Leading the World Bank is a privilege not an entitlement
Good governance starts with how the head is chosen
By Joseph Stiglitz
The current crisis at the World Bank is a chance finally to fix the governance problems at the world's major institution for promoting development. It is time for the US to give up its hold on picking the president of the bank and for Europe to give up its grip on choosing the president of the International Monetary Fund. Had the process of picking the president been truly democratic and fair in the first place, it is almost certain that Paul Wolfowitz would never have been selected.
There is now a global consensus that Mr Wolfowitz will have to leave the World Bank. In democratic societies, leadership requires the confidence of those being led. Mr Wolfowitz has lost that confidence and will not be able to restore it in the three years remaining in his lame-duck tenure. He could, of course, try to appoint more loyalists at the top. But that would only lead to more alienation from the more than 10,000 employees who must carry out the bank's mission.
Moreover, the bank relies on voluntary contributions from the advanced industrial countries to carry out its essential missions in the least developed countries. It is a matter of good governance that taxpayers in the European countries that provide the overwhelming majority of those funds (the US does not even pay its proportionate share) have confidence in the institutions that administer their funds. They, like the staff of the bank, have lost confidence in the bank's leader.
What is at issue, of course, is not just a violation of ethics or bank procedures, though those are important. Nor is it just the distortions of the record that Mr Wolfowitz's team have repeatedly put forward in defence of this and other highly criticised decisions, though those too are important. Mr Wolfowitz and his team do not seem to understand that being president of the World Bank is a privilege, not an entitlement. Whatever short-term benefit these distorted defences may bring, they do little to engender the long-term confidence that is so badly needed.
There is an old expression that fish rot from the head. So, too, good governance starts from how the head is chosen. Restoring confidence in the bank will require finally addressing the way in which its president is selected. Since the inception of the World Bank, it has been in effect an appointment by the US president, without even the vetting of the US Senate to which US officials at home are subjected. In this case, President George W. Bush sealed Mr Wolfowitz's appointment with a few phone calls to friends, such as Tony Blair, UK prime minister. The development and finance ministers who should have been intimately involved in the decision-making were left to ratify what was essentially a done deal and the bank's board members then ratified the deals made in the capitals.
The problems continued after Mr Wolfowitz was appointed. He brought in political allies and supporters of the Iraq war and gave them top-level positions in the bank administration. At the same time he pushed an anti-corruption agenda, which (while laudable) was highly politicised and often did not follow due process.
All of us support anti-corruption and good governance efforts, but they need to be accompanied by good-faith processes. Good governance in a democratic, multilateral institution starts from choosing the best individual, regardless of nationality, race, gender, or ethnicity. There may be honest differences of opinion about the essential, or at least desirable, characteristics. But surely the list would include a command of development economics, political experience and demonstrated managerial expertise in running a large multilateral organisation. In short, characteristics that are likely to have earned the respect of the bank's multiple constituencies: its staff, the countries receiving assistance, the countries contributing assistance and the non-governmental organizations that have appealed to the world's moral conscience concerning the need for foreign assistance. It may not be necessary that the head come from the developmg world, but certainty someone from the developing world has a natural advantage in understanding the problems that they confront.
There are firist-rate individuals who meet the criteria, including Arminio Fraga. A Princeton economics PhD, Mr Fraga held senior positions at Soros Fund Management and Salomon Brothers and did a stellar job heading Brazil's central bank. Another excellent choice would be Kemal Dervis, head of the United Nations Development Programme, who taught at Princeton, served as a vice-president of the World Bank and proved his mettle as Turkey's effective and popular minister of finance during a period in which that country faced financial turmoil.
Poverty in developing countries is one of the central issues facing the world. The World Bank is the most important global institution spearheading tile fight against poverty. It was right to emphasise good governance. But it cannot play any significant role in the fight for good governance unless it reforms its own, Mr Wolfowitz's exit is but a first step. How his replacement is chosen is no less important.
