Robert B. Zoellick: President and CEO of The World Bank Group

Robert B. Zoellick: President and CEO of The World Bank Group


>>Hello everybody and welcome! I’m Susan Collins I’m the
Joan and Sanford Weill Dean of the Gerald R. Ford
School of Public Policy. And we are delighted
to have everybody here with us this afternoon
for our annual Citigroup Foundation Lecture. Today we are particularly
pleased to have a new event in this series which
enables the Ford School to bring very distinguished
speakers and policy leaders to campus to talk about a
range of different issues. The speaker that I’m
about to introduce to you is certainly
extremely distinguished and he most certainly
fits that belt. I have the great pleasure
of first meeting him in 1989 in Washington DC. I was at the Council of Economic
Advisers and he was at the time in the state department and
have enjoyed following his distinguished career since then. You will see that there’s
a complete biography in your program and
so I am not going to give all of the details. But it is a great delight
to mention that in addition to a law background that
his distinguished career was launched in part through a
Masters of Public Policy. And that varied and impressive
career has included a number of very key positions in
both the private sector and in public service. And that includes vice
chair of Goldman Sachs, US Trade Representative,
Deputy Secretary of State in the George W.
Bush Administration. And I am absolutely honored and
delighted to welcome Dr.– Mr. Robert Zoellick,
thank you very much. [ Applause ]>>We’ve structured
today’s event as essentially a conversation. And I also have with me two
of my faculty colleagues. Jan Svejnar and Dean Yang their
bios are also in the program but let me just very
briefly tell you that Jan Svejnar is
a very distinguished development economist. He is an expert on issues
related to the economies in Europe and the post
Soviet Bloc economies. On my right, Dean Yang is
also a development economist and has done really path
breaking work related to micro finance and
also to remittances which are financial flows
that go between migrants and their developing
country homes. My own area of expertise is
in international economics and in particular I specialized in understanding growth
experiences in a variety of countries including
China and India. Well, I’d like to now get
started for our main program and essentially we will be
asking Mr. Zoellik a range of different questions and
make sure to have enough time for audience participation
later on in our program. But to just kick things off,
it would be very helpful if you would share with us a– just an overview of what this
World Bank Institution is and what is does.>>Okay Susan. Well if I could, let me
just thank all of you for coming and joining us. I actually am a midwesterner. I came from Illinois and
when Susan invited me to come to this event, one of the things
that attracted me in addition to having a chance to visit
Ann Arbor was the fact that I had my first job
in the Federal Government in the Ford Administration right
after graduating from college. And had an opportunity to work
later in my career with a number of the people that are
very closely associated with President Ford. And people like James
Baker and Brent Scowcroft and Vice President Cheney and
Secretary Rumsfeld and others. And I’ll just share
with you because some of you may have a chance to look
at these or not but a number of those figures have had some of their autobiographies
come out recently. And as topical as the later
chapters are for the press, the– sometimes the most
interesting chapters I actually find are their period with
the transition from the Nixon and to Ford administration. And while I only had a chance to
meet President Ford in passing on a couple of occasions, actually after his presidency I
think he just again underscores what an extraordinary individual
and public servant he was. I of course trace this to midwestern values
and basic roots. But so it’s a nice opportunity
for me in a way to also in my respect for what he
stood for in public policy. The World Bank, let me give you
a little bit of a sense of this because it– I think one of my
real interest has been history. And perhaps, I would have even
tried to make it as a career but I’m not sure I could figure
out how to make a living at it. But I often look at issues
from a historical perspective. And as some of you may know, the
World Bank was created in 1944 as World War II was still
raging at a conference in Bretton Woods New
Hampshire, along with the IMF, the International Monetary
Fund, and a similar organization that became later the WTO. It was an international
trading system. And the logic of these
three was the effort as people were even concluding
the Second World War to try to avoid what they perceived as
the sources of economic conflict in the 20s and 30s that had
led to the breakdown and led to the great depression and
led to the rise of fascism and then Naziism and led
to this terrible World War. And so the IMF was really
designed to try to deal with some of the
tensions in currencies, it was in a sense this– the successor at the
point to the gold standard where the dollar played a
role with fixed exchange rate. That went by the
board in the ’90s but if you open your
newspapers and see what’s going on with the Euro zone today, you see the descendants
of those issues. The World Bank’s official name at the time was International
Bank for Reconstruction
and Development. So it’s– and its
loan was to France. So the real focus was to
try to avoid the problems after World War I
with the rebuilding and to create economic
opportunity and hope first for
Europe and Japan. And the so called
developing countries at that time were actually
quite few because many of them were coming out
of the colonial period. So the bank started to shift
into the developing world later with the– moving to the martial
plan in with the developed world with Europe and then the GATT,
the General Agreement on Tariffs and Trade later became the
WTO was to keep the avoidance of protectionism and tariff
barriers and foster trade. As a little interesting
[inaudible] to that, the actual trade
organization that was create out of Bretton Woods, it’s called the International
Trade Organization. And it actually failed
to pass the senate, the treaty didn’t pass
and so they took the GATT as the second best and
later built that as the WTO. And that’s interesting
because part of what– what is seen over
the history of 60 or 70 years is the
constant challenge of how these rather thin
modest institutions try to encourage the international
economic cooperation in a world economy that simply
becomes more and more integrated and interdependent also
has to deal with the world of domestic politics
in legitimacy. Now the World Bank
itself has gone through a significant evolution
over the course of 70 years or so and it added
various instruments. So the IBRD was complimented
in the 1950s with an institution called
the International Finance Corporation which is part
of the World Bank group. So I’m the president of
the World Bank group. And IFC does investments
in private sector. And then in the 1960s, there
was something called IDA the International Development
Association which was a recognition that for
the very poorest countries one might need special support. The number of these
countries changes with growth but today there are 79, in
general there are countries with per capita incomes below
by the thousand dollars a year. And for those countries
they get grants or very long term loans
40 years without interest. In the ’80s there was a fourth
institution created MIGA, the Multilateral
Investment Guarantee Agency to help support investment
by offering guarantees. And there’s another
body called ICSID which is an arbitration
dispute mechanism. Now, just as the world has
transformed tremendously so has the World Bank group. And one of the challenges, I’ve
been president now for 4 years, is one of the challenges is
how one transformed this sort of grand old multilateral
institution built for one era for a very different
set of challenges. Some of which we’ll have
a chance to talk about. But let me just give you a brief
thought that we can perhaps play out a little bit over time. When I talk about the
World Bank group and I try to explain what it does, part of
the difficulty that I find is– and it’s called bank, and so
most people tend to assume that banks are primarily
in the business of lending or investing money. And that’s part of what
we do but in some ways, it’s only a complimentary part because when the World Bank
group is most effective it really combines three
different functions.>>One is to take knowledge
in learning and experience about development and one of
the changes over the past 10 or 15 years, this is
increasingly coming from developing countries to
other developing countries, and we try to understand
that, analyze it, customize and ensure it for the
developing countries. But then, a second element
which does distinguish us from say an OECD, or a university program is we
do have finance to put the bear in many different forms. And so for example our IFC
private sector arm is now increasing its equity
investment, so it’s not only loans
but its investments. And we try to change and
adapt the nature of our– our products to meet
various needs. But then, third while we’re
