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Sebastian Mallaby, Columnist

World Bank Pragmatism

Wolfowitz's Ideology Fits New Challenges

By Sebastian Mallaby
Monday, March 28, 2005; Page A17

The nomination of Paul Wolfowitz as World Bank president has created two opposing camps. One group stresses his gravitas, experience and listening skills, and it seems to include most people who know the man. The other group recoils from his role as architect of the Iraq war, and it declares that the World Bank will be tarnished by association with American foreign policy and ill-served by a president-ideologue.

But consider another interpretation. Despite the unpopularity of the Iraq war, Wolfowitz's strength is that he'll make the bank a tool of U.S. policy. And if you're going to have an ideology, Wolfowitz has the right one.

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About Sebastian Mallaby

The World Bank is an effective institution partly because it's based in Washington, dominated by U.S.-trained economists and run by a U.S. appointee (although that appointee need not himself have been American). Because of this affinity with the world's most successful society, the bank's advice on how to become a successful society is generally sensible. There may have been problems with the "Washington consensus" -- the package of market-oriented policies urged by the World Bank in the 1980s and 1990s -- but a Tokyo consensus or a Berlin consensus would not have been better.

Thanks to its connections to successive American administrations, the World Bank has played a bigger role than it otherwise would have. Sometimes this has created problems, as when efforts to link aid to good economic policy were undermined by American instructions to finance anti-communist allies. But more often the American link has been productive. The Clinton administration used the bank to help stabilize Mexico and East Asia in the wake of financial crises. It used it to reconstruct Bosnia, Kosovo and East Timor. Indeed, there might not have been a Bosnia peace deal without the World Bank's promise of a reconstruction-aid carrot.

The problem with the Bush administration has not been that it bent the World Bank to its foreign policy. It's been that it often failed to do so. The planning for postwar Iraq might have been smarter if the administration had consulted the bank's experts early. The expansion of U.S. bilateral development aid that President Bush promises would have been more effective if the money had been channeled through the World Bank. If Bush had handed the World Bank presidency to some CEO campaign contributor, this malign neglect might have continued. Now that he's installing a valued lieutenant, cooperation should improve.

What of the Wolfowitz ideology? His nomination has been bracketed with that of fire-breathing John Bolton as U.N. ambassador, but this is ridiculous. Bolton argues that international law and multilateralism constrict the United States and that this on principle is bad. Wolfowitz espouses no such principle. His passion is the advance of democracy, and he's willing to use unilateral tools to get there, but unilateralism is not an end in itself. To strengthen democracy in Eastern Europe in the 1990s, Wolfowitz advocated multilateralism in the form of NATO expansion.

Wolfowitz appears pragmatic on economics as well. His main exposure to development comes from his time as ambassador in Indonesia, which combined miraculous poverty reduction with state intervention; he surely does not believe in privatizing everything in sight. Nor is he associated with the common Republican belief that, because Brazil or China can borrow on private capital markets, the World Bank should on principle stop lending to them -- a principle that would deprive the bank of its strong borrowers and threaten its financial foundations.

So there are some troubling ideologies that Wolfowitz does not share. That leaves the reasonable question: Is a passionate democratizer right for the World Bank? Fifteen years ago the idea would have seemed outlandish; the research consensus held that democracy was actually bad for development, because it takes a hatchet-faced dictator to cut government spending, close inefficient government businesses and eradicate inflation. Taiwan and South Korea in the 1970s; Suharto's Indonesia in the 1980s; China, Vietnam and Uganda in the 1990s: All seemed to demonstrate an "authoritarian advantage."

And yet, over the past decade, our understanding of what drives development has changed. The Washington consensus reigns no longer, partly because it's been successful -- in nearly all developing countries, hyperinflation, rampant budget deficits and other forms of crass economic incompetence are gone. Now a new consensus -- also headquartered, naturally, in Washington -- holds that the chief challenge in poor countries is political. It's to fight the corruption that deters private investment and to create the rule of law.

For this new challenge, democratic virtues such as accountability and transparency are essential, and appointing a passionate democratizer as World Bank president seems less outlandish after all. Amusingly, the cheerleaders of this political new Washington consensus have been mostly left-wingers -- intellectuals such as Joe Stiglitz, the Nobel laureate and former World Bank chief economist, and nongovernmental development activists -- and now these same left-wingers are deploring Wolfowitz's appointment. But anyone who regards Wolfowitz as a wacky far-right ideologue should consider Nicolas van de Walle's new book, just published by the sober and nonpartisan Center for Global Development. It says democratic reforms, especially presidential term limits, should be required as a condition of development assistance.

Wolfowitz should be cautious about pushing this agenda. Although the empirical link between good economic governance and poverty reduction is well established, the link between democracy and poverty reduction remains debatable. It's fair to ask whether, given his naive forecasts about the easy success of Iraqi reconstruction, he can be trusted to be cautious. But if he can avoid hubris, and if he can fight through the thicket of negative perceptions, he may prove a worthy leader for the World Bank.


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