James D. Wolfensohn
President of the World Bank

Economic Policy and Sustainable Development in a Globalized Economy

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James D. Wolfensohn
President of the World Bank
Economic Policy and Sustainable Development in a Globalized Economy

President Börner, ladies and gentlemen. It is a true pleasure for me to have the opportunity to meet with members of this Foundation and others here in Bonn. I have long been aware of the work of this Foundation, and I am delighted that We have a number of joint activities in different parts of the world. What I am most concerned to do today is to try to give you an outline of some matters which I care about, and if I depart from this text, you will understand that I only heard the title when I arrived here. But I will try and speak about economic policy and sustainable development in a globalized economy, because just about anything I say will relate to that subject. But I will use the words from time to time so that I am true to the request of the president.

My major purpose is to try and give you an outline of the way in which I see development today from the point of view of the World Bank. And the way I see it as a human being. I have now spent 2½ years in this job and have visited over 65 countries - not just spending time in parliamentary or governmental buildings, but out in the field visiting villages and slums and projects throughout the world.

And the reason that I mention this to you is that I think that it's important that any views that you have about the World Bank should be rethought in the light of what the World Bank is today. There are many critics of the World Bank in Germany. I think I've met many of them, and I've had interesting discussions. But there are also a number of misconceptions about the Bank. And I'd like to take a few minutes to tell you how I see the issue of development from the point of view of my current role.

You'll recall that our institution, along with the International Monetary Fund, was founded 50 years ago, after World War II in order to help reconstruct those parts of the world that have been affected by the war. But soon we were finished

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with that particular task and we turned our attention to the issue of development. And at a time, as you well know, the East-West conflict meant that development issues were not just moral, social or economic, but they were heavily political: none of us wanted a country in Africa to go communist, no-one wanted an aircraft carrier in a country off the United States shores. Latin America had to be protected from communism, Asia had to be protected from communism. And we didn't do such a good job, but it was a great attempt by our political leaders to use financial institutions as a mechanism for fighting the Cold War. And I believe that the Bank was an instrument at times of its owners. Economic development was seen in purely political terms - how to protect the Western system.

But with the collapse of communism we were left with the issue of sustainable development and in a radically different global economy. In fact, in ten years we've gone from a world in which one billion people lived in a market economy, to a world in which five billion people live in a market economy. We've gone from a world in which one in three countries had a form of democratic government, to a world in which three in four countries live in a form of democratic government. And we've gone to a time when many of the richest countries are thinking much more about internal issues than about external. In the political debates in your own country, as I've read, the issues are employment, pensions, welfare, not the issues of development. Yes, your country has had a great record in development, but development is unlikely to win an election here anymore than it's likely to win an election in the United States or the United Kingdom. And the result is that the enthusiasm on the part of developed country governments has become less, and overseas development assistance has become less. And also the influence of the World Bank has become substantially less.

But the needs of the developing world have grown. That world today represents 4.7 billion people, out of a total world population of 5.6 billion. 900 million people live in the developed world, 4.7 billion people live in the developing world. And of that 4.7 billion, three billion live under two dollars a day, 1.3 billion live under one dollar a day, a billion and a half do not have clean water, two billion do not have power, two million die a year from tuberculosis.

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So how do we approach development in the post Cold War world? Let me briefly sketch the way I see this world working. First of all, there are now many more official development institutions. It's no longer just the World Bank, it's the World Bank and regional banks, the European Union, the United Nations agencies, bilateral donors. And all of them come together in a sort of official development assistance agency, frequently not cooperating with each other, frequently trying to do the same thing, but frequently also joining together. And the totality of what we are doing is now, in net terms, about $ 45 billion a year, plus a lot of time and effort and help. But in the last seven years, that figure has shrunk from $ 60 billion a year. So there is a reduction in the totality of what we are giving in overseas development assistance.

A second major development has been that with this emergence of a more democratic form of government and an open society, the role of civil society, which includes non-governmental organizations, trade unions, the churches, has become much more effective and much more apparent, particularly in the developing world.

