After a full fix of power partying, the guests filed out of the reception room and into the concert hall. There was a murmuring and a whispering as the programmes were opened: the host, James Wolfensohn, was going to play, but what had he chosen and how long would he go on for? One woman was asking how Wolfensohn could find time to practise the cello while running the World Bank, a man next to her was wondering how late dinner would be served, and a third guest was recalling that this was Wolfensohn's 70th birthday, and that he had regaled his friends with similar concerts on his 50th and 60th. The guests waited and whispered, and up and down the auditorium there was a mute conspiracy of understanding. This extraordinary birthday party was at once touchingly human and monstrously egocentric. Despite running the World Bank, despite setting the agenda in the global war on poverty, Jim Wolfensohn still had to get up on stage, show off his musical prowess and lay himself open to his guests' potential ridicule. There was something adorably brave in this, and something preposterously vain at the same time. "You gotta love Jim," the guests seemed to be laughing. So absurdly exhibitionist. So humanly in need of adulation.
James David Wolfensohn has a knack for provoking contradictory feelings, both in his role as president of the World Bank and in his many other capacities. During his long career in finance, philanthropy, music and development, he has shown a magical ability to seduce and enrage. His hunger to impress has fuelled the accumulation of a fabled personal network: he can scarcely meet anyone without locking in, empathising, and forging a new friendship. His faults are equally vivid: paranoia, narcissism, a volcanic temper. It is as though Wolfensohn were born with a triple dose of all the contradictory energies that animate humanity's lopsided progress: avarice and generosity, egocentricity and compassion, confidence and insecurity; and most of all a restless desire to do everything that man can do and be the best at it.
The verdicts on Wolfensohn's tenure at the World Bank—he retires in May at the end of his second term—are as various as the reactions to his personality. He was a "renaissance man," according to a Financial Times profile welcoming his appointment in 1995; he was to blame for "a tragic deterioration of the world's premier development institution," according to another FT profile, six years later. In the summer of 2001, the journal Foreign Policy almost provoked his resignation with a cover story entitled, "The Man Who Broke the Bank?" while Foreign Affairs weighed in with an assault on the bank's "mission creep." But although the reviews of his tenure have been richly polarised, Wolfensohn's position at the helm of the World Bank has seemed somehow natural. The bank is an institution that is said to influence more lives than any other in the world. What could suit Wolfensohn better? A dreamer who wants to do everything in the world stands atop an organisation that wants to change everything within it.
Wolfensohn grew up in a modest home in the suburbs of Sydney. His parents had emigrated from England during the depression, and later helped to resettle the flood of fellow Jewish émigrés who arrived in Australia during and after the second world war. The parents lavished attention on their two children, and especially their son, who was ten years younger than his sister and so almost an only child. But their indulgence was mixed with something else—something that instilled in the young Wolfensohn a vast and raw ambition. The young boy's father—Hyman Wolfensohn, always called Bill—was proud, intellectual and profoundly frustrated. His plan to become a doctor had been interrupted by the first world war; he had moved to Australia in search of his fortune, but had been disappointed. And so he projected his frustrations on to his young son, fostering a lifelong insecurity that could only be assuaged by high achievement.
Jim Wolfensohn's first accolade came in 1956, when he was sent to represent his country as a fencer at the Olympics at the age of 22. The following year he won a place at Harvard Business School. (The goading pressure of his father followed him: during Jim's years at Harvard, Bill Wolfensohn wrote to him each day, even though he usually had nothing to report beyond banal everyday detail.) In 1961, Jim married Elaine Botwinick in New York. She is also a music lover and they had met at a rehearsal of the Boston Symphony Orchestra. Wolfensohn soon took his bride back to Australia, where he embarked on a banking career.
