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The Bank Is Open

President Bush nominates Bob Zoellick to head the World Bank.

12:00 AM, Jun 5, 2007 • By IRWIN M. STELZER
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SO THERE IS LIFE in the Bush administration yet. And a bit of good sense. After allowing the 10,000-person staff of the World Bank to sink Paul Wolfowitz for reasons that had less to do with Wolfowitz's girlfriend than with his support for the policy that led to the Iraq war and his attempt to clean up corruption on bank-funded projects, President Bush last week recovered his poise and resisted pressure to give up the 60-year-old prerogative of the American president to nominate the president of the World Bank.

Bob Zoellick was the man Bush wanted to name as the new head of the Bank when Jim Wolfensohn stepped down in 2005. But he needed a job for Wolfowitz, and one that did not require Senate confirmation. So Zoellick subordinated his not-inconsiderable ego and agreed to accept the booby prize of second-in-command to Condi Rice at the State Department. This was destined to be an unhappy posting: Rice is an international celebrity and whenever Zoellick substituted for her at meetings, he faced an unmistakable sense of disappointment from a room full of foreign negotiators cheated out of a much-lusted-after photo-op with the attractive, female, black, American secretary of State.

Now that Zoellick has finally gotten the opportunity to run his own show, after a stint at Goldman Sachs, what can we expect? He is well known for two things: a sharp intelligence and even sharper elbows. The first is certainly accurate, the second less so. Zoellick can be a tough-minded negotiator, but I have always found him courteous when we disagree and willing to engage in serious argument. And Zoellick's ability to match the staff in intellectual weight and international contacts will make it difficult for these highly paid, tax-exempt men and women to justify continuing the vendetta that brought down Wolfowitz. But they will try: a senior bank official rushed to tell the Washington Post, "Zoellick is from the same people who brought you the Iraq war. . . . Any American appointed by this President would carry that stigma."

More important than this infighting is the question of policy. The Bank is on the verge of irrelevance. In this era of massive private philanthropy and cheap money, everyone from Bill Gates, to China, to private lenders is making funds available to many of the Bank's potential clients, no annoying reform requirements attached; a significant portion of World Bank loans are said to have ended up in Swiss bank accounts; the large projects the Bank has funded often are low on the list of real needs of the people in client countries, who prefer clean water to roads to nowhere; its preference for massive government projects flies in the face of what we have learned from Hernando De Soto about the key role of private property rights and about the effectiveness of microfinance from Muhammed Yunus, the Bangladeshi banker who won the Nobel Peace Prize and Amartya Sen, the Harvard professor who was awarded the Noble Prize for economics.

In conferences with Treasury Secretary Paulson when Zoellick was just one on a list of candidates, Bush's nominee laid out plans to carve out a role for the World Bank that recognizes that the world has changed since it was established in 1944 to cope with the problems of a war-ravaged world. The basic goal of the Bank's two institutions--the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)--is to relieve poverty in poor but nevertheless credit-worthy countries (IBRD), and in the world's poorest countries (IDA).

Zoellick brings to that task a firm belief in free markets. He is keenly aware that government intervention often does more harm than good. He recently minuted me, after I flirted with expanding the role of government in economic life, "Consider how Soviet economic planning was considered such a 'success' for so long." The role of government, he thinks, is to set the macroeconomic conditions that maximize growth, productivity, education, and research and development.

Which belief is a potential source of conflict with the Bank's staff and some of its clients, who have grander visions of the role of government. If Zoellick is not captured by the Bank's culture--its Washington staff is encased in a stunning glass building that for some strange reason encourages neither outward-looking nor transparency--he will insist that countries that want loans move in the direction of freer markets. Reform first; loans later.