The poor need a better World Bank

The attacks on Wolfowitz only put on display the bank's smaller role and need for reform.

from the May 21, 2007 edition

Rich-nation taxpayers who care about the world's poor ought to ask if they still get their money's worth from the World Bank. For months, the bank's inherent problems have been on display as its board and staff attacked its president. Last week, Paul Wolfowitz finally had to resign.

The bank was on trial as much as he was. The confrontation only opened the world's eyes to the smaller role the bank now plays in fighting poverty. Indeed, since the bank's beginning after World War II, many other ways of helping the poor have developed and shown their worth.

Private aid from nongovernmental organizations and religious groups, as well as big-money philanthropy and "social" investment funds, are now effective in supporting such ventures as education or water projects.

Many bilateral aid programs are larger, and lately they have rewarded only nations that are well governed. Regional finance institutions, such as the Asian Development Bank, are more sensitive to local needs than their bigger sister.

And aid recipients are themselves growing stronger. China and India alone, after turning toward open markets, have uplifted a third of humanity in their populations.

Most of all, global capital markets are more able to give high-risk loans to poor nations. The World Bank's annual outflow of about $22 billion is minor compared with the nearly half-trillion dollars in private capital flows to poorer nations in 2005. More than half of the bank's money has gone to "middle income" countries, while its rich members are more reluctant to give to the bank's grant program.

The bank's thousands of employees, of course, are well experienced in fighting poverty. That talent should not be lost. But their work is diminished by internal conflicts and bureaucratic lethargy, bred in part by outsized salaries.

Most of all, the bank's executive board remains at odds over the bank's future.

That was made clear in disputes over Mr. Wolfowitz's policies during his two years at the helm – and in how the board advised him in promoting his companion at the bank and how it pushed him into resigning over the incident. In the end, the board had to accept that Wolfowitz, who admitted mistakes, had not acted unethically or in bad faith in the incident. But his reputation as well as the bank's has been severely injured.

This debacle has prompted a probe of the bank by the US House, and the US and Europe remain at odds over how to select a new bank chief. All this, and the bank's diminished role, calls for wholesale reform, with a special need to be vigilant about the Wolfowitz campaign against corruption in poor nations.

It's tricky business to aid the world's poorest when a nation's leaders are corrupt. Some countries prosper overall despite rampant corruption. But many of their poor often lag far behind. In a few countries, new wealth only creates a disparity that breeds resentment, and sometimes terrorism.

If anything positive can come of Wolfowitz's exit, let it be a root-and-branch rethink of a bank that's proved its worth in the past but needs to prove it again to have a future.