Wolfensohn quickly discovered a golden gift for wooing grand clients, and he found that music could be a powerful ally in these seductions. He had a sophisticated ear, a facility for referring learnedly to the latest and most challenging concert, and this endeared him to patrons such as Siegmund Warburg, then London's pre-eminent financier. When Wolfensohn left Sydney to join Schroders in London, he befriended the rising generation of concert performers: men like Vladimir Ashkenazi, the great Russian pianist-conductor, and Daniel Barenboim, his Argentine-Israeli rival. A few years later, Schroders appointed Wolfensohn to relaunch its ailing operation in New York, and he broadcast his arrival with a concert at the revamped Schroders office. Finding a big-name performer was no problem at all. Wolfensohn called up Ashkenazi and asked him how he would like to be the first Soviet musician to open a commercial bank on Wall Street.
It was the friendship with Barenboim that started Wolfensohn down the road to his Carnegie Hall birthday party. Barenboim had married Jacqueline du Pré, a magical British cellist whose life later became the stuff of legend. Du Pré was intense, impetuous and played with a rare flame; her performances went from glory to glory until one day in 1973, when rehearsing for the New York Philharmonic, she found she could not feel the bow in her fingers. The conductor, Leonard Bernstein, thought she was throwing a spoilt genius fit, but the odd signs persisted and she would sometimes lose her balance. Eventually she was diagnosed with multiple sclerosis. She was 28; her career was over.
On the day that hope gave out, du Pré and Barenboim had dinner with the Wolfensohns. Jacqueline was in despair, at a loss for what to do now that her concert days were over. Wolfensohn suggested teaching, but Jacqueline retorted that no one would want to study under her; to cheer her up, Wolfensohn said he would. The next day she called his office and said she had found him a cello; she was ready to start teaching right away if he would promise to perform a concert on his 50th birthday—then several years away. Driven by this unusual teacher, Wolfensohn mastered the instrument despite his hectic career; he sometimes bought two seats on Concorde so that his cello could travel with him. As his 50th birthday approached, du Pré made a point of holding him to his promise; and Barenboim insisted that Wolfensohn must play at Carnegie Hall, alongside a who's who of musical acquaintances.
In the two decades between that birthday party and his 70th, a lot happened to Wolfensohn. He had founded his own small investment bank in 1981, trading on the cachet he had acquired by orchestrating the previous year's bailout of the Chrysler car company. Wolfensohn Incorporated soon became an astonishing cash cow, and by the early 1990s he was worth perhaps $100m. His firm was a mirror of his personality. One of his early recruits recalls, "You would never know whom you would run into in the lobby. You might meet Jimmy Carter, or an opera star, or a famous basketball player, or a dance group from Harlem, or a South American president." This style of business drew plenty of snide comments: Wolfensohn was dismissed as a sycophant with a Rolodex, a charmer with no substance; it was said that vain corporate captains who went in for trophy wives were smitten with this trophy banker. But the jealousy obscured the real reasons for Wolfensohn's success. He had the energy of ten normal men, and his charm was matched by a formidable intelligence.
By the early 1990s, Wolfensohn's life was brimming over. As well as running his own firm, he was chairman of two of America's grandest cultural venues: Washington's John F Kennedy Centre for the Performing Arts and Carnegie Hall itself. He chaired the Institute for Advanced Study at Princeton, he was an adviser to Harvard's John F Kennedy school of government, he was a trustee of the Howard Hughes Medical Institute, and more besides. But it was around this time that Wolfensohn began to focus seriously on an ambition that superseded all others. He wanted to be president of the World Bank.
The bank is the world's most important development organisation. Its main business is to lend money to governments in the poor world—some $20bn in loans each year. The very poorest get heavily subsidised credits, with the subsidy paid for by rich donor governments; but middle-income countries (like Brazil or Thailand) pay commercial interest rates. This second category of lending gives the bank a precious financial independence. It raises capital by issuing bonds, then passes the money on to its clients at a small profit. The profits finance a Rolls-Royce professional culture. The bank's gleaming headquarters in Washington are filled with first-class brains, more capable by far than the staff of the average UN agency. At the same time, the bank is broader in scope than its sister body, the International Monetary Fund, which has a narrow mandate to monitor countries' macroeconomic policies.
