At the annual meetings of the IMF and World Bank, taking place this weekend in Singapore, a major row has emerged between the Bank’s president, Paul Wolfowitz, and Hilary Benn, Tony Blair’s minister heading the British Department for International Development. Wolfowitz has made fighting developing-world corruption the centerpiece of his presidency of the Bank, and has withheld loans from Congo, Chad, India, and other countries. On the eve of the meetings, Benn announced the withholding of £50 million pounds going to the Bank’s concessional grant-making arm IDA to protest conditions being placed on aid to poor countries. (The British press speculates that Benn may be a stalking horse for Gordon Brown, suggesting the direction US-UK relations may take once Tony Blair steps down.)
Benn’s threat echoes points made by other critics of the World Bank’s new direction. They argue that fighting corruption is only one of the goals of the multilateral organization, and that corruption-linked conditionality is getting in the way of providing aid to the world’s poor. A “zero-tolerance” attitude towards developing-country corruption, given its pervasiveness, would mean that the World Bank will stop lending, period. Wolfowitz responds, quite reasonably, that the poor will not be benefited if aid is “siphoned off into the hands of the corrupt and greedy.” The Bank cannot fail to put conditions on its loans, and he has been working hard in his first year to make those conditions seem less arbitrary.
Laudable as these goals are, the problem is that Wolfowitz is heading an organization poorly structured to lead a fight against corruption. There are several reasons for this.
First, a lot of corruption starts at the top, and can’t be addressed without getting into overtly political issues. The Bank’s articles of agreement explicitly prohibit it from dealing with politics. Its lawyers have pushed the envelope over the past decade by arguing that corruption and bad governance are clearly linked to bad economic performance. (On this, they are largely right.) But the Bank cannot intervene openly to remove corrupt politicians, or cut off countries simply for being undemocratic or unaccountable. China, after all, has been one of its biggest poverty-reduction successes in recent years.
Second, the Bank is structured as a lending and aid-granting institution, and all of its incentives are to push money out the door. Pressure to lend has undermined past efforts to tie loans to good economic policies; like Charlie Brown and the football, it keeps running up for another kick on Lucy’s promises that she will never, ever pull the ball away again.
Third, pressure to move money regardless of performance is vastly increased by lobbying from the likes of Jeff Sachs, Bob Geldorf, Bono, and others to meet the UN’s Millennium Development Goals. The MDGs seek, among other things, to halve extreme poverty and provide universal primary schooling by 2015. Michael Clemens of the Center for Global Development has argued cogently that these goals are both unrealistic and counterproductive, but the pressure to “do something” to end poverty in Africa is enormous. The idea that the Bank will simply sit on loans and aid going to poor African countries until they dramatically improve their governance is itself wholly unrealistic, given this larger political climate.
If an international organization were truly serious about tackling the problem of corruption, however, sitting on aid is precisely what it would have to do. This is why the single most successful effort to spread good governance around the world is the European Union’s accession process. Unlike the Bank and its loans, the EU’s member states are not eager to expand membership in their club. This means that their conditionality is properly back-loaded: no one gets the big plum of EU membership until they have satisfied its governance criteria. This has put countries like Romania, Bulgaria, and Turkey under the gun in a way that the Bank could never do.
The Bush administration’s innovative effort to reinvent aid, the Millennium Challenge Account, could have been structured in a similar fashion, offering grants as a reward only at the end of a long reform process. But it has fallen under the same pressures as the Bank to move money, based on the misunderstanding that it is aid flows rather than aid effectiveness that should be the real measure of success.
I wish Paul Wolfowitz luck in his efforts to push an anti-corruption and governance agenda at the World Bank. There is lots of evidence showing that this is at the core of the problem of poverty. But it is very much an uphill struggle he is waging, where the good intentions of the international community become their own worst enemy.
9 Comments »
I wholeheartedly agree with your analysis, although I hope Mr. Wolfowitz’s efforts aren’t as doomed as you make them out to be.
Third world development is one of my pet issues, and I think the importance of corruption simply cannot be underestimated. Good governance is simply the trigger for everything else: property rights, the rule of law, entrepreneurship, investment, etc.
Your idea of the international community using EU-style incentives to push developing countries to get their act together is wonderful although, as you recognize, sadly unrealistic given the current political climate.
The last thing I want to point out is that even though your criticism of the US government’s aid policy is justified, I would venture that American aid money is more effective than aid coming from most other countries, since public aid is only a fraction of all aid coming from America, and private donors are more careful about how they spend their money.
