The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations
Sebastian Mallaby, Joanne J. Myers

January 27, 2005

The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations

• Introduction
• Remarks
• Questions and Answers

  Introduction

  JOANNE MYERS: Good morning. I'm Joanne Myers, Director of Merrill House Programs, and on behalf of the Carnegie Council I'd like to thank you all for coming out on such a very cold morning.
  
  Today our speaker is Sebastian Mallaby, and he has written a wonderful book, called The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations.
  
  Ever since 9/11, many have commented that our security depends on the progress we make in alleviating poverty among the world's poor, and no institution has tried harder to master this challenge than the World Bank. In fact, within days of the attack, World Bank President James Wolfensohn had seized upon the tragedy to argue that fighting poverty was now more important than ever. "There is no wall separating rich nations from poor," Mr. Wolfensohn declared. "We are linked by migration, by environmental degradation, by drugs, by financial crisis, and by terror."
  
  Since the 1960s, more than $1 trillion of foreign aid has been transferred from rich nations to poorer ones. Yet, more than a billion people still live on less than a dollar a day.
  
  FDR and his World War II allies originally founded the Bank to help reconstruct postwar Europe, but now it finds itself grappling with the huge challenges of poverty, development, and global politics. The Bank now employs around 10,000 professionals in 109 countries and provides $20 billion a year in cheap loans to the developing world. Although the Bank may have its shortcomings, it still remains the world's main instrument for combating poverty and wields considerable influence over economic policies in the developing world.
  
  The story of the World bank could have been told in a banal manner, but as Mr. Mallaby has written it, it is a riveting portrait of an institution and its president of the past ten years, James Wolfensohn. By cleverly joining the history of the World Bank to a biography of its leader, he has given birth to that rare thing—yes, it's a lively and engaging book about public policy.
  
  Sebastian Mallaby grew up in Great Britain. He studied modern history at Oxford before joining the staff of The Economist in 1986. In the late 1980s and early 1990s he was The Economist's ocorrespondent in Africa, where he covered the independence of Namibia and the release from prison of Nelson Mandela. He later published a book about this event, entitled After Apartheid: The Future of South Africa.
  
  He then moved to Japan, where he witnessed the spectacular development success of the postwar era. In 1996 he moved to the magazine's Washington office and shortly thereafter became the Bureau Chief. Once in Washington, Mr. Mallaby began to cover foreign policy and national affairs, along with issues related to globalization.
  
  Three years later, he joined The Washington Post, and has been there ever since, except for a brief sabbatical which he took to write The World's Banker. This book was written while he was a Senior Fellow in International Development at the Council on Foreign Relations.
  
  At a moment when James Wolfensohn is approaching the end of his second five-year term as President of the World Bank and speculation about his successor looms large, a book on the World Bank and its controversial but charismatic leader is a subject that we are all eager to learn more about.
  
  Please join me in giving a very warm welcome to our guest this morning, Sebastian Mallaby.

  Remarks

  SEBASTIAN MALLABY: Good morning. I'll start by telling you about how I came to write the book, some of what's in it, and then some of the policy ideas that come out of it.
  
  As you just heard in the introduction, I had been interested in development for quite a while. It goes back to college student backpacking trips in Latin America and South Asia, and then was very much cemented by being The Economist's Africa Correspondent based in Zimbabwe, which I used as a base to travel all over the continent. I was deported from Sudan, which I regard now as a badge of honor, given the current genocide. I was outside the jail when Nelson Mandela walked free in 1990. I was 25 years old at the time, and my career has been downhill ever since because nothing could quite match the excitement of that moment.
  
  I hadn't seen a way of writing a book about development that would reach a reasonably broad audience until two things clicked into place.
  
  The first was that after September 11th it became clear that the World Bank and the subject of development and the battle against poverty was breaking out of its niche and becoming of interest to a wider community. This has happened three times in the last sixty years, and each time it is for the same reason, which is that the security community and the foreign policy community suddenly decide that development and global poverty will affect Western security.
  
