World Bank President: The Oscar goes to...

And the nominees are:

• Jim Yong Kim - a US National and President of Dartmouth College, New Hampshire
• José Antonio Ocampo - a Colombian National and Professor at Columbia University, New York
• Ngozi Okonjo-Iweala - a Nigerian National and Coordinating Minister of the Economy and Minister of Finance, Nigeria.

It certainly sounds a bit worldly, does it not? Very politically correct: African. Asian-American. Colombian Columbia Professor (the Universe and her humour). Black. Asian. Hispanic. Two men. One woman. Almost an entirely representative set of landmasses, other than Europe and Australia. But in all fairness, Europe has Christine Lagarde; and Australia has mostly European convictions.

On a political point, the emerging and developing economies were desperate to have a head of the World Bank that isn't American. Indeed, to that end, Ocampo withdrew his candidacy and threw his hat in favour of the Good Lady from Nigeria. Although, that said, if you read his translated-into-English statement, the issue seems to be more of this game is political; I don't have political support; Dominican Republic thanks for trying; damn you Colombia for not; this process is not merit-based; if it were <heavy unspoken implication>; Ngozi, rather you than my Dartmouth rival.

And then there were only two candidates in the running. I find myself asking the following question:

• What difference does it make?

Which leads me to an even more pertinent question:

• What exactly does the World Bank do anyway?

The World Bank


So the World Bank started back at Bretton Woods in 1944, where the Americans and the Brits had a fantastic sound-off as to how the World would run after the War (ever the planners, they started planning before the War was over - clearly, self-doubt was not an issue). Interestingly, the two key players in this debate were Harry Dexter White (the US-side economist) and John Maynard Keynes (the UK-side economist). And for the most part, Harry Dexter White won - a great many of Keynes' ideas were never implemented and/or were side-lined. For example, Keynes was all for the establishment of a world currency unit (the "bancor") that would function as an independent currency of reserve. White was in favour of the US dollar functioning as the world's reserve currency.

White 1: Keynes 0.

But that aside, the IMF and the World Bank (or just the International Bank for Reconstruction and Development, as it was then) were set up to be the bankers to nations in the years post 1944. Which made a lot of sense – most countries had just experienced the ravages of two World Wars. Defence had been expensive; the large part of the working force was either dead or returning from years of war in need of education and reintegration; many industries had been subverted into war-driven products and were lacking the infrastructure of the years of peace; cities had been bombed and were in need of repairs; world trade had been heavily stifled by war politics; most governments were new and lacking the strength to drive through recovery policies; and reparation payments needed to be negotiated and wrung out of soon-to-be-freshly-defeated nations that had little hope of meeting their obligations.

Solution (in part): the World Bank. “You come to us for loans to rebuild, we’ll give them to you; and in about 50 years time, an artist called Bono with an extraordinarily large collection of sunglasses will run around asking us to forgive the debts of those that haven’t managed to pay them back”.

Solution (another part): the IMF. “You come to us for short-term loans when you can’t maintain your exchange rate/balance of payments; and we’ll tell you how to do it better. Agree to do it like we said, and we’ll give you the money”.

So in effect, the IMF was all about short-term financing; and the World Bank was all about long-term financing. Approximately.

And to clear up something (before I get a host of comments), the "World Bank" is now a collective term referring to the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IDA was formally established in 1960 to offer loans to the really poor countries on the most favourable terms possible. Whilst the two are run in the same way, and share the same headquarters and leadership, the funds that finance the two entities are kept separate. And unsurprisingly, the IDA's fund needs to be replenished more often.

