Money to burn

Published 17 January 2005

The World's Banker: a story of failed states, financial crises, and the wealth and poverty of nations Sebastian Mallaby Yale University Press, 462pp, £19.95 ISBN 030010801X

Of all the failed utopias of the 20th century, historians may look back at our war on poverty as the most utopian dream of all. Since the 1960s, more than $1trn of foreign aid has been transferred from the rich world to the poor, yet more than a billion people still live on less than a dollar a day. Economists, sociologists and philosophers can scarcely agree on how to define poverty, let alone what causes it, and yet a vast alphabet soup of organisations exists to fight it. At the centre of this struggle is the World Bank, with its wonderfully utopian mission statement: "Our dream is a world without poverty."

Conceived to help reconstruct postwar Europe, the bank now employs 10,000 professionals in 109 countries and provides $20bn a year in cheap loans to the developing world. In development cir-cles, its intellectual and financial heft is enormous, and often resented: many non-governmental organisations despise it as a tool of US foreign policy that shores up tyrants and creates debt-slaves, while American conservatives regard its loans as a huge bonfire of taxpayers' money.

Sebastian Mallaby, author of an intelligent, provocative column in the Washington Post, has written a fair-minded and favourable book about the bank's recent history. By cleverly marrying history to a biography of James Wolfensohn, the bank's president since 1995, he has produced that rare thing: an amusing, engaging yet serious book about public policy.

On one level, The World's Banker is a "how not to" guide to organisational change. Wolfensohn, a millionaire investment banker who embodies the raging egomania and ravenous ambition typical of the breed, gave the bank "the hand-grenade treatment". Like a Third Way prophet, he hurled private sector jargon ("management matrices", "360-degree peer reviews") at his beleaguered bureaucrats. Unable to share credit and swift to criticise ("You've really fucked this country up!" he screamed at his Indonesian country director during the Asian crisis of 1998), Wolfensohn was soon labelled "The Man Who Broke the Bank". Senior staff left and morale plummeted.

But if people management is not Wolfensohn's forte, his policy instincts prove more interesting. Under his leadership, the World Bank has embraced a range of "soft" development issues - Aids, education, women's rights - and made a concerted effort to work with the NGOs that advocate them. The bank became an early advocate of debt relief, and played a notable role in post-conflict reconstruction in Bosnia. Perhaps most significantly, Wolfensohn fully embraced the finding that unless developing countries have strong institutions and good policies in place, foreign aid to them is wasted. The reformed bank now places a laudable emphasis on building institutions and fighting corruption.

Mallaby's conclusion - that Wolfensohn has produced a better, more effective bank - seems right, and Wolfensohn's impending retirement, forced by the Bush administration, is regrettable. However, on two larger issues Mallaby is less enlightening. First, does the structure of the World Bank really make sense? Despite its new rhetoric of "empowerment" and "listening", it remains very much a bank, whose business is not to give money away but to make profitable loans. Its core clients remain the middle-income countries, which can absorb such loans - the bank's largest borrower is China, even though World Bank loans are tiny compared to private sector lending to China. The bank's core projects remain the large-scale, income-generating infrastructure projects (dams, power plants, pipelines) that earned it so much scorn in the past. As economists such as Jeffrey Sachs have argued, little of the bank's aid trickles down to the poorest people in the world, and key global public goods (such as medicines to treat malaria and Aids) remain woefully underfunded.

Second, how much difference does the bank (or any foreign aid) make? In the past four decades, the world has experienced the biggest fall in poverty since the industrial revolution, but almost all of this has been in China and east Asia, in countries that have spurned much of Washington's neoliberal medicine and for which foreign assistance has been relatively insignificant (less than 1 per cent of China's gross dom-estic product). Ghana, by contrast, has been a model client of the bank since 1984, yet its per capita GDP remains barely above that of war-ravaged Haiti.

Giving aid, in other words, may salve our consciences, but clear links between aid and economic growth remain elusive. As 2005 looks certain to be a year of Messianic pronouncements on poverty from our political leaders, it would be no bad thing if Mallaby's book taught us all a little humility. After all, as a Galilean philosopher coolly warned two millennia ago, "The poor you will always have with you."

Mark Bearn is a doctoral student in history at Yale

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