  The World Bank was created in 1944, driven by the idea that if you didn't reconstruct Europe in a successful way, economic dislocation could lead to another world war; that the dislocation, the unemployment, and hyper-inflation of the 1930s had led to fascism and totalitarianism of both extremes; that desperation had led to desperate ism's. That was the first impetus to set up the World Bank, the IMF, and in a way also the United Nations.
  
  The second phase came around 1960, driven by the Cuban Revolution of 1959, which again taught people that if you didn't pay attention to poverty, poor countries could wind up in the Communist column which could affect your security interests. And so in 1960 we saw the creation of the "soft" loan window of the World Bank, the IDA, tacked on to the commercial lending window, which greatly increased the Bank's ambition, its scope, its ability to do projects outside the traditional infrastructure projects, and to reach out to the poorest of the poor countries.
  
  The classic economics textbook at this time was Walt Rostow's Stages of Economic Growth, the subtitle of which is A Non-Communist Manifesto. Cold War fears and development hopes were very much bound together, which led to J.F. Kennedy's Alliance for Progress in the 1960s, the creation of IDA, and the general development push.
  
  After September 11th, we saw the same reaction again. Concern about failed states suddenly seized the foreign policy community, so that the securocrats became development people. The politics and the tensions of the time are partly the subject of one of my chapters, in which I describe the way that Jim Wolfensohn dealt with the antagonism between the Bush Administration and the World Bank, to cut around the back of the Treasury to get to Condi Rice and the NSC and make the argument that: "We're on the same side here. Your security interests after 9/11 are much the same issues that we're pushing at the Bank."
  
  The Monterrey Summit in March of 2002, which was quite successful in eliciting new promises from donors for more aid, would not have worked in the absence of 9/11. Wolfensohn got into the White House at that time and made the argument to Condi Rice, "In a post-9/11 world you've got to be crazy to send the President down to Monterrey empty-handed." That is partly the impetus for the promise, as yet unfulfilled, of $5 billion in extra aid from the United States every year in the form of a Millennium Challenge Account.
  
  The second reason for going ahead with the book was that I discovered in Jim Wolfensohn a character who could bring any issue alive. Whatever one thinks about Jim Wolfensohn, he is not boring. Somebody who represents his country in the Olympics, who plays the cello on the stage of Carnegie Hall with Yo-Yo Ma, who makes more than $100 million on Wall Street and who runs the global battle against poverty is not by any stretch of the imagination boring.
  
  I called up Wolfensohn's staff at the World Bank and said, "I want to spend some time with him." They said, "Sure. You can see him on Thursday in Canterbury, England." I thought, "Wait a minute. I live in Washington, he lives in Washington, we're about five blocks from each other. What's this Canterbury business?"
  
  I flew to Canterbury, and there in the shadow of the Cathedral in a little seminar room was Jim Wolfensohn; next to him the Archbishop Rowan Williams in his purple bishop's shirt; and next to the Archbishop there was an Indian swami in orange robes; and next to the orange robes there was the black shirt, stubble, and dark glasses of Bono. I thought, "Anybody who could put together an alliance between these disparate characters is somebody worth writing about."
  
  Throughout the book I had the romantic tension between this larger-than-life character Jim Wolfensohn and the larger-than-life challenges of development, the battle against AIDS, the battle against poverty, trying to get kids into school. This clash between these two big characters drives the narrative forward.
  
  The book runs through some of the big set-piece dramas of globalization and development in the last decade, such as the reconstruction of Bosnia, in which the Bank played a very central role. The Dayton peace process might not have succeeded if it hadn't been for the World bank delegate who was writing the economic parts of the post-Dayton constitution. It takes you through the Asian financial crisis. I have a chapter about AIDS and the battle against HIV. It has the politics debate about failed states after 9/11. And stories like Uganda, which cut poverty by 40 percent in the 1990s.
  