not and insignificant player, so since the financial
crisis began in really its– its heated form in
the summer of 2008, we have perhaps committed almost
200 billion dollars of finance across these agencies. But if you think about the money in the international
system that’s still a drop in the bucket. So the question is can you take
this knowledge and learning, the finance, and in
a sense multiply it. So what can we learn about
building markets, institution, and capacity, building
micro finance markets, building local currency
domestic buying market? So in this most recent
crisis, you’ll see many of the developing countries
didn’t have the same financial problems they had in the ’90s. One of the reasons where in the
’90s many of them were funded with dollars, they’re
investing and earning in a different currency. So if you avoid the
exchange rate risk. Or the buildings of
institutions often for countries that are coming out of strife,
Liberia, Afghanistan, Haiti, so institutions’ capacity in– in markets so that our
investments actually have a broader effect than
the individual project. We, like any institution
have to continually to push to modernize ourselves. The World Bank has
187 shareholders, so 187 countries there
are shareholders. The United States has the
largest percentage shares, 15 percent of those shares. We have offices in about a
160 countries, we have people from about 170, 180
countries on our stuff. And so part of our challenge
also is with our staffing, with the decentralization of
our operations, with dealing with new issues that
cross borders, it may be climate change,
it may be trade issues, may be biodiversity issues. And increasingly, and this
is where I’ll stop with this, is that what I think will be one of the biggest transforming
aspects of our institution, but frankly the whole
world economy is that in a relatively
short space of time, at least in historical terms the
developing world itself is now a motor and engine of growth. So I’ve spoken about multiple
pose of growth in the system. You wanna understand
the world economy today, it’s not just the question of
Europe, the U.S. and Japan. About 50 percent of
global growth comes from developing countries. So if you’re an American
business you are looking to these because these are
often the growth opportunities. If you’re an American
farmer and you wanna know about the future
prospects for soy bean– soy bean, corn, wheat
and others you have to know what’s happening
in those markets. And of course we’re in
Michigan the old challenge of manufacturing its adjustment. So this is– this process that
many of you would have seen, you know, starting
over a course of 20 or 30 years is now
moving with real rapidity. And some of the economic
challenges we have today at the bank are how
do we bring in some of these middle income countries
and continue to serve them at the same time that
we have them contribute to the institution both
in knowledge and finance. And at the same time, try
to make sure that those at the bottom, many
of which are some of the Sub-Saharan
African countries or fragile countries also have
a chance to climb the ladder.>>Well that was very
helpful providing the historical perspective. I wonder if I could push you
a little further in terms of where you think this
evolution may be perhaps a decade from now. I mean you’ve talked a
lot about the history, the change in the balance. The historical role has
primarily been in relationship with governments and I wonder
whether you see some change in that balance as this
evolution continues.>>Well, let me start with a
couple of sort of basic concepts or approaches and
then expand it. One of the things that I’ve
tried to do in the bank as a chief executive
is to get people to focus on their clients. So it may seem obvious if
you’re in a business but one has to recall, this is an
institution that came out of this development
thinking. We had many expert
economists, there’s a little bit of a top-down view of how things
are done and as we we’re talking in the lunch session with some of the students I think people
have learned the hard way about pragmatic experience about
what works and what doesn’t and customize it for
different context. So, I keep emphasizing we
have to stay in close touch with the clients, and recognize that these clients are
different, the problems of Sub-Saharan Africa are
different from China and India or Southeast Asia,
or Latin America. And some of the issues now that
we support in the knowledge and learning area with middle
income countries is very different than that of say, a
country coming out of conflict. Second, to approach this is
a problem solving exercise. You’ve got a lot
of scholars here, students that are
studying disciplines. You know, in a way my point is that the textbook knowledge is
the important starting point, but you can’t stop with that. So this is over simplification
but you could have people who come to a meeting and say,
well they analyze the problem and say this is the solution,
but if it doesn’t work with the politics
and the institutions of the country it’s
not the solution. So how do you help
them solve a problem? Now, what these drive you
towards is an institution that has to be both
alert to what’s happening in client countries, but also
recognizing it is a multilateral institution so how does it– how do you also in a sense
draw the interrelationships and the mutuality also with
some of the developed countries. And there are different things
that one can try to do in this. So for example, in the climate
change we we’re talking, we helped create a series
of climate investment funds that not only help
developing countries deal with mitigation and adaptation. But they also draw developing
countries into the process of working in climate change. It breaks down some
of the barriers. It shows some of the interests. So I mean much of economics or business is the
mutuality of interest. And so how do you find
those points of commonality? As part of the approach we’re
taking as an institution, one of the probably– the biggest innovations that
we’ve had in the past couple of years is many of you
obviously are familiar with the whole
anti-globalization and challenging establishment
institutions, as someone who’s been
a public executive in different capacities. I think one of the
best antidotes to this is open this
in transparency. So we started an open data
initiative at the bank. Hope you can check on
our website about this. And we having been in
existence for a long– so long we have some
tremendous data sets that we now make totally
free and available. We’re trying to research
staff and others are working about ways to mash this and sort of make it more usable
in different ways. We’re taking we– we did
some work with some people from Google to actually map it. So you can get on our
website, call up a country, see where we have projects
as I mentioned with the world of telecommunications before
too long I wanna be able to have people to interact
with this in real time. If you think about
development studies even when you learned
it, you know, it’s– this is a huge transformation
about when we talk about democratizing development and making this a
more open process. It also serves us as institution
because what it means is is that communities that
might have seen us as a Washington based sort of old bureaucratic organization
can interact with us. We– we created a software an
apps for development competition to draw in software
developers to think about how to use this data
in different ways. And what I continually
see is the– if you approach these in openness there are
endless possibilities. Let me give you one from Haiti. We did some over flights
in Haiti after the– after the earthquakes and
one of the things we learned from the photography
was that we could work with structural engineers
who would never have to step foot in Haiti. They would just use these– this photography and they
could assess about the 60 to 70 percent of the
building structural soundness. But then, we also put all the
photos upon the web and all of a sudden some
different groups started to do some interesting things,
they started to do overlays with for example some of the–
the sort of the waterways, the potential water
courses and others to look if you build the ten
cities or rebuild in certain areas you’re creating
additional basis for problems. So this again is talking
about how the knowledge and learning experience. Let me give you another one. You know, that’s– that’s
again of rising interest, natural calamities, deans
from the Philippines. If you look at about the
distribution of calamities, natural calamities in the
world about 90 percent of them are in the Ring of Fire.>>We’ve done a lot of
work now so that’s the sort of volcanic earthquake zone
on the Western of Pacific, with the Japanese
for example coming out of their tragedy they’re
gonna host our next annual meeting and they
wanna identify some of their experience with this. And there’s a tremendous
amount that can be done about early warning prevention,
how you build the buildings, how you place the buildings on
and so forth, quick response which just ends up being one
of the most vital aspects of recovery and then the
nature of the recovery, and to show in a way how this
is moving beyond the traditional North or South patterns. We offered some of our
services to Queensland with their floodings, we offered
