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The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations Paperback – April 25 2006
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This edition features a new afterword by the author that analyzes the appointment of Paul Wolfowitz as Wolfensohn's successor at the World bank
- Print length496 pages
- LanguageEnglish
- PublisherPenguin Books
- Publication dateApril 25 2006
- Reading age18 years and up
- Dimensions14.17 x 2.77 x 21.34 cm
- ISBN-100143036793
- ISBN-13978-0143036791
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Review
"An excellent read... [Mallaby] has a talent for brilliant writing and penetrating analysis." —Financial Times
About the Author
Excerpt. © Reprinted by permission. All rights reserved.
A TALE OF TWO AMBITIONS
On Friday, September 14, 2001, President George W. Bush led a televised prayer service in Washington's National Cathedral. He invoked the heroes of three days before: inside the World Trade Center, a man who could have saved himself had stayed and died beside his quadriplegic friend; a priest died giving the last rites to a firefighter; two office workers, finding a disabled stranger, carried her down sixty-eight floors to safety. We feel, said the president, what Franklin Roosevelt called the "warm courage of national unity." And he spelled out the next steps. "Our responsibility to history is already clear: to answer these attacks and rid the world of evil."
Meanwhile another memorial service was under way in another part of Washington. In what passes for the capital's business district, two blocks west of the White House, two thousand people gathered in the glass-fronted atrium of the World Bank's headquarters. In an institution with employees from more than a hundred countries, including a large number of Muslims, the attacks of September 11 had induced a trauma of a special kind. Along with the fear felt by everyone in Washington-that more and nastier attacks might follow soon-there was the fear that life in the United States would become less secure for people with Pakistani or Saudi or Afghan passports. And there was the fear-which only grew as the president's rhetoric evolved-that friends and family abroad could somehow find themselves on the wrong side of a new global divide-the side that President Bush now classified as "evil."
The World Bankers gathered in the atrium, where the walls rise, cathedral-like, thirteen stories above the marble floor to a roof composed of glass; and where, in place of the baptismal basin and Christian inscription, there is an internal lake fed by an internal waterfall, and a sign proclaiming, OUR DREAM IS A WORLD FREE OF POVERTY. The staff packed into this atrium, displacing the kiosk displays on work stress and business communication that often furnish its vast space, and watched their president face them from a stage: a silver-haired, barrel-chested, twinkly eyed man-a sort of Santa Claus without the beard and costume. "I am not a preacher and I surely don't represent all the religions here," the president began, "but in this room we have a microcosm of the world. We have one hundred forty nations. We have Christians and Muslims and Jews and Buddhists and Sikhs.... We as a family can be a light for each other and for our community and for the world, because we are charged with the most significant challenge of all: to relieve poverty, and to improve the lives of our fellow men, and give our children a chance for peace and hope.... Ours is a noble task," he added.
To relieve poverty and so create a space for peace: Over the next few weeks James Wolfensohn, who is more of a preacher than he allows, built upon this theme, offering a response to 9/11 that contrasted markedly with President Bush's promise to "rid the world of evil." In Wolfensohn's view, an understanding of the terrorist attacks began with the big picture: In a world of 6 billion people, half lived on less than $2 per day, and a fifth subsisted with not even a dollar. In the next twenty-five years, moreover, the world's population would swell by a further 2 billion, and all but 50 million of these would live in poverty-afflicted countries. Even if no simple link existed between poverty and terrorism, these population numbers surely meant something. In a world with so much poverty, you couldn't just identify a few pockets of terrorism and vow to root them out. Security lay in bringing the excluded in, not in dividing the world into two camps and rooting out the evil one.
In the past, Wolfensohn would say, you might have overlooked this link between security and poverty. For the fortunate fifth of the world's people, who lived in the countries with four-fifths of the world's income, it had been possible to imagine that a wall separated "them" from "us," that sheer distance-psychic, geographical, or otherwise-could insulate us from the billion people who lacked drinkable water, or the women who perished in childbirth at the rate of one a minute. But after September 11, it was time to realize that global poverty had global reach, whether because it created the failed states that nurtured terrorists, or because it incubated disease, environmental damage, and migration pressures. "There is no wall," Wolfensohn declared. "We are linked by trade, investment, finance, by travel and communications, by disease, by crime, by migration, by environmental degradation, by drugs, by financial crises and by terror."