| Effects of privatisation There is considerable debate around the effect of railway privatisation, especially since the structure now in place is considerably different from that originally envisaged at the time of the 1993 Railways Act. Some of the most common arguments for and against are: * Customer Service: Privatisation was supposed to bring improved customer service and many rail lines have seen improvements in this field with better on-board and station services. In the early years, however, customer service was dented when too many drivers were given voluntary redundancy by the new TOCs and trains had to be cancelled. Also, the impact of the Hatfield rail accident in 2000 left services seriously affected for many months after. * Fares & Timetable: In an attempt to protect passengers' interests, certain fares (mostly commuter season fares) and basic elements of the timetable were regulated. However, the TOCs still had quite a bit of latitude in changing unregulated fares and could change the number of trains run within certain regulatory and practical limitations. While average fare prices have changed little since privatisation, this masks substantial changes. The price of commuter season tickets has fallen in real terms, but many unregulated fares have increased substantially, especially 'walk-on' fares on inter-urban routes where operators have tried to encourage passengers to user cheaper 'advance purchase' tickets instead. So far as the timetable is concerned, many more trains are being run each day than under BR as operators have tried to run more frequent, but usually shorter, trains on many routes to attract more custom. * New Trains: The promoters of privatisation expected that the ROSCOs would compete against each other to provide the TOCs with the rolling stock they required. In practice, in most cases the individual TOCs required specific classes of trains to run their services, and often only one of the ROSCOs would have that class of train, resulting in their having to pay whatever the ROSCO concerned cared to charge for leasing the trains. Old rolling stock was extremely profitable to the ROSCOs, as they were able to charge substantial amounts for their hire even though British Rail had already written off their construction costs. This was due to the adoption of 'indifference pricing' as the method of determining lease costs by the government, which was intended to make purchasing new trains more attractive when compared to running life-expired trains. In practice, the average age of trains in the UK is no different to that under the last years of BR. * Punctuality and Reliability: The privatised railway has not shown the improvement in punctuality and reliability that was hoped for. The contracts in place between companies were intended to incentivise improvements in these areas, but with the large increase in the number of trains run while using more or less the same amount of rolling stock and track, there has been less room for maneouvre when problems occur, with consequent impacts on punctuality. * Level of Traffic: It is unclear whether privatisation was intended to increase traffic, but that is what happened in the early years of the privatised railway with many more trains run, more passengers carried and more freight (in terms of weight and distance - in terms of weight alone there was little change) lifted. Opponents of privatisation argue that some increase would have been expected anyway in line with the improved UK economy; it took some years after privatisation before traffic returned to the levels achieved by BR in the late 1980s at the height of the previous economic boom. Nevertheless, more passengers are now being carried each year than at any time since the 1950s, when the network was twice the mileage. * Safety: This is one of the more emotive sources of argument. The railway can point to continued improvements in safety under privatisation; in fact the rate of improvement has increased compared to that experienced in the last years of BR. However, four serious rail accidents in the early post-privatisation period (Southall (1997), Ladbroke Grove (1999), Hatfield (2000) and Potters Bar (2002)) all undermined confidence in the safety of the privatised railway and highlighted some areas where it appeared that new safety risks had been created as a result of the privatisation process (e.g. the separation of wheel from track). The industry has sought to tackle these risks and so far there has been no fatal accident for which the railway is responsible since May 2002. Two other fatal accidents that have occurred since privatisation (Great Heck (2001) and Ufton Nervet (2004)) have been due to cars blocking the rail line being struck at speed. Christian Wolmer in his book "On the Wrong Line" argues that while overall the trend for greater safety has continued since privatisation it did produce greater risk due to interface problems. That is where safety depended on good communications the fragmentation of the industry into different companies made the risk greater that something would go wrong. To make matters worse the accidents caused were likely to be and indeed were of the kind that hits headlines. The long term effect of these crashes is at least as important for now the railways are governed by such a fear of accidents that safety measures are imposed with little rational assessment of the costs. If this leads to an over priced less punctual railway that less people use the end result will be more deaths on the roads which have always been many times less safe than the railways. (On the Wrong Track p247) * Investment: It is a common view that the railways had been systematically starved of government investment since the 1960s as successive governments openly favoured road transport, and that when the railways were privatised they were already in bad shape and in need of renewal. This argument has been put repeatedly, for example, by Sir Richard Branson, the boss of one of the largest railway operators, Virgin Trains, as an explanation for his company's poor service. However, informed observers, notably the journalist Roger Ford in the industry trade magazine Modern Railways, have shown that this is largely a myth. While BR received less financial support than in most European countries from the government, it was able to maintain the network to a reasonable standard. Indeed, in BR's final years it could claim to run more trains at more than 100 mph (160 km/h) than any other railway in the world. This was largely because investment in the UK was spread across all rail lines rather than being pumped into developing a small number of high-speed lines. * Funding: Privatisation was intended to allow private borrowing to fund investment and remove the short-term constraints of Treasury budgeting from the railways. However, it was always recognised that there would be a requirement for some public subsidy to maintain unprofitable but socially desirable services. Indeed, of the three passenger sectors (Intercity, Network South East, and Regional Railways), only the first could hope to be independently commercial. The conflict between trying to maximise private sector investment while subsidising and regulating the industry to provide desirable services has proved difficult to reconcile. Neither most pro- nor anti-privatisers believe the current balance is correct. Nevertheless, privatisation has brought private sector investment into the railway and has also committed the government to long-term funding streams which provide more certainty for the industry when developing projects. * Profitability and Efficiency: One of the principal expectations from privatisation was that the railway service could be delivered more efficiently in the private sector because of the profit motive. The expectation that there were considerable costs that could be slashed from the system was not fulfilled; new operators found that BR had already done much of what could be done to improve efficiency. In addition, the profit motive was diluted when some of the passenger franchises ran into financial trouble and entered into management contracts with the franchising authority, which reduced the incentive to innovate. In addition, new health and safety requirements and the complexity of the privatised structure has thrown up additional costs in the industry. In all, the subsidy to the railway from the Government is considerably larger now than it was for BR. * Political Control: One the benefits promoted for privatisation is that it would remove railways from short-term political control which damaged an industry like the railways, which had long-term investment requirements. This has not happened and, with the latest changes that have been made to the railway structure, the industry is more under government control than ever before. |
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