PACE UNIVERSITY

Lubin School of Business

Global Finance Leadership Forum

AConversation with James D. Wolfensohn

February 23, 2004

68

PACE UNIVERSITY

A Conversation with James D. Wolfensohn

2/23/04

[START RECORDING]

MALE VOICE: -all of you, and thank you for being here. Jim, again thank you for accepting this meeting.

JIM SPANFELLER: Thank you. Now if we have a chance get a few more people in here. I just also want to add my, my welcomes. Appreciate you all coming out on a, on a Monday morning, always a tough morning for, for breakfast. Great to see so many folks here. I’m the president and the CEO of Forbes.com and we’ve been fortunate over the last eighteen to twenty months to basically witness and experience some phenomenal growth. We’ve actually gone from roughly around a million unique visitors on a monthly basis to in December 11 and a half million unique individuals coming to the site over the course of that month, which in fact makes us the largest disseminator of business news and information of any source of any medium on the planet. And at the center of that in terms of developing that kind of growth and achieving that kind of weight is our editorial team, and our editorial team is led by Paul Maidment. Paul comes here this morning after having worked not in the last couple of days I guess, but over the course of his career in three different continents. He spent some time at Newsweek with my friend Rick Smith. He spent some time with The Economist, with the Financial Times, and has just done a fantastic job leading our group here, and I’m sure we’ll, we’ll make for a probing and an insightful interviewer this morning. So Paul, please.

[Applause]

PAUL MAIDMENT: Jim, thank you very much indeed. Whenever Jim recites that litany of people I’ve worked for in the past I never quite know whether my mother would be proud that I’d been able to work for so many prestigious organizations or whether she would just say isn’t there any job you can hold down? [Laughter] But anyway that’s by way of a cheesy Monday morning introduction to our guest today, James Wolfensohn. We’re very delighted and honored to welcome here, welcome you here to the Forbes galleries, someone who has a genuine résumé of distinction. What you have done as an investment banker I think would have entitled you to retire a much honored man, but of course you’re now what, three and a half years into the second term of your presidency of the World Bank, and I guess I read you’d be up for a third if you were to be asked.

JAMES D. WOLFENSOHN: And fourth.

PAUL MAIDMENT: And fourth.

[Laughter]

PAUL MAIDMENT: Well clearly you know, time is not, not slowing you at all. And I guess what we’d like to do this morning is talk a little about how the mission of the World Bank is changing, about its role, about its, its operations about you see the challenges that it faces in the future. I was trying to think if there was a multilateral institution that is perhaps more disliked than the World Bank, and I find it very hard to come up with one, except perhaps the WTO. I spun a coin three times and I think it came down World Bank all three. But I was notice that you said very recently that the World Bank is the institution that will make or break the international development focus in the next five to twenty-five years. I wonder if we could open by asking you to explain what you meant by that, and given the criticism of say the activities of the World Bank over the last twenty-five years, why we should believe that’s true.

JAMES D. WOLFENSOHN: Well let me start with your first assumption about dislike, because I don’t know who your friends are. [Laughter]

PAUL MAIDMENT: I have none. So-

[Laughter]

JAMES D. WOLFENSOHN: Well with that introduction I can understand it.

[Laughter]

JAMES D. WOLFENSOHN: I actually think that the prototype that you’re describing about the World Bank is one that you may have grown up with as a student but is not current, and I think it’s important to say that because a flippant description of the bank is that everybody hates it and, and it doesn’t do a constructive job, and if you could get rid of it everything would be wonderful, and I don’t believe that to be the case at all, and a lot of people who I respect don’t seem to, like our clients. And I think it’s important that you deal with the issue of clients as well. I mean it’s just perhaps silly but yesterday I was here and I went back to Washington last night to have dinner with the president of Georgia, who is a new president of Georgia, who spent five minutes saying how crucial the World Bank had been to his assumption of that responsibility and how crucial we were going to be going forward. So I’ve had that ringing in my ears all night, and then to come and hear this downer is, is probably the reason I left New York.

[Laughter]

