Foreign Policy In Focus

On Friday, President Obama announced that he is nominating physician and Dartmouth College President Jim Yong Kim to lead the World Bank. This likely appointment was greeted with approval by many long-time critics of corporate globalization. And it came after an unprecedented level of debate about who should be the institution’s next president.

By tradition, the World Bank president has been a political appointee named by the White House. Europe has agreed to go along with this arrangement, with the tacit agreement that a European, in turn, would be named as director of the International Monetary Fund. As for the rest of the world...well, the IMF and World Bank haven’t traditionally put too much weight on what the global South thinks.

This year things have been a bit different. For the first time, there’s been a concerted—and effective—effort to intervene in the nominating process and prevent a crony coronation. To this end, a variety of developing countries and progressive leaders got behind the candidacy of economist Jeffrey Sachs, who in recent years has refashioned himself as an anti-poverty crusader.

But other critics of the status quo were skeptical of this pick. Although Sachs now tries to highlight his anti-poverty credentials, he was previously known as a neoliberal “doctor shock,” advising on “stabilization” programs in countries such as Bolivia, Poland, and Russia in the 1980s and 90s. This history earned him a place as a leading villain in Naomi Klein’s The Shock Doctrine.

Sachs has never been big on apologizing. And many followers of Latin American politics, including me, find his lack of remorse for his role in Bolivia to be a big problem. But, in a debate hosted at the Nation (in which John Cavanagh and Robin Broad made the case against Sachs), progressive economist Mark Weisbrot—an outspoken defender of Latin America’s “New Left”—wrote in the nominee’s defense. Weisbrot contended:

"Sachs has a reform agenda for the Bank, including having the Bank focus more on treatment and prevention of infectious diseases, support for small farmers, education and primary health care, and renewable energy (as opposed to fossil fuels). He also has a track record of having fought for debt cancellation, an end to the World Bank’s policies of imposing user fees for primary health care and education, for the Global Fund to Fight AIDS, Tuberculosis and Malaria (which has saved millions of lives), increased access to essential medicines, and having been outspoken against war and other abuses by the US government."

Weisbrot and others also made a few arguments on the strategic level. First, they contended that Sachs was far preferable to Larry Summers, who was seen prior to the Kim announcement as Obama’s likely pick. (I can hardly argue with them on that point.)

Second, they emphasized that putting forth a credible opposition candidate would throw open what is usually a closed process and pave the way for more progressive candidates in the future. Indeed, as the Sachs nomination gained steam, two candidates from the global South also entered the fray: Colombian José Antonio Ocampo, a former finance minister and UN official, and Nigerian Ngozi Okonjo-Iweala, also a finance minister of his country and a former managing director at the World Bank.

In the end, Obama did not nominate Summers. And, ultimately, Jim Yong Kim might be a better pick than anyone for whom critics of the World Bank could have realistically hoped. Kim’s main progressive credential—and it’s a compelling one—is having served as executive director of Partners in Health (PIH), co-founded by Paul Farmer. If you haven’t picked up Tracy Kidder’s excellent book about Farmer, Mountains Beyond Mountains, there’s no point in delaying any longer. Farmer’s work is remarkable by all accounts and, grounded in liberation theology, it shows a deep preference for the world’s poor against the Washington Consensus.

Kim has been lower-profile than Farmer. But there are some good signs that he will bring a very different perspective to the job of World Bank president than his predecessors. One is the fact that Kim is now drawing heat from the right for writing in a 2000 book, Dying for Growth, that “the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men.”

Then again, the Wall Street Journal writes, “Over Dr. Kim’s three years at Dartmouth he has proved to be higher education’s Paul Ryan. He decisively resolved the school’s financial problems that he inherited on taking office—with real budget cuts, over the objections of the faculty.”

I called up Mark Weisbrot to talk more about the Kim nomination, about the debate around Sachs, and about what difference having a new World Bank president might make. Some edited excerpts from our conversation follow:

Engler: Are you happy with the nomination of Jim Yung Kim?

