.
And my guess also is that you'll hear some people from radical Islam using it as a -- as a argument about why the United States has not shown the judgment that perhaps it should have.
So I think you'll get it at two levels. I think you might get it at the level of the youth, with, I think, likely substantial political change emerging and saying, why didn't you stand up earlier, why didn't you bring out your dramatic ideas earlier, why did you back these corrupt people? But I also think that in the debate with the stronger Islamic movements, you're also likely to hear some voices about what the United States did and didn't do.
So I think we're in for a pretty difficult period. I hope very much that it will go moderately, and I hope that young people will be enfranchised and I hope governments will be moderate. But I'm not sure that that will occur everywhere.
I wish I'd heard our leader this morning. I would know all the answers to these questions. (Laughter.) Why don't you come up here and give a 10-minute lecture? (Laughs.)
STENGEL: If I could follow up on that question, I mean, can the organizations like the World Bank and the IMF work more closely, for example, with the U.S. government to figure out a policy to, you know, help the reformers rather than the -- than the thugs?
WOLFENSOHN: I think that would be quite difficult if it were perceived that any individual government, be it the United States or the Russians or the Chinese, were trying to use the Bank as an instrument of their policy. In fact, I think it would be impossible, because there are 24 directors of the Bank representing the 180-plus countries.
And I think if they smelled any sort of political influence coming in, you would have an instant reaction, and probably also from the countries that you're trying to impact -- from their representatives. I'm not saying it's an egalitarian institution, but I am saying that it is a representative institution, which means that anybody can put forward their views.
So I would think that it would be unlikely to happen. And I also think it will be very bad if it could happen, because I don't think the personnel of the Bank, first of all, are very skilled in that. Bob Zoellick may be one of the few people -- who's the current president of the Bank, because he came out of State Department and has a distinguished career -- Bob might be ready to do it, but I think it will be very rare.
The other thing is that you have three vice -- three managing directors of the Bank now. One comes from Nigeria, one comes from the Arab world, and one comes from Indonesia. They're the three managing directors. You would have thought they'd be American or British or something, but the whole weight of the institution has changed, and I think very -- I think very positively so both in terms of the number of the people and also in terms of gender. Two of the managing directors are women, out of three, which is, I think, also very good.
STENGEL: And isn't the chief economist now Chinese?
WOLFENSOHN: Chief economist is Chinese, exactly. And the number-two or number-three person at the IMF is Chinese.
So you have -- reality is descending upon these institutions. And I think the next time that the issue of leadership emerges, you'll have a very different debate.
STENGEL: More questions. Yes, sir, right here.
QUESTIONER: Jim, looking into the future on world economic and financial policy and matters, do you see China more as a competitor or as a partner or a mixture of both?
WOLFENSOHN: Well, I'm glad you raised that topic because I think -- in the period of my involvement or development in the financial world, I lived in a world from the '50s, which was first 90 percent in the G-20 or G-30, with the G-7 being perhaps 70 percent; to a period at the turn of the century when -- the year 2000, when it might have been, let's say 70-30, 70 percent of the world's income was with those rich countries and 30 percent was with the developing countries, which included China and India.
The projections are that by 2050, which is only a little less than 40 years away, that that 70 percent or the 60 percent that is now with the G-7, that 70 percent will be 35 percent -- 35 percent. China and India together will be 50 percent of the global GDP -- 50 percent. And remember that after World War II, they were less than 2 percent -- less than 2 percent.
So the less than 2 percent will grow to somewhere around 50 percent. And the global economy will be 65 percent in Asia -- 65 percent in Asia by 2050.
Now, let's assume I'm out by 10 years. Let's assume it's not 65 percent; it's 55 percent or 53 percent. It doesn't really matter. It is the direction which is so significant. The last time that happened was in 1815 when China and India were 50 percent of the global GDP; and before that in 1500, China and India were 50 percent of the global GDP.
But there is no question that that's the way we're moving. And in relation to our own country, which has -- for a period of my lifetime was the place first for manufacturing, then for services and then for intellectual development -- that has switched and has changed very dramatically. You now have 350,000 Chinese students studying abroad every year. You have nearly 350,000 Indians. You have 100,000 each -- from each country in the United States -- 100,000 each in the United States. We have 13,000 students in China and 3,100 in India, just to give you a sense of what's happening.
Thirty-five percent of Chinese students are studying scientific or technically related degrees. We have 5 percent. If you get invited to a graduation, as I try to go to one every year at some place or another, trying to get an honorary degree or something -- (laughter) -- you discover when you see the Ph.D. candidates standing up, it's highly visible. They're half of them -- they're at least, at least half are Asian.
And so I'm only making obvious points, but we move along without adequate recognition of this swing. And that's why I was very happy when the president talked about trying to strengthen again our own education systems and also, hopefully, trying to to keep some of these people who are studying here to stay here instead of going home. But I think we're being challenged in a dramatic way and the answer to your question -- (inaudible) -- is that we're seeing a move in the next 40 years the likes of which has not been seen for 200 years. And it's real. And it's real. And we're not preparing for this.
STENGEL: The woman there in the back.
QUESTIONER: Hi. (Name inaudible) -- with the U.N. Foundation. Just to follow up, you had mentioned your board of governors with these countries and you also had referenced the construction in Africa in the way the Chinese carry out development activities.
Do you think this trajectory that you're talking about is going to affect how we look at development and how the World Bank will change its -- or would it change its development approach?
WOLFENSOHN: Well, I hope it won't for the Bank because it's not an arm of any individual government, although 17 (percent) or 18 percent of its shares are owned by the United States. But what clearly is happening is that there are increased sources of funding for projects, and increased influences from individual countries, two of which, significantly, are China and India. And they have an advantage in some of the developing countries, and they have a significant interest in Africa for natural resources, in the case of India, historically, particularly in East Africa where there's a large Indian population, and now from nothing, 750,000 ethnic Chinese living in -- living in Africa. And that's in the space of less than a decade.
So I think it's pretty clear that it's changing. And the axis between Asia and Africa is very real, and to a lesser degree, from Brazil in terms of some trade with Africa and some modest investment. But Brazil is -- has its own issues in Latin America and a great future, I believe, ahead of it. But I think the axis that we need to be looking at on Africa is the China-India axis and it's being borne out, really, every day.
STENGEL: Over here, the gentleman in the third row.
QUESTIONER: Steve Buffone with the Gibson Dunn law firm. Do you think the leadership in Iran should view the events in Egypt as an opportunity or a threat?
WOLFENSOHN: I don't know, personally, many of the people in the leadership in Iran. If you read the press, you get both angles. You get the angle that this is of great interest to them in terms of dislocation of things that might otherwise go on in the Middle East. And you have another view that it can enfranchise the young people in Iran to change the government of the country. I'm not smart enough to know, to be honest.
I wish I could -- I wish I could answer it that this will liberate the young people in Iran and you will see a change. But I have great respect for the strength of the Iranian government. I don't say I respect it for the way it's done, but I have recognition of the strength of the Iranian government. And I hope it is a help, but I would be surprised if it happens next week.
STENGEL: Jim, I want to thank you on behalf of the council and the History Maker series sponsored by HBO for talking with us tonight. (Applause.)
WOLFENSOHN: Thank you very much.
STENGEL: You've had a global life, but you've also had a balanced one and a charmed one. So thank you so much.
WOLFENSOHN: Thank you very much. Thank you all very much. (Applause.)
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