Wolfensohn's opening came at the start of 1995, when Lewis Preston, then president of the bank, fell ill with cancer. The bank's strategic importance was as clear as ever at the time. Mexico was in the midst of a currency crisis that threatened to destabilise America's 2,000-mile southern border, and the bank was readying $1bn and a team of experts to steady the country's banking system. In the previous half decade, the institution had tried to guide the economic transition of ex-communist Europe, and was still engaged with the states of the ex-Soviet Union. Meanwhile the Clinton team, prodded especially by Al Gore, was waking up to a range of security issues that had been edged aside by the cold war. Environmental degradation, refugee flows, Aids, drugs, financial crises: all ended up affecting voters in the rich world, and all caused administration officials to turn to the World Bank for expertise and funding.
For all its importance, however, the bank was fragile. Since the departure of Robert McNamara, the Vietnam-era defence secretary who ran the bank from 1968 to 1981, it had suffered a string of short-lived and unsuccessful presidents. It was vilified by the left, which accused it of environmental destruction, indifference to the rights of indigenous peoples, and economic sadism: in partnership with the IMF, the bank had forced budget tightening, devaluation and deregulation on much of the poor world, and it refused to forgive any of the debts that its struggling clients owed it. Meanwhile, right-wing critics were on the attack too. The bank, they said, had been created for a world of capital controls and infant financial markets in borrowing countries; a world in which there was a clear role for an institution that borrowed money on Wall Street and passed it along to poor nations. But now that private capital flows were exploding, it was argued, that function was unnecessary.
By tradition, the US chooses the president of the World Bank, while the boss of the IMF is chosen by Europeans. When Preston's cancer became public, the Clinton administration created a search committee to find a successor. But as they worked diligently through the various options, the committee members developed an uneasy feeling. Their deliberations were being overtaken by outsiders who had no doubt as to the right choice—outsiders who, in almost all cases, thought the right choice was Jim Wolfensohn.
There are no clear rules about how jobs get dished out in Washington. You call someone who owes you one, or perhaps someone who would like to be owed one, and that someone calls another someone who owes somebody else one, and the calls ripple this way and that way until, if you are successful, they reach the Oval Office in the west wing of the White House. This is what Wolfensohn was doing, except that he was not just calling a few friends, he was wielding a vast switchboard of entangled lines that looped and curled and stretched around the world, each ending up with a devoted and distinguished associate in finance, or music, or academia, or politics or any of the dozen other areas that Wolfensohn's energies encompassed. Wolfensohn was bent over this switchboard, coaxing and tickling the dials. A switch over there connected him to Vernon Jordan, Bill Clinton's golfing buddy. A small dial in the centre hooked him up to Paul Volcker, the former chairman of the Federal Reserve who had become Wolfensohn's business partner. Despite some resistance from Robert Rubin, the treasury secretary who got his way on most economic questions during the mid-1990s, Wolfensohn networked his way into an audience with the president before long. Not only did he use this interview to clinch the job, but he made another friend as well. Clinton chose to celebrate his next two birthdays at Wolfensohn's ranch in Wyoming.
Wolfensohn arrived at the World Bank like a tornado. He had absorbed the left and right-wing criticisms, and he was determined to beat both; he wanted the bank to be as gloriously successful in the war on poverty as his own bank had been at landing deals on Wall Street, and he was ready to turn the institution upside down if necessary. But the World Bank is a proud animal; its 10,000 professionals form the brightest concentration of development experts anywhere, and many of its senior staff resented this showboating new boy, who seemed long on glitzy contacts and short on gritty development experience. And so there followed a titanic clash. In one corner, a plutocratic financier who always got his way; in the other, a phalanx of PhDs, with years of development experience.
Wolfensohn responded to the challenge by going into overdrive. He declared that he wanted to meet all 17 vice-presidents, the barons who controlled the bank's various regions and technical specialities. He went to see them on their own turf, so he could walk the corridors and feel the institution. Since the bank's senior barons seemed testy, he sought out potential sympathisers further down the ranks. Nothing like this had ever happened in the reign of his predecessor Lewis Preston, and maybe not in any previous reign either. The president was supposed to be aloof, ceremonial almost; you wheeled him out to meet visiting heads of state so that the veteran experts on the staff could proceed with the real work. But Wolfensohn would never settle for that role. Within weeks of his appointment, he had talked to more staff than Preston had done in his entire presidency.