Weisbrot: Yes, I think it’s great. To have somebody who cares about health issues is completely different. Look at the past eleven presidents. They’re all bankers, war criminals—not the kind of people I’d want to run my restaurant.

Engler: By “war criminals,” you’re referring to…

Weisbrot: McNamara and Wolfowitz. I don’t know if Wolfowitz is technically a war criminal, but he was one of the architects of the Iraq War. Can you imagine? This is what annoys me when leftists complain about Sachs.

Engler: I’m one of those people who complains about Sachs. True, he’s not as bad as Larry Summers. But I was surprised to see you get behind him.

Weisbrot: Well, do you ever vote in elections?

Engler: Sure…

Weisbrot: I respect the position that the World Bank should just be abolished. I think that’s an argument that people can make. But if you’re going to have a World Bank, there’s more of a difference between Sachs and anybody that Obama was going to appoint than there is between, I don’t know, [former Brazilian President] Lula [da Silva] and his predecessor. There’s a huge difference between Sachs and Summers. That’s what I go by.

Engler: Especially as someone who watches Latin America, as you do as well, I’ve felt that Sachs is inadequately repentant for his past.

Weisbrot: I really don’t care about his immortal soul. That’s for the Pope to judge or whoever else wants to judge that. That’s not my job.

Engler: How much of a difference do you think the World Bank president makes?

Weisbrot: That’s an interesting question. We don’t know because we’ve never had a president there who was anything but a crony. We’ll see what he can change. He has a bully pulpit too if that’s something he wants to use. That’s something I think Sachs would have used a lot, and it would have been hard to fire him. I don’t know if Kim is going to do it.

Engler: What are some of the things that you see a more independent World Bank president promoting, using this bully pulpit?

Weisbrot: The Bank publishes Global Economic Prospects, and they comment on the world economy. So the World Bank president could speak out on the big economic questions that the G20 is dealing with: how to handle the next global economic crisis; how to handle the European crisis, because it affects the developing world. They could speak out on spending priorities for the Bank itself.

But if Kim wants to change anything, he’s going to have to fight. He’s still going to have the Bank’s board [of directors] to deal with. And that board is dominated by the United States and its allies.

It’s not just a question of votes. It’s the fact that developing countries don’t fight. They just don’t fight within the IMF and World Bank the way they do within the World Trade Organization (WTO). In the WTO they form blocks, they fight, and they win. And they’re going to have to get used to doing the same thing in these two institutions.

I think that was a positive part of developing countries supporting Sachs. There were about a dozen of them by the end. That made a difference. I’m not sure the other nominations would have happened if Sachs hadn’t gone in there first. He was the one who busted up the normal process.

Engler: In your mind, what would be a desirable set of spending priorities for the Bank?

Weisbrot: I want them to do more about the things that they can do, like disease prevention and treatment. Kim will do that. And if he does nothing else, that’s still a huge improvement. I think [people at the Bank] can do more in education. They can do more to support small-scale agriculture.

But once you get into their economics, their economics are usually bad. One of the Financial Times reporters today asked me, “What if Kim doesn’t know that much about development economics?”

I said, “I don’t think that’s a handicap. I don’t think the Bank should be involved in that anyways. Let them do what they can do, because they usually get the economics wrong.”

Mark Engler is a senior analyst with Foreign Policy In Focus and author of How to Rule the World: The Coming Battle Over the Global Economy (Nation Books, 2008). He can be reached via the website Democracy Uprising. 

Cross-posted from Warscapes.

No crisis of economy would be complete without a couple of cents from Jeffrey Sachs. The godfather of shock-turned-bleeding heart advocate for poverty eradication has simply dominated development economics -- in both theory and practice -- for the better part of the past two decades. From his days pimping out neoliberal privatization programs to the world’s poorest countries, to his more recent stint as passionate advocate of kinder, gentler, but equally fraught policies of external debt cancellation, Jeff Sachs -- as he never tires of telling us -- has been all over the map.  

Sachs is best known as a crusading activist for eliminating poverty who enlists the help of folks like Angelina Jolie and Bono. But his fame circumvents an understanding of his economic theories, which have been applied with disastrous consequences. He first came to global prominence in the mid-1980s as the wunderkind of Harvard University’s econ department. He became one of the school’s youngest tenured professors at twenty-eight, and quickly sold himself as an advisor to struggling governments dealing with crises of hyperinflation, a topic about which Sachs boldly claimed to know “just about everything that is needed to be known.”

It was during this period that the young economist fashioned his unique brand of shock therapy -- a free market fundamentalism of privatization, deregulation, and government subsidy-slashing for commodities such as oil, met with debt relief and foreign aid -- that would later take shape as the Washington Consensus and be subsequently savaged by the likes of Naomi Klein, William Easterly, and Dambisa Moyo. Despite massive policy failures in countries that followed his advice, Sachs has successfully avoided accepting any responsibility for suboptimal outcomes of his theory. On the contrary, he has reinvented himself as an economic tutor to the stars, and now with his new book on how to fix the American economy, his position as the most influential commentator on economic crises is more secure than ever.  

So it shouldn’t be a surprise to find the tirelessly self-promoting Sachs holding forth on the recent Nigerian crisis in the op-ed pages of the New York Times, despite the fact that the former boy wonder of development theory has been, well, wrong on just about every major crisis since the collapse of the Soviet Union.  

Wasting no time in publicizing his own elite status in the current crisis in Abudja, Sachs argues that despite continuing demonstrations against the government’s surprise decision on New Year’s Day to halt state subsidies of oil for millions of Nigerians, things aren’t as bad as they seem.      

Meeting with the president and his economic team in Abuja last week, in the midst of protests against the subsidy removal, confirmed my view that the Nigerian government has an unprecedented opportunity to clean up its act and win back the support of a long-suffering population. The president spoke of taking the tough medicine necessary to build the foundations for long-term growth. His lead economic architect is Finance Minister Ngozi Okonjo-Iweala, newly returned from a top spot at the World Bank.

What should raise the eyebrows of even the most casual observer of political economy – that policy is now being shaped by a World Bank alum -- is for Sachs precisely the “glimmer of hope” in an otherwise bleak landscape of corruption, political instability, and staggering nationwide poverty. At the core of the subsidy dilemma, Sachs correctly argues that corruption and elite free-riding represent the most formidable roadblocks preventing equitable reform.

When a country depends excessively on one or two key resources like oil, gold, or diamonds, politics too easily descends into megacorruption and a brutal struggle over the resource earnings…Oil exporters like Nigeria very often keep domestic oil prices low as an easy sop to powerful local interests. Nigeria’s oil prices were among the lowest in Africa until the subsidies were abruptly ended January 1. According to the government’s estimates, the oil subsidy in 2011 amounted to a staggering $8 billion, roughly 4 percent of GDP…Nigeria’s well-to-do households, with their cars and large diesel generators, and also some adroit oil smugglers, captured much of the subsidy. 

These observations are largely correct as far as they go. What’s instructive, however, is that when dishing out prescriptions to help remedy the situation, Sachs does not suggest that the government reform its own rotten institutions or prevent poaching by the nation’s wealthiest families. Instead, we’re told that the vast majority of the country’s poor -- who depend on oil subsidies to make possible everyday things like getting to market and keeping cool -- should be forced to shoulder the lion’s share of sacrifice as Goodluck Jonathan pursues market reform under heavy pressure from the International Monetary Fund. 

Welcome to Shock Therapy 2.0. The effects of the entirely unexpected subsidy removal were profound. The price for fuel doubled overnight, inflationary pressures quickly took hold as the price for basic commodities skyrocketed by as much as 100 percent, and people poured into the streets in protest. But for Sachs, these are simply the spasmodic death throes of the country’s old, decrepit order giving way to a “new day for Nigeria.” The rewards for short-term pain, Sachs tells us and as advocates of austerity always promise, will arrive down the line in the form of long-term socioeconomic improvement. Says Sachs,

The government ended the subsidies to redeploy the 4 percent of GDP toward long-term development needs, including health, roads and power. The reform logic is sound. Using the 4 percent of GDP in a strategic manner can do far more for Nigeria’s poor and the country’s long-term growth than haphazard giveaways of cheap oil.