  The messages that arise are twofold. The first message is about what makes development work. Here the big theme in the 1990s and the early 2000s is a transition towards a more political understanding of development.
  
  One could summarize in a nutshell the history of the Bank and development thinking over the last fifty years by saying that the Bank started out in the 1950s with the view that if you did big infrastructure projects, you could kick-start development. Then in the 1960s it went from physical capital to human capital, so that meant education and health. In the 1970s we saw variations on that with family planning and agricultural research efforts.
  
  In the 1980s the perception was that none of these projects worked unless you get the economic framework around the projects right. If the price signals are wrong, if you have hyperinflation, you can forget any project no matter how good. That was the period of structural adjustment and macroeconomic advice to developing countries.
  
  And then from the period when Wolfensohn arrived and onwards, it wasn't just the economics around the projects; it was the politics around the economics. The Bank broadened its understanding one stage further and moved from physical capital to human capital and now to social capital: focusing on the quality of institutions, whether they were corrupt; how much transparency you had; and what were the mechanisms by which a village to which you gave money decided how to spend the money?
  
  These social capital issues and a political understanding of development came to the fore in this period. I give some examples in Indonesia and Uganda, where one approach fails and then some bright spark in the Bank comes along and tries it a different way; it works much better and everyone says "Eureka!" and a new understanding of development is formed.
  
  Alongside this political understanding—that aid will be spent well if the recipient political system can digest it in a non-corrupt and productive way—goes the sense that you must be a bit humble about where you can make this happen. Some countries are corrupt and will have trouble absorbing aid effectively. The aid effectiveness literature in this period very much pushed this bifurcated view of when aid works, that it does work very effectively in countries which have the right policies in place, and it doesn't work well, if at all, in the others.
  
  For anyone with a private-sector financial lens, this is just "Duh!" The return on investment will depend on the investment climate. That's true of whether it's aid investment or private-sector investment. This is a deeply plausible place at which the economists have rested their consensus for the moment, and it may well last.
  
  The second part of the new development consensus is that you must think about the politics; not all countries which have dysfunctional politics can absorb aid. Therefore, you have to give aid a bit more selectively and you have to be humble about the extent to which outsiders can make things work by imposing conditions.
  
  You must move towards country ownership. It's the poor countries themselves which will either make or break the success of development, and so you must defer to the countries' control. That's not political correctness; that's because the approach of having many conditions hasn't worked.
  
  It's a clich? to say we have globalization without global governance. We lack strong institutions to manage the challenges which are created by globalization, by transnational threats. Whether you look at the new thinking coming out of the UN or at the new thinking coming out of think-tanks in Washington, the deficit of institutions to deal with globalization and modernization of the ones that we do have is central to grand strategy now.
  
  Whether the World Bank, which is one of the bigger and better international institutions, will be healthy, whether it will survive, is thus of some relevance. If it is not to survive, what can we do to rescue it? This is of more than just narrow interest to the 10,000 people who work there.
  
  My view is somewhat pessimistic. Many people who look at the Bank start with two basic assumptions. They say, on the one hand, "It's big and powerful and rich; it will be there forever." On the other hand, they also say, "The people who work there are not good people." The Left is saying that these people are insensitive to the environment, that prescribing orthodox economic policies creates suffering at the poor end of society. On the Right you get the assumption that the bureaucracy is bloated. So the Bank, rather uniquely, is sandwiched between the Left, which doesn't like it because it prescribes free market policies; and the Right, which doesn't like its status as a public institution.
  
  The governing structure of the Bank includes a resident Board that meets twice a week, and exists to ask the staff very minute questions about projects: "Why is this like this? Why is this like that? Go away and find the answers." The staff spends weeks writing memos, which are then given to these Board members, who send them to their finance ministries in Paris or Rome, and the very clever bureaucrats in the finance ministries formulate new questions, and the questions come back, then they give them to the staff, and they spend more weeks writing more memos answering those.
  