The Criticism

So why do so many people protest against the World Bank? The trouble is that the capitalist reforms that the World Bank insists upon in return for their loans for structural adjustment (ie. for investment in industry, infrastructure, etc) are not always best for their borrowers. For a number of reasons:

1. Countries are not always ready for free market forces immediately. For example, if a country is forced to de-nationalise a parastatal like a Water Authority, the entity in its original form is probably quite inefficient, and unlikely to be self-reliant. Forcing self-reliance could cause the industry to collapse long before the free market forces have enough time to step in and fill the gap. And then there would be a water crisis.
2. Structural adjustment requires a natural order of events. Before factories can be put in place to process agricultural products, the farms have to be put in order. In order for the farms to be put in order, there need to be improvements to the transport system (to carry the product) and to the water system (to irrigate the newly planted crops). Then there is the need for sufficient power supply to govern all of that. The point that I'm trying to make is that the process requires some forethought, and probably some experience in rebuilding economies - structural investment without forethought is, at best, unhelpful. 
3. At the same time, structural adjustment in weak economies can create unhealthy free market structures (such as monopolies), which do more damage than good. 
4. And, for that matter, structural adjustment in weak economies can draw attention to a key incentive imbalance. If a leader that has previously been repressed suddenly attains power, how likely is it that they would be able to resist abusing it? Particularly if that person were unsure of how long they could maintain their position. I think that the human reaction would involve being a lot more interested in self-preservation and/or self-enrichment than in the improvement/enrichment of the economy. Add to this a sudden influx of foreign funds? Hmmm.

I'm all for the eradication of poverty. But the action to be taken, and the implementation thereof, requires a strong and experienced hand. This leads to the main criticism of the World Bank - that its voting system and governance is heavily biased in favour of the donors (ie. the US and the economically powerful). And the point is a fair one - how can a World Bank, controlled by the economically-successful, advise on the development of the economically-awkward? Does their success make them the best decision-makers?

I reckon that's the logic that's been applied until now - it's their money and they should make the decisions. But I really wonder if it continues to apply. Success breeds sophistication - can first-world born-and-bred politicians, with their subtleties of social acceptability, technology, sophisticated finance and medical aid really understand developing countries? Countries where paying your taxes is a lot less certain than death, and choosing a brand, flavour and fat content of yogurt is as foreign a concept as teleportation? These are different worlds. This is no longer 1944. Not everyone is still developing.

And the developing world has pointed this out. If you want to aid development, give the money to the person with the best chance of actioning that original goal. Enter a World Bank Presidency bid with more than one legitimate candidate. So which candidate should get it? We're down to two: 

Nominee Number 1: Jim Yong Kim

The US candidate without the economic background. He is a man of medicine; and his CV includes a long list of successful health programs that have been implemented in a great many developing countries. 

What I like:

• His lack of official economic background. And by this, what I mean is that he's probably going to be quite practical. Here is a man that has set up health programs in developing countries. I mean - I'm not sure how involved he was. But if he was as involved as everyone assumes, that means that he got his hands dirty. He dealt with issues and dealt with people and made things happen. In my mind - economics is just the study of human behaviour on both an individual and a collective level. Do we really think that a physician is going to be any less understanding of human behaviour than a formally-trained economist? Frankly, if the recently-late former-President of Malawi, Mr Mutharika (who used to be World Bank economist) is anything to go by - thanks, but I'll take the good doctor.
• His attitude toward economic growth (he was accused of being anti-growth). Read a little closer, and you'll see that the book generating the criticism was actually against economic growth purely for the sake of economic growth. The argument is that economic growth needs to be sustainable, and it needs to have purpose. Not all growth is like that. For example, economic growth that leads to every person owning two cars because they can afford to have one - is that really useful? Does that make the growth in the car manufacturing industry sustainable? I agree with the book - too much growth is potentially cancerous. I would hope that is Kim's view too.

What I dislike:

• He's not Ngozi. It's an African bias - I freely confess it. But other than that - I tend to like most of the things that his critics dislike. 

Nominee Number 2: Ngozi Okonjo-Iweala

The Nigerian Minister of Finance with the extensive academic background and the extensive economic experience.

What I like:

• Her economic background. She is well-established in the field, and has achieved significant economic reform in Nigeria.
• Her principles. From what I can tell, when she disagreed with Nigerian President Obasanjo in 2006, and he removed her from an economic team that she was heading up, she resigned immediately and joined the World Bank as a managing director. She also voted to abolish the fuel subsidies in Nigeria (the fuel subsidy cost is a significant drain on Nigeria's finances). I like those positions. The second, in particular, was not populist: and she was not popular when she made that call.
• Her continent of origin. Africa is, in many ways, the least developed continent. Ngozi has firsthand successful experience in swimming those waters, and must be aware of the corruption at play. If she can navigate it successfully - that's a quality that Kim will be unable to replicate. 

