Affordable Housing Institute : US

As Paul Wolfowitz takes over a World Bank whose staff is skeptical, verging on hostile, the Economist has run a very good special report on what the World Bank is, and a core conundrum it faces:

 

Is corruption political?  Or is it technical?

 

 

Those of us who work in affordable housing know that good affordable housing ecosystems flourish, and new programs can be designed and introduced, only if there is a solid foundation of a market-enabling economy. So corruption, even if it is embedded into the country’s governance and political system, is itself a barrier to progress and a curse of continued impoverishment:

 

That changed with James Wolfensohn, Mr Wolfowitz’s predecessor. It was perhaps his most far-reaching innovation in a tumultuous ten-year reign. In May 1996, he visited Indonesia, where Mr Wolfowitz had been ambassador from 1986 to 1989. The brazen corruption of the country’s ruling Suharto clan irked them both. Mr Wolfowitz broached the issue, albeit politely, as he prepared to leave his ambassadorial post in the country in 1989. Seven years later Mr Wolfensohn was more forthright. “Let’s not mince words,” he said at the Bank’s 1996 annual meeting in Washington, DC, “we need to deal with the cancer of corruption.”

 

To tackle a problem, it helps to measure it:

 

Testing such theories is fraught with difficulty. But the measurement of institutions has made some progress. Dani Kaufmann, at the World Bank, notes an explosion of indicators of good government, most based on business surveys or expert perceptions, that offer measures of accountability, bureaucratic competence, the rule of law, and so on. By sorting and sifting these numbers, he and his colleagues believe that they can derive workable measures of misrule. Precise rankings between countries are not possible, but broad comparisons are, and changes over time can be discerned. Over the past eight years, for example, many governments in Africa have defied the Afro-pessimists (see table), although more have regressed.

 

 

Mr Kaufmann believes he and his colleagues can demonstrate a strong causal link between his indices of sound government and prosperity. If the rule of law in Somalia, for example, were to match even that prevailing in Laos, Somalia’s income would rise two- to three-fold in the long run, Mr Kaufmann estimates.

 

Meanwhile, in some cases good governance can be enforced on a customer country — or a particular investment project within that country — if we are financed a hard asset with a real estate basis:

 

In June 2000, for example, the Bank lent $190m to help finance a 1,000km pipeline from the oilfields of landlocked Chad to the port of Kribi in Cameroon.  But laying the pipe was the easy bit. Much harder is managing the revenues, which threaten to overvalue Chad’s currency and underwrite endemic corruption.

 

 

The Bank’s answer was multi-fold:

 

1.       It insisted that the pipeline revenues be paid into an offshore escrow account.  

2.       About 10% of the money would be held aside for future generations.

3.       The rest would flow to the government’s poverty-fighting efforts under the close supervision of a new body, commonly known as the Coll‚àö¬Æge.

 

Staffed by parliamentarians, judges and representatives from human-rights groups, the Collège was, in effect, a new institution of state. It was soon debating whether to withhold money from the government. Clearly then, even when it is in the business of erecting dams and laying pipelines, the Bank is also often building states and reforming regimes.

 

Thus the bank, by its financial structure, ring-fenced the revenues, tithed a portion of them for long-term benefit, and created a single-purpose vehicle (SPV), in effect a mini-state, onto which could be imposed good governance even if the larger national environment was or went rotten.

 

Concludes the Economist:

 

Some will argue, of course, that foreign aid has been political since its inception. The World Bank owes its existence to America’s strategic commitment to rebuild post-war Europe. And many think the modern aid business and the cold war were twin-born at the moment of President Harry Truman’s inaugural address in 1949. That speech is famous for Truman’s vow to strengthen the freedom-loving nations of the world against the false philosophy of communism.  But in it he also promised to share America’s know-how and some of its resources with those parts of the world threatened by the “ancient enemies—hunger, misery and despair.”

 

 

 

Mr Wolfowitz, of all people, is not one to disavow Truman’s commitment to strengthen freedom. But if the ends Truman sought were deeply political, the means were mostly technocratic. The Bank which Mr Wolfowitz now leads is in a different game. The ends it pursues are primarily technocratic—it wants to fight poverty, not a false philosophy. But the means it employs have to be canny, opportunistic and, yes, political.

 

I stand by my view about Mr. Wolfowitz: I think he’s what the World Bank needs.

 

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