Wolfensohn also set out to woo the bank's NGO antagonists. The year before his arrival, left-wing critics had marked the bank's 50th anniversary with the "50 years is enough" campaign, a sort of precursor to the anti-globalisation movement. Wolfensohn set out to meet these antagonists, charm them, and make them feel that they ought to be the bank's allies—that they shared the same poverty-fighting goals, and that they could make common cause in this mission. Before Wolfensohn's arrival, the bank used to receive thousands of protest letters, and most went in the bin. Wolfensohn declared that henceforth vice-presidents would respond; when the vice-presidents sent back bland replies, Wolfensohn hollered that he wanted to read them all himself and add a personal note at the bottom. "Thank you for writing and please keep in touch," he would say, and sure enough the flattered letter-writer would soon write again, and before you knew it the bank would be locked into a game of ping pong, back and forth, back and forth, with some tiny NGO in the Philippines or Guyana.
Wolfensohn's first big clash with the orthodoxy of the bank came on the subject of debt relief. By the mid-1990s, the case for forgiving unpayable loans had become obvious. As NGOs such as Oxfam frequently noted, Uganda spent around $2.50 per citizen on health annually, against $30 on debt repayment. How could such a poor country, which was pursuing all the orthodox economic reforms that the World Bank had urged, make headway against poverty if it was saddled with old debts? And yet the official policy at both the bank and the IMF was to resist debt relief fiercely. Both institutions argued that rich governments should forgive their debts, which would give poor countries the spare cash to repay bank and IMF loans. The bank also argued that cancelling its loans would harm other developing regions. It would amount to a public admission of trouble in the bank's portfolio, and this would undermine its ability to raise capital cheaply on Wall Street, so raising costs for all the bank's borrowers. Among World Bank staff, the mere mention of debt relief was taboo.
Wolfensohn resolved to change that. He came to the bank with the instincts of a corporate financier. If debts were unpayable, then they ought to be restructured. Moreover, his political antennae told him that Africa's debt burden was a burden for the bank too: there was no way that the bank could make peace with its NGO critics if it refused all talk of debt relief. From his first months at the bank, therefore, Wolfensohn began to pound away at the orthodoxy, and disregarded resistance from the IMF, several of the bank's main shareholders and many of its economists. By autumn 1996, Wolfensohn had got his way. For the first time in their half-century histories, the bank and the IMF promised modest debt relief.
This victory did more for the bank's image than for the finances of poor countries. To ensure that debt cancellation did not release money to buy more presidential palaces or tanks, it was granted only on strict terms: supplicants first had to establish an exacting track record of diligent economic management. By 1998, of the 40 countries supposedly eligible for relief, only Bolivia and Uganda had qualified, and even for these two, the fruits had been modest. This spurred a second round of debt relief in 1999. But the need to ensure that recipients were deserving constrained generosity again, which explains why the subject is now back on the agenda. Gordon Brown's proposal to write off 100 per cent of multilateral debt this year makes Wolfensohn's achievement of nine years ago look small. Still, it was Wolfensohn who established the initial principle that multilateral debt could and should be cancelled.
His second crusade took aim at what he called "the cancer of corruption." The bank's founding articles of agreement stipulated that it should lend according to economic, not political, criteria, and this had led it to tiptoe around the corruption of its borrowers. The bank's representative to deeply corrupt Kenya had quit out of frustration with this policy in 1991, and went on to found the corruption watchdog Transparency International. But a year after his arrival at the bank, at the annual meeting of 1996, Wolfensohn denounced the cancer of corruption in front of the whole world, and soon the bank's research machine was gushing with literature on the link between transparent governance and poverty reduction.