If the rich world was going to get serious about fighting global poverty, there was no doubt that the World Bank would lead the effort. It was a presence in almost every poor country in the world, supplying around $20 billion in loans a year, for projects ranging from irrigation systems to anticorruption efforts, from AIDS control to a victorious campaign against river blindness in Africa. The Bank's money, moreover, was just part of its significance; more than any other institution in the world, it understood the complex web of influences that keep people poor, and it set the intellectual agenda for other development agencies. Its ten-thousand-strong staff combined raw brain power with practical experience of four continents. It advised developing countries on which problems they should tackle and how they should proceed, spreading the lessons from these efforts around the world, so that Madagascar might learn from Thailand or Tunisia. Every time the rich world's leaders confronted global problems-whether it was AIDS or female illiteracy or environmental pressures-they turned instinctively to the World Bank. Now, in the wake of 9/11, they were bound to do so once again, and with a new sense of urgency.
Reacting to the new challenge of terror, President Bush had invoked Franklin Roosevelt. In setting forth his own reaction, Wolfensohn was invoking Roosevelt as well, even though he never mentioned him.
The World Bank was conceived six decades before the terrorist attacks, in the teeth of another violent threat to American security. In December 1941, scarcely a week after the Japanese assault on Pearl Harbor, Roosevelt's long-time friend and treasury secretary, Henry Morgenthau, commissioned a blueprint for the postwar economic order. Morgenthau was incapable of designing such a thing himself-he was a gentleman-farmer, not a financier-so he turned to Harry Dexter White, a driven, brilliant Harvard PhD whose service was later rewarded with persecution at the hands of Senator Joseph McCarthy. White's brief was nothing less than to prevent another war, and to do so by forestalling the kind of economic storm that had brought about the current one. As Morgenthau put it a little while later, "all of us have seen the great economic tragedy of our time. We saw the worldwide depression of the 1930s. We saw currency disorders develop and spread from land to land.... We saw unemployment and wretchedness.... We saw bewilderment and bitterness become the breeders of fascism, and, finally, of war."
White's first priority was to prevent more such "currency disorders." The postwar economic system would be anchored by the gold standard, which would shield commerce from the twin evils of exchange-rate shocks and inflation. If this system came under pressure-if a balance of payments deficit exhausted a nation's gold reserves-a new international lender of last resort would bail the country out rather than leaving it to devalue. This new bail-out lender ultimately took shape as the International Monetary Fund, which today stands across the street from the World Bank in Washington, and which still fights financial crises from Argentina to Turkey. But White's creativity did not stop there. He also conceived the idea of a new public bank that would promote the rebuilding of Europe, so ending the "unemployment and wretchedness" that Morgenthau lamented. At first, the new institution's proposed name-the "Bank for Reconstruction of the United and Associated Nations"-made no reference to the plight of developing countries. But a member of White's team suggested that this bank could play a role beyond the reconstruction of Europe. In a memo circulated in November 1943, the words "and Development" were inserted after Reconstruction in the title.
Without World War II, and the extraordinary leverage that it afforded the United States, White's plans might have faltered. His main ally abroad was John Maynard Keynes, the preeminent economist of the time, who was then advising Britain's Treasury. Keynes agreed with the outline of the American ideas, but he disagreed on the detail. He took a dim view of White's proposal to convene an international conference to discuss plans for a new world bank; observing that forty-four governments would come, he warned of "the most monstrous monkey-house." But White insisted on the gathering, and Keynes swallowed his distaste: he knew that Britain depended upon American support, both economic and military. In July 1944, when the Allied forces had still not broken out of their Normandy beachhead, several hundred delegates convened in the sprawling Mount Washington Hotel in Bretton Woods, New Hampshire.
