Paul Wolfowitz will leave the World Bank at the end of June. His tenure as its president was short, rocky — and served an unexpected, useful purpose.
The nasty controversy that erupted over Wolfowitz’s attempts to financially protect his companion and fellow bank employee, Shaha Riza, morphed into much more than a fight over favoritism. It served to illuminate the 63-year-old bank itself, raising questions about what it does and how effective it is. Most of all, the Wolfowitz flap raised this question: Does the world still need the World Bank?
The bank emerged from the ashes of World War II to bring a devastated Europe back to life. Its mission today is to reduce global poverty. It is funded by rich countries for the benefit of their impoverished counterparts. Each year the bank doles out more than $20 billion in grants, loans and aid to poor — but sometimes not-so-poor — countries. The U.S. is its biggest shareholder and contributor.
Today Europe is prospering; so is much of Asia and Latin America. The bank proudly notes that hundreds of millions of poor people have been lifted out of poverty and that growth in the developing world has outpaced that of the developed world during the last 10 years. That’s true, but the World Bank had less to do with that than did the unleashing of capitalist forces in once closed or stagnant economies like those of China, India, Brazil, Mexico and South Korea.
Private capital flows to the developing world have increased nearly sixfold since 1990, to $500 billion from $85 billion. That’s what has propelled prosperity in formerly poor countries. Yet the bank still finances projects in nations such as China and Mexico that have ample access to private capital. The World Bank insists some of what it funds would never happen if those projects were left to market forces. If that’s true, were those projects well-conceived — or something less?
A world awash in capital flows still needs a World Bank. But it needs something other than the current bloated bureaucracy of 10,000 employees, nearly 14 percent of whom make more than $180,000 a year, according to The Wall Street Journal. The world instead needs a slimmed-down, more entrepreneurial, agile and targeted institution that tackles persistent poverty in, for example, sub-Saharan Africa. Decades of international assistance, grants and loans have yet to produce lasting progress there. The world needs a smart global bank able to fund “best practices” projects that have proven track records.
The poor remain poor because they lack resources and access to opportunities in places where corruption often depletes human will. Wolfowitz tried to shine a light on endemic corruption in countries (India, Kenya) that have received billions in World Bank aid. His stormy tenure will have served a purpose if his successor can keep that light aglow, shrink the bank, and focus it on helping the poorest of the poor.
