Why Jeffrey Sachs is a terrible choice to be the next head of the World Bank.
- By Scott Gilmore<p> Scott Gilmore is a former diplomat and the founder of Peace Dividend Trust, a social enterprise that creates jobs and reduces poverty by linking local entrepreneurs to global supply chains. </p>
Want to save the world? You might actually have a chance, if you happen to be named the next president of the World Bank. There is a reasonable likelihood that the number of people living on less than $1.25 a day will be reduced to near zero within the next 10 years. But how fast we get there, and how many lives are saved in the process, depends in large part on whether the historic rates of economic growth in the developing world continue. So, while they’re probably not betting on the outcome in Las Vegas, it’s of enormous importance who will lead the World Bank. Not only is it the largest aid organization in the world in terms of financial clout, it is also a global policy leader. Where the World Bank goes, the rest of the aid industry follows. This is why the very public candidacy of Columbia economics professor Jeffrey Sachs is so worrying.
Sachs is a remarkable man by any measure. A rare economist who enjoys mainstream celebrity status, he played a pivotal albeit controversial role in Eastern Europe’s transition to open markets, advised then U.N. Secretary-General Kofi Annan on the Millennium Development Goals, founded the Millennium Villages Project, and has been a tireless champion of the world’s poor. As economist Nouriel Roubini has noted, "Sachs has long promoted the goals of a stable, peaceful, cooperative, and prosperous world." There is no question that Sachs has been one of the most outspoken advocates for poverty reduction, if not an actual instrument of poverty reduction.
When Robert Zoellick, who has overseen considerable reforms and expansion at the World Bank, announced he was stepping down, Sachs’s popularity made it inevitable he would be touted as a replacement. (Although the fact that he chose to openly campaign for the position via Twitter, Facebook, and in op-ed pages surprised many.) Regardless, that campaign has made him a crowd favorite, not just among American college students sporting Kony 2012 bracelets, but also with many developing countries. His candidacy has been endorsed by the governments of East Timor, Haiti, Namibia, Bhutan, and others.
In spite of this support, Sachs remains the wrong man for the job for several important reasons. First of all, the World Bank president needs to be a diplomat, capable of persuading the most truculent leaders to move on the most painful issues. In this regard, Sachs has had some previous success, most notably during his work in Eastern Europe and Latin America when he prescribed his "shock therapy" during the 1990s. But since then, he has evolved into someone who may move in diplomatic circles, but is rarely described as actually being diplomatic himself. He has become an activist, a campaigner, more comfortable holding a bullhorn outside an embassy than a cup of tea within.
Consider, too, that the job requires extraordinary management skills. The president of the World Bank oversees 13,000 employees working in over 100 offices and manages $178 billion in capital. Sachs never managed an organization of any real size and is particularly unprepared in this regard.
Most importantly, the next president of the World Bank must acknowledge that the age of the development planner has passed. Fifty years ago, when the World Bank and other major development institutions were being established, aid accounted for 70 percent of capital inflows to the developing world. Today, it is less than 13 percent. In these economies, the size and importance of foreign direct investment has long outpaced international aid. It is trade, not aid, that will ultimately defeat poverty. Sachs himself conceded this point, perhaps inelegantly, when he remarked "My concern is not that there are too many sweatshops but that there are too few.”
But Sachs continues to champion the old model of grand plans and greater spending. Nothing illustrates this failed approach better than his own Millennium Villages project. In 80 villages in 10 African countries, local committees led by international experts make a series of coordinated interventions, ranging from health care to fertilizers, based on the theory that if enough money is applied to a "big push" it will boost these populations out of the poverty trap. But observers remain highly skeptical of their impact. Rigorous external evaluation has not been applied, and the little data that is made available, such as incidence of malaria or mobile phone usage, differs little from regional statistics.
Sachs describes the Millennium Villages as a bottom-up, grass roots, decentralized scheme to fight poverty. But they are still a scheme, yet another in a long history of attempts to launch a new plan, apply a new strategy, find a new silver bullet to generate jobs and build prosperity in Africa. After each fails in turn, the planners ritually lament that the only thing that was missing was more money. For his part, Sachs intends to increase the number of Millennium Villages from 80 to 1,000, and more broadly wants to increase annual aid spending to $195 billion. In other words, he wants more schemes and bigger plans.
Development planners like Sachs are willing to spend billions on one scheme after another, wiling to try anything, with the exception of handing the fight over to the only people who actually have a successful record creating jobs and wealth: local entrepreneurs. According to the Bank’s own data, small and medium sized businesses are responsible for creating 86 percent of all new jobs globally, and that number is even higher in low-income countries. Sachs embodies the difficulty the development profession has accepting the fact that the remarkable progress on the Millennium Development Goals is being achieved by economic growth, rather than through the aid industry.
In his campaign, Sachs has claimed that "malaria in sub-Saharan Africa is down by 30-40 percent with the strategies that I helped to champion and implement around Africa." He fails to give credit to the historic increase in African GDP during that same period. This growth is not limited to Africa: The International Monetary Fund predicts that from 2012 to 2016, emerging and developing economies will grow at 6.7 percent as compared with advanced economies at 4.9 percent. This growth has led to better education, greater personal wealth, and higher tax revenues. These, in turn, have led to better disease awareness, improved housing, and stronger health-care systems. The markets, not Jeffrey Sachs, are beating poverty.
The next president of the World Bank must also be astute and humble enough to accept the limits of what can be achieved through development interventions. He or she must recognize that market-based growth is succeeding where decades of aid failed. And with that knowledge, the next president must focus on supporting that growth by championing local entrepreneurs, opening markets, unleashing finance, and building strong and fair financial systems. Sachs is not inclined to limit himself to do any of these things, because he will not concede that that rising markets, like a rising tide, floats all boats — including his Millennium Villages.
There are better options, declared and undeclared, even given the limitation that the job is really only open to U.S. candidates. Rajiv Shah, formerly of the Gates Foundation and now head of USAID, has surprised many with the success of his ambitious reform agenda and would be a welcome new face at the World Bank. Indra Nooyi, CEO of PepsiCo, is a leader in using global supply chains to generate wealth at the bottom of the pyramid. And New York mayor Michael Bloomberg is another possibility. Don’t laugh: He has in-depth experience running large organizations, an intimate understanding of global finances, a record of public service, and the instincts of an innovator and reformer. All of these people understand that the race to end poverty will be won by markets, not by yet another aid scheme.
The question of who takes over the World Bank is important. The world is changing. The World Bank must change with it. Putting Sachs in charge will ensure that it doesn’t.