America’s Perverse Control Over The World Bank: Joseph Stiglitz

April 11, 2012International Organizationsby Joseph E. Stiglitz

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America’s Perverse Control Over The World Bank: Joseph Stiglitz

Rumours suggest that the US is likely to insist on maintaining the perverse selection process in which it gets to pick the World Bank’s president. But while Jim Yong Kim may be a good candidate, no single country should effectively decide who gets the job. Should America continue to insist on controlling the selection process, it is the Bank itself that would suffer.

NEW YORK – US President Barack Obama’s nomination of Jim Yong Kim for the presidency of the World Bank has been well received – and rightly so, especially given some of the other names that were bandied about. In Kim, a public-health professor who is now President of Dartmouth University and previously led the World Health Organization’s HIV/AIDS department, the United States has put forward a good candidate. But the candidate’s nationality, and the nominating country – whether small and poor or large and rich – should play no role in determining who gets the job.

The World Bank’s 11 executive directors from emerging and developing countries have put forward two excellent candidates, Ngozi Okonjo-Iweala of Nigeria and Jose Antonio Ocampo of Colombia. I have worked closely with both of them. Both are first-rate, have served as ministers with multiple portfolios, have performed admirably in top positions in multilateral organizations, and have the diplomatic skills and professional competence to do an outstanding job. They understand finance and economics, the bread and butter of the World Bank, and have a network of connections to leverage the Bank’s effectiveness.

Okonjo-Iweala brings an insider’s knowledge of the institution. Ocampo, like Kim, brings the advantages and disadvantages of being an outsider; but Ocampo, a distinguished professor at Columbia University, is thoroughly acquainted with the World Bank. He previously served not only as minister of economics and finance, but also of agriculture – a critically important qualification, given that the vast majority of the developing countries’ poor depend on farming. He also brings impressive environmental credentials, addressing another of the Bank's central concerns.

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Both Okonjo-Iweala and Ocampo understand the role of international financial institutions in providing global public goods. Throughout their careers, their hearts and minds have been devoted to development, and to fulfilling the World Bank’s mission of eliminating poverty. They have set a high bar for any American candidate.

Much is at stake. Almost two billion people remain in poverty in the developing world, and, while the World Bank cannot solve the problem on its own, it plays a leading role. Despite its name, the Bank is primarily an international development institution. Kim’s specialty, public health, is critical, and the Bank has long supported innovative initiatives in this field. But health is only a small part of the Bank’s “portfolio,” and it typically works in this area with partners who bring to the table expertise in medicine.

Rumours suggest that the US is likely to insist on maintaining the perverse selection process in which it gets to pick the World Bank’s president, simply because, in this election year, Obama’s opponents would trumpet loss of control over the choice as a sign of weakness. And it is more important for the US to retain that control than it is for emerging and developing countries to obtain it.

Indeed, the more powerful of the emerging markets know how to live within the current system, and they may use it to their advantage. They will, in effect, obtain an IOU, to be cashed in for something that is more important. The Realpolitik of the moment makes fighting over the presidency unlikely; America may well prevail. But at what cost?

Should America continue to insist on controlling the selection process, it is the Bank itself that would suffer. For years, the Bank’s effectiveness was compromised because it was seen, in part, as a tool of Western governments and their countries’ financial and corporate sectors. Ironically, even America’s long-term interests would be best served by a commitment – not just in words, but also in deeds – to a merit-based system and good governance.

One supposed achievement of the G-20 was an agreement to reform the governance of the international financial institutions – most importantly, how their leaders are selected. Since expertise on development by and large lies within the emerging and developing countries – after all, they live development – it seems natural that the World Bank’s head would come from one of those countries. To maintain a cabal among developed countries, whereby the US appoints the World Bank president and Europe picks the International Monetary Fund’s head, seems particularly anachronistic and perplexing today, when the Bank and the Fund are turning to emerging-market countries as a source of funds.

Related: Will Second-Best Solutions Lead To A Second-Rate World? : Mohamed El-Erian

Related: A New Economic Disorder – When Old Western Powers & Emerging Markets Clash: Mohamed El-Erian

Related: Can The Growth of Emerging Markets Outpace Developed Markets?

While the US, the international community, and the Bank itself repeatedly emphasize the importance of good governance, a selection procedure that de facto leaves the appointment to the US president makes a mockery of it.

Okonjo-Iweala put the matter forcefully in an interview with The Financial Times: what is at stake is a matter of hypocrisy. The integrity of the advanced industrial countries, which have a majority of the votes at the World Bank, is being put to the test.

By Joseph E. Stiglitz

Copyright: Project-Syndicate, 2012

Joseph Eugene Stiglitz is a professor at Columbia University and the recipient of the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979. Stiglitz has authored numerous books including Freefall: America, Free Markets, and the Sinking of the World Economy (2010), Globalisation and its Discontents (2002) and Making Globalisation Work (2006). Learn more about Joseph E. Stiglitz and his work at EconomyWatch.com.

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