I’m very glad to see that some of the “big hitters” are now posting on this blog. I used to have it as my home page, but when posts were infrequent, I only checked periodically. If you can continue to have Drs. Brzezinski and Fukuyama posting their thoughts, I will be reading daily (and why not get Dr. Samuel Huntington as well?). Thanks
Am surprised to read here that “The Bank’s articles of agreement explicitly prohibit it from dealing with politics.” I live in Kenya where the World Bank & IMF have, since about 1990, pushed for political reform (through aid freezes and insistence on strucural reforms) alongside other US policy interests.
I also agree that, as you say, at the end of the day these organizations are geared to “push money out the door.”
The World Bank simply cannot impose conditionalities as the EU because the Bank does not have such leverage.
While, the Bank can provide some grant assistance, the EU provides a broader set of incentives that countries and people in such countries are willing to meet.
Acceding to the EU implies to be part of a bigger and more robust structure, which can provide a political, social and security context for a predictable development and governance. Moreover, from the economic perspective, the EU is one of the biggest economic blocks in the world and its functionality is led by strong economies that provide opportunities for growth. Furthermore, from the social perspective, the opportunities for promote citizenship and employment are open, which provides clear incentives to people.
Comment by Pedro E. Sanchez – September 21, 2006 @ 10:32 am
[...] 2) The UK is withholding £50m it had pledged to the World Bank in protest at conditions it attaches to aid. (see here and here). In response to this, Francis Fukuyama comments on Wolfowitz’s “zero-tolerance” attitude towards corruption in developing countries. [...]
Pingback by stillhaventfound.org » Occasional Links 13 – September 29, 2006 @ 10:35 am
Professor, its all as you wrote recently in “After the Neocons.” They, Wolfowitz et al, say the international organizations are fatally flawed, eventhough they sometimes have to deal with them. You have pointed out one of those flaws, which Wolfowitz appears to be taking strident efforts to address.
But, it then comes down to a question of tradeoffs. Do we want to pay the overhead (corruption) to save lives? Develope the third world, etc? Are we more offended by creating kleptocratic billionaries or by not saving the starving children, etc? How much kleptocracy is tolerable? How much looting are you willing to put up with? 50%? 75%?
At some point we all will become neocons, if they survive their other mistakes. But this is not a mistake, only a matter of degree. A trade off will be negotiated, at some point. This is all negotiation even though Wolfowitz would not call it that. It all depends on who blinks first!
Comment by Ed Muller – September 30, 2006 @ 7:29 pm
I agree with you on your analysis of the WB anti-corruption efforts would not amount to anything realistic. Africa and most of the developing world has received all manner of prescriptions to end their chronic poverty chiefly from the Bretton wood Institution: SAPS, PRSPs and now the governance and anticorruption agenda is featuring at the top of the MUST do things for Africa to get herself out of poverty.
What these institutions and the hands that control their purse strings have conveniently failed to do, especially on the issue of corruption, is to address the interdependence of corruption globally. Most of the money siphoned out of the public coffers end up in the western banks to fuel their economies. So much as we are aware that good governance is key for Africa to pull herself from the curse of poverty, the countries in the global north that continue to allow their banks to stash ill gotten wealth from the leaders of the global south should be held with the same wrath that is meted on the corrupt governments of the global south. This may be the way to deal fatal blows to corruption in the global South.
I believe Wolfwitz should take up this challenge. He should not continue to only attack the symptoms of global corruption that may seemingly be more manifested in the South while the truth is we need to address both the supply and demand side of the global corruption.
Comment by Mwathi Mati – October 3, 2006 @ 3:17 am
The governance and development nexus is not a new revelation it seems. I was surprised to find it deep in the text of Rostow’s ‘Stages of Growth’, though I was always told that this book marked the beginning of the now partly discredited ‘investment gap theory’ of development. Development has had a number of fads, each linked to entirely legitimate and credible theories, such as investment gap, and now governance. What continues to undermine development expenditure is the inability of donors to clarify their objectives and discipline their actions. The Prof. is correct that the donor banks have sometimes contradictory objectives between development and “push money out the door”. So too, bilateral donors are hampered by the need to use their money to pursue other foreign policy objectives, whether it be securing markets or undermining governments hostile to the donor country’s interests. I fear that the WB’s noble efforts to strengthen governance may be used as a chance to drive home an ideological line, that will render the whole strategy redundant and eventually discredited. I suspect Hilary Benn and the Brits are right on the money this time.
Comment by Marcus P. New Zealand – October 9, 2006 @ 11:47 pm
While I agree that fighting corruption is critical to development, Mr. Wolfowitz seems to be over-estimating the leverage power of the World Bank. A look at this week’s headlines about Chinese development aid to Africa shows that the World Bank has very little leverage power indeed. Mr. Wolfowitz seems not to understand that, while the fight against corruption is the right fight, it is also a very delicate fight. What corrupt government would choose aid conditioned on giving up its power over aid with no such strings attached?
Comment by alic – October 29, 2006 @ 11:12 am
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