The recognition of corruption became part of a third Wolfensohn theme, the most abstract and yet the most important. During its 50-year history, the bank had progressed through a series of theories about what drives development. It had started lending money to build roads, dams and various other sorts of physical capital. Then in the 1960s it had broadened its mission to include "human capital" as well, meaning health and education. Next, around 1980, it realised that none of these projects could achieve much if the surrounding economic framework was rotten, and so the 1980s became the decade of macroeconomic adjustment. By the 1990s, however, this "structural adjustment" was running out of steam; apart from a few exceptions such as Ghana, it had not delivered the expected progress. And so, under Wolfensohn, the bank started worrying not just about the economics that surrounded its development projects, but about the politics that surrounded the economics.
Speaking frankly about corruption was part of this new interest in politics, but it was only one part. The bank under Wolfensohn reformed the way it talked to borrowers. In the structural adjustment era of the 1980s, the bank had negotiated narrowly with rulers and their finance ministers, offering loans conditional upon policy reform; it was a dialogue, in the words of one critical observer, "between bureaucrat and autocrat." But autocrats, as the bank had slowly discovered, seldom deliver on their promises. Lacking political legitimacy, they were too weak to push through currency devaluations or painful cuts in government spending; and they were especially unlikely to do so given that the bank had made no effort to sell its programme to their citizens. So the failure of structural adjustment was not a straightforward defeat for orthodox economic prescriptions, which the bank advocates to this day. Instead, it was a defeat for the idea that you could proceed by technocratic means alone.
Wolfensohn led a double revolt against this way of doing things. With his relationship-banker's instincts, he rebelled against the idea that the bank should impose draconian conditions on its borrowers: that was no way to treat a client. Instead, he set out to create a "listening bank," one that would help borrowers achieve objectives that they set for themselves, rather than impose conditions that were usually reneged on. At the same time, Wolfensohn rejected the idea of limiting the bank's dialogue to presidents and finance ministers. The bank would win allies for its policies among church leaders, businessmen, trade unions and civic groups. Its field offices would be filled with an eclectic cast of counterparts, much like the headquarters of Wolfensohn Incorporated.
Wolfensohn's intentions became clear within two weeks of assuming the bank presidency. On a swing through five countries in Africa, he made a point of going out into the villages and shanties and hearing from a mixture of voices. Here was the bank's president in a slum outside Kampala, marching across an open sewer on a makeshift bridge of rough planks. Here he was meeting the lowliest of the bank's clients, pressing on into a slumscape dominated by coffins—long ones for grown men, miniatures for children—all stacked up in a macabre monument to Uganda's Aids victims. Stopping at an NGO health clinic on that visit, Wolfensohn gave the nurse a full-bodied bearhug which appeared the next day on the front page of a Ugandan newspaper. Nothing could have been better for the World Bank's image.
If this stylistic change came instantly, the substance followed more slowly, but it is this that is at the core of the Wolfensohn legacy. By 1999, four years into his tenure, the World Bank's shareholders laid down that all countries seeking subsidised bank money must draw up their own poverty-reduction plans, making it clear that they, not the bank, must set their own priorities. The new edict laid down that poverty-reduction plans must be drawn up in consultation with a broad swathe of civil society. Meanwhile, the conditionality of the 1980s was discredited by bank research; between 1970 and 1997, to cite one celebrated example, the World Bank and the IMF made 22 loans to Pakistan that were tied to reductions in the country's budget deficit, yet the deficit failed to budge throughout the period. The move away from donor conditions to country-led development was not, in other words, just a matter of political correctness. Conditions simply did not work. Development would succeed or not depending on the commitment of people in poor countries.
Under Wolfensohn, the bank's lending began to reflect this new thinking. By the second half of the 1990s, lending started to reward good policy. The balance of power between donor and recipient began to shift, and the change is evident in the bank's structure. When Wolfensohn arrived, power at the bank was concentrated at its headquarters, adding to the sense that development was about policy conditions devised in Washington. But in 1996, Wolfensohn started to move power out to the regions. Now more than two thirds of the bank's country directors—the key officials who control the allocation of money—are based in field offices. Rather than handing down conditions from Washington, the new, decentralised bank aims to be out there with its borrowers, figuring out how it can help. This is a humbler, less hectoring vision of the bank; one that seeks to help its clients rather than posing as some quasi-global government.
