BANKROLLING THE FUTURE
JUNE 11, 1996
On his first anniversary of assuming the presidency of the World Bank, James Wolfensohn responds to criticism from conservatives and liberals over the Bank's practices. Paul Solman discusses the history of the World Bank and engages Mr. Wolfensohn about its future.
SPOKESMAN: At Breton Woods, New Hampshire, delegates from 44 allied and associate countries arrive for the opening of the United Nations Monetary and Financial Conference.
PAUL SOLMAN: Looking forward to the end of World War II, these leaders met in 1945 and established the International Monetary Fund and the World Bank, the purpose, to provide a global game plan for a peacetime world economy. The World Bank's job would be to raise money for war-ravaged economies by borrowing on their behalf at very low interest rates.
Today the bank still makes low interest, sometimes no interest loans but to the world's recently developing countries for a wide range of projects in recent years emphasizing health care and nutrition, education, and, as always, economic development.
Over the decades, though, the World Bank has been criticized left and right. The left says that the bank's famous mega projects and promotion of unbridled free trade have left small economies at the mercy of sophisticated multinational corporations which drive down wages, suppress unions, and destroy both local industry and the environment. No wonder the protesters chanted--
PROTESTERS: Hey, hey, ho, ho, World Bank has got to go!
PAUL SOLMAN: When the World Bank celebrated its 50th birthday two years ago, there were widespread protests that "50 years is enough." The political right has blasted the bank as well, charging that it has plowed money into inefficient, government-run economies and bungled the job private investors do better. In short, says the right, who needs the World Bank?
Enter one year ago, James Wolfensohn, born Australian, naturalized American, superstar investment banker to some of the world's biggest firms whom "BusinessWeek" dubbed "the man with the golden Rolodex." Out in the field 100 of his first 300 days on the job, the multi-lingual Wolfensohn has been a crusader everywhere he goes for what he sees as compassionate economic development.
JAMES WOLFENSOHN, Chairman, World Bank: I have learned that the real test of development can be measured not by the bureaucratic approval process but by the smile on a child's face when a project is successful.
PAUL SOLMAN: Wolfensohn has pressed for development lending tied to political as well as economic reform, and for the first time at the bank has regularly consulted human rights and other non-governmental groups in the process. And he has vowed to "break the arm lock of bureaucracy" on his famously bureaucratic bank. Now the only question is: Can he do all this or even very much of it.
PAUL SOLMAN: Now we'll talk with the President of the World Bank, James Wolfensohn. Mr. Wolfensohn, thanks for talking to us. I guess the first question is a blunt one. Who needs you? I mean, private investors are pouring money into the developing world and dwarfing the money you're putting in by comparison, and is the World Bank simply obsolete?
JAMES WOLFENSOHN, Chairman, World Bank: Oh, I think 4 1/2 billion people need us, which is some number, and the reason they need us is not that we are trying to fight against the private sector investment, but we need to complement it. The needs of the world are so great that even the 179 billion that has gone from private sector into the developing world is not sufficient. Where it's gone is into profit-making enterprises even in the countries--80 percent of it, as you know, is 12 countries, and 75 percent is Asian. So we have Africa, we have got Latin America, many countries, and they're not prepared to put money into schools, into health care, into judicial systems, into the framework which attracts people to come in. And in terms of absolute poverty, those people really need help in ways in which the private sector cannot reach them. And there are a billion, two hundred million people who live under one dollar a day.
PAUL SOLMAN: Under a dollar a day?
JAMES WOLFENSOHN: Under a dollar a day. That's exactly right, a billion, two hundred million people. Nine hundred million people don't have water. Two billion people don't have power. So I'm afraid that I'd love the private sector to take it over and allow me go to fishing but I regret to say that that's not possible.
PAUL SOLMAN: A critique on the right has been by giving money to these countries, to countries that don't make market reforms, you put off today, and they're going to have to. In other words, in a sense, without meaning to, of course, the World Bank subsidizes poverty because they don't have to make the tough choices they'd have to make if you weren't there.
JAMES WOLFENSOHN: The first thing you've got to understand is we don't govern these countries. The World Bank assists these countries, and we can give them advice. The second thing is most cases we don't give, we lend. So we have to try and influence the countries on the basis of our experience. And the last thing in the world that I think we're doing is to try and keep them in some sort of methodology in a world which is a post-Cold War world where we have many transition economies, the last thing in the world you could say about the World Bank is that we're trying to keep people back in an area where they're just getting handouts. But that is not our policy.
PAUL SOLMAN: No it, wouldn't be that you were trying to, it would be that by giving the money where the private sector would be tougher about the terms, that is, the private sector would say, hey, look, you have to make those free market reforms before we are going to give you anything, but by doing that you're forestalling that day.
JAMES WOLFENSOHN: Well, that would be true if we were putting it into cigarette factories or into manufacturing or into power projects, which might better be done by the private sector. The fact is that we're set up to try to encourage the private sector to come in wherever it can. We're putting $2 1/2 billion a year into education, $900 million into educating young girls. I don't see a queue of people in the private sector to do that. So these generalizations about us I think are particularly false, and I would say categorically that the aim of the bank is to be a partner with the private sector, and where they can do it, we will help them.