  Then these same shareholders say, "Wait a minute. You're too bureaucratic. You're too slow." They need to have a Pogo moment [cartoon character] and say, "We have found the enemy; it is us." So the shareholding structure, the governance structure, of the World Bank is another problem.
  
  The financial structure is fragile. There is a debate now in Washington about whether the Bank should shift from loans to grants. Grants are great from the point of view of the recipient countries. We have had successive waves of debt relief, and so after a while you must acknowledge that these debts aren't being paid back and you should just call it a grant.
  
  But the consequences for the World Bank are that you won't get these re-flows of money, which will weaken the institution. Unless we think of a way of counteracting that weakening, there will be consequences down the line.
  
  And finally, there is a question about the Bank's commercial lending, which is done by raising capital on the capital markets and then lending it to the Brazils, the South Africas—not the poorest of the poor, but countries which can borrow at those rates. The spread on those loans is very small, but it does go to pay for the administrative costs of the World Bank and to keep the organization somewhat insulated from the whims of donors.
  
  The process of lending money at a slight spread over the cost of financing is also under threat because the Left, the activist NGO groups, have pushed an argument which was quite legitimate in the 1980s, that the Bank needed to pay more attention to the environment and to indigenous people. But they have pushed this argument so far now that there are so many rules and regulations about Bank loans, so many boxes that have to be checked about environmental, social and anti-corruption safeguards, that at a certain point countries like Brazil, that have a choice of not borrowing from the Bank but of going to Citigroup, would rather go to Citigroup and pay more money for the loan but have less hassle. And so you see the Bank's project loan portfolio declining very precipitously over this period, which is not a healthy sign for the future of the Bank.

  Questions and Answers

  QUESTION: Is there enough steam in the focus on the interdependence of security and development to persist during the course of this year and to be a major determinant of outcomes at the Summit in New York in September 2005? Many of us would like to see the emergence of a grand bargain between the developed and the developing world whereby the developing world gives more substantial focus to the security concerns of the North and in return the North makes a more serious, determined effort on development.
  
  SEBASTIAN MALLABY: If you are asking about the climate between now and the September Summit, I am cautiously optimistic. But beyond that, I am rather pessimistic.
  
  Each of these moments of development enthusiasm has fizzled out for two reasons.
  
  One is that people get distracted; and you can already see that happening in Washington, where the promises of $5 billion a year extra for development are hitting the cold reality of the budget crunch, and so the Administration is behind schedule in getting money out of Congress to fund its Millennium Challenge Account. And I can only see that getting worse if you look at the budget arithmetic in Washington.
  
  The other reason is that, more importantly and troublingly, nearly always the consensus in favor of giving more money for development is egged on by very grand promises of what this money will achieve, and those promises are not met afterwards. I fear that this is true of the Millennium Development Goals (MDG). They are a good tool to mobilize people, to get them excited, saying, "Here are some concrete things we'll try to do, and now please sign on the dotted line and give us the money which we need to achieve them." This is very much the tone of the new UN report by Jeff Sachs of Columbia University.
  
  The problem is that even if donors did give doubled aid, we would not reach the majority of those MDGs. The easiest example is universal primary education, which presupposes that every government in the poor world will have a program to address the challenge. Zimbabwe's Robert Mugabe will not do so.
  
  Even reaching a goal like universal education, within a country which now has 50 percent enrollment, can that be done by 2015? No, it cannot. You cannot double enrollment sustainably across a large number of countries which are now at 50 percent.
  
  I discuss Uganda, where they did boost enrollment very rapidly, but that is not something which can be done repeatedly across many countries of the world. There was a particular magic about that moment in Uganda that made it possible. So I am pessimistic about the ability to deliver on these Millennium Development Goals.
  
  Why did everybody give so much money to tsunami relief? This was a peculiar moment in response to an awful tragedy in the poor world, where suddenly all the typical political explanations for why people had had an awful experience were literally washed away.
  