it with Japan and we’re trying to take their lessons. So, if I think about the future
of the bank we have to continue to be agile just as a private
sector organization would be about how we perform the
services, what the clients want. But then, as a financial
intermediary and I’ll close with this, we also
have to be agile. So some of you may have
recalled maybe older people in the audience, there
was a famous line once from a bank robber
named Willie Sutton and when Willie Sutton was
asked, “Why do you rob banks?” He gave the rather usual answer,
“That’s where the money is.” And so when I came to the bank,
one of the things that I thought about was our basic
intermediation structure was we raise that, we’re capitalized,
we raised that, we make loans or investments, so it’s not a
traditional aid type agency. Sovereign Wealth Funds are a new
source of capital, just this 20 or 30 years ago it was some of
the oil and energy producers. And so we’ve now created an
asset management corporation as a subsidiary of IFC that
is putting together investment funds and that is tapping
Sovereign Wealth Funds and others to take our
investment experience which had about a 20 percent rate of
return on equities over 20 years in developing countries and drawn the capital
into these countries. Now, this is not a charity, it’s
not development and when I went to a Dutch Pension Fund
and asked, “Well, why– what made you interested?” We created a billion dollar fund
to do some initial investments in Sub-Saharan Africa and some– and Latin American
for diversification. And their answer struck
me as very interesting. They said, “We now know
developed markets are risky too, develop made markets are
clearly where the growth and the returns are but we don’t
know enough about those markets, we don’t know where
to go, we don’t– the transactions cost,
the information cost. Now, we make revenues from this
which we plow back into it. But because we’re not
a profit maximizer, my real interest is
expanding the market. So if those funds can learn more
and support private equity funds and others they’ll be
great opportunities. So in a way, this is
probably a far stretch from what you might have
learned, you know, 10 or 20 or 30 years ago about
the World Bank with traditional development. It’s knowledge and learning,
it’s new financial systems. And of course part of this is–
and this is why I enjoy coming to universities and also
understand what people are researching and thinking. So we can try to understand
what people, you know, in the– in the academic and policy
community are thinking we should be looking at.>>Right, I just have to
intercede that I remember when I was living in
Washington in a period in which there was the group
that tried to rob the World Bank because they thought that must
be where the world’s money is. [ Laughter ]>>Let me add one
other point of this is that it shows the
rapidly changing nature of the international system. Many of you will have
heard about this– the G20 group which actually
was created in the late ’90s after the station crisis but
wasn’t moved to the summit level until the crisis in 2008. Just last weekend I was at the
meeting of the finance ministers and central bankers for the G20
group and in early November, I’ll be at the G20 summit. And what, you know, in a sense,
the developing countries use to be the ones that were kind
of, you know, the add-ons, they are– they are the– in a sense, the objects
of the subjects. But now that’s really changed. So in this discussion that we
had last weekend what is help crystalizing the Europeans’
recognition of the challenges in Euro zone is that
the events in October– in august started to
have shock waves in terms of developing country equities,
bond spreads, currencies, and the real risk for
the economy now is if the confidence problems
that have affected Europe and the U.S. go to
the emerging markets and affects business
investment consumption. Then, the developing
countries which have by and large been the
source of growth in this downturn
will also shrink. And so it gives you a sense
for international organizations but also the integration of
the economy, how the world of developed and
developing has changed is to give you one other set of
a headline notion of this, I gave a speech a few years ago where I said we should no longer
use the term to [inaudible]. First off, we were in
government at the time of ’89, ’90 the second world went away, so at least they
should move up one. But– but the reality
is it’s a term that reflects a different
mindset, a different concept about developing
countries and frankly one of the most encouraging things
I found was the response I got from the developing countries,
they didn’t wanna be categorized as the subsidiary,
the remainder. They recognized that while
they also have issues of income and development that they wanted
to in a sense have the respect and dignity that
everybody wants.>>So I’d like to jump
in if I may about– and B, ask you to expand on
some of the themes that the– and some of the points
that you touched on. Related to the World
Bank’s financing arrows and I appreciate the
distinction you made between the financing activities
and the knowledge generation and knowledge dissemination
activities, the latter of which I’ve been
very fortunate to be involved in with some World Bank
collaborators as well as we discussed earlier. But on the financing side
of thing one of the– I think one of the
important contextual features of the world economy
is that as you said, World Bank financing is
just a drop in the bucket. The number one type of international
financial flow going to developing countries is
foreign direct investment. The number two type of
flow is migrant remittances which is a major and increasingly
recognized important flow. Official Development Assistance
or foreign aid only comes, you know, a distant
number three, so you put migrant remittances
and foreign aid and– foreign direct investment
together there are several multiples of the official
development assistance on a global scales. So in this– in this– you
started to touch on some of the points related to what
role international institutions like the World Bank
can play in– in a global economy
where the vast majority of financial flow is going to
developing world are private. And I’d be curious,
I’d love to hear more of how you think World Bank
financing and the financing of other types of international
finance institutions can get multiple– can multiply
the impact and the scope of private financial flows and other development
impacts of private activity.>>It’s a very good question
and it’s a very rich area. And just to give you a
little flavor of this, I try to give a major
speech before our spring and our annual meet
in the autumn. This year, the speech I
gave was called Beyond Aid. It’s not saying we’re there yet, but it’s looking
towards these issues. Let’s give a few examples. Some of you will remember
a big debate ten years ago about the digital divide and how
governments had to provide a set of benefit to people
who didn’t have access to the digital world. We, along with others work with
Sub-Saharan Africa and simply through policy and
regulatory changes in the telecommunications
sector create an environment where 77 billion
dollars has flowed into the telecommunications
and mobile phone industry in Sub-Saharan Africa. And the number of number
people who have access from mobile phones has
moved from about 10 million to 400 million in a
relatively sparse space of time. These are policy changes. Now, we can play a role again
in sometimes in financing to build a capacity and help
people make these changes. You’ve done a lot of
work in remittances, as we discussed a little bit
some of the policy lessons about how people can reduce
the cost of remittances, how to create these
in savings vehicles. But let me give you one that I
didn’t have a chance to mention. We’re working a lot with
Australia and New Zealand on some of the Pacific
Island states which have unique problems. When I was in Australia
in August I was able to sign a finance and
arrangement with Tonga where we have helped
provide the financing for fiber optic cable
connectivity which is critical for their telecommunications
which is critical for remittances which
is critical for the fact that people in Tonga may
find jobs in New Zealand and Australia but wanna
contacts with their families. So it’s a more complex notion
of immigration and movement of people with [inaudible]. And more generally, if– if
one thinks about the nature of a country’s problem,
you know, in some cases like Liberia coming
out of a conflict, you might need basic
infrastructure and utilities and others and maybe the private
sector’s not gonna invest in electricity in Liberia.>>Maybe if you do risk sharing, you can help create
the basis for that. So and then where we also try
to combine our projects is to expand the boarders
and knowledge about some of these learnings
or alert people. So let’s take another one. Agriculture, you know,
agriculture prices tend to trend downwards over
the course of decades. The world learned
a few years ago that that process
has probably stopped and there are some
reasons for secular demand in emerging markets as
people have more income. But one of things that we try to
do is how can we take a problem and transform it
into an opportunity? So in the Midwest if prices go up you get a pretty