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So now we have a world with official institutions, with civil society and a with new and major factor, which is the private sector. The private sector has grown enormously in terms of the developing world. Seven years ago the private sector was in-

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vesting internationally into the developing countries a total of $ 30 billion. That was at a time when official assistance was $ 60 billion. The World Bank and others like us were twice the size of the private sector. Seven years later, the official sector has shrunk from $ 60 billion to $ 45 billion, and the private sector has gone from $ 30 billion to $ 245 billion. It has gone from half the size to five times the size.

So when one looks now at the challenge of a globalized economy, one is looking at a quite different world than the one we knew seven years ago. And for every dollar invested from the outside approximately five dollars is invested by domestic investors. So you cannot think of the role of the World Bank in terms of alleviating poverty, and you cannot think in terms of sustainable development, and you cannot think in terms of economic policy without thinking in terms also of the enormous role of the private sector.

But 75% of private sector money goes to just 12 countries. 140 countries, get only 5% of private sector flows, and South Saharan Africa gets only 1% of private sector flows. So again we have this extraordinary imbalance between rich countries and poor countries. We have the countries that get investment, and the countries that do not get investment. And that is mirrored by the imbalance within countries between the rich and the poor, which in many countries is expanding, not diminishing. And that presents a tremendously important challenge for us at the World Bank to try and help countries to develop an environment in which they can get adequate investment in their countries.

And that leads me to the fourth partner, which is, of course, the governments of the countries themselves and the administrations in the countries themselves, obviously the most important partner, because without governance in the countries in terms of their administrations and their parliaments, you cannot do any projects in these countries, you have chaos. So when we talk economic policy today, it's no longer the World Bank or the Fund dictating, it's no longer even the government of a country deciding itself what it wants to do. You have to bring together four partners in the operation: the governments and the parliaments of the countries themselves with a judicial system and a regulatory system that attracts foreign investment,

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gives property rights to people, and attracts domestic investment. You have to think of the private sector, which is taking an ever increasing role, and with that, by the way, the rights of labour and trade unions, which is a particular concern to this organization, the role of civil society, and then the role of the official institutions.

Now, what we are trying to do at the Bank, is to change. We are trying to adapt to these new needs. Many people would say of the Bank, the Bank is arrogant, it tries to dictate, it makes absolutions in Washington, flies in, stays for two weeks, flies out, having seen only the government. The younger the person from the Bank, the higher the official they want to see. If you're 28 you have to see the President, if you're 35 you set off for the vice-president, if you're 50 you might set off for the minister. I think many of you know the types and you know the system. So we have had to try and change our institution a) to be a little more modest; b) to listen and c) to focus on the real issues which for us are the issues of poverty and environmental sustainability. That has brought us to really focusing ourselves on the issues of policy in terms of development. And by us I mean not just the Bank, but our sister institutions IFC, which is the institution which deals with corporate world, and MIGA, which insures certain risks of investment. And we are trying to do this together.

And we are trying to say, first of all, that development is essentially a problem and an opportunity for the people in the countries that we serve. We are there to help. Second thing we have to understand is that we better listen, because typically citizens of a country living in a region will know more about that country and the region than we do. What we can do is to bring some experience, which we try and do, but the projects have to be owned by the people of the country.

For many of my colleagues that has been a difficult lesson, because they thought of projects as World Bank projects. It's incidental that as project is owned by the Brazilians or by the Indians, it's a World Bank project. And so we're trying now to retrain our people and to make them open to deal with the other partners in the equation, because if we don't deal with the other partners or the other official institutions, such as the German official assistance agencies and the international agencies,

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the private sector, civil society and the governments, if you don't deal with that, you have absolutely no chance of arresting the real problem, which is the growth of poverty.

World population is growing today at 80 million at year - 90 percent of that is in the developing world. That is an enormous challenge. And it means that we have to change the way we think about development. All of us in the international community has made the same mistake. We've all thought in terms of a project here a project there. We'll do a project on education in the north of the country, we'll put an immigration project somewhere here, we'll put a health project somewhere there, and we'll come back thinking we've done a terrific job, that it worked, worked in 70 or 80% of the cases.