  There has been a growing accretion of explanations for trouble in the poor world which get the rich world off the hook. So the Ethiopian famine was not to do with a lack of famine support; it was to do with Mengistu's agricultural collectivization. The Sudanese famine was not to do with our problems; it was to do with war in Sudan. Underdevelopment is not just a lack of development aid; it has also to do with corruption and bad policies in poor countries.
  
  All these explanations come along to give a reason why "it's not our fault in the rich world that these people are living on $2 a day; it's actually as much things over there that we can't change."
  
  The tsunami affected four or five different countries, with different political systems, and it was a pure act of nature, and you couldn't possibly blame it on corruption or agricultural collectivization. It was just pure awful tragedy. And so people gave money, amazingly generously.
  
  Although the tragedy of the tsunami was totally apolitical, rebuilding after the tsunami is totally political. You will not see much progress in Aceh unless you can do stop the war. You have to deal with all the typical development problems. You dump your bag of food, and if you're not careful the powerful people in the village muscle their way to the front of the line, take all the food, and then start selling it to those who can afford it, and the poorest can't afford it, and so they continue to do without. This will disillusion people and start to take the wind out of the aid sails.
  
  QUESTION: I have two observations. While the UN is often blamed for all sorts of things that governments get together to do, and this is a set of goals that government leaders have pledged to fulfill, I would suggest that even though we are all pretty sure they will not all be met everywhere, the aspiration is worth having. Having a tool that gives us the opportunity to come up with a scorecard that shows what's working where is a way of reminding the world that these challenges are there to be met. And what is not met in 2015 we hope will receive a renewed impetus thereafter. The purpose of the aspiration is to set a goal and then the political will of governments is what lies behind the ability to fulfill the goal.
  
  My second observation is on the security momentum after 9/11 behind development. There are enough people of sufficient sophistication in Washington and other Western capitals who were never convinced about any of the root-causes arguments, such as poverty. But equally there are those who feel that improving the lot of poor people in Uganda or Botswana will not prevent Islamic radicalism from hitting the United States.
  
  Therefore, couldn't the question be restated slightly to whether there might be an impetus for targeted development assistance precisely to Muslim countries? At least one part of the world will get attention, and we can continue doing our best with good policies, good governance in places like Uganda and Botswana.
  
  SEBASTIAN MALLABY: The second question gets to another reason to be somewhat pessimistic about the longevity of this moment in favor of development. The bottom line is that, for a complicated variety of reasons, development did get an enormous push from 9/11. Perhaps the most convincing of those reasons was that Osama bin Laden was based in two failed states, Sudan and then Afghanistan.
  
  Furthermore, if you think about all the other mechanisms in the war on terrorism, from controlling terrorists' finances, to cross-border police work, in order to control finances you need to have a government that is able to function as a partner in your efforts to track down terrorists. If you go to Sierra Leone, which was falling apart during the civil war and diamonds were crossing the border with Liberia, then terrorists will be able to make money off these diamonds and there will be no government partner that the United States or anybody else can work with to control that source of financing for terrorism.
  
  Once I was giving a talk and former National Security Adviser, Brent Scowcroft, stood up in the audience and said, "Now wait a minute. You're saying that the new development consensus is that you're going to give money to the countries with good policies that don't need it. I want to give money to the countries which are totally messed up, and which is where we have a failed state problem, and where our security is affected."
  
  In other words, the security people want to give money to the development people so that the development people do something precisely what they think they can't do—i.e., help the failed states. This is not a stable arrangement.
  
  In the World Bank, the LICUS, Low-Income Countries Under Stress program, is an effort to think about ways to engage with the countries which all the research had just shown that you couldn't engage with. The straitjacket of dealing selectively with countries with good policies is a very hard one to wear.
  