good supply response. Agriculture as we– again,
our research showed can be one of the best anti-poverty
programs not surprisingly some rural areas, you get about
three times the effect on income generation
for poor people. But in many parts Sub-Saharan
Africa, you have to invest all across the value chain. You have to understand the
property rights, the seeds, the fertilizers,
about 50 percent of the product is lost
on the way to market. And so you’re not gonna get the
same supply response unless you help identify those and
then we can put in money, we generate the context for private sector
funding in others. And so, across the range
of activities in a way, we try to see how we can
catalyze both the financing and knowledge side
to move beyond it, to move beyond dependency and recognize there’s
always gonna be a need, natural disasters,
humanitarian response, things with the World
Food Program and others have been
involved with, whether you see in Somalia or other locations. But even there, we’re
trying to bridge the gap between the humanitarian side
and the development side. Many people may not
realize those tend to be rather separate
communities and they go their own way. We’re trying to work for example
[inaudible] the World Food Program and have tenders
for its grain products in emerging markets so that they
can get the supply they need and at the same time
we can build this into a development model. So in a sense the
logic is ultimately to see how the development
operations and encourage local ownership
share the information, build regional integration and
create the frameworks ultimately for private sector growth.>>If I may step in.>>Yeah go ahead.>>Just one– one
other piece of this that I don’t wanna
lose sight of, what we’re increasingly seeing
is there can be lessons that, you know, where people used
to see this as north south, there’s not only huge
amount of south, south, there’s also potential
south north. And let me share
one with people. I can’t go to a developing
country today without having interest in public private
partnerships for infrastructure. So one of the lessons
of course of China in the ’90s was you invest
a lot in infrastructure which they did with
the down turn. It creates jobs today,
productivity tomorrow, and actually it’s a nice mutual
beneficiary ’cause it boosts exports of services in many
developed country goods as well. But in every developing country,
people are trying to think about how you bring
in private capital. Now interestingly, in a lot of
the middle income countries, the primary interest
is not the capital, it’s that the public
private design leads to better designer projects,
maintenance of projects, operational efficiency, and so we’ve formed an
infrastructure center of excellence in Singapore
where we’re not only trying to encourage projects but we’re
trying to look at the regulatory and legal framework, we’re
trying to, in a sense, mill the pipeline and
we’re actually working with the Singaporeans about
creating a new investment fund to invest in infrastructure. Now, flip back to
the United States. Obviously there’re big
concerns about debt and deficits at the state level as
well at the federal level. When I studied accounting, it
was a long time ago but we used to have two parts to
the balance sheet. And we had assets and
we had liabilities. So you got liabilities but
a lot of states are sitting on big assets called toll roads. And interestingly enough
Mitch Daniels the Governor of Indiana a few years ago
privatized this toll road, he did a long term lease. Got about four billion dollars, put it back into the
toll road system. It was politically sensitive
at the time, it worked out fine for him in Indiana, but
they also learned some interesting things. So for example, they learned
in one part of the toll road that the 15 cents that
they were collecting at each toll booth
didn’t pay for the workers that were collecting
the toll so they moved to smart cars and other things. Now look at, you know, in
the State of Pennsylvania, so I won’t focus on
Michigan but the State of Pennsylvania not long ago the
legislature wouldn’t go along with a toll road modernization. Intriguingly, in Chongqing
China, Communist China, we’re working on
privatization of the toll roads. So you ask yourself, you know, if in communist China they can
do privatization of toll roads to invest in infrastructure. Maybe there is somethings
the US can learn too.>>Great. I’m gonna shift gears
just a little bit and go to one of the big challenges that
you alluded too earlier namely Europe. Now Europe is only partially
within your purview in the sense that you have the
new member states as your clients and so on. But Europe obviously being
the largest street trade area, largest economic block has
historically had huge effects on the rest of the world and
is likely and some probably to have huge positive
and negative effects now. How do you analyze it from
the World Bank’s stand point and what kind of
challenge do you see if things don’t go
really well in Europe, what will be the impact on
your– yeah, rest of the world? You are one of the truly
global institutions so your view obviously
is very important.>>Well it’s also
an interesting– your question and
the observation or an interesting comment on the
change role of the World Bank. You know Robert McNamara was
president of the World Bank from the late ’60s
to 1980 or ’81. People probably wouldn’t have
asked him about European buyers. And he chose to change
nature and in fact in August, I was starting to make public
statements or I was trying after the new member
markets were ruled in August. I was starting to worry that up to that point the developing
countries had recovered quite nicely. If anything, the
danger is overheating but I was worried this would
start to have the effects which we did see
and I mentioned. So a World Bank president now
engaged with Europeans on some of their fundamental challenges
shows the interconnection. More particularly,
we’re actually headed up to very important set
of meetings this week at European Union Summit. And in the short term, I think
there’re three challenges that Europe has been
stumbling its way towards. In my view the markets have
assumed that there’s going to be some resolution
so that some of that expectation is built in. And the question which
we’ll see this weekend and at the G20 meeting that follows is whether
there’re enough actions that that match the
commitments to deal with some of the market anxieties. Number one is the
recapitalization of banks. And here the European seem
to be moving towards a method where you would have the banks
be given a certain period of time to either raise
private capital, if not take it from national governments,
if not, take it from a fund they’ve
created that was just passed by 17 of the ozone
parliaments, the EFSF. Now the devils and the
details, how much time, what are the standards and this
is gonna be quite critical also because many of those
banks may decide the way to meet the capital
standards is by selling assets or shrinking loans so
it comes right back to the story of the
world economy. You mentioned central and
eastern Europe or the Balkans, we at the World Bank are working
closely with the EBRD and others because you have to
suspect that some of those European Banks are
gonna pull back from some of those regions and you could
have a negative multiplier effect which we’ll
try to offset. But those banks are
global banks. It could affect the
developing countries too. So that’s one issue. The second issue is Greece
is obviously highly indebted. And they’ll have to
figure out what they– how they deal with
Greece’s debt. But the real question is most
analysts believe that Spain and Italy which are much larger,
if given amount of time and roll over their debt will
be able to manage if they keep the
budget discipline. But when markets get scared
and panic as we saw in the US in 2008, they could
find themselves where they could
roll over their debt. And indeed, this is what
we saw people moving away from these markets in 2008 and
the European Central Bank had to step in and buy their debt. So the second question is how
will Europeans use this roughly 600 million dollars
in this EFSF in a way to perhaps create
guarantees for lost provisions so they roll over the debt? And then the third issue
of course is Greece. Now it’s not only– and in here
the big issue is will there be a further discount
in Greece’s debt? It’s not only the substance of these three decisions
it’s the sequence. So if somebody decides
to take a further hit to Greek debt before you solve
the other two problems then markets are gonna pull out
and you’ve already seen in many European banks that
it’s much harder to get if not impossible to get term
funding unless you got it collateralized and for
extremely good credits and so all these conditions when
markets get nervous as we saw in the United States
are being exacerbated.>>I’ll go one step further
though and that is the things that I have described
fundamentally allow Europe to buy time. And I’ve been in a lot
of public sector jobs. I’m not against buying time. But you have to use the time. And I think there’s still
a fundamental issue, there are two fundamental issues
that Europe is going to have to address beyond this. They’re not quite as eminent
but you can’t ignore them. One is what is the future
of this monetary union? So you got to this problem,
okay, you roll over the debt but sort of what’s to prevent
it from happening again? And in European terms,
this is discussed as, do you create a political
and fiscal union that matches the monetary union? And if so, what disciplines? This is the issue that
Alexander Hamilton faced early on with the creation
of the US credit. And these are hugely political
issues but I think the system’s at a point where they have to
decide either they go this way, and there’s different
ways to do it, or they face the consequences
for overly indebted countries that aren’t competitive. The second issue, and this
is true for the United States as well, what we just talked
about are fundamental issues of macroeconomics
in terms of debt and credit then financial policy
and sort of monetary policy, but you can’t ignore
the structure of growth and this comes right back
to the developing countries. So in– what do you do
to increase productivity that so it’s not just
an issue of austerity? So here I’m not just talking about macroeconomics
spending programs. I’m talking about how trade
can boost competitiveness? In the United States this
is probably discussed about the tax policy. Should you move back to the type
of tax reform that I was part of in 1986 where you flatten
the base, you add to the base and you flatten the tax rates. What innovation policy
should you have? Ultimately, and this, as you
know, from your experience and challenge for Europe
is it’s not just a question of what the government
does directly, but does the government create
the enabling environment for the private sector
to boost productivity and innovation and growth. And that’s an issue that
both the United States and Europe would still face.>>So we have a lot of
issues that are on the table from the evolution and financing
roles and the private partner– public partnerships that the
World Bank is engaged in, issues related to the financial
crisis and how it goes forward. At this stage, I would
like to open things up for questions from the floor. We have a microphone there. I’m going to ask that the
first questions be given by Ford School students. And then we will open
it up from there. But I will ask people to be
very brief with their questions so that we can try to get
a number of people in. So again we have a microphone that is there, and
if people are–>>And maybe if you
could give your name and if you’re a student
or a graduate student or–>>That would be
great, yes please.>>Hello– yes, my name
is Alexander Robinson. I’m a graduate student. I want to ask you a question
you recently been criticized by economists for calling
for a standard, gold standard or some kind of form
of gold standard. Why did you say that? Why do you believe you
were criticized so heavily?>>Okay. I didn’t call
for a gold standard but let me tell you what I did
call for and I’ll explain some of the basis of the criticism
but also the support. This was an opinion
piece I wrote in the financial times
early in the year. And part of this goes back
to what I was discussing with the IMF and the things
that happened after 1945. We’re in a process of transition in the International
Monetary System too. So you used to have a gold
standard then you had the dollar and effect is gold and other
currencies were pegged to it. And since the early
’70s, you had– for developed countries a
flexible exchange rate system. And some of this debate
focuses on around the US dollar as a reserve currency. My own belief is the US dollar
will remain the predominant reserve currency but you’re
likely to see as China opens up its capital account that the
Chinese may play a role along with the Yen and
Pound and the Euro. So you’re moving to a world
multiple exchange rate, multiple reserve currencies. And I was suggesting
a series of steps that actually should be taken to make the flexible
exchange rate currency system work better. Starting with the G7,
the developed countries, the idea that they shouldn’t
be intervening unless they all agree that special
circumstance permit, this is for example
what Japan did once. Second, you have a group
of countries such as Brazil which should have been– may have been reading
about in the paper that have independent
monetary policies, have had flexible exchange rates but the exchange rate appreciate
then it came back down, this raises questions about
how you can use policies that may sort of regulate or
deal with capital moving in and out and kind of whether
there are best practices to be learned about this. Third, I was trying to emphasize that I think the
system would be better of if China moves more quickly
do an open capital account and there is something
that was created at the IMF called the
special drawing right which is really just a
form of combined currencies that allow a country to
borrow special drawing right. China is not a member of SDR because it’s not a
freely exchange currency. So the suggestion was could
you create incentives for China to move more quickly by saying if you meet these criteria
you would be part of SDR. It’s a similar approach we
use with China when it came into the World Trade
Organization. Now– and then I suggest that
the IMF would play a role as a– as kind of half referee,
in other words, not be able to impose a
penalty but be able to point out in the system when somebody
was in effect abusing it, to try to bring some
pressure to bear. Now on that, gold
was one last point. And I was basically saying
that as the IMF looked at the performance of
currencies, I was pointing out that what I was perceiving,
and remember this was January, was that the price of gold was
starting to tell me something about whether markets
were confident about monetary policies
and currencies. It was starting to go up. So frankly if you’ve read
my article Invested in Gold, you’ll be a wealthy man today
because I was suggesting that this was showing
uncertainty. Now that’s different than a
gold standard, that was fixed, it was saying that gold like other commodities sometimes
are an indicator of something. Now, one reason that it created
the tension, this a lesson of communications, is the financial times decided
they wanna make a front page story by saying it was a gold
standard which it wasn’t. Well it was great for them and for me ’cause it
started this debate. But the other is a deeper point. And that is the system that
I described is basically in the hands of central bankers. Central bankers wanna be seen as
the master of monetary magicians of the modern era and in a sense
when I was pointing to gold, I was saying that the markets
were raising some questions about their performance. And not surprisingly the
traditional central bankers didn’t like anybody
raising questions about their performance. So I’m glad you asked
the question because what it kinda integrates
is a little bit how the system changes? How in this international
interdependent economy, you need to have some norms but it’s not necessarily gonna
be rules like within a country. How do you encourage
cooperative behavior, but how do you also use
institutions like the IMF and the World Bank, to
kind of help prod this and how do you use
markets to read signals? And market prices for gold or other commodities are
totally dependent on this issue. They’re dependent on
supply and demand. But it was quite clear in
January and it was clear through out the year as
people to gold, it was– it was adding to
their uncertainty above monetary policies and
the value of currencies.>>Thank you. [ Pause ]>>I’ll do the best I can. Hello, my name is
Allan Haber [phonetic]. I studied economics
here and I worked in many years in
antipoverty work. I’m part of the movement
for democratic society as I’ve looked at
international economics and development economics, it look like while you
paint a rosy picture, an optimistic picture,
this is really one of significant failure,
the demonstrations all over the world now point
to the distress of people, that the structural adjustment
and austerity programs that are promoted
out of the bank, the privatizing of the commons. One example, the opposition
to the postal saving system which is the most efficient way of primitive private
accumulation in– all over the world that
the banks did not support, it seems to be that you
really need a different view, not of bailing out the elites
but of somehow redistribution of power in the system so that
the people actually have a voice and restructure in the economy. And this is not what I see
happening from the World Bank and the local opposition all
over the world now not only on Wall Street but in
virtually every country and in Ann Arbor
Michigan itself. There’s a challenge to the
theories that you’re promoting where the rich gets richer and
the poor state poor or poorer and we need a different system of how the economy
is gonna work– how does the World Bank
perceive all this, what is going on in the street and
the increasing distress in countries all over the
world, that’s the question that I pose to you, thank you.>>Okay. Well, first open
debate’s a good way to learn and discuss these things,
we should get on our website and learn actually what the
bank’s been doing because a lot of things you referred to, the bank hasn’t done
for 10 or 15 years. Second, I always think
as part of transparency and healthy debate, the bank and
any institution makes mistakes so we should have an open policy
to continue to try to learn from our mistakes
as individuals do. Third, most of the
demonstrations you’re talking about are taking place
in developed countries, non-developing countries
and this isn’t to say that you don’t have
huge problems of poverty elimination but,
you know, keep in mind, there’s a millennium
development goal about cutting poverty in half. China alone, will
have achieved that, remove some 400 million
people from poverty over the course of
the past decade. Now you said there’re all these
objections to the World Bank and developing countries. That used to be the case. I really don’t find that today. Now we’re open and we find
that people have ideas of things we should
do differently but actually China considers us
an extremely valuable partner. India considers us
as valuable partner. The African countries
consider us a valuable partner. We try to have a two-way street
about how to try to learn about things and
there’s no doubt. I’m not trying to sugar coat,
you know, the challenges of poverty are enormously hard. But one of the things I tell my
staff is if they were so simple, somebody would have
solved them long ago. So, on the one hand we have to
be honest and open about trying to learn from mistakes, but
on the other hand we also have to keep trying to
address these issues. So, if I look at the progress of developing countries
I actually think that they’ve made
enormous progress. China has grown 10 percent a
year for the past 30 years. Sub-Saharan Africa has
grown 5 percent a year over a decade prior
to the crisis. It’s actually come
back relatively well and of course Sub-Saharan
Africa, of course has great variation. So, you’ve got about a third
of the continent’s population that is looking for regional
integration, infrastructure, energy, private sector,
development, in a sense, they’re the new cheetahs
that are part of the system. And we need to help them
also benefit growth. You got about a third
of the population on natural resource
development countries and for them the real issue is
governance and inclusive growth, how to make sure that their oil and energy resource isn’t just
ripped off by certain people, get corruption, avoid the Dutch
disease for exchange rates, and those are issues that
we and others can help with. And about a third are in post
conflict or conflict states where not only brings
down their– the states themselves
but the neighbors. But let me just give you an
example of the sort of things that we’re trying to do
to prod people’s thinking. We just put out a report about our most recent World
Development Report which is one of our big flagship reports
on gender and development and I don’t know if you’ve
done any work on gender and development but I
was struck by the fact that a Bloomberg reporter
in the midst of an interview about the Euro zone said,
“This is really interesting.” They said, “This could be
the next emerging market because of the growth
potential.” Because what you see is a
country that ignores 50 percent of its population is
not likely to succeed and we have a rich amount of
detail on how changing policies with property titling,
access to credit, openness and occupations can have
huge productivity increases. So, again, I respect
your point of view. Learn a little bit more
about what we’re doing.>>The next question,
next question please. Thank you.>>Hello, Mr. Zoellick. I’d like to welcome you to
Ann Arbor our fine city. Also, I would like
to compliments you on your most excellent
mustache and– [ Laughter ]>>You know, I was
told actually somebody in Europe mentioned
this is very stylish. I didn’t know I’ve had
it for 50 years, so. [ Laughter ]>>Back in bold, right?>>And I would like to ask you
a question regarding Citigroup, Citigroup is the, you know,
the financier of this event and they released some
internal memos back in 2005 and 2006 regarding what
they called the plutonomy. Now, this sort of relates to what the last speaker
was talking about, the gap between the rich
and the poor in America.>>The what? I’m sorry. [ Simultaneous Talking ]>>What’s that?>>You, said memos
related to what?>>Memos, they called
it the plutonomy. The gap between the rich and
the poor and that’s also known as the Gini index or the Gini
coefficient and they predicted that this would continue to rise
and America, Japan, and Canada and that it was creating
structural problems and their recommendation
was to invest in companies that service the
richest Americans and also they predicted
a populus backlash against this sort of wealth
inequality as it were based on if the American economy
went into a recession and I’m wondering how you feel
about, you know, the Gini index in America and that
it’s increasing.>>Well, I obviously don’t know
about Citicorps and its memos. It struck me Citicorp
had a serious of its own problems more
basic as it tries to recover. But your point, I
think is a powerful one and let me address it this
way, we have tried to stressed at the bank the importance
of inclusive and sustainable development and the inclusive is
important economically as well as politically. So, I think again, one of the
lessons that people learn is, there is a benefit
for example in China, you’ve had a worst distribution
but you still have rapid growth and so people by and large
feel there’s a benefit as they all increase,
but in China as well. A lot of the work that we’re
doing is how do you make sure with education policies
rural and urban and others, you brought in the
benefits of growth. But let me give you an example from another group I spoke
early this week, Latin America. Latin America is a region that
of course was characterized by very sharp maldistribution
and when– and yet over the past 10 years
there have been some real benefits in Latin America, about 60 million people have
been removed from poverty. They have learned
a lot of lessons about better macroeconomic
financial management, better actually than
the developed world has and so they actually had a
form of silent revolution in that part of their
macroeconomic management that helped them deal
with this downturn. They’ve clearly also benefited
from the linkage to China with so many agriculture
ends of commodity prices. But when I was asked,
what’s next? I have, I– my focus was the
development of a middle class because if you really wanna
think about sustainable growth in Latin America, the real
target and this were a number of private sector parties,
would be that middle class. Now, this is– when
I talk about this, it has different dimensions. One, it’s the competitiveness. What do you need to do in
terms of skill development, what do you need to do
in terms of productivity? What do you need
to do in education so that people can earn
the money to be part of the middle class but
there’s another part of it, which is what do you need to do
with some of the basic health and social conditions. So, I was saying actually at
this seminar we had before one of the lessons of the 1990s
financial crisis hard learned as it was that the macroeconomic
stability wasn’t enough. You could lose a generation,
literally lose a generation if you don’t get proper
nutrition particularly for children between negative
9 months and 18 months. It’s the most formative period. So, what does that mean
in terms of policies, it– we were talking about targeted
safety net programs not ones that bust the budget but
actually drawing on some of the lessons that Mexico did
with Oportunidades or Brazil did with Bolsa Familia
we’ve now expanded these to some 40 different countries. So, for about a half
of one percent of GDP, you have a transfer program
that focuses on the poorest on the conditions they
send the children to school and they get health checkups. These came from developing
countries. So, without going through all
the detail, the thrust is, I don’t think that simple
growth numbers are enough for people to target. The inclusive and
the sustainability, the sustainability means
resources environment but also means systemically,
and recall as we were talking about it, I started off by saying economic
textbook is not enough. You have to think about this
in political institutions. Many of these countries are new
democracies, they’re fragile. So, how do you try to
build support in the sense that everybody is got
buy-in in the process? And let me give you a very
real example of this, you know, we’ve all been stunned by what
happened across North Africa in the Middle East,
the final chapters of that story haven’t
yet been written. But we’re working with
those countries not only on their growth, each have
relatively good growth but growth in a way that
allows other people to feel that they have the
breath of opportunity. Now, where there
will be political and policy debates ’til the end
of time is what your balance in terms of some of
equality of result versus equality of opportunity. And so you might have a debate
about people that say, “Look, we got to give everybody a
chance no matter where they’re from to have opportunity, but I may not wanna have
the same tax policies that force same quality
of results.” And that’s what politics
are about but so, you know, coming back to the question
you asked, I think, you know, it’s different for businesses. Businesses are gonna do
segment different strategies. Wal-Mart focuses on a set
of– a different income group, than Nordstrom focuses on. That’s a business’ decision. But for a society as a whole I
think the healthiest thing is to make sure that
everybody has the opportunity and everybody has
