Friday, September 22, 2006

Wolfowitz to tackle corruption

Paul Wolfowitz makes enemies everywhere he goes:

In his first 15 months as president of the World Bank, Paul D. Wolfowitz has made the fight against corruption in poor countries a hallmark issue, waging an aggressive campaign that has led to the suspension of hundreds of millions of dollars in loans and contracts to nations including India, Chad, Kenya, Congo, Ethiopia and Bangladesh. ...

In recent months, however, his campaign has run into a host of critics, both at the bank and among financial officials outside the United States, who say that developing countries are being threatened with arbitrary punishment in a way that jeopardizes the banks longtime mission to reduce poverty.

To be fair, the World Bank's President, always an American, comes from the only country that has the power to individually block institutional reforms (changes require an 85% majority, and the US represents just under 17% of the votes), so the guy at the helm is bound to be criticized, even as he publicly advocates the lessening of voting power for nations that pony up the most dough, like the US and Japan.

Still, the World Bank is an antiquated institution struggling to find an area of 'expertise' to specialize in. The glut of massive private hedge funds and the piles of cash that multinational corporations are sitting on has rendered the World Bank unnecessary. There is hardly a shortage of capital for projects that promise decent returns. So the World Bank has had to shift from promoting broad economic growth to more targeted "poverty reduction"--bad loans, grants, and the assumption of bad debt--stuff that makes the institution appear profligate to Americans while angering the developing world by making demands of the countries receiving the loans. Wolfowitz wants to make that target more precise still, focusing specifically on transparency in business dealings and an ending of corruption.

I wish the WB and the IMF would disappear along with their UN parent. But if wealth creation in developing and underdeveloped countries is the purpose, and $23 billion is going to be loaned out annually, battling corruption appears to be the best way to go. The goal of eradicating global corruption smacks of quixotic interventionism, but the task of ending global poverty is even more unending and unachievable.

Corruption, as measured by Transparency International's Corruption Perceptions Index, correlates with a country's purchasing power parity at a statistically significant .822, higher than do economic freedom (.755), IQ (.598), average life expectancy (.575), or infant mortality (-.560). And Wolfowitz is going after places that don't fare well on that index--India ranks 88th on the list of 159 countries, Chad and Bangladesh tied for the very most corrupt, Kenya and the Congo are both tied at 144th, and Ethiopia is 137th.

Skeptics will argue that the abolition of the developed world's definition of corruption is related to a developing nation's greater economic power because its elimination in a developing country makes it easier for the developed world to come in and run profitable business operations (the UAE, for example, has a higher PPP than the US, but most of that wealth isn't going to the Emirates' citizenry, who probably make up less than a fifth of the place's population). Instead of a kleptocrat running the third-world show, an American corporation comes in and strikes it rich.
There are lots of demographic factors that limit the potential for wealth in many developing countries. The lessening of corruption wouldn't be an azoth, but it strikes me as a noble, relatively effective way of going about bettering the developed world. If we're going to have an international entity doling out cash, it might as well at least attempt to be something more than a wealth transfer (in the form of low returns and bad debts) from the developed world to third world rulers.



Anonymous said...

Of course many are going to complain about Wolfowitz. If loeans and aid are suspended because of corruption, the thieves that run most of these 3rd world nations won't have any cash to put into their Swiss bank accounts. He is going to try and stop their gravy train. Maybe with real oversight, some people could actually be helped for a change.

crush41 said...

I agree with your sentiment. It couldn't hurt.

mping said...

I often wonder if the US would be better off promoting anti-corruption and good governance rather than democracy. Of course having both would be best, but if I had to choose only one, I would rather live in a well managed dictatorship than a corrupt democracy.

The Economist had an interesting article on how you can fight corruption in the third world.

crush41 said...

Indeed Mping. Would you rather live in Iraq or Singapore?

I absolutely agree with you. The quixotic assumption that all cultures both desire and benefit from democratic self-determination is naive at best and disastrous at worse.