Even then, the creation of an international bank was by no means certain. The conference invitation proclaimed currency stabilization as the primary goal; creating a bank for reconstruction was a secondary objective. Keynes headed the commission charged with discussing the potential bank's design; he liked the idea of a fresh source of reconstruction funds for Europe, and saw no positive harm in lending whatever might be left to Latin America or India. After a few days of deliberation on whether the new creation might best be termed a "corporation" rather than a "bank," a drafting committee drew up the Bank's Articles of Agreement, opening the way for the long process of amendment. On the last day of the conference, the Soviet delegation demanded five changes-an affront that in retrospect seems doubly irksome, since the Soviets subsequently refused participation in the Bretton Woods institutions. But the Soviets were contained. The drafting was finished. And the conference ended with an agreement on a new International Bank for Reconstruction and Development to work alongside the International Monetary Fund.
The link between security and poverty had been stressed throughout the conference. As White said to his colleagues, "There is nothing that will serve to drive these countries into some kind of ism-communism or something else-faster than having inadequate capital." But White, like Keynes, was thinking of economic misery in Europe rather than in the developing world; at most, both men regarded development as a useful rationale for the Bank once reconstruction was over. In this, they reflected the spirit of their times. Poverty was even worse then than it is now: in India, life expectancy for the poor was twenty-five years, and 90 percent of the population aged ten or older was illiterate. But this was seen as a fact of life rather than an urgent challenge. In 1948, Paul Samuelson published the first edition of his classic economics textbook. It contained less than three sentences on development.
And yet, even in the 1940s, it was easy to see how time would soon expand the economists' horizons. The link between security and poverty logically applied to developing countries as well as the developed ones; and the statesmen of the time could see this. "The economic health of every country is a proper matter of concern to all its neighbors, near and distant," said the message read out to delegates at the start of the Bretton Woods conference; "there is no wall," it might just as well have stated. That message-a premonition of Wolfensohn's response to twenty-first-century terror-came from none other than Franklin Roosevelt.
James David Wolfensohn knew all about walls: he had spent his life crashing straight through them. He was born on December 1, 1933, and grew up in a modest suburban apartment in Sydney, Australia. His parents had emigrated from England during the Depression, and later helped to resettle the flood of fellow Jewish emigres who arrived in Australia during and after World War II. His mother, Dora, was a musician, and sang every week on the radio; his father adored music, too, and the young Wolfensohn took piano lessons. The parents lavished attention on their two children, and especially their son, who was ten years younger than his sister and so almost an only child. Wolfensohn remembers himself as "pudgy, a very fat little boy. I was indulged by my parents, spoilt probably, and I ate far too much chocolate."
This indulgence was mixed with something else-something that instilled in the young Wolfensohn a vast and raw ambition. There was a scent of disappointment in the home, of financial stress and thwarted aspiration. The young boy's father-Hyman Wolfensohn, known universally as "Bill"-was proud and intellectual and profoundly frustrated. Early in life, he had studied medicine in London, but his plan to become a doctor had been interrupted by World War I. Later he had begun a law degree, but was distracted from his studies by James Rothschild, a scion of Europe's great banking family, who hired him as his private secretary. Bill Wolfensohn thrived in the service of the Rothschilds, and accumulated enough savings to set off on his own; he moved his family to Australia in search of independent fame and fortune. But by the time his son was entering his teens, Bill Wolfensohn's quest had clearly failed. He had lost the money he had made in London, and had discovered how much harder it was to prosper when severed from the Rothschild name; the small business consultancy he ran made barely enough for the family to survive on. Cut off from his native Europe, Bill Wolfensohn brooded on the far fringe of the world. He lived in a state of financial worry, having rubbed shoulders with plenty. He rued his lowly professional status, having once aspired to join both the medical and legal priesthoods. He could not live his life again. But he was determined that his son should not repeat his errors.
Half a century later, Jim Wolfensohn still remembers the extraordinary paternal expectations of his youth. He was shoved through his early school years, jumping ahead two grades; when a famous tennis coach suggested that he interrupt his schooling to train for international tournaments, his father wouldn't hear of it. Somewhere in his mid-teens, the pressure grew too much; having entered Sydney Boys High School as a star student, he matriculated four years later with the lowest grades you could get while still qualifying for college. In his first year at university, he failed all his subjects and felt miserable.