PAUL SOLMAN: All right. Let's take you from the other side. Now the left says for years, for decades, you've been funding these mega projects. It's lined the pockets of politicians, corrupt officials, private sector people, and it's impoverished the economies of those countries in the process.
JAMES WOLFENSOHN: Oh, again, it's another wonderful generalization which can be made, particularly from people that make a living out of criticizing the World Bank. I have now been to 40 countries. And I have seen a number of these projects. I have no doubt that in the past there have been examples of corruption. I can equally tell you I spent the whole morning with a group on what, what we can do in the bank to eradicate corruption because we're dead against it because if we have corruption, we're not going to get money and support. And we've also been criticized for pulling away from some of these mega projects and putting too much into the social sector and into the people. My judgment of the institution after a year here is that we're serving the people and it's the social and human elements that we need to be advocating and supporting in these countries, and you'll see a major shift in the bank in that direction.
PAUL SOLMAN: But do you ever worry that you're--by promoting free markets, free trade and the like, that you are traumatizing countries that just aren't ready for that process and can't make the transition that abruptly? I'm thinking of places like Russia, for example.
JAMES WOLFENSOHN: Yes, I do worry about it, and that's why we're trying to get in each country a country specific strategy and in some cases we'll move quickly, in some cases we'll move slowly. I'm just back from Vietnam, and if the whole of the leadership in Vietnam, if they want to move more slowly, we're not forcing them to move at a pace that is in excess of what we're doing. We're trying to complement them. We're trying to work with them, so that a general election that begins in Washington with a single timeframe, with a single privatization is simply not right today. Whether it was in the past, I can't tell you, but it's not right today.
PAUL SOLMAN: Let's talk about the problems that you face with the U.S. Congress at the moment. The administration has put in a request for about a million more dollars than the Congress at the moment seems willing, or the House seems willing to give. And one of the most contentious elements of that bill or that discussion, argument is the IDA, the International Development Association, which lends to the poorest of the poor.
JAMES WOLFENSOHN: That's correct.
PAUL SOLMAN: And Congress wants to cut that substantially.
JAMES WOLFENSOHN: Right. The real problem in this country is that with Republicans and Democrats alike there is a softening in the interest in terms of our obligations, the U.S. obligations, to international activities. And that is the sadness. That is a terrible sadness because we're losing leadership. And it's not just a moral and social issue. The issue is economic. Half of our growth in exports comes from the developing countries. So even if you have no moral or social feelings in terms of the American worker we are inter-dependent with the developing world, and I wish that could be understood.
PAUL SOLMAN: But American workers think, gee, we're being competed with cheaper wages abroad, and American companies think who needs the World Bank, and you're caught in the middle.
JAMES WOLFENSOHN: Well, I have spoken to many trade union leaders about it too, but the administration and the Republicans will both agree on the statistical examination that 50 percent at least of our export goods in the first five years has come from exports from developing countries, and I think that is--that's not an arguable thing. That's fact.
PAUL SOLMAN: Let me quote from Patty Waldmyer of the "Financial Times," a very interesting article and a tough one who said, "He," you, "manages to sound like a moral crusader"--when the Bank of the 21st century--"What the Bank of the 21st century needs"--pardon me--"is the tough manager." And we've heard over the decades also that the World Bank is pampered, that the--you have too many staff, 10,000 or more--and that it's an unsolvable problem.
JAMES WOLFENSOHN: Well, there are those who think it's unsolvable. I guess if I had, I wouldn't have come here. But the fact is that Patty Waldmyer doesn't work in the bank. There are very few people in the bank that would say I have a soft touch at this moment--in fact, quite the contrary. What we're trying to do here--not just me--but my top management team--is to make the bank totally results-oriented. We're taking it from the concept--the bureaucratic concept of approval of projects to talk about effectiveness because we owe it to our clients and we also owe it to the citizens of this country and other countries to make sure that every dollar that they put into the institution is used effectively. So that's what we're trying to do.
PAUL SOLMAN: Why should you be able to succeed or why can you hope to succeed where your predecessors, distinguished people all, have really failed to, to bring the bank bureaucracy to heal?
JAMES WOLFENSOHN: Well, I have self-confidence, but that's not the only thing. I also have a lot of very good colleagues, and we're putting it, we're nailing it to our mast, and the fact is it has to happen, it has to happen. Because at a moment when there is a decline of interest in development, the only way that we will sustain the interest of the American public and public around the world is to demonstrate that we're the most efficient and effective user of their money in terms of international development. Now, will I succeed? I guess some of the people, "Financial Times" and others, think it's--I think they gave me the benefit of the doubt this week, and maybe "The Economist" says it's not such a good idea, and I don't know what you think, but I must tell you I am very confident that the team can do it and I'm looking forward to it.
PAUL SOLMAN: James Wolfensohn, thank you very much for joining us.
JAMES WOLFENSOHN: Thank you.
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