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Right Turn
Posted at 11:00 AM ET, 03/25/2012

What should the World Bank be?

The Post reports:

President Obama on Friday nominated Dartmouth College President Jim Yong Kim to head the World Bank, turning to a physician and public health expert to run an organization traditionally led by heavyweights from the world of finance or politics . . . . Nominating a public health expert as well as the first Asian American for the post could counter frustration among developing countries over the United States’ historical hold on the World Bank presidency. Under a decades-old agreement, the United States — as the bank’s major contributor — names the president of the bank, while the major European nations appoint the head of the International Monetary Fund.

Some found him perfectly qualified — for another job. (“he is superbly, supremely, unarguably qualified to head the World Health Organization”).

But I think Obama got precisely the guy he wanted. He is the right man; It is the World Bank that is going to change if the president gets his way. Th Post explains:

The World Bank provides development aid and loans for poor and still-developing countries, although its role in global finance has been shrinking in an age in which private money moves more freely, and emerging powers such as China and Brazil have little trouble borrowing.
A product of the post-World War II reconstruction of Europe, the bank’s roster of countries that qualify for development aid is expected to dwindle in coming years as nations progress — a perfect time, some say, for a reevaluation of what the bank can do best.
“It’s time for a development professional to lead the world’s largest development agency,” Obama said at the announcement as Kim, Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy F. Geithner, a Dartmouth graduate, stood beside him. “Ultimately, when a nation goes from poverty to prosperity, it makes the world stronger and more prosperous for everyone.”

In other words, no more World Bank. It’s the World Development Agency! That has already raised eyebrows among supporters of the current World Bank. (“‘The World Bank has to be more than just another good aid agency,’ said Nancy Birdsall, president of the Center for Global Development. ‘It has to take leadership on issues of pricing, markets, weak institutions . . . on the fact that a whole bunch of middle-income countries don’t look to the World Bank for money.’ ”) Too bad. Banks are out, and aid may be in.

There are a couple of problems with that. First, the United States already contributes billions (e.g., through USAID, private foundations, individual charitable giving) from public and private sources for international aid and assistance. Why do we need the World Bank if it is simply going to duplicate that but without U.S. controls?

Moreover, it’s very possible we’ve been going about this all wrong. After all we’ve spent billions, if not trillions trying to alleviate world poverty, and there is an awful lot of it still. In a new book, Why Nations Fail , economists Daron Acemoglu and James A. Robinson, according to a book review in the Wall Street Journal, found: “[I]t is institutions that determine the fate of nations. Success comes, the authors say, when political and economic institutions are ‘inclusive’ and pluralistic, creating incentives for everyone to invest in the future. Nations fail when institutions are ‘extractive,’ protecting the political and economic power of only a small elite that takes income from everyone else.” In other word, if you want societies to get out of poverty it’s not going to be billions in water reclamation projects that do the trick. Rather, you want “property rights, contract enforcement, ease of starting new companies, competitive markets, and freedom for citizens to enter the occupation and the industry of their choice.” Giving billions to despotic and corrupt regimes may actually set back progress. “Extractive political institutions support the economic institutions that protect the interests of the elite against new entry from competitors. The wealth of the elite so created can make the hierarchical, authoritarian state even larger and more repressive, increasing elite wealth even more.”

I wonder if Dr. Kim has a copy of the book. If so, he might come to the conclusion that “[e]xperts cannot engineer prosperity with the right advice to rulers on policies and institutions. Rulers ‘get it wrong not by mistake or ignorance but on purpose.’ Change happens only when a broad coalition revolts, forcing the elite to allow more pluralistic political competition (e.g., the Glorious Revolution in England, the Meiji overthrow of Japanese feudalism and Botswana’s democratic ouster of British colonizers).”

Now, unfortunately, of late we haven’t been all that good at promoting democratic capitalism, either. But before we allow taxpayers’ dollars to go to a World Bank that is transformed into a jumbo development agency, maybe we should try to figure out if that’s helping or hurting and which type of aid (yes to democracy promotion, no to grandiose building projects?) actually work to decrease poverty.

By  |  11:00 AM ET, 03/25/2012

Categories:  Economy, foreign policy, President Obama

 
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