Product details
- Publisher : Penguin Books; Reprint edition (April 25 2006)
- Language : English
- Paperback : 496 pages
- ISBN-10 : 0143036793
- ISBN-13 : 978-0143036791
- Item weight : 449 g
- Dimensions : 14.17 x 2.77 x 21.34 cm
- Best Sellers Rank: #287,265 in Books (See Top 100 in Books)
- #223 in International Financial Economics
- #227 in Development & Growth Economics
- #229 in International Economics (Books)
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About the author

Sebastian Mallaby is the Paul Volcker Senior Fellow in International Economics at the Council on Foreign Relations and a Washington Post columnist. He spent thirteen years on The Economist magazine, covering international finance in London and serving as the bureau chief in southern Africa, Japan, and Washington. He spent eight years on the editorial board of The Washington Post, focusing on globalization and political economy. His previous books are The World's Banker (2004), which was named as an Editor's Choice by The New York Times, and After Apartheid (1992), which was a New York Times Notable Book.
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Timing is an important element in the publication success of a book. Here, the intention is twofold. On the one hand Mallaby reviews the ten-year trials and tribulations of the World Bank’s outgoing president, Jim Wolfensohn. On the other, he aims to provide a critical overview of the broader world and historical context in which the World Bank has been operating since its beginnings 60 years ago. While the period prior to Wolfensohn is not accorded the same detail, it is nevertheless treated as an important background to understand the Wolfensohn era. The author concludes with a few recommendations for the incoming President.
As a biography of Jim Wolfensohn, the book is a success and a good read. It’s full of personal stories, gossip and astute observations. Based on extensive interviews with Wolfensohn, other World Bankers and many friends and observers, the author reveals traits of the man that few would know outside the inner circle of friends and some of his business partners. He is ambitious and driven by his search for accomplishments and adoration, yet his visions are not necessarily backed up by clear strategies and implementation methods. He is a banker, not a development professional. He is also a philanthropist and a musician. Mallaby vividly paints the personality with all his strengths and weaknesses: the duality of a kind of Dr. Jekyll and Mr. Hyde of development banking. His term at the Bank has resulted in many new ideas, some false starts, and some long-term successes, Mallaby contends. But the route to achieve those was difficult and often confrontational. It was frustrating him and draining on his management team and staff, not to speak of his board. In real terms, Wolfensohn shook up the World Bank system – with reason – and overall the Bank is a better place for it: it is more focused on poverty alleviation, works more closely with the borrowing countries and has managed to keep the rich lending governments, more or less, on side.
Biographers often take the side of their subject. Events and people are seen through a close-up lens and objectivity is of lesser importance. This is very much the case here. Mallaby’s lens is not only focused on Wolfensohn and the World Bank, he uses a fish-eye lens where anything beyond the focus tends to get distorted or blurred. His bias shows strongly in his repeated, yet generalized, criticism of NGOs, his belittling of the UN Millennium Development Goals and of the UN agencies’ capacity to deliver development programs. While it is understandable that details are omitted and development policies and case studies cannot be discussed in depth and breadth, judgemental statements that are not substantiated create uneasiness in the reader. For example, NGOs are criticized for not embracing the World Bank’s new Water Strategy in 2002 without the author giving any indication of its substance or the reasons why NGOs did not want to buy into it. He laments that NGOs, or “No-Gos”, don’t have an “off-switch”. “Participatory” consultations appear to be described as successful only when the groups consulted agree with the World Bank policy in the end. He almost feels sorry for Wolfensohn in his efforts to reach out to such groups. Finally, Mallaby’s condescending comments on Joe Stiglitz reflect more than journalistic arrogance.
The question arises about the intended audience(s) for this book. People interested in fascinating, colourful personalities will find the person at the centre of this story worth their while. The development professionals, such as myself, will read with interest about the internal World Bank struggles during Wolfensohn’s reign. They can easily balance the biases and fill in the source gaps from their own knowledge base. However, the general reader might be well advised to consult additional material on development strategies and country programs and accept this journalist/biographer’s views with a pinch of salt. [Friederike Knabe]
The portrayal of Wolfensohn is likewise two-sided. Mallaby credits his "instincts as being ahead of his peers" on the need for providing debt relief in the mid-1990s and on tackling corruption. Wolfensohn is also recognized as being instrumental in pushing for greater country ownership of reforms and for the decentralization of the Bank through the relocation of most country directors to the field. At the same time, the book has candid descriptions of what Mallaby considers to be Wolfensohn's failures, for instance his tendency to share "credit with no one."
