Zoellick to the Rescue ?

Zoellick to the Rescue?

Kenneth Rogoff

Will newly anointed World Bank President Robert Zoellick be able to get the organization back on its feet after the catastrophic failed presidency of Paul Wolfowitz? Although hardly a megawatt star of the Bob Rubin category, he certainly brings some positive attributes to the job.

First, as a key player in bringing China into the World Trade Organization, Zoellick is a proven internationalist in an American administration where internationalists have sometimes seemed like an endangered species. Second, he is a firm believer in the power of markets and free trade, which have clearly done far more to alleviate poverty over the past half-century than any aid program. Third, he seems to have been a consistent behind-the-scenes supporter of the Bank, whereas many of his Bush administration colleagues would be just as happy to see it shut down and its Washington headquarters turned into private condominiums and offices. So presumably he has a constructive vision for the Bank’s future.

But Zoellick is not without his weaknesses. First and foremost, his appointment extends the embarrassingly outmoded practice of always installing an American in the job. With the Bank tirelessly preaching the merits of good governance, its failure to adopt democratic principles undercuts its own legitimacy. The claim that the World Bank needs an American president to ensure that the US keeps donating money is ridiculous. The annual cost of the US contribution to the World Bank, even taking into account off-the-books loan guarantees, is relatively minor. Any number of developing countries, from China to India to Brazil , could easily step up if the US foolishly stepped down.

Zoellick’s background as a lawyer hardly makes him perfect for the job, either. The World Bank presidency is not about negotiating treaties, as Zoellick did when he was US Trade Representative. The Bank’s most important role in development today is as a “knowledge bank” that helps aggregate, distill, and disseminate best practices from around the world. In this respect, the Bank’s technical assistance to governments is very similar to what private consultants offer to companies.

Moreover, many of the World Bank president’s most important decisions involve economics in an essential way. Wrong economic decisions, such as in the 1970’s, when Robert McNamara pushed grandiose, but environmentally devastating, infrastructure projects, have haunted the Bank for decades.

The biggest question mark, though, is whether Zoellick will be able to hit the ground running and implement desperately needed reforms. Reform number one, of course, is to ensure that the next World Bank President is not an American. Rodrigo de Rato, Zoellick’s counterpart at the European-dominated International Monetary Fund, has already suggested that his successor should be chosen in a more inclusive process. The World Bank should be ashamed that its president has not yet offered a similar proposal.

Second, Zoellick should ask why the Bank spends only 2.5% of its budget on the “knowledge bank” research function that it trumpets so proudly in its external relations materials, while it spends three times that amount on maintaining its executive board.

Third, Zoellick should use his formidable negotiating skills to cajole rich countries into greatly increasing the grant component of World Bank aid. The idea that a big government-guarante ed global bank is needed to fill holes in private capital markets is laughable nowadays. True, the Bank’s poorest clients have little access to private capital markets. By and large, however, the poorest countries need grants, not loans that they still won’t be able to pay in 20 years.

As the Bank switches from loans to grants, it can use some of its massive retained earnings to endow its “knowledge bank” function and related technical advice. But all this knowledge shouldn’t be free. A lot of technical advice falls on deaf ears, with countries listening only long enough to get their hands on Bank money. Instead of merely pushing its agenda, the Bank should start charging for its technical advice on a graduated scale so that more of its engagements are client-driven.

Last but not least, the Bank needs to play a much bigger role in environmental issues and, in general, in promoting good international citizenship by both rich and poor countries. (Some of us have been proposing this for almost two decades.)

Of course, Zoellick could just attempt to fill the role symbolically and do little or nothing, as some of his predecessors have done. Or, less likely, he could embrace some megalomaniacal and over-reaching vision of government intervention, as others have tried. In any case, let’s wish him luck. The world needs the World Bank a lot more than it needs another condominium.

** Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF.