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Jeffrey Sachs' reform candidacy for World Bank President offers chance to fix the Bank
The World Bank now has its first contested race for the President of the institution in 68 years. Economist Jeffrey Sachs has thrown his hat into the ring, and as of this week has been officially nominated by the governments of Kenya, Malaysia, Jordan, and East Timor.
This is good news for the World Bank and the world, since the Bank has considerable influence in developing countries, especially poor ones, and is badly in need of reform. Sachs is facing an uphill battle: this is an election year, and some of the corporations who make millions off the Bank are also contributors to U.S. political campaigns. President Obama has strong personal and political incentives to do what all his predecessors have done, and appoint a crony who will keep these people happy. The outgoing president, Robert Zoellick, was a former U.S. Trade Representative and also worked for – you guessed it – Goldman Sachs.
For an example of how badly the World Bank can get things wrong, and the consequences, consider this: for about 15 years the Bank made loan agreements to poor countries that required them to charge “user fees” for primary health care and education. Not surprisingly, this practice ended up denying a lot of poor people these essential government services, especially elementary school children in Africa. Then in 2000 a coalition of about 120 organizations went to the U.S. Congress and got a law passed that the U.S. representative at the Bank and other international financial institutions had to oppose such conditions. It took some follow-up – the U.S. government broke the law, supporting such fees in a loan agreement with Tanzania. But someone leaked the World Bank Board meeting minutes and they were caught, leading to another Congressional hearing and finally an end to this terrible practice.
The New York Times reported in 2004 that the Bank’s policy change had brought millions of kids to primary school in Africa. My colleague Robert Naiman, then at the Center for Economic and Policy Research, was deeply involved in this effort and we were very glad to have helped win something that made such a difference in so many people’s lives.
But it was also a battle that should have never occurred. And with better leadership at the bank, as well as more transparency, it wouldn’t have been necessary.
The World Bank also has serious problems with its research. A panel of economists established by the Bank itself to evaluate its research from 1998-2005 offered “substantial criticisms of the way that this research was used to proselytize on behalf of Bank policy, often without taking a balanced view of the evidence, and without expressing appropriate skepticism." But even this review treaded lightly, and ignored some of the worst flaws in Bank research.
In 2003 the World Bank published a report that was timed to get maximum press on the eve of a key U.S. congressional vote on the Central America Free Trade Agreement (CAFTA) and for the tenth anniversary of NAFTA (the North American Free Trade Agreement). It claimed to show that NAFTA had a positive influence on Mexico’s growth rate (which had been, and remains, dismal since the agreement). But the result was shown to be dependent on a data error. The Bank refused to correct this error or even address it, after it was repeatedly and clearly demonstrated in correspondence. To me, this was a serious breach of the ethics of scholarship.
A lot of the damage that the Bank does is by teaming up with the IMF to enforce the Fund’s conditionalities on spending and macroeconomic policy. Although this “creditors’ cartel” has broken down in most middle-income countries, who have decided in the past fifteen years never to borrow from the Fund again, it is still in effect in many poor countries.
New leadership at the Bank could pull the institution away from enforcing harmful conditionalities. It could also have some impact on the Bank’s increasing role in climate change policy: A report last year from a coalition of environmental groups including the U.S. Sierra Club and Friends of the Earth concluded that “nearly half of [the Bank’s] energy lending – more than US$15 billion – [went] to fossil fuels in the last four years.” Clearly the Bank’s priorities should be to promote renewable energy such as solar and wind, as well as energy efficiency.
The Bank could also play a positive role by increased financing of urgent development needs such as health, education, and sustainable agriculture. In these areas Sachs has a proven track record over the past decade. He has played an important role in supporting the Global Fund to Fight AIDS, Tuberculosis, and Malaria, which has saved millions of lives in poor countries. His Millennium Villages project has also provided a significant positive example of how development aid can be used to boost agricultural productivity and health outcomes – an important refutation of the widespread cynicism that helps limit the financing of real, positive development aid. He has also been a strong advocate for debt cancellation in poor countries. Sachs’ 2008 book, Common Wealth, provides one of the best overviews of the interrelated problems of climate change, development, poverty, population and health – as well as a set of concrete proposals for addressing them. This is clearly someone who has the knowledge, ideas, and experience to lead the Bank in a different direction. Sachs has also been a strong advocate of debt cancellation.
As Sachs noted last week, “US officials have traditionally viewed the World Bank as an extension of United States foreign policy and commercial interests. . . . . Many projects have catered to US corporate interests rather than to sustainable development . ..”
In the past four decades just three small countries (Botswana, the Maldives, and Cape Verde) have moved up from the UN category of least developed countries. Part of the reason for this lack of progress is the rich countries’ domination of the international economic order and rules of the game, which makes it difficult for developing countries at all levels – but especially the poorer ones -- to pursue the development strategies that would move them up the income ladder.
A change in leadership at the World Bank won’t remove these structural obstacles. But it could make the World Bank less a part of the problem, and some of its projects more a part of the solution.
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