the opportunity to fulfill themselves both
for individuals but also for the society, and
I think that makes for healthy societies
and policies.>>Let me just interject
here if I may, to what extent may it happen
over the next several years that some of these countries, they are somewhat successful
this way, will graduate from the poor to lower middle
income while they still have a lot of poverty and will
not qualify for the IDA, for the soft loan and grant
window, and if so, are you ready for it, what will you do?>>Well, as an institution,
we have the IBRD lending and recognize that the World
Bank’s a triple A borrower, okay, so that means we
borrowed rates not too much above the U.S. treasury and
our total cost on top of that, maybe 45, 50 basis point so
they get long term loans, very attractive to
deal with that. But as we’ve discussed, it
depends on the institution, many of them may not
need the money, it’s– it goes to the same set of
policy questions and so, but let’s even take a harder
one, let’s take China, ’cause China has
grown, as I mentioned, 10 percent a year for 30 years. But what’s intriguing is the
Chinese are now recognized that the growth model they used over the past 30 years
is not likely to continue to be stable for the future. They’ve relied very
heavily on exports, and domestic investments, so consumption is a much
smaller share of GDP. They give you a reference point
on this, if China by 2030, continued at the
same growth rate, it would be like
adding 15 South Koreas to the international
economy, it’s hard to believe that would be sustainable. So China is working on how can
it increase domestic demand, how can it increase consumption,
and some of these go to these same issues, many
people may not recognize that China will probably be
having more people leave the workforce in 5 years that
come in, so they wanna move out of the low value
added manufacturing and move up the value chain. Now, coming back to some
of these other questions, this actually presents
opportunities. So we’re– I don’t wanna
suggest this is an easy jump, but we’re working
with China and Africa, to see whether you could
create some of the enterprise and industrial manufacturing
zones in Africa, what does it take? Energy transport
logistics, so that some of those manufacturing
enterprises, could move to Sub-Saharan
Africa. And just to give you a sense
of how these interrelate, we estimate roughly there’re
some 85 million low wage manufacturing jobs in China. In all of Africa,
north and south, there’re about 8 to 10 million. So even if you can just move
5 million of those jobs, you would be able to
have 50 percent increase and in a sense take
what has been the story of East Asia’s success, starting
with Japan and Korea and Taiwan and Southeast Asia, then China
and create an opportunity for Africa to move that ladder. Now, maybe it requires more the
agriculture development first, and create the higher incomes. But part of this and they
answered the people’s question is, look, I’m totally open, this
is a field where people have to learn as you go, but I
guess part of this is let’s try to understand what has worked. There have been some interesting
things that have worked out there, and increasingly it’s
things from the developing world that can be transferred to
others in the developing world and frankly what
I’m most worried about now is actually the
problems in the developed world that would drag down the
developed world as well as the developing world.>>Yes.>>Hi, my name is
Chris Maze [phonetic], I’m a sophomore economics
and I’m actually interested in what you are involved in
which is the World Bank so, I’m really honored to have–
sorry, to ask this question, with the recent United States
economy and being downgraded in the credit rating, I was
wondering what do you think that we can do to help improve
our situation, how can we get out credit back and how long do
you think that that would be?>>Yeah, that’s an
interesting question. Let me start with the
credit rating issue, and then I’ll move
to bigger policy. We have, as you’ll see, I’m
somewhat experienced based with my answers to questions,
we have some examples, this actually happened
to Australia and Canada and the unfortunate news
is it tends to take longer than you think to get back. And so remember what a
triple A rating really is is that just a total
assurance of payment and so this was partly
dead in financing, it was partly also
I suspect with some of the rating agencies,
a sense that some of the political impasse
that raise questions. And so it may take a little
longer, but if you look at what happened at markets
after the rating declined, actually the value of
U.S. treasury’s increased, interest rates came down. Now that reflects a little
bit what we were talking about answer to the
prior question in that the U.S. securities in
dollars are still a safe haven. So there’s problems in Europe,
you can expect money will go to the U.S. securities. What I think about the grading
downgrade is perhaps reflect a little bit the historical
perspective. I think the real issue
will be 10 years from now. Will people look
back on this and say, “Didn’t they take this
as a wake up call? Did they recognize that there
were some fundamental things that had to be addressed here or did they just
continue as they went on?” So that’s the context
I would look at it. Now, on U.S. side– again, I’ll divide into the
macroeconomic and the growth. Look, United States clearly
has spending and debt issues, and Congress has been
focusing more on the spending, maybe that’s a good thing, so
far they’ve been focusing on, what people call the
discretionary spending, sort of the annual amounts. And the reality is that’s
not where the real money is, that’s not where Willie Sutton
is gonna be over time, okay? So the real issue is how do
you slow the rate of growth for Social Security,
and Medicare? Now, my own view, in this– having dealt with this
for a while is, again, remember I didn’t say cut,
it slowed the rate of growth. The good news is you could
slow the rate of growth and deal with this issue. And I frankly suggested
to both parties they look at Social Security because
it’s an issue, it’s not as big as Medicare, but it would
send a very powerful signal to other governments,
the U.S. public markets that the U.S. government
can function. And the reality is, you
know, if you say to people, you’re gonna have cuts, you’re gonna have a
turn off right away. In reality, what you could say to people is you can keep the
Social Security you have today plus the cost of
living increase. It probably would make sense to increase the retirement
age gradually over time which reflects longevity. Now, you know, is that a cut? Or is that an assurance of
a cost of living increase? The difference is Social
Security right now is indexed to wages, and the wage
index rises fire faster than the cost of living index. So, the good news is you could
actually deal with this problem in a reasonable way
if you start now. But if you keep waiting, it’s
like Europe, you’re gonna get to a point where the
costs are bigger. So whether it’s this
idea or something, the government’s gonna have to
deal with the rate of increase of entitlements, or
frankly, it’s gonna eat up everything else
in the budget. The second thing, I talked
about tax reform, and again, what I’m sharing with you a
little bit is the experience I’ve had at both policy but
also political and institutions, what I’m seeing out there
across different constituencies and different political
interest instead of an interest, a little bit like you had in the
early ’80s, about saying, “Look, we don’t like all
these tax preferences, lets broaden the base
and lower rates.” And frankly, I think that
would be good for growth in the United States,
it would help investors and business people but I also
realize having kind of been through this once before,
it’s easier to say than to do, and I believe that would be
another important action. A third one would be trade. Look, I’m a big believer
in open markets and trade, fortunately the Congress just
passed these three free trade agreements, but there
isn’t a pipeline, people haven’t really been
developing this issue. Trade, remember, the
United States is 4 percent of the world’s population, if
you wanna grow you gotta look and take advantage of some
of these other markets. And trade is a wonderful way where everybody reduces
their barriers and frankly it forces people
to become more competitive and that means more productive. So those would be three
areas to start on. But look, you know,
this will be worked out in the political
system, it’s not my decision but the core question is the one
really, I’m glad you’re asking, which is coming back to
the ratings business, the U.S. really is gonna have
to face up to this question and I’ll just share one
other aspect of this. I work internationally as
I have for some 25 years, so I spend time in the U.S. but
I spend a lot of time abroad and I cover all regions,
developing, Europe, Asia, and others and I
can’t emphasize enough that there’s still
a feeling out there that the United States
is a special place. It’s the wealthiest country,
it’s an innovative place, it’s standing to
reinvent itself, but because of these
financial crises and because of the problems and some of the
political impasse, I’m starting to get a feeling that I
haven’t gotten in the pass of, “Well will the U.S.
