Six Questions for Walker Todd on Paul Wolfowitz and the World Bank

By Ken Silverstein

Walker Todd, an attorney and economic consultant, is a visiting research fellow and instructor at the American Institute for Economic Research in Great Barrington, Massachusetts. Between 1985 and 1994, Todd was assistant general counsel and research officer at the Federal Reserve Bank of Cleveland; before that was an attorney in the Legal Department of the Federal Reserve Bank of New York. Todd has been on four World Bank country missions and in 2004 organized a conference on World Bank and IMF reform. I spoke to him by phone yesterday about Paul Wolfowitz's tenure at the World Bank.

1. Should Paul Wolfowitz be fired as head of the World Bank?

I don't think he deserves to be fired because of his role in seeking a raise for his girlfriend, but he is in a situation where, politically, it's impossible for him to stay. There's a lot of hypocrisy on the part of some of his critics from foreign governments, who are saying that he has no credibility on corruption because of all this. This is pretty petty and their corruption is grand. But because of the relationship with his girlfriend, it's impossible for him to prosecute an anti-corruption campaign, so he needs to go.

2. Wolfowitz's supporters credit him with initiating an anti-corruption drive at the Bank. How successful has he been?

Anti-corruption initiatives at the Bank started under Wolfowitz's predecessor, James Wolfensohn. He scaled back aid to Asian countries that were notorious for corruption, such as Indonesia and the Philippines. Wolfensohn also had appointed an excellent anti-corruption czar, Masood Ahmed. Wolfowitz named his own anti-corruption official, someone he brought with him from outside of the Bank and who was not able to be effective. To his credit, Wolfowitz did try to target corruption in Africa, but it's too early to know if his initiatives will bear fruit.

3. Wolfowitz cut off loans to Uzbekistan over the corruption issue. Are there other corrupt regimes that have been spared a loan cut-off, and if so, has politics played a role there?

It's a fair criticism to say that he's been inconsistent in the application of anti-corruption measures. In Uzbekistan, the World Bank became more rigorous only after the government threw out the United States from military bases. That made it seem as if a country's relationship to the United States foreign policy apparatus was more important to the World Bank than how that country was delivering on internal reforms and good governance. Wolfowitz should have known that he needed to be careful about creating the perception that he was a tool of American foreign policy. People never accused Wolfensohn of that, yet it was a trap that Wolfowitz walked into and didn't seem to care much about. Wolfowitz has a certain arrogance. He's an adherent of Leo Strauss, and the Straussians are an odd bunch—their school of thought is “Jeremy Bentham meets the Plato of Plato's Republic on a bad day.” They believe in government by the elite, ostensibly for the greater good, but the elite decides what the greater good is.

4. What accounts for the Bank's general failure to help the poor?

For years, the way you got ahead at the World Bank was to disburse loan money come hell or high water. So the money went out the door, no matter whether it was likely to get stolen or not. It should be a development agency, but it operated like a commercial bank. Many of the projects it funded were not well thought out—the Aswan High Dam in Egypt, for example, and the Three Gorges Dam in China (Update: the World Bank initially voiced support for the Three Gorges project but backed out in the face of criticism). Only in recent years did it begin to take seriously initiatives like micro-credit and direct lending to the poor.

5. Who has benefited more from the Bank's programs, First World countries or Third World countries?

In the 1980s, when the Third World debt crisis emerged, the bulk of the World Bank's lending efforts were aimed at propping up countries that were having trouble paying off their loans to foreign banks. The Bank made what it called “structural adjustment loans,” which were used to finance massive layoffs and early retirement of civil servants. It was really just a euphemism for a bailout for First World banks, so structural adjustment was very helpful to banks in New York and London, but didn't do much good for the average citizens of developing countries. Other major beneficiaries have been First World contractors who provide the goods and services that World Bank money pays for—somebody has to sell all the cement for all those dams—and First World consultants who are paid to provide technical advice. Big beneficiaries in the developing world are the local elites—the bright young lads and ladies who get good jobs and career opportunities at the Bank.

6. How should the World Bank be reformed?

It should gradually transition from being a lending institution to a grant-making organization. Critics say that over time that means the Bank would go out of business, since it would eventually run out of money. That answer to that is, “So what?”