In defence of Wolfensohn

["Michael Keaney" <Michael.Keaney@xxxxxx>]

LETTERS TO THE EDITOR: Better to have the new World Bank than the old
one

Financial Times, Aug 31, 2001
By JOSEPH STIGLITZ

>From Prof Joseph Stiglitz.

Sir, After reading Stephen Fidler's article on the World Bank ("A world
of complaint", August 28) I
still do not quite understand what his point is. Virtually everyone,
even the people now complaining,
agrees that the way the World Bank was doing business had to change.
Would Mr Fidler really rather
see a return to the bad old days when the bank spent much of its time
funding big dams and bridges
regardless of the effects on the environment?

It may be that the bank has become too fluffy in some ways but the
alternatives are far worse. Surely it
is better for the World Bank to consult with non-governmental
organisations then to rely only on the
opinions of government officials who in many countries were not
democratically elected and do not
speak for the people they purportedly represent. Even if such
consultation does not help development
happen faster, talking to a range of groups about how they want their
society to develop is the right
thing to do. Even if it were not, pushing programmes that lack mass
support simply does not work, as
many studies have shown.

Bankers and businessmen in the developed world would love to see
structural adjustment programmes
foisted on the people of the developing world. Of course Wall Street
believes in capital market
liberalisation. But there is little evidence that this really
contributes to economic growth although the
downside risk is enormous, as we saw in the 1997 Asian crisis. There is
no sensible reason, ie one
backed by solid research, to push these sorts of "reforms" even though
financial types love to feel they
are bringing "market discipline" to countries in trouble. Markets are
the key to long-run success but
creating a market-friendly environment entails more than mindless
deregulation: it requires, for instance,
competition policies, strong and well regulated financial institutions,
an environment that is conducive to
the transfer of new technologies, governments that are not corrupt - all
issues that were ignored by the
old World Bank but are central to the thinking of the new one.

There is still a lot to be done. The allocation of voting rights to
member countries is grossly unbalanced
and the views represented in the bank are more closely aligned with
finance ministries than with a
broader swath of society. There is far less openness and transparency
than there should be in a public
institution.

But no one said the World Bank could become perfect overnight. While the
narrow focus of the old
bank did not work, at least the more comprehensive approach of the new
bank has raised the right
issues. Transformations are always hard and mistakes are often made
along the way. But Jim
Wolfensohn should be given credit for trying. Blaming him for a drop-off
in foreign direct investment as
Sebastian Edwards, quoted in the article, seems to do, is simply
ludicrous.

There are many alternative views about how best to proceed with
development. The World Bank
should present the options and countries should democratically decide
what they want to do.

Joseph Stiglitz, Professor of economics, Columbia University

Full article at:
http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=01
0831001446

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx