That Other Dubya
BY GABRIELA BOCAGRANDE
The Worlds Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations By Sebastian Mallaby Penguin Press 462 pages, $29.95
he first and most basic of Sebastian Mallabys many deceptions in his book, The Worlds Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations is his acceptance of the World Banks stated mission at face value: Fighting poverty with passion and professionalism. Once he slips this one past, early on in his tale of the Bank and its president James Wolfensohn, everything else logically follows. But the poverty-fighting bit is the public relations campaign of the World Bank under Wolfensohn and not its real purpose. It is important to know the difference. The World Bank is, after all, a bank: It makes money for its donors and owners or it ceases to exist. Unlike commercial banks, however, the World Bank is an intergovernmental institution and does most of the bidding of its corporate sponsors indirectly, so you have to be more creative about ferreting out what its up to. It is these intereststhe many powerful corporations that have benefited so handsomely from Bank policies and projects around the world for such a long timethat are so conspicuously absent from Mallabys book. Its rather like someone who has written an account of McDonalds by focusing exclusively on the ditty, Im lovin it. During the past few weeks, we have had a chance to learn a great deal about the writing of The Worlds Banker because Mr. Mallabywho is fairly sophisticated in the PR department himselfhas been chasing all over Washington flogging the book at any think tank that will have him. On December 10th, for example, he was live on stage at the libertarian Cato Institute, speaking from the podium of its plush auditorium. The World Bank president, he said breathlessly, is not a boring guy. He made north of $100 million on Wall Street, fenced in the Olympics, and played the cello with Yo-Yo Ma at Carnegie Hall. Not boring at all. This is true. Mr. Wolfensohn is a wealthy and interesting man. And Mr. Mallabys book about Wolfensohns tenure at the World Bank is not boring, either. But do you know what is boring? Poverty. Poverty is extremely boring. If you are poor, you may spend entire days staring into the middle-distance while your bawling infants drive you insane. It is just ghastly. Perhaps it is the dreadfully boring quality of poverty that inspired Mr. Wolfensohn to fight it and Mr. Mallaby to write this superficial book about him; both the subject and the author of The Worlds Banker are men who have mistaken image for content. Its true that Wolfensohn has done a good job ginning up the PR machine at the Bank and making it appear to be more respectful of the Third World poor than it used to be. Its also true that by the time Wolfensohn arrived at the Bank, a cosmetic makeover was urgently needed because, before it became a money-making, poverty-fighting institution around about 1995, the World Bank was a money-making, communist-fighting institution under Robert McNamara and a series of subsequent nobodies. Which is why the Bank lent so much money to non-boring characters like Mobutu Sese Seko in Zaire (the guy with the scepter and the leopard-skin pillbox hat), the murderous Suharto in Indonesia (with the mirror sunglasses and the medals), and an endless list of similarly memorable thieving dictators. During the long years of the Cold War, if you ruled a country, had your hand out, and promised to kill communists (or anybody you called a communist) you were in good shape for clinching a big loan from the Bank, which you were free to pocket yourself or stash away in the Caymans for your heirs and assigns. Even boring dictators like the faceless juntas in Argentina got lots and lots of loans. Throughout this ugly period, which, unhappily, represents two-thirds of its history, the World Bank did not reveal much about its lending. As a result of its global autocracy, enormous boondoggle projects materialized throughout the Third World, courtesy of the largesse of First World taxpayers who, like their Third World counterpart populations, were not entitled to know what the hell was going on. In Central America, the Bank plowed through pristine wilderness to build huge dams that silted up and never worked right. In Africa whole towns were cleared away for highways that went nowhere and then fell apart. In Asia, multi-million-dollar irrigation projects watered swampy wetlands. Then there were the mines and the pipelines. These actually produced oil, copper, gold, and so on, but the Mobutus of the world made off with the proceeds. Since few of these undertakings were wise investments or sustainable extractive operations, the debt accumulated in the Banks client countriesand not just in a few of them or even most of them, but in virtually all of them. To stave off the looming epidemic of national bankruptcies, the Bank devised its structural adjustment loans (SALs). These loans were conditioned on budget cuts in the borrowing countries so that governments could reserve revenue to pay interest on loans. Repaying the principal was out of the question. But these loans only made the problem worse. Like the project loans, they were huge and unmonitored. The debt spiraled out of control. The countries would never be able to pay back even the SALs. They were borrowing money to pay back the Bank for the money they borrowed to pay back the Bank
