World Leader

In August, the World Bank redirected nearly a billion dollars in aid to Pakistan from development projects to emergency flood relief. Weeks of heavy rain had left millions of Pakistanis without food, shelter, clean water, or medical care. Media coverage was sparse, and private donors—on vacation? fatigued from Haitian earthquake relief?—few and far between. The World Bank, however, responded immediately to the disaster. While this might seem a natural role for a well-capitalized international institution, crisis intervention has not been the business of the bank for much of its history. The shift in recent years is due in no small part to James Wolfensohn, World Bank president during the tumultuous decade from 1995 to 2005.

The World Bank got its start in 1944, when the International Bank for Reconstruction and Development—which, together with the International Development Association, constitutes the bank today—was founded to help rebuild the decimated economies of Europe after World War II. That mission, vast as it was, is modest compared with the broader one that evolved over time: poverty alleviation in developing countries. Today, the World Bank, which is owned and governed by 187 member countries and has 10,000 employees worldwide, dispenses tens of billions of dollars in loans and grants every year. The challenges of effectively directing this behemoth are amply illustrated in James Wolfensohn’s memoir A Global Life.

Born in a suburb of Sydney, Australia, in 1933, to parents who had left a comfortable existence in London only to encounter financial straits Down Under, Wolfensohn initially seemed to buckle under the pressures from home. It was not until his second year at the University of Sydney that he began to excel. He learned to fence (and competed in the 1956 Olympic Games), went to law school, then moved to the United States to attend Harvard Business School. Wolfensohn quickly learned the ropes of corporate finance and joined the ranks of the banker-titans at Schroders and Salomon Brothers before opening his own advisory firm. In 1995, when Wolfensohn was tapped to head the World Bank, The New York Times described him as “a Renaissance man”: He was a spectacularly successful financier by day, and an accomplished cellist and chair of Washington’s Kennedy Center for the Performing Arts in his off hours.

It was this ambition that landed Wolfensohn at the World Bank. By custom, the World Bank president is an American and the International Monetary Fund’s managing director a European. In 1981, when Wolfensohn learned that he was on President Jimmy Carter’s list of potential nominees for the bank post, he immediately applied for the requisite U.S. citizenship, though he was ultimately passed over for Alden Clausen. In 1994, he discovered that he was again being considered for the bank’s top spot, this time by President Bill Clinton. To hear Wolfensohn tell it, he quietly put out feelers to Secretary of Health and Human Services Donna Shalala and Clinton confidant Vernon Jordan. But according to journalist Sebastian Mallaby’s insightful account of Wolfensohn’s battles at the bank, The World’s Banker (2004), Wolfensohn wanted the job with a “10 million–volt passion” and enlisted every member of his vast network to lobby on his behalf.

When Wolfensohn arrived at the bank, it was under fire from both left and right. By the early 1990s, it had grown decidedly market oriented, reflecting the neoliberal economic orthodoxy (the “Washington Consensus”) of its largest donors, including the United States and Britain. Lending was conditioned on “structural adjustment” programs that prescribed market deregulation and privatization, debt repayment, deficit reduction, and cuts in government spending. Nongovernmental organizations (NGOs), officials in recipient countries, and academics charged, often rightly, that the bank had championed economic growth at the expense of social, cultural, and environmental concerns, and that the costs of implementing its policies frequently resulted in even greater poverty and political instability.

Two weeks into his tenure, Wolfensohn and his wife, Elaine (who joined him on nearly all of his bank travels), embarked on a five-nation sub-Saharan tour, beginning in Mali. On this trip—the first of more than 120 country visits during his two terms—he witnessed firsthand the perverse effects of “debt overhang”: impoverished countries forced to take on new bank loans simply to repay old ones, with nothing for infrastructure projects or social programs. Under Wolfensohn, debt forgiveness became a priority for the bank, made manifest in the Heavily Indebted Poor Countries Initiative, a joint debt relief program with the International Monetary Fund. And, breaking with tradition, Wolfensohn tried to engage the NGOs that railed against the bank. Often these conversations took place in the field, with representatives from high-profile nonprofits such as Oxfam as well as more indigenous environmental and human rights organizations.