  These politics are also reflected in the Millennium Challenge Account, which is supposed to be focused only on countries with good policies, and there is always pressure to define some countries' policies as better than the scorecard actually says in order to get them on.
  
  MDGs are a good political objective, but I just wish the concrete goals could have been more realistic.
  
  Poverty reduction is one goal which will be met, remarkably, because China and India have done amazingly well towards this end. That will be a huge success, and perhaps drown out people's attention to the other goals.
  
  One goal is to "reduce by two-thirds the mortality rate for children under five." Between 1990 and 2000 the rate fell by one-tenth, not one-third, which is what you would need for the next half of the period to get down by two-thirds. The tragedy is that a one-tenth reduction in the mortality of children under five is fantastic, we should be delighted. But if it is measured against this yardstick of a two-thirds goal, I can hear the conservative Republicans in Congress saying, "Aid is a waste; they said they'll do this; they don't do it; they've got no sense of holding themselves accountable."
  
  QUESTION: The Bank is only one partner in the approach to helping countries move along. There's the Bank, there's the IMF, and now we have Davos again.
  
  Since the Bank doesn't command such vast resources, is the major role of Wolfensohn and the Bank conceptual rather than what you do with the resources at your disposal? What is your opinion on the "blah, blah, blah" coming out of Davos about the social responsibility of the big global institutions? Is this a matter of managing the funds that the Bank controls, or is there a bigger responsibility?
  
  SEBASTIAN MALLABY: The Bank lends on a subsidized or on a market basis about $20 billion a year. It's big in terms of any other development organization. It's small relative to private capital flows.
  
  But private capital flows should be viewed in a slightly different box. For one thing, they don't go to the poorest countries. And even if you look at a country like Brazil, which can access the capital markets, its access is quite volatile.
  
  In the box labeled "public governmental instruments for coping with the stresses of globalization" the Bank is huge. It's the biggest balance sheet we have there, which can mobilize the most money the fastest.
  
  So when it came to Bosnian reconstruction, for example, where a lot of resources had to be pumped in quickly, the Bank was very important. Likewise in the tsunami, the Bank came forward immediately and said, "Here is a quarter of a billion dollars," because it has a balance sheet that can do that.
  
  To go back to the Bosnia case, the money that the Bank gave was important, but even more important was that the Bank created the blueprint for reconstruction which was the basis on which all the governments donated money. The Bank's technical experts said, "Here's the extent of the bridge rebuilding, the power sector rebuilding, the water reconstruction, the job creation we need to do, the micro-finance that needs to be in place," a very sophisticated blueprint, and then that was taken to a donors' conference and that was the basis on which governments gave money.
  
  It's fair to say that in the understanding of development, the Bank is the most powerful voice, now to some extent being challenged by the UN with the Jeff Sachs report. Mark Malloch Brown, who used to be at the World Bank before he moved to the UN, very explicitly said, "I come from the World Bank. They have dominated the whole debate on development for most of the past. The 1960s was the last time the UN had a comparably powerful voice on economic development, and now we're trying to level the playing field by having the UN weigh in with a top-flight economist too."
  
  The new Millennium Challenge Account created by the Bush Administration is, ironically, copied from the World Bank Research Department findings about what works. So although the Bush Administration spent the first nine months in office attacking the Bank as totally ineffective, when they set out their own development instrument they took it from the Bank.
  
  And the Bank also has also on-the-ground technical expertise. In my chapter on Uganda I show a survey that a mid-level economist in the Bank organized, which looked at how much money was reaching schools in villages in Uganda. She figured out what the grant had been from the central government, how much was supposed to reach the school in the village, and then how much did actually reach the school. The median school received zero percent of what they were supposed to receive from the central government.
  
  The Ugandan government then, very cleverly, posted on the notice board of each school what the school was supposed to have received. The parents of the children in the school got incredibly mad, organized, applied political pressure, and the bureaucrats at the district level had to return all the money they'd been pocketing.
  