Trouble is, none of this is true. Nigeria’s “new day” looks increasingly like days of old when the country suffered under military rule. Faced with growing street demonstrations, Jonathan emptied the barracks, ordered the arrests of lead activists, and threatened to charge citizens with treason if they didn’t abandon their protests and get back to work. Thus far, at least twenty people have been confirmed killed in the protests, with hundreds more sustaining injuries at the hands of Nigerian soldiers charged with suppressing dissent.  

And to suggest, as Sachs does, that Jonathan’s administration can be trusted to carry out the sort of reforms promised is to ignore reality entirely.  “When Nigeria won relief on its external debt in the mid-2000s,” Sachs argues, “the savings on debt service were actually redirected to meaningful social investments in the states and local governments. The government is now promising to turn the outlays on subsidies into outlays on specific and closely monitored investments in health care, infrastructure, job training and other areas.” Sachs’ embedded embrace of austerity -- implicitly suggesting that debt relief schemes, when managed successfully, allow governments to accumulate reserves of public trust that can be drawn down on at a later date to soften the blow of social spending cuts -- is as troubling as it is based in fantasy. Nigerians have seen little improvement of the sort Sachs suggests, even as the government continues to lavish grotesque sums of capital on itself.

After difficult negotiations this past weekend, the Jonathan administration reversed itself on the question of subsidies. The government reinstituted subsidies to roughly half their previous levels prompting labor unions to call for an end, if only temporary, to nation-wide strikes which had brought the country’s economy to a halt. Nevertheless, as CNN reports, “heavy military presence was still evident in [Lagos’] streets in the evening, with armed checkpoints set up at most key bridges and along major roads in the city.”

Interestingly, the compromise seems to have shaken Sachs out of his development reverie. When I asked Sachs, via Twitter, to comment on Jonathan’s about-face Sunday, he responded that he was “glad there was compromise reached today. The whole episode was very poorly managed. Nigeria needs more basic reforms.” I responded that it was messy, and pressed him on what I take to be his application of a double-standard -- raging against neoliberalism this past fall in Zuccotti Park but defending policies of austerity and “shared sacrifice” for Africans. Sachs replied that he “wasn’t calling for shared sacrifice and austerity in Nigeria. I was calling fr [sic] end of subsidies to rich and targeting poor.” When I pointed out that he explicitly employed the rhetoric of shared sacrifice (“To share the pain, the president has ordered cuts in top salaries in the government…”), Sachs clarified that he “meant to be saying that the subsidy removal was causing pain, not to be recommending pain! Perhaps badly phrased.”  

Badly phrased, indeed. My suggestion that he write a follow-up editorial making his new position clear was met with silence. Perhaps he was otherwise engaged: Sachs got pounded repeatedly throughout the day by Nigerian bloggers and other informed observers for his defense of Jonathan’s original policy posture in the matter. This morning, in a flurry of tweets, Sachs retreated from his editorial, noting that he “spoke too fast, too soon, without knowing the details,” that he “had nothing to do with the policy, learned of it after,” that “he knew nothing of about [the policy] beforehand,” and that his “comments were misjudged,” but managed to slap a Band-Aid on the mess by noting that “I always try, but I do not always get it right.”     

Unfortunately for everyone else, there will be no penalty or meaningful censure for such profoundly dangerous sloppiness. Sachs’ most recent fit of poor judgment will be quickly forgiven -- rewarded, even, with future opinion pieces in the world’s most influential editorial section. For this very reason, it’s worth reminding ourselves of the important lessons to be drawn from this episode: Sachs had no idea what he was talking about, his knee-jerk response to the crisis celebrated policies of austerity and economic shock, and the Grey Lady gave none of it a second thought. Neoliberalism, it would seem, is alive and well.