Why Obama’s candidate for the World Bank might be the right person after all

posted in: Finance sector | 0

Like a lot of people, I was disappointed that the latest vacancy for the President of the World Bank would likely be filled by another American nominated by the US President. It has been custom and practice for the head of the Bank to be an American and the head of the IMF to be a European (usually French) since the 1950s. It isn’t written down anywhere and in any case this “arrangement” is indefensible given the dramatic shift in economic power in the world since the foundation of the Bretton Woods institutions in 1944.

In particular, there is a good candidate for the World Bank presidency in Nigerian finance minister Ngozi Okonjo-Iweala, who combines relevant economic and political experience. The emerging economies have failed to coordinate effectively around her candidacy just as they failed to stand up to the candidacy of Christine Lagarde as Managing Director of the IMF last year. But Madame Lagarde, despite being French, had a fairly strong case for the job in other respects and has been doing a good job.

But Professor Simon Johnson of MIT and a former IMF Chief Economist, puts a very different and slightly back-handed argument for why President Obama’s nominated candidate, Jim Yong Kim, is the right person. He argues that the World Bank had consistently done the same things for decades and largely failed to achieve much, mainly because of the formidable obstacles to conventional development economics. These obstacles include the powerful thesis in the book “Why Nations Fail” (which I reviewed here). Much of the research behind this book, which argues that extractive political institutions will frustrate the best intentioned economic policies, was co-authored by Simon Johnson so it’s hardly surprising he agrees with it. His argument for Mr Kim is that his experience is in the area of public health reform, which has been increasingly successful in poor countries. Instead of appointing a conventionally qualified person to the Bank, only to continue with ineffective policies, he suggests an unconventional candidate from a related area of economic development is just the right person to lead the Bank in a more successful direction. His argument is presented here.

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