The World Bank will be interviewing candidates for its next president in a process meant to be open, transparent and merit-based. President Obama’s nominee, Jim Yong Kim, president of Dartmouth College, has the inside track, though developing-country aspirants, such as Nigeria’s Ngozi Okonjo-Iweala, are better qualified. There are also many Americans who would make a better choice.
The World Bank is one the Bretton Woods institutions created in the aftermath of World War II. It’s a vestige of the times when belief in large international institutions as the solution to global problems reigned. The primary function of the World Bank is to lend for longer-term projects to reduce global poverty.
There’s little evidence such lending has done anything significant for the developing world. The biggest decrease in poverty in India and China came when those two countries moved to liberalize their economies. With the world’s largest populations, those nations are home to most of the world’s poor.
On the other hand, the existence of cheap money through the World Bank distorts incentives and investment and results in the misallocation of resources, resulting in growth that is lower than it could be. It also creates tremendous opportunities for graft and corruption, with all their attendant ills.
The optimal solution would be to shutter the World Bank. As it is, more than half its client base can find credit on the open market and has no need for the World Bank’s services. There’s less and less justification to have a World Bank, other than to keep 10,000 bureaucrats employed.
Because we’re not likely to be rid of the World Bank anytime soon, the best way to minimize the damage is to appoint a president who understands the importance of markets in development. The president of the World Bank traditionally has been American, because the United States is the single largest shareholder, with an almost 16 percent stake.
Dr. Kim, an American, is a physician and anthropologist with a significant background in public health and almost no knowledge of economics. Worse, as New York University’s William Easterly has pointed out, Dr. Kim has displayed considerable skepticism about the impact on the poor of what he calls “neoliberalism.” He prefers to ignore the mountains of evidence that economic growth is the most effective way to reduce poverty.
Ngozi Okonjo-Iweala is Nigeria’s finance minister, and she not only has been instrumental in rooting out corruption in that country but has been successful in attracting private capital to a country once widely regarded as a basket case. Ms. Okonjo-Iweala also is an economist. She has the baggage of a considerable time spent at the World Bank but seems aware of the importance of markets in the development process, and she is less likely to damage the fragile institutions in those countries than a Kim presidency.