North-based NGOs come across in Mallaby's portrayal as the villain of the piece, Lilliputians who tie down the Bank and keep it from doing good. The NGOs, says Mallaby, have killed worthy projects by overstating the likely labor and environmental impacts and insisting on standards that developing countries can ill-afford. For example, in Laos "the environmental standards that the Bank proposed for a megadam project matched those of a country like Sweden; this was like telling the Laotians that they must not travel in motorized vehicles unless they purchased brand-new Volvos with passenger air bags."
Not all Bank failures are the fault of NGOs; sometimes, says Mallaby, the Bank cannot succeed because of lack of cooperation by the client. In 1998, the Bank wanted to execute an project to combat AIDS in Russia, but the country's health ministry did not want to acknowledge the problem. When the ministry came around, Russian pharmaceutical makers blocked the Bank, fearing that it would open the drug market to foreign competitors. Russia's medical establishment was also opposed as "hospitals had a large and antiquated infrastructure for treating TB, which would be rendered redundant by the Bank's modernizations."
Mallaby's sympathetic portrayal of the Bank contrasts with some of the harsh characterizations of other observers. In his recent book Why Globalization Works, Martin Wolf calls the Bank a "fatally flawed institution," whose source of "failures was its commitment to lending." Describing the situation when he worked at the Bank in the 1970s, Wolf writes: "every division also found itself under great pressure to lend money, virtually regardless of the quality of the projects on offer or of the development programmes of the countries. This undermined the professional integrity of the staff and encouraged borrowers to pile up debt, no matter what the likely returns." The Meltzer Commission, appointed by the U.S. Congress in 1998, made a similar charge in its report. Mallaby alludes on occasion to this pressure to lend, particularly to middle-income countries, but does give it the importance ascribed by others.
Mallaby presents shifts in the types of lending favored by the Bank as an example of its learning from experience. He notes that the Bank started with the notion that "infrastructure was the route to human betterment." Then it moved from building physical capital into building human capital by funding education projects, then from human capital into social capital by funding projects to improve the quality of institutions. And, very recently, as Mallaby notes, the Bank has partially reverted to its early emphasis on physical capital. Others put a less positive spin on the Bank's intellectual journey. For example, in his book The Elusive Quest for Growth, William Easterly-a former Bank staffer-treats the same evolution as a chase after fads that failed to deliver: "We thought that certain objects associated with prosperity in the industrialized world - dams, roads, schools - could bring success to the developing world. Later, fads changed to include institutional magical objects. Thus we urged governments to embrace democracy, constitutions, independent judiciaries, decentralization to local governments and other magic bullets. None of them worked."
While the book may not satisfy critics of the Bank, its accessibility and broad scope make it required reading not just for experts on development but for anyone with curiosity about global development, the Bank, and James Wolfensohn.
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One setence in the book (in chapter 12: A Plague Upon Development) misses the whole point: "What the [World] Bank needed at that time was table-thumping leadership."
Wrong! What the World Bank needed (as well as IMF etc.) was to be disbanded completely. We don't need a "World Bank" or any othe kind of central bank. That is problem!



The story was told from the author's perspective and it's somehow biased. One should read Joseph Stiglizt's The globalization of discontents, and this book to balance the biases of two pole for IMF and World Bank.
It's funny the author commented that Wolfensohn is a man of "vision" but lack in strategy (in World Bank). I found a parallel in this book. He presented certain topics and gave his opinions on, such as Stiglitz lambasted too much on Washington Concensus or his other advocates, but he failed to support his opinions with convincing reasons. When talked about financial crisis in Asia 97, author seemed deliver half the story or being too naive. Cronyism is not the main cause of the crash in Indonesia. Putting too much credit on Wolfensoh's vision of seeing the corruption as a problem is a bit ridiculous. While attacking Stiglitz's advocate for capital control, the author failed to mention Malaysia has achieved success with capital control.
In short, this book only tells half the story, and it's recommended only you find the other book that will the other side of the story.
Or you can read this book like a novel, there are some thought-provoking moments, but it's not a book with a lot of substance.
