Sebastian Mallaby
The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations
New York, Penguin Press, 2004
Sebastian Mallaby, the celebrated journalist, has written a brilliant expose of James Wolfensohn, President of the World Bank. The result combines an "embedded" ride with Wolfensohn along with Financial Times reporting and analysis. This book should be read along with former colleague Financial Times editor Martin Wolf's book Why Globalization Works, who gives his views on the disastrous failures of the World Bank - and the institution's uncertain future and why globalization is good for everyone (except the poor).
The book is part biography, part institutional history of the World Bank. It idolizes Wolfensohn. The World's Banker is a delicious account of the intra-management struggles of Wolfensohn with his inherited inbred staff. It should delight those who believe with the author that the Bank should concentrate on building roads, railroads, dams, water and irrigation systems, power facilities and other types of infrastructure. Mallaby (and Wolf) ridicules Bank critics, anti-globalists and often disgruntled and non-representative NGOs as "activists without an off-switch.''
Wolfensohn's success was built on personal connections, on charm and trust and the ability to bend powerful people to some common purpose, or out in out schmoozing. To him, it was all about relationships, and, as Mallaby portrays, he has "an instinctive grasp of people's needs; he understood the human craving to be heard because he felt it so acutely.''
Though Mallaby at times seems mesmerized by the glamour of Wolfensohn's life, he is not blind to his failings - fits of temper, a lack of managerial skill and a desire to please both the proponents and critics of both the bank and often-big development projects. On the negative side, Wolfensohn is so vain that he prefers to shout at his subordinates rather than share credit with them.
In order to bring reform, Wolfensohn is set on removing corruption, assuring that borrowing governments are committed to development, and insuring that poor nations' governments are setting their own priorities. This last issue is the most important theme of The World's Banker and here Mallaby's sympathies are clear: the best way to lift the poor out of their misery is through well-conceived infrastructure development and perhaps the market will take it from there (my italics). While there is some truth to that analysis, poverty issues cannot be solved with infrastructure development alone.
Instead, the book's strongest aspects, its behind-the-scenes-details, make The World's Banker read like a long gossip column. Mallaby also tries to describe the weaknesses of the World Bank as perceived by Wolfensohn and himself, but fails on that count. He fails because his information was from one basic source - 200 interviews of the present and past top management of the Bank plus 20 hours with Wolfensohn. These top managers came from one basic inbred source - the Bank's infamous 'young professionals' who were promoted to management positions by "keeping their nose clean", not making any mistakes that could be placed in personnel files, and allying with whichever president, managing directors, vice president or directors were in vogue. It appears from footnotes and sources that Mallaby avoided interviews of line managers, and, specifically, professional staff members who were in the field on an average of 100 to 120 days a year.
James Wolfensohn wanted the Bank to solve poverty, the goal that his idol, Robert McNamara, had set as his goal. McNamara was intense in his dedication, but private and who, in addition, attempted to live down the Vietnam fiasco. He had a competent Vice President, Bert Knapp, who had sound judgement to ward off his critics. After a huge expansion of the Bank, Wolfensohn was McNamara's choice to succeed him. Neither the US, who determines who the President is at the World Bank, nor were the Board of Directors ready for the younger Wolfensohn who had not "yet proven himself".
Unfortunately, the Bank had to suffer through three Presidents - none of whom knew anything about development. The last of the Presidents was clearly ill and when Wolfensohn found out, he lobbied shamelessly for the position.
Wolfensohn came from a small investment bank of advisers to rich clients. He had no experience operating a bank of 10,000 professionals who financed large and small projects in developing countries.
After Wolfensohn finessed his way through the Clinton White House to get the presidency, he began to put his stamp on the Bank. Wolfensohn's egocentric twisting and turning attempted to resolve what he perceived as its major problems: the perception that the World Bank represented "an arrogant pin-striped suited bank official" who pushed structural adjustment loans¹ to force standardized change to many countries. His other major criticisms included: (I) little contact on the part of Bank management with the constituents of loans; (II) a lack of emphasis of poverty; (III) an unwillingness to tackle the difficult problems of corruption; (IV) a lack of participatory planning; and (V) the role of NGO participation in project preparation, design and implementation. According to Mallaby, he accomplished most of the five points and included the major task of reduction and removal, in some cases, of structural-adjustment loans (although they are now labeled something else), and a return to project loans.
On the other hand, Mallaby presents shifts in the types of lending favored by the Bank as an example of its learning from experience. He points out that the Bank started with the notion that "infrastructure was the route to human betterment." His analysis as to why this was so is at best weak. In reality the Bank's early staff was filled with dedicated professionals and ex-colonials with experience and expertise in infrastructure, agriculture and some industries. Then it moved from building physical capital into building human capital by funding education projects; then, from human capital into social capital by funding projects to improve the quality of institutions. And, very recently, as Mallaby notes, the Bank has partially reverted to its early emphasis on physical capital.