What I dislike:

• Her continent of origin. Has she been touched by the corruption at play? There are definitely some scandals floating around her name. 

And the winner is:

Jim Yong Kim. Because they announced it 10 minutes ago.

Should he have won?

The question is irrelevant - he was always going to. 

But I do not believe that all is lost. 

The doctor is in the house.

Daily News Roundup 2012: Thursday 12 April

Good morning

The headlines:

1. The US Government has sued Apple (and five publishing houses) for ebook price-fixing. Apparently, they all worked together to eliminate competition amongst stores (ie. Amazon) selling ebooks, ultimately increasing prices to shareholders (and decreasing profits for Amazon). On a personal note, and as a frequent customer of the iBooks store, I have noticed that the price of ebooks has more or less returned to those that I'd pay for a new printed copy (it was not always that way). But maybe I've just bought the story (pun intended) that the bulk of a book's cost is not in the paper and binding. Honestly, I think that the real loser in all this is Amazon, who dominated the ebook market before Apple started its "agency model". Nutshell: Amazon used to buy the books wholesale, and then sell them on at a markup; Apple now sells the books as an agent for the publishers, and takes a cut. Does that sound less competitive? It certainly sounds more intelligent... Link: US Sues Apple for Ebook Pricing.
2. The World Bank has cut its forecast on China's growth. Note that this means that the World Bank still expects growth, just less of it. The forecast has fallen from 8.4% to 8.2%, which doesn't sound like much - but China is the second largest economy in the world. A 0.2% drop in their growth could be the equivalent of, say, the economy of Ghana. "World Bank cuts growth forecast; World loses medium-sized African nation". The World Bank's solution: the Chinese government should increase fiscal spending to spur consumption, and bank reserve requirement should be lowered (again) to ease credit. It all sounds very conventional - but does anyone worry that the correct word here is more "spurious" than "spur"? The solution is fiscal spending (how will they finance it?) and more credit? Does any of that sound sustainable? Link: World Bank forecasts China.
3. In other Chinese news, the fall of Bo Xilai continues in spectacular style. The former Minister of Commerce, and until recently the Communist Party of China (CPC) Chongqing Committee Secretary (AKA - the leader), his fall comes ahead of the once-in-a-decade leadership change (elections/appointments for the nine-member Politburo Standing Committee, China's highest ruling council, are happening in a couple of months). He was a lead candidate for promotion, until some police chief in Chongqing sought refuge in a consulate for some reason. This lost Bo his position (?). Now his wife has been accused of murdering a British businessman (the term used is "highly suspected"), with her charges being read out on China's central television station every hour on the hour. The CPC is going media-crazy in calling for Bo's investigation (but isn't this his wife?), announcing that "Bo has seriously violated the Party discipline, causing damage to the cause and the image of the Party and state". I'm in awe of the Chinese political machine. Link: Boo hoo, Bo who?.
4. Christopher Dodd, Chairman of the Motion Picture Association of America, has announced that SOPA is dead, in his view. The Stop Online Piracy Act was shelved by Congress in January after the Google and Wikipedia-led protest against it (I have fond memories of a #FactsWithoutWikipedia trend on twitter that day). The Motion Picture Association had lobbied heavily in favour of the bill, but Dodd admits that it probably went further than it should have. According to Bloomberg, under SOPA, the US Department of Justice would have been able to obtain court orders forcing Internet-service providers, search engines, payment processors and online ad networks to block non-US sites linked to selling counterfeit goods. Which seems strange - because my understanding is that SOPA would have meant no more music videos on Youtube. Either way, I think we won. Link: Web Piracy Bills are Dead.
5. And continuing yesterday's story on the South China Sea, Philippines President Benigno Aquino says that he is seeing a diplomatic solution to the stand-off with China. I'm sure he is. Look at what they happened to Bo! But China has issued their side of the story. Yesterday, the Philippines said that the Chinese ships had stopped them arresting illegal fisherman. China has now said that the Philippines folk had illegally blocked the passage of ships seeking shelter from bad weather. Although it seems that the fisherman were seeking shelter for three days, because they were first spotted on April 8. And the diplomatic incident took place on April 10. Link: Philippines seeks peaceful end. 
6. And the African Business News in brief. Link: ABN Briefs. The highlight:
• Sudan has stopped all talks with South Sudan after new fighting on their border. South Sudan says it was acting in self defence. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Tuesday 27 March

