The kerfuffle over whether Paul Wolfowitz, the World Bank's president, behaved badly regarding the contract for his companion to facilitate her departure from the bank involves no large issue. The bank's existence does. The bank's rationale, never strong, has evaporated.
Born in 1944, at the apogee of confidence in governments and international governmental organizations, the bank's mission is ``to fight poverty with passion and professionalism.'' The great prerequisite for curing poverty is, however, economic growth, and the world has learned, during a 63-year retreat from statism, that the prerequisite for growth is free markets allocating private capital to efficient uses.
Much of what recipient countries save by receiving the bank's subsidized loans they pay in the costs of ``technical assistance,'' the euphemism for being required to adopt the social agendas of rich nations' governments that fund the bank. Those agendas focus on intrusive government actions on behalf of fashionable causes -- the empowerment of women, labor, environmentalists, indigenous peoples, etc.
The bank argues, incoherently, that its clients value the ``technical assistance,'' but that the clients would not adopt it unless bribed -- unless it were a condition of receiving subsidized loans. So the bank subsidizes projects that the client countries do not deem worth financing with money borrowed at market interest rates. As Allan Meltzer of Carnegie Mellon University says, money is fungible: Projects with the highest social or economic return are often dangled in front of the bank to get its loans -- but these projects would have been funded anyway. So, in effect, the bank's loans support marginal projects that would not have been funded without the loans.
It is difficult to demonstrate that World Bank loans have produced growth, let alone as much growth as private capital would have produced. Furthermore, when the bank provides debt relief, it creates what economists call moral hazard, an incentive for perverse behavior -- particularly, improvident borrowing. The bank's transactions with nongovernmental organizations are, strictly speaking, irresponsible: To what, or whom, are NGOs, or for that matter the bank, truly accountable?
In the last five years, according to Adam Lerrick of the American Enterprise Institute, 90 percent of the bank's loans went to 27 middle-income countries, which Lerrick says ``closely parallels'' private sector lending decisions. The bank's loans represented less than 1 percent of the money provided by private capital markets to those 27. Ten of the 27 accounted for 75 percent of the bank's loans. Wolfowitz has said: