Wealth of Nations May 2007

A Small Scandal and a Big Question

Paul Wolfowitz has only made things worse at the World Bank. He has irretrievably lost control.

When somebody first said to me, "Have you seen that they're making Wolfowitz head of the World Bank?" I thought it was a joke. The possibility had been rumored—but mainly for laughs, or so I supposed. Not for a second did I believe that the administration would do it. Sending John Bolton to the United Nations was a gesture of conciliation to America's friends and allies compared with giving Paul Wolfowitz, principal architect of the Iraq war, the top job at the World Bank.

By custom—long overdue for change even before this debacle—the United States chooses the head of the World Bank and Europe's governments choose the head of its sister organization, the International Monetary Fund. The process of appointing a leader is intended to be consensual, and if you think these institutions serve a useful purpose (a point I'll come back to), you will understand that they need willing cooperation among their financial and political backers.

Most of the Bank's funding comes from Europe, in fact. If its head cannot get along with the European directors—if he is appointed, as Wolfowitz was, not merely despite their deep misgivings but in a way they can only construe as a deliberate affront—that makes it harder for him to do a good job. And harder still, if the Bank's staff, drawn from all over the world, is even more dismayed and dispirited by the appointment than the non-U.S. directors are.

However you look at it, appointing Wolfowitz was a gamble. He had no experience as a development practitioner, in finance, or in line-managing a bureaucracy of remotely this size and complexity. And, most of all, he arrived as one of President Bush's closest and most controversial foreign-policy advisers.

So giving him the job was risky—though not necessarily crazy. Wolfowitz is an able and, contrary to his image, compassionate and likable man.

There was a case, to be sure, for appointing a leader from outside the development community to take a fresh look at the management of the World Bank. And it was a big plus that he would presumably be on good terms with America's political leadership, something that previous Bank heads have not been able to take for granted. It was wrong to write Wolfowitz off from the outset—as many people did, both inside the Bank and out. Much of what has happened since is about those instant critics, never willing to give the man a chance, seeking vindication. It was an unattractive thing to watch.

But the point is, who can deny that they have been vindicated?

Given the controversy of the appointment and all the sensitivities aroused among the Bank's staff and its non-American official backers, and given that Wolfowitz vowed to make fighting corruption a main theme of his command, it beggars belief that he allowed himself to be implicated in a petty corruption scandal. True, when you look at the details of the story, the charge of outright rule-breaking, which is the accusation leveled by many of his staff, appears to be false. But his judgment, given this fraught context, has surely been lamentable.

To review the now-familiar facts, shortly after arriving at the Bank in 2005, Wolfowitz arranged for his girlfriend, who already worked there, to be reassigned to the State Department, to receive a big salary increase (from about $130,000 to more than $190,000) at the Bank's expense, and to be given assurances about future pay and promotion that were, at the least, out of the ordinary. By themselves, however, these bare facts are misleading.

As Wolfowitz's few defenders insist, he drew the Bank board's attention to a possible conflict of interest and asked to recuse himself from all decisions concerning his girlfriend's pay and employment. A committee of the board responded by instructing that she should work elsewhere as long as Wolfowitz was at the Bank, and that Wolfowitz should personally oversee the arrangements. It said that if she left on reassignment (as she did) she should receive a pay raise, because she was short-listed for a promotion, and indicated that further raises and advancements would be justified to match what she might have expected to get had she stayed. Wolfowitz's deal penciled in those further raises and promotions.

Make no mistake, taken as a whole, this settlement was generous—and certain, once public, to cause an outcry among Bank staff, who are, in my experience, more than usually preoccupied with issues of seniority, pay, and benefits. But remember, as The Washington Post pointed out in an excellent editorial on the subject, that the board committee came back to the subject months later, after receiving a complaint from a staff member—and the committee then endorsed the agreement. If there is a failure of governance here—and there is—the blame rests at least as much with the Bank's board and its committee as with Wolfowitz himself.

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