Wolfensohn’s forays persuaded him of the futility of supporting kleptocratic regimes in places such as Côte d’Ivoire, Nigeria, and Haiti. Traditionally, the World Bank had avoided the word “corruption” on the grounds that it should stay out of politics, but at the bank’s annual meeting in 1996, Wolfensohn delivered a now famous speech on the “cancer of corruption,” describing it as an enormous obstacle to development and calling for more rigorous measures to combat it. Although there was near consensus on the importance of good governance, the new focus on corruption proved controversial—within the bank as well as outside of it. Some argued that the bank’s standard for corruption was hard to define and selectively applied. Moreover, a hard line on corruption was at odds with Wolfensohn’s drive to improve the bank’s responsiveness to client needs—as defined by the countries themselves. This tension was particularly pronounced in places such as Indonesia, where the World Bank helped to foster extraordinary economic growth and dramatically reduced poverty under the regime of a ruthless and corrupt military dictator.

Wolfensohn also reshaped what he believed was the World Bank’s “relevance” in political and humanitarian emergencies. Historically, the bank had focused on long-term economic development. “For a change of policy,” Wolfensohn explains, “we needed a trigger.” In August 1995, the U.S. special envoy to Bosnia and two other high-level American negotiators died in a car crash outside Sarajevo. President Clinton received the news while vacationing in Jackson Hole the day he was to celebrate his 49th birthday at a party at Wolfensohn’s home there. Instead, the two met to discuss how the bank, which already had a team on the ground preparing for postconflict reconstruction, could help. Even though fighting had not yet concluded, the bank’s team prepared a seminal needs assessment for rebuilding that helped lay the groundwork for the Dayton peace talks that fall. The bank played a similar role in East Timor in 1999, when it established an internal postconflict unit. In 2004, the bank responded rapidly—in concert with the United Nations—to the Asian tsunami, and it was on the ground quickly in crisis-beset places such as Turkey.

Wolfensohn recalls that his “willingness to break eggs” to get things done ruffled feathers, but he glosses over the pace and tone of the shakeup. Career specialists bristled at what they perceived as hubris and naiveté on the part of a brash newcomer. In 1999, when Wolfensohn presented his “New Development Framework”—a unified theory of development according to Jim Wolfensohn—some greeted it with derision. Calls for a more holistic approach to human development—to put poverty rather than economic growth front and center in the bank’s work, to make lending more “participatory” by allowing clients to define their own needs—were hardly new. Ultimately, however, the question of whether Wolfensohn’s articulation represents original, or simply good, thinking about poverty relief is less important than whether what he was doing worked.

In his second term, during which George W. Bush was president, Wolfensohn lacked the kindred spirit and worldview he had enjoyed with Clinton. The new administration was skeptical about the bank’s efficacy, and as the United States grew increasingly unilateralist, Wolfensohn contended with an international board of directors that did not share the American appetite for war in Iraq or protracted engagement in Afghanistan. In 2002 the bank established its first ground office in Afghanistan since 1979, but rebuilding activities were stymied by ongoing conflict, corruption, and a brisk drug trade. In 2003, it was shut out of the Pentagon’s planning for reconstruction in Iraq but was later pressed to help with nation-building. Still, Wolfensohn was buoyed by global enthusiasm for poverty alleviation. An international coalition of nonprofits mounted the Jubilee 2000 campaign for debt relief for poor countries, and the United Nations’ member countries pledged through the Millennium Development Goals to reduce poverty and to improve health, education, and development assistance by 2015.

Since Wolfensohn’s presidency, the global economic crisis has exacerbated entrenched poverty around the world. According to World Bank figures, nearly half of the world’s six billion people stilllive on less than two dollars a day; when factors such as education, health care, and credit access are taken into account, the picture is even direr in some of the world’s poorest places. The Obama administration, which has been occupied with two expensive military conflicts and a number of domestic policy battles, is only now beginning to articulate a comprehensive international development strategy.

In the meantime, under the leadership of former U.S. trade representative Robert Zoellick, the bank has ratcheted up its commitments to crisis locales including various African states, earthquake-ravaged Haiti, and now Pakistan. Many of the additional billions have come from developing countries themselves—countries that are now the engines of global economic growth. In exchange, the bank recently changed its voting structure to give nations such as China (now its third-largest shareholder), Brazil, India, Indonesia, and Vietnam greater say in running the place, and is considering ways to shift the balance of power further, including, quite possibly, the inauguration of a non-American president. Perhaps more than the legacy of any leader (even one of Wolfensohn’s wattage), it is the more prominent role of developing countries in determining bank policy that will redefine the institution: a brave new World Bank for the new economic order.

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Georgia Levenson Keohane writes and consults on social and economic policy. Her work has appeared in Harvard Business Review, The Nation, The American Prospect, and elsewhere.

Reviewed: A Global Life: My Journey Among Rich and Poor, From Sydney to Wall Street to the World Bank by James D. Wolfensohn, PublicAffairs, 462 pp, 2010.

Photo courtesy of the International Monetary Fund