This went on for a long time, but finally all the communists were dead in the Third World and the Berlin Wall fell in the First. The Bank could afford to loosen up a bit and began to entertain (nominally) the protests of non-governmental organizations concerned about the destruction of the planet by Bank projects and the stockpiling of dead debt. The issues of governance, corruption, labor standards, and human rights remained out of bounds, however, where they remain to this day. Shortly thereafter Jim Wolfensohn arrived. According to Mallaby, Wolfensohn had always been charmed by the exotica of Africa, Asia, and Latin America and set out to travel the world, to encounter firsthand the Banks real clients: poor countries. Mallaby recounts the tales of these early missions. In Mali, his first stop, Wolfensohn was carefully coddled by a clever Bank staffer who orchestrated a theme-park-like visit with minimal discomfort or inconvenience. The trip was stage-managed in this way to make Wolfensohn believe that he was really touching the ground although, in fact, he was still miles above it. After his stimulating tour, he determined to make the Bank a more thoughtful and insightful Bank. (Among other things, he devised the Development Marketplace, where every year select groups of Third World natives dress up in eye-catching indigenous fashions, set up kiosks in the grand lobby of the main building to promote their innovative poverty-fighting ideas, and compete for poverty-fighting grants in this combination flea market and game show with a $5 million prize pool. Here, the colored people learn to compete in the free marketplace of ideas. During the course of the judging, Mr. Wolfensohn himself appears, trailing reporters and photographers from the Washington Post and nodding to the colonialized sycophants like a feudal lord.) While Mr. Wolfensohn promenades for the press and entertains himself with the natives (downstairs), the technocratic brain trust is back home (upstairs) lending the real money. The $5 million grants at play in the lobby account for about .00025 percent of the $20 billion the Bank lends and gives away each year. No pictures up here, though. No photos si vous plait! This is the real work of the poverty-fighting development specialists. Together with these less interesting bankers, Mr. Mallaby and Mr. Wolfensohn seem frustrated by the persistence of Third World poverty. Despite the billions lent by the Bank each year for many years, three billion people still live on less than two dollars a day. A couple billion lack access to potable water, toilets, and electricity. Their caloric intake is less than optimal. Even five years of Development Marketplaces have not helped. Goddamn! Why is that? Along with many others in Washington and around the world, we were surprised to find that Mr. Sebastian Mallaby of the Economist Magazine and the Washington Post has the answer in his book about the Worlds Banker. He knows why poverty simply goes on and on in the countries that borrow from the Bank. We are not kidding. Are you ready? The answer is
Environmental NGOs! Many of them from California! Thats right. Environmental Defense (ED) and the International Rivers Network (a.k.a. the Berkeley Mafia) are stubbornly condemning billions to misery by preventing the Bank from making its loans and building its projects in a timely and responsive manner. Environmental safeguards at the Bank have just gone too far. Mr. Mallaby has a pithy way of expressing this that he is fond of repeating: These groups have no off switch. (Isnt that a telling comment? Why should NGOs have an off switch? And what about Sebastian Mallaby? Will whoever switched him on please flick him off? Thank you). Here is Mr. Mallaby himself switched on at the Cato Institute: I just think that the pendulum has swung a bit far on environmental safeguards. Im against the overly sort of legalistic interpretation of them, such that you lose sight of what were really trying to do, which is to balance environmental sustainability and poverty reduction. Notice the explicit opposition between sustainability and poverty reduction. Does this make sense? No. If poverty reduction is not environmentally sustainable, then it isnt really helpful, is it? Its not going to last. If people get jobs chopping down trees, then once the trees are gone, they are going to be poor againwith no trees. For example. The reason were stuck playing the environment off against poverty is because the Bank, Mr. Wolfensohn (when he tires of his little circus downstairs), and Mr. Mallaby direct your attention to economic growth as the main basis for poverty reduction. Yes, you need schools, clinics, clean air and water and the rest, they say, but basically, to reduce poverty, you must increase wealth rather than redistribute it. Wealth redistribution is communist and boring, as everyone knows, while free market economic growth is much more interesting and rewarding. This approach at the Bank, which has not really changed in 60 years, endures in a gated knowledge community of deliberate ignorance. Many well-known intellectualsAndre Gunder Frank, Robert Brenner, Eduardo Galeano, Samir Amin, Edward Said, and othershave published extensively about this sleight of mind since the 1960s. Gunder Frank showed that underdevelopment and the mass poverty that characterizes it is not a state of nature a country grows out of, but is instead a special kind of deprivation that colonized states were forced into. He argued that the northern countries developed because they underdeveloped their colonies and other territorial dependencies. Whatever the North needed to fuel development at home, the South was made to produce: gold, silver, cotton, slaves, sugar, tea, coffee, oil, tourist destinations, and bat dung. The legal framework legitimizing the extraction has changed over the years, but the content of the process is still pretty much the same. Further work in the development field shows that the world is not only made up of rich and poor countries with categorically different histories, but also of rich and poor people in rich and poor countries. Sociologists often emphasize a subtlety that continually escapes the Mallabys and the Wolfensohns: Poor countries are always run by rich people! Why the Mallabys never notice this is beyond me. Rich people are fairly easy to spot, especially in the Third World: Theyre the ones with the swimming pools, the servants, and the cocktails. Nonetheless, when Wolfensohn pretends to put poor countries in the driver seat on development policy and project design for Zaire, Indonesia, or Bolivia, guess who winds up behind the wheel of the Mercedes? Rich people. The same people who have been handing over the wealth of their countries to rich First Worlders in exchange for a commission of their own since Columbus first bought an Indian chief for Queen Isabella. Economic growth does not change this. And as the rip-off gets bigger and broader, the