But if we are going to deal with the issue of poverty; if we are going to deal with the issue of a degrading environment, one in which we are losing our forests, in which the air is getting dirtier, in which water is becoming less available and more polluted, all the things that many of you know - if we are going to deal with this, we have to recognize that we will lose this battle, unless we can come up with solutions and approaches, which can be extended and adopted by countries for major implementation.

And so what we are trying to do at the Bank now, is to try and think of what is basic in development. What is it that will make the difference? It's not charity, because charity is not what developing countries want. What they want for the people in these countries, is an opportunity. They want a chance, and that starts with education. So the first thing that we are looking at in of policy is education, not just for men, but education equally for women, men, girls and boys. Without education you cannot have sustainable development and you cannot reduce inequality.

The second thing is, if you have education you must have sustainable health care and nutrition. Why? I've just come back from Bangladesh. In Bangladesh we've just worked with the government to get girls admitted to schools and to have greater primary school education, a great achievement. But 25% of the children are coming damaged because of lack of nutrition, 25% of the kids are suffering from dwarfism, that they don't grow to the right height, they are badly medically affected.

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Thirdly, rural development. 70% of our clients live in rural areas. You have to have communications, you have to have rural roads.

Fourth thing: water. You must be able to deliver clean water, because if you don't have water and you don't have clean water, people get sick, they dehydrate. Women's lives are dominated by having to walk miles to try and get water.

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Power: You have to try and connect them with some form of power, not just because it's necessary, but because if we don't, we simply won't be able reduce carbon emissions or stop people cutting down forests. The reason we don't have forests today is because people didn't have power. Poor people cut down trees because they need firewood for heat and for cooking. That has happened for many years. The problem today is that we have too many people that don't have power. We have two billion of them.

And finally, we need to have some form, a very important form of economic planning and financial systems control. What has happened recently in Thailand and Indonesia, spreading to Brazil, spreading to Russia, is an example of the fact that this world is now systemically linked between the developing countries and the developed countries. But the most important aspect of it is that when you have a financial collapse, the people that get hurt the most are the poor people. People that have some reserve of money can continue to live. But if you're living on a dollar a day, you're dependent on earning that dollar that day in order to eat. And

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all of you, I'm sure, have seen people like this. The first people that get hit are the people of the bottom of the ladder. So, some form of financial and economic stability is essential, and some form of growth is essential.

That is the way in which we at the Bank see it. It is not an extensive description, but it is a description of an approach with one other very important element. And that element is that we're now trying to put people first. We're now trying to scale our projects and work by listening to the individual villages, families, towns, regions. Because if you don't get ownership by the people of your projects, you will not have successful projects. That is where the partnership with civil society becomes crucial.

We've just now in Africa succeeded in eradicating 80% of river blindness. This is a magnificent example of the partnership I've described. For those of you who don't know what river blindness is, it is a disease which is transmitted by mosquitoes in low lying river areas. They bite you, they infect you with the parasite, and within two years you're blind. The result was that people left millions of acres or hectares of land that is the best land near rivers, because they associated it with going blind.

We came together with civil groups in West Africa, who would tell us where the mosquitoes were. Together with local governments and financed by international institutions we put in small helicopters to spray the areas. An American drug company came up with a pill that it developed for veterinary purposes for animals. But if you take one a year, it stops the infection. The distribution was done by civil society. And we've now done between 70 and 80% of river blindness has been stopped in West Africa. The impact is that we've had an enormous economic recovery. It could not have been done by the Bank alone, it could not have been done by the government alone, it could not have been done by the private sector alone, but it's a spectacular example of the way in which we need to work. I could give you others.

But for us the challenge now is the challenge of getting down to the human level and doing it within the context of partnership. That is the new order of things, that is what we're trying to do. And I wanted to tell you about it before you ask questions, so that when you tell me how bad we are, I will be

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able to tell you that we're doing something different today. So I thank you for your attention. And I was told that I should finish now and open myself to any questions that you want to ask, and I'll be delighted to answer them for you. Thank you very much.

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