  Then the Bank re-surveyed five years later, and the median school was now receiving 70 percent of what it was supposed to get. Bank knowledge and technical expertise can make a palpable difference in development outcome.
  
  QUESTION: Being a poor state doesn't mean a failed state. You are standing in the most failed state in the Western Hemisphere. New York State has a completely nonfunctional legislature, it is full of corruption both at the state and city level, and we have an enormous fiscal deficit. So by all definitions we are a failed state. What is a failed state in your view?
  
  SEBASTIAN MALLABY: A definition of a failed state is a state that cannot organize a minimum level of security for its citizens, so that if the definition of government is a monopoly of the legitimate means of coercion, that monopoly does not exist. And so warlords and other people are making rules because they have the guns.
  
  QUESTION: Understanding the Bank and what type of changes Wolfensohn brought, what type of a President should we be looking for?
  
  My second question is: the biggest criticism of the Bank from the NGOs and the critics on the Left is one of democratic accountability. How do you see that criticism and what would you recommend in terms of democratic accountability for the Bank?
  
  SEBASTIAN MALLABY: The democratic accountability complaint is a bit rich coming from NGOs. The World Bank is answerable to a board of governance, which is primarily elected governance. It is extremely open to scrutiny by the NGOs, by the media. The NGOs had a wonderful time lobbying parliaments in Europe and Japan and the United States to block the three yearly IDA funding for the Bank unless the Bank agrees to this, that and the other that the NGOs want. The Bank is plenty accountable to the NGOs. Furthermore, the Bank has been pushing democratic accountability within the countries it lends to. One of the big innovations, which came at the end of 1999, was the idea that to qualify for a soft loan from the World Bank you had to set up a national poverty reduction plan. This plan was supposed to be drawn up in consultation with civil society in the country. So the Bank has given the NGOs in poor countries a seat at the table by saying "you have to participate in the poverty reduction plan; otherwise we won't back it."
  
  And so one of the tragedies and the ironies of this period that I look at is that the Bank has reached out in an extraordinary way to NGOs. One of Wolfensohn's central objectives when he came in was to do it personally and also in substantive policy terms.
  
  There were people like Bruce Rich at the Environmental Defense Fund, who had written a book attacking the Bank [Mortgaging the Earth] in 1994. The Bank's PR Department wrote a twenty-page memo saying why he was awful, and they just totally froze him out.
  
  When Wolfensohn came in, this very Bruce Rich was invited to dinner to sit next to Wolfensohn and various vice presidents of the World Bank, who all had to be very polite to him. At the end of the evening they said, "We can't be enemies anymore after this dinner. We can maybe be frenemies."
  
  So there was a huge outreach effort. And what did that buy the World Bank in terms of insulation from NGO criticism?
  
  In 1999, when the Seattle protest happened and the anti-globalization movement burst onto the stage, The Economist, my former employer, ran an article saying, "We think the IMF will be in for the same treatment as the WTO, but the World Bank will be different because Wolfensohn has spent five years building bridges with NGOs. And Joe Stiglitz, the Chief Economist of the World Bank, agrees with the protesters. So the World Bank will be fine." Spring 2000 came and the World Bank was attacked in the anti-globalization demonstrations just as much as the IMF. It bought them zero insulation.
  
  I'm critical of NGOs. They don't have an "off" switch sometimes. You can make concession and concession, and they will still come out and criticize you. I am very fond of Oxfam and several others, but there is a campaigning subset of the NGO universe that simply will never be willing to make a compromise.
  
  The next Bank President needs to have three basic qualities. First, fantastic communication skills, because the Bank is surrounded by critics on the Left and the Right.
  
  Secondly, good public-sector management skills, because the Bank is difficult to manage—10,000 people, very complicated governance structure—and many past World Bank presidents have wasted a lot of time and energy trying to re-invent, re-engineer, turn upside down. Wolfensohn did a bit of this himself; he brought in McKinsey and a group of CEOs. In a way, the book is also a case study on the limits to importing private-sector management theory into a public-sector institution.
  
