James Leroy Wilson's blog

Tuesday, March 22, 2005

The Wolf at the World Bank

Fred Foldvary on Paul Wolfowitz's appointment to head the World Bank:

We have to realize, of course, that the world does not need a World Bank at all. The U.K., the U.S., and Japan developed without any World Bank. An underdeveloped economy presents profit opportunities for investors. Cheap labor provides a comparative advantage. All that is needed for rapid growth is for the government to avoid stifling it with taxes and restrictions.
But, the reality is that the World Bank exists, and is going to meddle in development. The $20 billion in annual lending will always generate a moral hazard, meaning that the governments of developing economies will indulge in corruption, huge welfare-state programs, and mismanagement, because uncle WB will pay for it. When the time comes to pay back, they will cut education, medical care, and security to squeeze out the interest payments. Then the country will default anyway, and like Argentina, pay back pennies to the dollar or euro.
The best outcome would be if an angel were to descend from heaven and, verily verily, say to Dr. Wolfowitz: "Go, and tell the governments that they shall receive no loan unless they shift taxes from wages and sales to land value. They shall eliminate restrictions on enterprise, and tax pollution and the land. Then shall economies develop rapidly with private investment. Use thy clout to make them change to economic freedom, with the benefits of natural resources going to all the people, not just an elite. And thou shalt not finance any project tainted with corruption! T'aint right!"

But that is only a dream. There is no angel. There is only a wolf in charge of the sheep. The wolf is a banker, so he will not kill the sheep, but only fleece them. That's the way the world works. It would work that way no matter who is the World Bank president, so it may be good to explicitly recognize that any head of the World Bank will be a wolf in banker's clothing.

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