Jeffrey Sachs Shouldn’t Run the World Bank, but the Presidency Needs Reform

Commentary about business and finance.
March 12 2012 3:23 PM

Bank Job

Jeffrey Sachs’ rightly doomed campaign for the World Bank presidency.

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Economist Jeffrey Sachs has recently advocated on his own behalf for the World Bank presidency

Wade Martzall/Randomhouse.

Leadership of the World Bank is not a popularity contest and not normally subject to much public input. But Columbia University development economist Jeffrey Sachs is looking to change all that by campaigning very publicly for the job. There’s almost no chance it will work. While the choice of who leads the bank is technically up to the diverse array of world governments who own shares in it, in practice, the president of the United States makes the selection himself, with automatic support from our key allies in Europe. The nod typically goes to a diplomatic or political figure friendly to the incumbent administration and looking for an honorable capstone to a career in public service. Since American voters don’t much care about the World Bank, and the U.S. government’s nominee is always selected, there’s really no room for a public pressure campaign to make a difference. Still, any effort to shed light on an arrangement that’s been frozen in amber since World War II could bring some benefits by opening the process up to a wider range of candidates.

Sachs might seem like a reasonable candidate at first glance. After an early academic career that saw him get tenure in the Harvard economics department at the age of 29, Sachs became involved in providing economic advice to the government of Bolivia during its severe debt and inflation crisis in 1985. His cure, “shock therapy,” was a combination of rapid trade liberalization, withdrawal of subsidies, and dollarization of the economy. The idea was to effectuate a complete break with the previous cycle of inflation and distortions, and it seems to have worked pretty well. Then circa 1990 he took his expertise east, to post-Communist Poland and Russia. His results in Poland look good, in Russia less so, and the debate over that period has swirled ever since.

Since the turn of the millennium, however, Sachs has turned from neoliberal reformer of middle income countries into the economics profession’s foremost proponent of a “big push” to eliminate poverty. No person’s thought can be adequately summed up by a single phrase, but Sachs’ claim in his 2005 book The End of Poverty that “Africa’s governance is poor because Africa is poor” comes close. Rather than a story of sin and redemption in which poor countries are poor because they’re so poorly governed (and those who reform themselves will be rewarded), Sachs sees the reverse in a fundamentally tragic situation he calls a “poverty trap.” Beset by disease, lack of education, lack of infrastructure, and sporadic famine, poor countries and their citizens are simply unable to take full advantage of modern technology and get on the growth train. Large-scale infusions of well-targeted aid can push communities and whole countries out of the trap and onto the road to growth.

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From 2002 to 2006 Sachs was director of the U.N.’s Millennium Project, and he still serves as a special adviser to U.N. Secretary-General Ban Ki-Moon as well as providing intellectual heft to the anti-poverty efforts of globetrotting do-gooding celebrities like Bono and Angelina Jolie. Now he wants to run the World Bank.

Even if he had any shot of realizing this dream, it would be a pretty bad idea to put a semicelebrity economist with controversial and outspoken views in charge of a sleepy intergovernmental organization. The World Bank is, in fact, a tool of American foreign policy and that of the other governments who fund it. That may make it somewhat less than ideal as an anti-poverty vehicle, but what else is an intergovernmental agency going to be? International institutions are part of the international political realm and that means the jobs are inherently political. A person who wants to lead an ideals-first nonprofit divorced from national political priorities might enjoy Sachs’ current job running Columbia University’s Earth Institute. Meanwhile, it’s not as if the World Bank is in dire need of another development economist. That’s what the staff is there for. To get big things done, the bank needs not just decent ideas from smart economists, but buy-in and cooperation from a diverse array of states. That’s a diplomatic job and a political job, and it’s exactly why the gig rightly belongs to someone with political experience on the international arena. Someone not like Jeffrey Sachs.

If the Sachs-for-president campaign accomplishes anything, it will be to call attention to the fundamentally flawed process through which the bank’s leadership is determined. Rather than working the quiet angles and back rooms in which such arrangements are made, Sachs is publicly asking for the job. It started with a March 1 Washington Post op-ed titled “How I Would Lead The World Bank.” From there it took rapidly to Sachs’ Twitter feed, which he used to retweet Joe Trippi’s endorsement, to thank supporters, and drive traffic to sympathetic columns. Sachs has been rounding up the support of foreign leaders and touting each endorsement online. He’s bagged Kenya, Jordan, Malaysia, East Timor, and Bhutan. Sachs and the government of Bhutan have a particular meeting of the minds on the need to try to measure national happiness and not just economic output, a subject on which Sachs expounded over the weekend online. The overall theme of the campaign was best summed-up in a March 5 tweet where Sachs explained, “Politicians say World Bank Pres will prob go to State or Congress. They see Bank as arm of US foreign policy not world body to fight pov.”

And there’s the rub. All the tweets in the world can’t solve the problem at the core of the job search—the irrational, unwritten rule according to which the president must always be an American. It’s a convention that undermines the bank while doing nothing to advance the interests of everyday Americans, and this year’s search provides a golden opportunity for the United States to relinquish its monopoly on the position.

The United States is the largest shareholder in both the World Bank and the International Monetary Fund, with European countries adding up to control another large block of shares in both. Since World War II, by convention, the United States has always backed a European nominee to head the IMF, while European countries always back the U.S. candidate for the World Bank presidency. In light of recent and continuing economic growth in Asia and Latin America, this convention can’t possibly endure forever. Sachs’ instinct that the time is right for a shake-up is correct—but he’s not the right person for the job. The smart thing for the Obama administration to do would be to show that we can be magnanimous and reasonable, and voluntarily give up the office rather than waiting for developing countries to band together and seize it from us. The bank is an instrument of American policy, but American policy is well-served by increasing foreign countries’ buy-in to the global economic order that we shaped. The United States will be the largest bank shareholder and loudest voice on the board of directors no matter who gets the presidency. But giving a diplomat or politician from the developing world a chance to run the show would be a powerful statement about America’s determination to improve the institutions that undergird global capitalism.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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