Each year on April Fool's Day a samizdat magazine circulates among World Bank staff. Called Bank Swirled, a play on the title of the recently abolished staff magazine Bank's World, it satirises bank life with Swiftian cruelty. The authors, whose identity is one of this gossip-ridden institution's best-kept secrets, spare no person or policy.
Some of the most savage attacks have been reserved for bank presidents. A couple of years ago, the late, luckless Lewis Preston was the subject of a cruel cartoon which asked: "Where's Lew?" But this year's edition is unusually generous to the present incumbent, James Wolfensohn. Compared with several colleagues, not least his public relations chief Mark Malloch Brown, Jim Wolfensohn gets off lightly.
This is a telling sign for World Bank watchers. It suggests that, after little more than a year in the job, Wolfensohn has won over the staff who for many years considered their first duty to be the defence of the institution against politically appointed presidents. And there is evidence that as well as breaking down the distrust which has corroded the bank for a decade or more, he is laying the ground for some substantial changes.
That bank staff have been so restless for so long might seem odd. They are, after all, an international elite. Their salaries are big and free of tax. Perks are commensurate. Bank staff enjoy high status, especially in smaller countries, where they often wield great influence. The bank's headquarters are in Washington, so parents and children can savour the privileges of American middle class life. Until recently, a World Bank job was a job for life.
What is the bank for?
Part of the explanation for the restlessness is simple. The World Bank and its employees have become confused about their role. One of Wolfensohn's most pressing tasks has been to redefine its mission in a way that makes sense in the new global economy.
The bank's mission is to reduce poverty. It is a giant bureaucracy-with more than 10,000 staff compared with only about 2,000 at the International Monetary Fund. Unlike the IMF with its simple macro-economic principles applicable to all times and places, the bank usually has a substantial contingent of professionals-from agronomists to doctors-based in the countries it is lending to. The bank is, in fact, the world's biggest development agency and a key player in the global economy, lending more than $20 billion a year to poor countries. It is a lifeline to many countries, notably in Africa. Since opening in 1946, the bank has lent over $300 billion to more than 100 countries. With 179 member countries, the bank lends and provides advice for almost any purpose at all.
But times have changed. There has been an explosive growth in private sector finance for developing countries-from $44 billion in 1990 to $167 billion last year. "Emerging markets" are in. Indeed, as more and more countries from Korea to South Africa become internationally creditworthy, the bank's business has stopped expanding. It is, put politely, a mature business.
Even worse, it is a mature business in an unfashionable sector. The concept of "development" is no longer an obvious good; it is increasingly associated with hand-outs which perpetuate poverty, with corrupt rulers who misuse the money and impoverish their people. It has few powerful supporters in the developed world. Britain's aid budget, for example, has remained more or less static in real terms, while declining to its lowest ever percentage of national income.
The bank itself has grown increasingly complex and difficult to manage. The days when it did things like lend money for a road, collect the repayments and watch the country prosper are long gone. The bank also has a public relations problem. Opinion research shows that few people know much about it and fewer still are supporters.
Yet the truth is that the bank has been rather successful. The World Bank was born the International Bank for Reconstruction and Development at the Bretton Woods conference of 1944. It was conceived by the Americans, and embraced by Lord Keynes as one of the pillars of a postwar economic order which would avoid the protectionist blunders that had led to the Depression and the second world war. The other pillars were the bank's dissimilar twin, the IMF and the General Agreement on Tariffs and Trade, now the World Trade Organisation.
Contrary to the claims of some free-market critics who see the bank as the ultimate symbol of corporatism, the bank played a crucial role in the defeat of communism. During the postwar boom the capitalist world experienced an extraordinary burst of prosperity. Fortunes improved most rapidly in developing countries. Their real per capita income has doubled over the past generation. Literacy and life expectancy have also improved dramatically. The bank deserves some of the credit.
The bank's critics
But it has had few bouquets, and in recent years, plenty of brick-bats. On the inside, self-doubt has eroded the staff's morale. On the outside, a motley crew of critics has pecked at the institution's reputation. It mattered little that these critics-environmentalists, free marketeers, socialists, human rights advocates-attacked the bank for very different, even contradictory, reasons. The cumulative effect of the changes in its lending role, the confusion which this generated and the sharp external criticism, combined at the beginning of the 1990s to create an identity crisis. There was a danger that the bank would suffer the fate of the United Nations, to which it is legally linked, and slide into bureaucratic disrepute.
