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.
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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.

Wolfowitz is surely at fault for failing to insist on recusing himself. Had he dug in his heels at the beginning, there would have been no subsequent controversy. He erred again after that key mistake in dictating terms that were too generous, though certainly not constituting outright corruption. The board's failure was worse: It directed and then subsequently endorsed a bad solution, while accepting (up till now, at least) no responsibility for it. And this is the body that is currently reviewing Wolfowitz's conduct.

Whether Wolfowitz's resignation would be a just outcome is therefore debatable, but it seems clear to me that he must go. He has irretrievably lost control of the Bank. He is no longer capable of leading it, if he ever was.

Put this scandal to one side and ask whether he was doing a good job before, and whether he might do a good job from now on. The answer is no. Allow that the disabling skepticism within the Bank that greeted his arrival was not his fault: Once in his post, Wolfowitz only made things worse.

He brought with him two former administration officials—the notoriously abrasive Robin Cleveland, and Kevin Kellems—to work with him in the top office. I don't think it would be putting it too strongly to say that these two are now despised by most other Bank staffers. Many employees are angrier about those appointments than they are about the pay deal.

Another of Wolfowitz's deputies stands accused of suppressing references to climate change in Bank reports and of moderating the Bank's language on sexual and reproductive health in ways that would appeal to the administration. In the selective execution of his anti-corruption campaign, moreover, Wolfowitz has opened himself to the charge that he is using the Bank as an instrument of American foreign policy—notably, in cutting aid to Uzbekistan (an undoubtedly corrupt regime) because of its government's refusal to let the United States use a military base there, while continuing aid to countless other corrupt governments that are better disposed to the U.S. Aside from the scandal, in other words, it's a pretty dismal record of mismanagement.

And what of Wolfowitz's valuable perspective as a development outsider? The disappointment here is that, as far as the Bank's grand strategy is concerned, he conformed so quickly to type. Instead of thinking smaller, which the Bank needs to do, he succumbed to the Bank's institutional tendencies toward narcissism and grandiosity, traits that his predecessor, James Wolfensohn, had brought to fullest expression.

Fostering economic development is a pretty big job, you might think. But it was too small a goal to satisfy the Bank's ambitions under Wolfensohn (and to some degree under his predecessors as well). Economic growth, according to that way of thinking, is only part, and maybe not a terribly important part, of making the world a better, cleaner, fairer place. Wolfowitz might have tried to strip away some of this accretion of worthy unattainable goals, and to narrow the focus to issues on which the Bank's technical development expertise has real value. If anything, he was doing the opposite.

In the end, whether Wolfowitz should stay at the Bank is not the important question. A better one is whether we even need a World Bank of the kind he and his predecessors envisaged. William Easterly, a former researcher at the Bank, now a professor at New York University and a noted skeptic on prevailing development pieties, notes that the Bank's old monopoly on poor-country lending and advice is gone. Capital markets and huge new charitable foundations have invaded the Bank's terrain. Many poor countries would rather do business with them than with the Bank—and the evidence suggests that they get better results that way. Something for Wolfowitz's successor to think about.

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Clive Crook is a senior editor of The Atlantic and a columnist for Bloomberg View. He was the Washington columnist for the Financial Times, and before that worked at The Economist for more than 20 years, including 11 years as deputy editor. Crook writes about the intersection of politics and economics. More

Crook writes about the intersection of politics and economics.

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