Wolfensohn's record is not all positive. He fell into the trap that ensnares most newcomers: the belief that a management shake-up could make the bank as efficient as a private company. This is not possible. As a public institution, the bank is answerable to a board of directors, representing shareholding governments, that meets twice a week to pose nitpicking questions about projects, forces managers to spend days chasing the answers, and then complains that the bank is slow and bureaucratic. At the same time, the bank's rich-country shareholders feel free to pile on ever more mandates—do something about Aids, promote primary education, foster entrepreneurs and so on—and then feel equally free to excoriate the bank for lacking focus. Perhaps because his early tenure coincided with the stock market bubble, which was accompanied by a bubble in the reputation of management gurus, Wolfensohn overestimated the magic that private sector practices could work: he brought in McKinsey and convened a buddy group of private sector CEOs to launch a management shake-up that alienated his staff and burned up $250m. This cost and disruption, together with Wolfensohn's tendency to drive the bank into new areas such as cultural preservation, explain the damning press commentary around the midpoint of his tenure.
Wolfensohn also overestimated what his outreach to NGO critics was likely to accomplish. He bent over to accommodate these groups, meeting them wherever he travelled and giving them a seat at the policy table by requiring that the new poverty-reduction plans be drawn up in consultation with them. But none of this bridge-building insulated the bank from the anti-globalisation protests of 2000, nor from some ferocious campaigns to block particular bank projects. The intimidation effect on the bank's lending was profound. For much of Wolfensohn's tenure, the bank shied away from controversial infrastructure projects that might incur the wrath of environmental activists. In 2002, the bank's stunned managers were treated to a presentation on how far this trend had gone. In each of the three previous years, project lending by the bank's unsubsidised arm had been lower than in any of the previous 20.
This retreat might have been defensible if it had won the bank peace with its activist critics, but the critics are as vociferous as ever. It might have been defensible, also, if infrastructure were somehow unimportant to development. But this is not the case: without power projects, there can be no industry and little growth; without water projects there can be few gains in public health; without roads, commerce will be rudimentary. Finally, the retreat from infrastructure might have been defensible had it had no broader consequences for the World Bank. But the bank's precious financial independence depends on sustained lending. Fewer loans to middle-income countries like Brazil and Thailand means lower revenues to pay for the institution.
As Wolfensohn's decade at the bank draws to a close, the institution finds itself in a position depressingly like that of 1995. It remains indispensable: no other institution can rival its sophistication in dealing with development, and development seems even more important to the rich world after 11th September. But the bank remains vulnerable. To the old attacks from left and right, the bank must add two newer challenges. The first comes from debt relief. If the World Bank is to forgive 100 per cent of some borrowers' debts, what happens to the resulting hole in its balance sheet? In the British proposal, donor governments would compensate the bank for the debt payments it forgoes. But in the rival US proposal, the bank would have to do without the cash, meaning that it would have to cut its budget.
The second challenge stems from the uncertain state of the bank's theory of development. The biggest development successes of recent times—China, Vietnam and to a certain extent India—have taken the World Bank's advice only selectively. The bank has reacted by acknowledging that a competent state that can implement policies consistently may matter more than the policy chosen—meaning that its own role as policy adviser is of secondary importance. This new humility is admirable, but it involves a risk. Can the bank continue to solicit money for its soft-loan window while acknowledging that it cannot determine development outcomes? And will its stronger borrowers increasingly do without its help, figuring that there is not sufficient value in the bank's advice to justify dealing with a public sector lender?
For all these reasons, the bank's future cannot be taken for granted, and the character of the institution's next leader may have a big impact on its stability. Some of the names circulating in Washington are alarming; the bright exception, Colin Powell, may not have the stomach for it. And so we face a double paradox. At a time when Britain's leadership of the G8 promises a fresh focus on development and Africa, the world may be about to witness the decline of its main development institution. And at a time when the salience of transnational threats has become conventional wisdom, we may be about to squander the best tool we have to manage them.