ranks of the poor grow larger too. When the poor grow restive and boring and communist, rich people in poor countries secure themselves with the Mobutus, the Suhartos, and Banzers, so beloved of the World Bank. This picture began to shift in the 1980s when the environmental movement North and South had coalesced enough to begin to resist the Bank and its projects. The changes accelerated in the 90s when the Internet facilitated increasing contact between Northern NGOs and their Southern counterparts. Organizations like ED could serve the function of amplifying the concerns of the persecuted Southern opposition internationally. For this, Mr. Mallaby attacks them. They are unrepresentative he says. At Cato, he told an appreciative crowd that when he investigated the International Rivers Networks claim to represent a broad-based movement in Uganda opposed to the Banks funding of the Bujagali dam project, he found there was no such movement. He went to Uganda to visit the local NGOs office. He asked the man at a desk there to show him the list of the organizations members. The man pulled a small book out of his pocket and showed Mallaby a list of about 20 names. There was no opposition, period, he said to the snickering Cato crowd. He was lying. He knew, because he had been told by the IRN, that the opposition in Uganda had to operate in a semi-clandestine environment. The likelihood of the guy in the office showing a suspicious white man with a British accent a list of the organizations members was absolutely nil. In his book and to his audiences, however, Mallaby deliberately misrepresents this situation. But the truth about the Uganda case is instructive. The $530 million Bujagali dam project there was partly funded by the private-sector finance arm of the World Bank through a loan made directly to the Virginia-based AES Corporation. The corporations founder, Dennis Bakke, was a charismatic chief executive with whomaccording to MallabyWolfensohn enjoyed schmoozing. AES won the contract to build the dam without a competitive bidding process and the agreement between the Government of Uganda and AES was secret. When an independent review conducted by the Prayas Energy Group opened the agreement, it concluded: The World Banks Bujagali dam project in Uganda is excessively expensive. The Power Purchase Agreement of the private project is not in line with international standards, and entails massive extra cost for Uganda. The World Bank has given poor advice to the Ugandan government, and has misled the public about the cost of the project. The deal would increase Ugandas debt burden and produce energy that few locals could afford. None of this was detectable until the
Ugandan High Court
under pressure from international NGOs and their local partners, forced the government of Yoweri Musevenialso a Wolfensohn favoriteto disclose the terms of the AES contract. In the Bujagali deal the real issue is corruption and not, strictly speaking, environmental damage, although that too is ugly. Seizing on this, Mallaby focuses only on the charges involving the environmental impact of the dam rather than its finances. He rails against the NGOs because much of their formal objection to the project rested on their claim that the bank had misclassified it in order to avoid additional environmental impact studies. But in doing this, the NGOs acted in the same way that the FBI did when it went after Al Capone: The agency put Capone away for tax evasion because it couldnt get him for murder and racketeering. Same with the NGOs: Because there are no meaningful safeguards against conflict of interest, human rights violations, or corruption at the Bank, the NGOs stopped Bujagali for environmental violations. Mallaby knows the story and the reasoning, but condemns NGOs that lobby the Bank anyway, despite the fact that his own research suggests a different conclusion from the one he draws: The Bank should have more and stronger safeguards, not fewer and weaker ones. But those people on the insidethe Banks staffthose Mallaby really spent time with while writing the bookare genuinely frightened by, and resentful of, the way in which environmental NGOs are slowing down their projects because of the effect the delays may have on the Banks financing. The Banks comparative advantage in the business of funding big-ticket loans is its competitive edge on corruption. No other institution is better placed to get AES, Suez, Exxon, or Shell a sweetheart deal with a Third World government that has just borrowed a lot of cash. Strict anti-corruption safeguards that would open up infrastructural negotiations would eliminate the attractiveness of World Bank loans for the big borrowers, and that is the real preoccupation of Mallaby and his informants. As it stands, middle-income countriesIndia, China, and Brazilcontract loans from the Bank at market rates. The interest payments on these loans fund the staffs salaries and subsidize the loans for poor countries that justify the Banks existenceits alleged poverty fighting. But strengthening safeguards would reduce the Banks appeal for these countries and the other middle-income borrowers who can also buy credit in commercial markets. They might just do that and leave the Bank out, cutting off the cash inflows. Such an eventuality would reduce the World Bank to the deteriorated status of the decrepit U.N., which no one pays any attention to any more because it has no money. And this is the real concern of the World Bank staff. It is the reason they dislike Wolfensohn so much. In his naivete, he has potentially opened up the Bank to self-destruction. If the Bank cannot operate in the corrupt, back-scratching way that it always has, then major multinational corporations like AES and big-borrowing governments like China may go elsewhere to do business. And that would kick off a rapid decline at the World Bank. So, pardon me, both the book and the Bank are about fighting poverty in the end. But not in Africa, Asia, or Latin America. Right here at home in Washington, D.C. and its more affluent suburbs: Spring Valley, Potomac, Great Falls. Im lovin it. Gabriela Bocagrande reports on multilateral malfeasance for the Observer.