get its act together?” And all I can tell you is
that it’s not only important for the U.S. but it’s important
for the rest of the world. Jan’s from the Czech
Republic, I dealt with the end of the cold war, you know
frankly U.S. did some very important things with German
unification at the end of the cold war, the
U.S. can’t do this alone but if the U.S. sidelines
itself, it’s gonna be a much
nastier world.>>Thank you sir.>>And this is probably
our last question.>>Okay. Well, thank
you for coming in. You’ve given so many eloquent and articulate answers I gotta
keep replaying my question. But my background is my name
is Amar Ickbal [phonetic], Michigan grad with econ and then
a fellow Kennedy School grad with masters in public policy, briefly was at the
World Bank IDA division on 1818 8th street and– but spent 14 of the last 18
years abroad with IFC working on infrastructure projects and
places like Equator, Guinea, Kenya, Indonesia,
and Bangladesh.>>Well, thank you
for your service.>>I wanna call. Excuse me? Oh thank you.>>Thank you.>>And thank you for
the opportunities, but, I wanna reflect on Bangladesh. When I started there with the
IFC, we worked on a power plant in the energy sector which at that time was the largest
foreign direct investment in the history of Bangladesh
and IFC was a critical component in bringing in even Citibank
loan B and other programs. And since then, after that,
110 million dollar project, Bangladesh has done
several much larger projects and they have their own
niche within energy sector and of course at the same time, we know about Bangladesh is
a micro finance especially through Grameen and
other institutions that have been supported
by a soft institutions such as the World Bank. But what I feel when I go to
these places like Vietnam, Thailand, places in
Africa, what’s missing is that institutionalized
entrepreneurism especially for the middle class. I mean, there’s a lot
of red carpet treatment for large projects,
there’s a lot of special emphasis
especially with women and poverty on the microfinance. So, what my question
would be, I mean, again, you were very articulate about
the challenges coming before, but my ground view
is that if we can, we could ma it more sustainable
if we had these, again, middle class type of
entrepreneurs who have that drive who aren’t
pulling favors and can really drive
those economies and what could the
World Bank group do?>>Yeah.>>The IFC asset management
but you know, to further that.>>A very good– and it
goes to a core question and there are many dimensions but I’m just gonna
emphasize two, ’cause I think they’ll
be a broader interest. We talked about microfinance and
many people know about the idea of set of small scale credit
to sort of small producers. In a sense what your
question goes to is something that we’re trying
to work on which is, what’s the level above? So, what’s above micro finance
in terms of instead of micro, small, and medium
size enterprises? What are the impediments
to getting that forward? Now, one aspect is finance,
and so, we are trying to be innovative partly to help
with financial institutions in the country, on
the same logic that it’s not just what we do
but can you build the structures and how do you support
people who learn how to lend, these are small projects
just like microfinance but they’re a different set
of project, because it’s easy in many countries
for these banks to simply buy the
government bonds. So, how do you try this
to support that activity? Second, we’re probably one
of the biggest investors in private equity funds,
small scale funds at least in Sub-Saharan Africa, maybe
globally, I think we invested about 170 of them around the
world and we’re trying to– and again, sponsor these so that
they can support the development of private sector entrepreneurs. So, and then, as
you probably know, beyond the financial sector,
we try to look for areas where, again, we’re kind of
at a wholesale level but how can we connect
other activities. So you mentioned
the big players, you may know we have a linkages
program, so we’re trying where you have a big investor,
a foreign direct investor, how you connect them to small
business development, so. I remember in Mozambique, visiting a major power
plant operation and we tried to support them with
their suppliers and others that they were drawing some
of the local customer base. But there’s a second dimension
that is critically important which you alluded to, which is
that it goes to the rule of law, the governance, the NI
corruption, the transparency. So, when we look at some of
the North African countries, even the ones that
had reasonable growth. One of the things
that led people into the streets was it looked
like it was gained that it was for an elite, it was for the
family of the ruling group, everybody, it wasn’t
an open chance. So, part of the challenge is
to try to work with countries and persuade them that this
is in their own interest, at their own capability, but as
you know that it sometimes runs against vested interest. It’s one reason again why
these pieces interconnect, one of the reasons why
open trade is useful is that some people always
emphasize the exports. The imports sometimes
challenge the oligopolies and the oligarchies
that are connected to the fancy families, okay? So, I think part of
this is also then trying to fraud these countries and
whether we partly do this through our own efforts
with anti-corruption with our own projects but we’re
trying to expand this much more. How can we help them develop
institutions with freedom of information act,
open and transparency, we created an international
corruption hunters network to try to support people doing
the prosecutions we’ve got and investigations. We’re trying to– I think we
need to do more in this area but we’re trying to help build
legal and judiciary systems, so is to create the
enabling environment for those opportunities and,
you know, again, I’ll come back to a point that I’ve
mentioned then answer a couple of the other questions. You know, what I’ve seen in my
own policy making experience and what I’ve see in the developing world is was
one the most powerful things is what works elsewhere, you know? And so, again, you could come up
with the papers and the analyses and show people things but
when they see the demonstration effect, I think this is one of the reasons why East Asia
had the growth, to in people, you know, Vietnam
is a later comer but they could see what
happened along the way and they can see the process
and kind of try to imitate it, and so, I think that again the
good news is you’re actually seeing a lot of success
out there. It’s frustrating when you
see the amount of people that are still in mesh
poverty and the people who don’t have an
opportunity, but we just need to keep multiplying those that
see the opportunity and kind of press whatever the
political system is, to allow people to have it. The one last aspect
that I’ll come back to though is I’ve talked
about the private sector and the business, I don’t
wanna ever underestimate the fundamentals and the human
development side, the nutrition, the education, the basic safety
nets with things go down, you know, if we have a
program in Africa now, it’s called Lighting Africa,
it’s using off grid sort of lighting systems, you know, so that even though only
30 percent of the people in Sub-Saharan Africa
have electricity that in a sense it’s driving
down the cause for people to be able have lightnings so
that kids can study, you know. So, you gotta keep,
if we’re gonna try to increase opportunity and
productivity, you also have to help with the
nutrition, the education, and the one other piece
that we’re encountering in all societies,
developed and developing, is this critical nexus among
education, skills, and jobs, and this is an issue for
Michigan too, you know, how to– how to fit that more
effectively depending on the level of development.>>Well, thank you very much. We have come to the
end of our time. We very much appreciate
your thoughtful perspective on such a wide range of things
and it has been a pleasure to host you here at the Ford
School in the University of Michigan and also I’d like to
thank my colleagues Jan Svejnar, and Dean Yang and before
we close the formal part of the session I did
want to make sure that our audience knows that we
have an informal reception just outside of the auditorium
and we hope you will stay and continue the conversation
informally in that venue.>>Can I make one other point?>>Yes please.>>I also– I wanna thank
all of you for coming for another reason
and that is, you know, I very much appreciate
your interest in America’s engagement
internationally whether it’d be development or trade,
or business, you know, as I said I grew
up in the midwest, it was a very different
era, I’ve mentioned to people many times that
there’s still a huge interest in the united states, but in
many countries there’s a worry that the United States
turns inward, it’s natural when people have problems and it’s natural they
become self absorb. My own sense is that
one of the things that has always been Americas’
trump card is it’s openness to goods and ideas, and
people, and capital, and I often tell people
abroad, as you know, sometimes I think unfairly
people associate midwest with isolationism
and other things like that there’s much
more interest in this than sometimes people expect but I very much appreciate the
interest that all of you have and demonstrate in this
because when you think about the challenges
that we’ve just discussed in a relatively short time
and then add another one like climate change or
biodiversity and security, I’m a firm believer that
it’s gonna take kind of US playing a critical role, but part of the challenge is how
do you do it in this changing and multilateral system which is where the World Bank
comes back in. How do you adjust this old
institution built in one era to play this role, but
ultimately, I’ve been involved with politics and policy
enough to know that it depends on an informed electorate
and people who care. So, thank you very much. [ Applause ]

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