Mallaby's sympathetic portrayal of the Bank contrasts with some of the harsh characterizations of other observers. In his recent book Why Globalization Works, Martin Wolf calls the Bank a "fatally flawed institution," whose source of failures "was its commitment to lending." Describing the situation when he worked at the Bank in the 1970s, Wolf writes: "Every division also found itself under great pressure to lend money, virtually regardless of the quality of the projects on offer or of the development programs of the countries. This undermined the professional integrity of the staff and encouraged borrowers to pile up debt, no matter what the likely returns." The Meltzer Commission, appointed by the US Congress in 1998, made a similar charge in its report. Mallaby, too, alludes on occasion to this pressure to lend, particularly to middle-income countries, but does not give it the importance ascribed by others.
Others put an even less positive spin on the Bank's intellectual journey. In his book The Elusive Quest for Growth, William Easterly - a former Bank staffer - treats the same evolution as a chase after fads that failed to deliver: "We thought that certain objects associated with prosperity in the industrialized world - dams, roads, schools - could bring success to the developing world." The Bank urged governments to embrace "democracy, constitutions, independent judiciaries, decentralization to local governments and other magic bullets. None of them worked."
Other critics pointed to the hardships of structural adjustment and the blindness of a sudden leap to market-oriented programs. While the growth examples were few, the Bank's economists pushed hard on the measures. Developed countries such as US, Canada, New Zealand, Australia, UK, France, and Germany pushed for the poor countries to drop subsidies in agriculture and industry, cut government expenditures, raise interest rates to farmers and industries, remove tariffs of imported goods and commodities, and similar measures which place tremendous burden on the poor.
Hypocritically, the Bank did not point out that these industrial economies had the same or larger subsidies. A few, as in the case of New Zealand and Australia, had dropped subsidies after giving several years of interest free loans to clear their own indebtedness. Of course, this was a subsidy that both countries failed to report. Moreover, most of the other developed economies continue to have higher subsidies, do not have the same high interest rates for their agriculture or industries, and fail to cut their government expenditures. The successful developing countries that had positive growth records, namely the Asian tigers: S. Korea, Thailand, Singapore, Taiwan, and Malaysia, had restricted imports along with high tariffs, heavily subsidized agriculture and industry, high government expenditures and low interest rates for farmers and industry.
Most of the other critics from the developing countries and a few enlightened economists, e.g. Joseph Stiglitz², point to the "disasters" in the major lending programs starting in the later part of 80s, when structural adjustment and eventually market reform, and capital market reform were "forced fed" onto the poorer countries. The move to market reform in the 90s became a "theatre of the absurd" when the Bank advocated market measures, including futures markets, and market reform far further than those in the developed countries. In fact, futures markets were introduced: potatoes in Poland, orange juice in Morocco, and future input supplies in China. The academics and "high fliers" at the Bank who advocated them took them out of text books, and did not consider the infrastructure needed to maintain futures markets, namely: (I) a banking system to allow credit on inventory; (II) a transportation system that would deliver the product or dump the commodity on the door step of the buyer if he did not sell his product, (III) a healthy processing industry which needed to know the cost of the raw material for processing; and (IV) a properly trained trading community who had access to buyers and sellers. The Bank advocated market reform in some countries that were further advanced than the most market oriented developed countries.
The most questionable position by the Bank was in the cases of China and Vietnam which have been added to the success of East Asia. Each openly challenged the Bank by stating that it would not accept a sudden imposition of structural adjustment loans, or the immediate market reforms that caused hardships to Russia and other countries; nevertheless both countries became large recipients of credit from the Bank³.
While the book may not satisfy critics of the Bank, its accessibility and broad scope make it required reading not just for experts on development but for anyone with curiosity about global development, the Bank, and James Wolfensohn.

1) "Structural Adjustment Policies (SAPs) are economic policies, which countries must follow in order to qualify for World Bank and International Monetary Fund loans and help them make debt repayments on older debts owed to commercial banks, governments and the World Bank. Although SAPs are designed for individual countries, all have common guiding principles and features, which induced export-let growth; privatization and liberalization; and the efficiency of the free market. SAPs generally require countries to devalue their currencies against the dollar; lift import and export restrictions; balance their budgets and not overspend; and remove price controls and state subsidies. The Bank's Poverty Reduction Support Credit (PRSC), a lending instrument designed to support implementation of PRSPs, has been created to complement traditional adjustment loans. In fiscal year 2001/2002, roughly 40% of World Bank lending was adjustment lending - 30% for poorer countries that get loans from the International Development Association (IDA). In addition to the PRSP, countries still need a Letter of Intent (LOI) and a Country Assistance Strategy (CAS) spelling out their targets and actions to request IMF and World Bank loans"
2) Stiglitz, Joseph E, Whither Reform? Ten Years of the Transition, Keynote address at Annual Bank Conference on Development Economics, Washington, DC, April 1999
3) Vietnam has only recently joined the Poverty Reduction Program of the World Bank 2003