THE WORLD'S BANKER

A Terse History of the World Bank

A week after the Japanese attack Pearl Harbor, Treasury Secretary Henry Morgenthau recruits Harvard Ph.D. Harry Dexter White to design something to stave off a repeat of the economic conditions that led to WW2. In July 1944, with the Normandy invasion still under way, John Maynard Keynes heads a conference of several hundred delegates at the Mount Washington Hotel in Bretton Woods, New Hampshire. The conference establishes an International Bank of Reconstruction and Development — a means of financing the reconstruction of Europe and Japan.1

Its first president, Eugene Meyer, battles the Bank's board and resigns in protest after six months. James McCloy agrees to succeed him only if the board is made subordinate to the president. This is done. McCloy presides over the first loan, of $250 million to France (half what it requested) for reconstruction. This is followed by loans to Denmark, Luxembourg, and The Netherlands. Then the Marshall Plan kicks in its own reconstruction lending, and the World Bank turns to funding the advancement of developing countries. At first it focuses on infrastructure — dams, factories, and such. Later, with the creation of the International Development Association in 1960, it expands its mandate to alleviating poverty by offering low-cost loans. Beginning with George Woods, this mission becomes its primary one. Robert McNamara pushes this to the hilt, determined to attack poverty on every conceivable front. His term is a period of high purpose, but also of overextension as he establishes a department to tackle each facet of the problem, often duplicating similar efforts already in place at the UN or other organizations. In addition, McNamara pushes for "structural adjustment" — using the carrot of low-cost loans to force economic reform on the country. It is a policy unevenly applied, and it has mixed success.

After McNamara come a pair of "laid-back" leaders for the Bank — Bank of America CEO Alden Clausen and retired congressman Barber Conable. Clausen, in fact, is chosen over Wolfensohn, primarily because he was judged by Carter to be acceptable to Democrats and to Republicans, who polls indicated would take the White House in 1980. Conable was tapped by Ronald Reagan five years later, mostly to prevent a European from taking the post. Neither man has any experience with developing countries, and both are less than eager for the job — none more so than Conable, who was content with retirement and hobbies in upstate New York. He tergiversated vigorously and was essentially suckered into the post. This decade of the Bank's history is marked by retrenchment. Left-leaning NGOs attack it for environmental mistakes, and those on the right criticize its financial practices. These detractors are often misguided, but given the non-confrontational style of Clausen and Conable, the result is a defensive posture in which multiple layers of oversight and review slow project approval to a crawl: The typical project takes two years to get started.

Wolfensohn, driven to restore the sense of anti-poverty mission, eagerly seeks the World Bank presidency. He is rejected when McNamara's term ends, but comes back to outmaneuver the front-runner a decade later. After confirmation, he hits the ground running, cuts through the bureaucratic logjams and, in his first year, leads the Bank to its finest hour. He begins with a whirlwind tour of Africa that boosts the Bank's reputation, establishes partnerships with many previously adversarial NGOs, and encourages the leader of the team responsible for the Balkans to prepare a reconstruction plan for Bosnia ahead of the conflict there. That farsighted boldness pays handsome dividends. When NATO finally acts to combat Serbian and Croatian aggression in the former Yugoslavia, the World Bank's plan gives the Clinton administration an ace in the hole, and World Bank staff prove invaluable in the Dayton Peace Accords process.3

There are other successes during Wolfensohn's term, but none so dramatic. Also there are failures, of various kinds and due to various causes both internal and external. One failure is a project to relocate several hundred Chinese farmers from depleted land in Qinghai Province to a nearby, more fertile plot. Qinghai Province happens to adjoin Tibet, then as now occupied and oppressed by the Beijing government. Irresponsible NGOs protest the Bank's project. Despite the facts that the farmers want to move, that there are already Tibetans living in the area, and that the cultural and environmental impacts are shown to be minimal, these grandstanding NGOs carry the day, slowing the approval process until China finally withdraws its request.

Assessments of Wolfensohn

Wolfensohn's management style had its problems. He had intelligence, vision and drive, but was also mercurial, insecure and hot-tempered. He could not delegate, and did not appoint a second in command to back him up until late in his term. He accorded too much importance to his own ideas, tending to neglect those of others; he treated differences of opinion as personal attacks. When the differences involved subordinates, the friction jammed up the Bank's organizational gears and caused several talented leaders to quit in disgust. The effect was similar when outsiders were involved, and the stakes were higher. Although he easily maintained good relations with Clinton's administration, the Bush team was personally and philosophically incompatible. Bush's first Treasury secretary, Paul O'Neill, was openly hostile to Wolfensohn. Both were self-made men; but the blunt, hard-charging former Alcoa CEO regarded Wolfensohn as an ineffective dreamer. Their conflict ended with O'Neill's departure,4 but Wolfensohn's problems with Treasury did not. John Snow, O'Neill's replacement, was "baffled" 5 by Wolfensohn's refusal to lend to U.S.-occupied Iraq until it had a government blessed by the United Nations.

Another internal problem stemmed in part from Wolfensohn's dedication to the principle of "client ownership" of projects. In general, like partnering with NGOs, this was a good thing. No matter how well the Bank plans the development project, it will fail unless the client government is honest, competent, and willing to get behind it. This was not the case with Indonesian dictator Suharto during the Asian currency crisis of 1998. Wolfensohn, against advice of his local staff, was too deferential to Suharto. He also found the Bank in competition with the IMF, a situation which raised his hackles. The result was unnecessary prolongation of the currency crisis.

There were other successes, too — none so dazzling as Bosnia, but solid nonetheless. Mali and Uganda stand out. I think the overall judgement of history will be that while Wolfensohn's success was decidedly mixed, his record at the World Bank contains more hits than misses. He improved its responsiveness to criticism, sped up its decision processes, and broke the defensive posture that relied on structural adjustment and forbid any consideration of debt relief. Despite some missteps and backsliding, he restored the Bank's dedication to alleviating poverty and improved staff morale. Running such a large and diverse institution, while dealing with national leaders of all stripes and chaotic world conditions, is one of the most challenging jobs around. Like anyone, Wolfensohn handled it according to his unique personality and talents. Mallaby sums them up this way:

Wolfensohn was, of course, replaced in 2005 by former Deputy Defense Secretary Paul D. Wolfowitz, a key architect of the Iraq war. Beset by scandal involving placement of his paramour in a top job at the bank, Wolfowitz was forced to resign. He was replaced on 1 July 2007 by Robert Zoellick, previously U.S. Deputy Secretary of State.

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