Good morning

The headlines:

1. Dominique Strauss-Kahn, former head of the IMF, has been charged with "illegally procuring prostitutes".  I realise that this is no longer finance-related. But juice is juice. And I was intrigued: because how do you illegally procure prostitutes? I was under the impression that either prostitution is legal or it isn't. Apparently not. The issue in France: it's totally fine to find your own fun; but it's not fine when your mate finds it for you. So really, he should be charged with "illegally having prostitutes procured for him". It's a crazy world. Link: D S-K and the Carlton Sex Ring.
2. Apple CEO Tim Cook is in China and planning more investment therein. Apple has recently signed a deal a second Chinese telecom provider, China Telecom Corp. - this has doubled their potential customer base in the country. Strangely, Apple has not signed on with China Mobile Ltd, the largest telecom carrier in the world by customers. Apparently, the iPhone does not work on China Mobile's "home-grown" 3G network. I wonder if it's a stand-off between giants... Apple: "We are the world. Change your network". China Mobile: "We are the people. Change your phone". Link: Apple Plans Further Chinese Investment.
3. So in case anyone missed in, Jim Yong Kim was the surprise US nomination for World Bank president, and he's coming under criticism for being anti-economic growth. Now this is really interesting for a number of reasons. Firstly, he's not Hillary Clinton. Secondly, he's not someone else. Thirdly, he's very experienced at World Health - which I find strangely ironic. If there's no doctor in the house, call one in? Admittedly, he's not an expert in World Economic Health - but I reckon that the principle is the same. Capital flows and blood flows: when too much blood pumps, you get high blood pressure, a clot, and an aneurism. I think that the technical term is "the boom and bust cycle". And whence cometh the criticism? Well - he wrote (actually, he co-edited) a book called "Dying for Growth" that argued that neoliberalism and corporate-led economic growth has actually left the poor and middle classes in developing countries worse off. Uproar! Except for the libertarians, who are nodding heads sagely in agreement. Folks: I think that the evidence is empirical. Either way - the argument is that economic growth is not enough - it needs to be sustainable (ie: a function of something other than monetary stimulus). Agreed. I'm a fan. Link: US World Bank Nominee Under Fire.
4. Greg Smith, Mr "Goldman Sachs calls clients 'muppets' and I'm leaving in a huff", is shopping around for a publisher. Actually - he's auctioning off the rights to publish the tell-all (smart guy - no doubt). The price-tag may be as high as $1 million: which maybe seems a bit low, considering the types of bonus one would have had at GS? Dealbreaker.com is asking around for title suggestions. Thoughts? I'm voting with "Way Lost, Weigh Less: Helping Miss Piggy". Link: The Goldman Tell-All. 
5. Ben Bernanke says that accommodative monetary policy is still needed. I don't have too much to add. Maybe the new World Bank nominee would ask if this is a bit like treating a headache with morphine? In the end, everything will slow down. Link: Bernanke says accommodative policy still needed.
6. And the African Business News in Brief. Link: ABN Briefs. The highlights:
• HSBC is looking to sell its retail banking and wealth management operation in Mauritius.
• Chinese-run miner Anjin, the largest in Zimbabwe's Marange diamond fields, has ended a two-day strike by agreeing to a 25% wage increase for workers. Previous walk-outs have taken place over "beatings by management". Hectic.
• More natural gas has been discovered off the coast of Tanzania by BC Group and Ophir Energy than previously anticipated.

And that's all for now.

Happy Tuesday.