Many of the attacks on the bank have been misconceived. The bank's core business does not depend for its daily operations on taxpayers; it makes loans not grants, and it is very profitable. Despite taking on risks that private investors have rarely been willing to assume, bank projects have a respectable success rate. No borrowing country has ever overtly defaulted on a bank loan (partly because it would be economic suicide to do so). The member countries are all shareholders and the authorised capital of $184 billion underpins the bonds which the bank issues to finance its operations. It typically borrows $10 or $11 billion a year, making it the biggest non-sovereign borrower in the world. The stock of outstanding loans is now so large that the bank could sit back and let the profits roll in for years to come without ever making another loan.
But some of the important charges against the bank have stuck. Despite having a talented staff, the bank was slow to recognise several trends: environmental protection, the changing place of women, human rights. The bank has poured billions of dollars into Africa, yet has little to show for it. The bank was especially slow to recognise the privatisation of the world. The pressure on public institutions to be more open and share information, and above all, the explosive expansion of the private sector, seemed to take it by surprise. The east Asian miracle was as much a mystery to the bank as to everyone else.
Quite often the bank has caught up and made valuable contributions to these debates. Its theoretical work on the environment, for example, went a long way towards defusing the simplistic trade-off between economic growth and ecological balance. The bank led the way among official development bodies in opening up to non-governmental orga-nisations and has become the biggest lender for projects to promote education, women's health, Aids reduction, family planning.
But there was little pattern to these initiatives. Attempts in 1987 and in the early 1990s to reform the bureaucracy to help induce a stronger sense of direction ended in failure. Redundancy schemes, although much needed, further undermined staff confidence in the bank's management and broke the implicit contract that people committed themselves to the institution in return for security.
The Wolfensohn factor
So when Wolfensohn walked into the 12th floor presidential suite at 1818 H Street NW, just a couple of blocks from the White House, on 1st June 1995 he was appalled by what he found. The president's office had prepared a letter for him to send to staff on his first day. He was also given a speech to make to a meeting of selected staff on his first evening. Wolfensohn tore up both. In their place he delivered his own tough, emotional message: the bank had to shape up; this was the last chance to prove its worth; if staff did not like his changes, they could leave.
It was typical of him. Wolfensohn is an unconventional World Bank president. Born in Australia, the son of poor British Jewish emigrants, he is a man of extraordinary drive. Sheer determination got him into the Australian Olympic fencing team. He then qualified as a lawyer, went into investment banking and made $200m. He is a naturalised American, the first World Bank president not to be an American citizen by birth. Despite suffering from asthma and being 62, Wolfensohn's capacity for work is prodigious. A day trip to Moscow, or a midnight meeting, are normal. He loves publicity and, unlike some of his predecessors, relishes being president of the World Bank.
Wolfensohn's strategy has been to win friends. Inside, he has met a huge number of staff individually and in small groups. When a series of focus groups-the first such meetings held in the bank-spewed out criticism of bank management, Wolfensohn accepted the responsibility and answered the criticisms himself. He has doubled the bank's training budget and the first group of staff is being dispatched to business schools around the world. The bank's disparate private sector activities have been co-ordinated under a widely respected senior manager. Staff have been told that the era of bureaucratic buck-passing is over. Individuals will be accountable for how projects perform, and the incentives for promotion will be the quality rather than the quantity of work done. The days of measuring success by the number of loans pushed through the board are gone.
Outside, the changes are just as far-reaching. Wolfensohn's first six months were spent visiting every continent save Antarctica. He is a "relationship" banker who likes to talk to his customers-the poorest countries of the world-and the non-governmental agencies, such as Oxfam and Christian Aid, who have been among the sternest critics of the bank.
Wolfensohn swiftly took some tough decisions such as to abandon the controversial Arun Dam project in Nepal. He has started using the bank's surpluses (about $1.9 billion per year) and, in the teeth of Congressional opposition, has stitched together a replenishment of funds for the International Development Association, which lends to the most destitute countries. Staff charged with liaising with non-governmental organisations have been installed in bank offices in Africa and Latin America.
Recently Wolfensohn had a very public success at the G7 meeting in Lyons, steering through the bank's plan for relieving the most indebted poor countries such as Uganda. He has also ensured that the bank's role gets noticed more, for example in reconstructing Bosnia, the West Bank and Gaza.