  The third thing the Bank needs is somebody who understands development. Now, that might sound obvious, but some of the people chosen in the past knew nothing. When Barber Conable was chosen in 1986 to lead the World Bank by the Reagan Administration, he was called by the Reagan Treasury and asked to put his name forward. His response was, "I don't want to do this. I'm retired in upstate New York."
  
  They said, "We need you to put your name forward, but we promise you don't have to do the job. We just want to put a name out there because otherwise the Europeans will get the idea that they can choose the President of the World Bank, and we don't want to let them use that prerogative."
  
  So Conable said, "All right, as long as you promise me I won't have to do this."
  
  Then they came back to him and said, "Barber, we can't find anybody else. You've got to do this." He said, "I was in Congress on the Ways and Means Committee for a long time. I can't remember if I voted for or against World Bank appropriations." And this is the man who became its President.
  
  QUESTION: Have you given any thought to why we need a UNDP and a World Bank? Would we be better off if we combined the two? Have you read John Perkins' Confessions of an Economic Hit Man. which argues that the World Bank or the institutions were set up for the corporate world?
  
  SEBASTIAN MALLABY: I haven't read that book, but I have read books rather like it. My thinking is that you have to answer the threshold question here, which is: you've got somebody who has an Economics Ph.D. from MIT and is figuring out what to do with his or her life. She could go to work at Goldman Sachs or McKinsey, or she could go and work at the World Bank and make about one-eighth of the salary. She chooses to go to the World Bank. What does that tell you about this person? Presumably that they do care about the mission, which is to reduce poverty.
  
  I simply don't agree with the theory that people who work in an institution that is fighting poverty are motivated by a desire to further corporate interests, since these people have precisely the qualifications to be real corporates—they are the cream of the cream of the educational output of economics faculties around the world, and particularly in the United States. But they they wanted to do something different, which was to help people.
  
  Furthermore, it is clear that there is a very high correlation between economic growth and poverty reduction. Very few countries have growth without reducing poverty and few reduce poverty without growth. There are some outliers like the Philippines, which managed to be so unequal that they did grow without reducing poverty, but these are very much the exceptions.
  
  Targeting growth policies, which include private-sector activity, is absolutely consistent with a humanitarian concern for poverty.
  
  You asked another question about the UNDP. If one had it to do all over again, there are all sorts of consolidation to be recommended in the aid architecture. Aid coordination is a noble goal often invoked, seldom actually acted upon, and the proliferation of agencies is an issue.
  
  The UNDP has a slightly different format and function from the World Bank, in that it stays in countries where the World Bank does not. It had an office in Iraq before the invasion. There are some comparative advantages there which one can hope to foster.
  
  QUESTION: If you'll permit a provincial question having to do with the perception of the United States as a generous player in this whole aid business, you'll recall that right after the tsunami tragedy there was a dustup about whether the United States was putting in its share, which raises the larger question of how the United States is perceived as a generous giver and by what criterion you measure this. Do you measure it in terms of percentage of GDP, which makes the United States a cheapskate compared to Canada and other major nations, or in actual dollar amounts? Or do you have some formula whereby you measure American participation against other factors, like the cost of maintaining almost a secondary worldwide military force?
  
  SEBASTIAN MALLABY: The Center for Global Development in Washington has come up with a good index of rich countries' impact on poor countries in an attempt to look at not just aid but also trade openness to poor countries, which is a way of helping them; also peacekeeping forces contributions, contributions to other kinds of public good, including security, but also the research and development of technologies that could perhaps help development. The United States comes in seventh out of twenty-two in their index. Even when you do weight military/security quite heavily, which is the way to favor the United States, the U.S. isn't the global leader that it should be, since it's trying to lead a global effort against terrorism and state breakdown.
  
  JOANNE MYERS: Sebastian, thank you for an excellent presentation.