Global Development: Views from the Center

The point about sole source contracting for Iraq is an important one. The Volcker report (and others like it) has nothing to say on LOBBYING-it is all about cracking down on corruption. Yet, in the developing world, lobbying the government results in huge rents to individuals or businesses in the form of contracts. For example, Suharto's handouts to relatives and cronies of logging rights in Indonesia's forests vastly exceeded in value, any bribe that was paid to a government official in that country. My take is that the United States has generally been silent on the issue of lobbying because it is legal in this country-asking the Bank to crack down on lobbying and its resulting sole source contracting will lead to an even greater spotlight on companies like Halliburton. It is simply easier for high level commissions to just avoid the issue altogether.

Spending years of her professional life in a "think-tank", mostly talking about how to do development more effectively hasn't produced much innovative thinking in Nancy Birdsall’s mind, it seems. During her days at the World Bank, it was indeed common practice to treat corruption as a trade-off for pushing projects through the door. Equally, the old bankers hanging on to their perks as staff or consultants still believe it is perfectly acceptable to look the other way when millions of taxpayers' money disappear in the pockets of their clients. Nancy Birdsall and her old banker buddies on Penn Avenue don't have the courage to admit they were part of the problem -- they still are -- by making corruption an acceptable element of development. Worse, they continue to defend companies that have illegally gained contracts through bribes, fraud and corruption by cheaply calling upon our sympathy for the poor children who would suffer if these contracts were denied. The truth is that corruption is not only illegal, it also severely undermines the very projects that are claimed to help the poor. As a result, school books don’t reach the schools; schools are not built; new roads are destroyed with the first monsoon; medicine doesn’t reach hospitals, etc.

Fortunately, unlike Birdsall and her friends, many companies have understood that the world is changing. A new generation is now coming into leadership positions in companies and governments, both in the rich and the developing world, where we don't accept 'business as usual'. Companies recognize it is time to change their business model because it has become increasingly difficult to make a profit in an environment where you need to bribe officials not only to obtain a contract, but also to get paid for implementing it. Contrary to Birdsall’s claim, even Vij Ramachandran admits that the old trade-off is unacceptable. Companies that used to bribe in the past are now approaching public anticorruption bodies to clean up the mess of the old business model and tender for new projects in a legal manner.

Paul Volcker and his panel of truly independent minds had the courage to point the finger to the cause of the problem in the Bank: not the change masters of INT, but those that have an interest in the status quo, the old bureaucrats who have made every effort to undermine and isolate those who really care for development effectiveness.

You present a false choice between not tolerating corruption and "doing development." It is that dated mindset -- carted out as being a sophisticated point of view -- that has led to the complacency and inaction the Bank is now paying for.

It is much more simple: The poor people in these countries want action on corruption. Many of the major shareholders want action on corruption. The only people who seem to value the status quo are the operations staff who get promoted by designing the projects (and feel slighted when someone has the gall to point out that the projects were looted) and the ministry officials who are often doing the looting. They are aided in this unholy alliance by supposed "thought leaders" such as the author above.

Zero tolerance may never work in the real world, but it is a far better goal than the 100% tolerance of corruption that the Bank seemed to have in Indonesia under the leadership of Dennis De Tray, whom you unironically quote on this subject. You are defending a viewpoint that is no longer valid, and in doing so you prove Volcker right (see: paras 6 & 7 of his report).

It is time to stop using the complexity of these issues as an excuse for turning a blind eye.

Unlike some critics, I think Nancy Birdsall got it about right, but she neglected an important point. The Bank, under Jim Wolfensohn, was a leader in addressing corruption and in getting it on the agenda for public debate within countries that badly needed it. Paul Wolfowitz was right to try to get the Bank to raise the bar higher and more consistently. What a shame he did so in a manner that seemed capricious and motivated by US domestic policy concerns. The Volcker report on the Bank's anti-corruption unit makes fascinating reading. It does not uncover evidence on the extent to which its head, as Counselor to the President, was in part trying to carry out his political agenda. But the report is quite clear -- even though politely noting that some of the worst abuses were already stopping -- about the star-chamber tactics used by that office: calling Bank staff in for questioning with no advance notice of what the charges were; telling them that they could not tell anyone else; and then putting them in limbo. To say that this is inconsistent with "innocent until proven guilty", with basic civil liberties, or with the kind of good democratic governance that the Bank has been trying to encourage would be a gross understatement.