No president since the legendary Robert McNamara, who left the bank 15 years ago, has made so great an impact in so short a time. Like McNamara, Wolfensohn has energy, capacity for work, leadership, a "golden Rolodex" of international contacts, and intellectual weight. He also has a short temper, impatience, a tendency to bully, a surprisingly thin skin and unpredictability.
This mixture of charm and aggression can be an acquired taste, and not everyone is being won over. Wolfensohn is hard to satisfy: he complains to aides that the staff are not responding to his efforts. His office seems to expand day and night, which is good for carpenters, but less encouraging for a staff promised easier access to the president. The introduction of a "change management" committee has increased the volume of management-speak without obviously increasing the volume of beneficial changes. While heartily endorsing Wolfensohn's sentiment that the bank's success should be measured by "the smile on a child's face," some sceptical staff ask what the bank is doing differently.
The new world bank
A good deal of Wolfensohn's emphasis in his first year-for example on stressing the primacy of the borrowers' needs-is a continuation of previous initiatives. As the president has discovered to his dismay, the bank remains a ponderously slow bureaucracy, hierarchical and averse to risk. Its structure feels more like the old Indian civil service, on which it was partly based, than the 21st century information age provider of money and knowledge which it must be to survive.
Change has probably been swiftest in Wolfensohn's own field of financial management. He has brought a fresh eye to the bank's balance sheet and spotted several areas where it was underperforming badly. The bank's shareholders-led by the US-have generally been happy to accept his ideas for financial reform, but he cannot expect much support or even agreement from them on anything else. To the extent that they own the bank and have loaded it with their dirty work, such as trying to keep Russia afloat, the shareholders must shoulder much of the blame for the bank's lack of direction.
But the real problem has been the culture of the bank. Like many of the well-meaning citizens and organisations which cluster around it, the bank was part of that distant world which preceded the Thatcher and Reagan era. It is captured in an old photograph in the bank's archives of Eugene Black, president of the bank from 1949 until 1962, surveying a rural development project in Ethiopia. He is wearing a homburg hat and a double-breasted black suit, and exudes paternal solidity. The ethos was public service, a benign state, and technocratic competence rooted in the optimism of the late 1940s that capitalism could be managed in the people's interests.
Thus, when individualism, free enterprise and technological anarchy swept those values away in the 1980s, the bank and its supporters were left high and dry. They knew there was no going back and often admired the new values more than they admitted. But they are still searching for an answer to the question of how to reconcile the new order of less powerful governments and much more powerful private sectors with the old order's values of public decency and social protection.
The most difficult element in this conundrum is the rapid growth of private sector financing for developing countries-those "emerging markets." Many friends and foes of the bank alike see the collapse of barriers to capital movements and the new technological and market capacity of private sector financial institutions to capture world savings, as the writing on the bank's hallowed wall.
They have a point, as the bank is only too well aware. The bank's purpose is to correct market failure-the reluctance of private sector investors to risk their money in developing countries even when decent returns are possible. It has no purpose when the market is working.
But it is still hard for a poor country to borrow money more cheaply than from the World Bank. The advice and expertise which comes with each loan is often much appreciated-although some countries find the bank's long shopping list of conditions covering everything from the rights of women to the probity of civil servants rather tiresome. Very poor countries, especially in Africa and South Asia, still cannot raise money elsewhere and will depend on the bank for years to come. They appreciate their long term relationship with the bank, remembering from the last wave of private sector enthusiasm in the 1970s, that international capital is very fickle. Nevertheless, the prospect of being a parking lot for the world's economic basket cases and an over-capitalised management consultancy is not an appealing future. It also implies an uncomfortably slimmer World Bank.
Wolfensohn is right to identify his first priority as rebuilding coherent support for the bank, inside and out-side the institution. Only then can it formulate a sense of direction suitable for the new world. The exercise is political, appealing to justice and humanity, rekindling the passionate rejection of poverty which laissez-faire selfishness and bank logic-chopping have all but extinguished, while at the same time acknowledging the new role of the private sector and some of the criticisms of traditional development economics.
The stakes are high. More than one billion people survive on a dollar a day, and the ranks of the very poor are swelling. Most staff, shareholders and borrowers are urging Wolfensohn on, hoping against the deadweight of experience that he will succeed where predecessors have failed. Now we must wait to see whether they feel the same way on April Fool's Day 1997.