JAMES D. WOLFENSOHN: Not withstanding that, let me tell you why I believe the bank is what it is. First of all, the bank’s not just me. It’s ten thousand people who get up every day thinking how can they make things better, not how can they make things worse, and they work incredibly hard and I think in terms of changing the perception of development the bank has come a long way in the last decade to make it more customer-oriented, to make it a service organization for people in poverty, and to be a spokesman for those people. There are five billion people that are clients of ours out of six billion people on the planet, two and a half billion or more live under a couple of dollars a day, and I think we’ve been out saying that. We’ve been out dealing with the question of trade. We’ve been out leading the charge in terms of a comprehensive approach to development, trying to bring the financial institutions, private sector, and civil society to bear, and to do so under the leadership of the governments that we’re serving, and I think you would have to say that we were quite influential in terms of the agreements reached in Monterrey and in Johannesburg where we put a focus not just on the donors but on the recipient countries. The recipient countries have agreed that they need to do something too. They need to strengthen their capacity. They need to confirm their legal and judicial systems, their financial systems and they need to fight corruption. If you talk about leadership, we really introduced the debate on corruption. I spoke about it nine years ago when I talked about the cancer of corruption. We now have operations in more than a hundred countries, and while our edict has not been to fix corruption, we’ve certainly opened up the debate in a very open way. We’ve also I think managed to focus on key issues, on the issue of trade, currently, we’ve been a major spokesman, linking trade and aid. Currently we’re trying to make the world recognize that developing and developed countries are clearly interdependent. If we didn’t think that before September 11, we certainly do now. And I think we’ve also succeeded in making people appreciate, or I hope I’m making people appreciate that the way we’re going about achieving the Millennial Goals about halving poverty and doing the right thing by the world, that we’re crazy, we’re spending a thousand billion dollars a year on defense, and we’re spending fifty billion dollars a year on development. And we’re spending $350 billion a year on agricultural subsidies and tariffs. So you ask the question is the bank leading the charge. We’re not, we’re the smallest, I mean we’re a small factor, maybe one or two percent of the overall funding, but we are the largest single factor, and in response to your question I think we’re focusing on the right issues and we hope that people will listen.

PAUL MAIDMENT: Do you think that, you’ve described a change in really the mission of the World Bank there, and certainly I think that no one would underestimate the size and scope of the challenges that you face, and just look at the demographic challenges that the world faces over the next ten to fifteen years, but do you think that the relationship between the bank and its shareholders, the governments to whom it, to whom it answers, have, has changed in a way that reflects that?

JAMES D. WOLFENSOHN: There are two groups of shareholders. There are the wealthy countries and then there are the poorer countries. And I think you have to answer it in relation to each group. And if I had more time within each group. But if you take the relationship with developing countries, I’ve now been to 120 countries, so I think I can speak with some certainty that the relationship with borrowing countries has changed enormously. I would tell you if it was different. I’m not here to conceal or to deceive the group, ‘cause I’m used to facing problems. But I have plenty of problems; one of them is not now the relationship with developing country leadership. When I started there was tremendous amount of talk about conditionality. There was a tremendous amount of talk about arrogance. There was a tremendous amount of talk about the Washington consensus, about coming in and insisting on potted solutions, and we’ve come a huge way since then. We have a approach called the Poverty Reduction Strategy which basically is country-led. It’s consultative. It’s, it’s the sort of thing I did in the investment banking business, so it’s not surprising that I would try and win the confidence of clients. And I think there’s no doubt that, that we, we’re now seen as a partner by the developing world. On the developed world I think we’re seen somewhat as a pebble in the shoe because we constantly say even though they’re our major shareholders that there are responsibilities on the rich world as well. We’re constantly trying to say that you won’t have peace unless you deal with the question of poverty, that you can have as many armies as you want, you can spend two trillion dollars a year on military expenditure. But if you don’t deal with the question of hope for young people you’re never going to have peace. Now that may sound over simplistic, but if I were asked to defend a simpleminded statement I wouldn’t mind defending that one. And we have in the world today 2.8 billion people under the age of 24. We have a billion and a half under the age of 15. And in the next twenty-five years we add two billion more people to the planet, and all but 50 million go to developing countries. I just ask you, if you don’t do something to give those young people hope, you can have as many policemen and armies as you want, but you’re not gonna have peace. So I keep saying this. It seems to me to be so transparently clear that I find it difficult to understand why people don’t understand. And I’ve been in the recent times going around seeing each of the G7 leaders, which I do from time to time, and making all these claims, and they all say, “Absolutely, a hundred percent right. ‘Course you’re right. And we’re doing this and we’re doing that.” But in fact at the moment, with the economic downturn of the last couple of years, the level of aid has not increased. There’ve been a lot of promises, and there’ve been diversions, diversions in terms of interest. Diversions in terms of interest in the press. It’s Iraq, it’s Afghanistan, it’s the latest crisis. It’s Gaza West Bank. And these are obviously incredibly important issues, but Afghanistan and Iraq is 50 million people. Very important strategically, but it’s not five billion people, and so I have to say that I have one on one fantastic relations with the wealthy countries, but as a group it’s very difficult because they’re worried about domestic political issues, sensibly. They’re concerned, for example, about poverty in this country. It’s a highly important issue, and should be dealt with. And it’s a more important and more pervasive domestic political issue. So to have someone come along who has no votes, who works for them, I’m their employee and says, “Listen boss,” you know, “you gotta grow.” Doesn’t make you the most popular person on the street. But I keep doing it because I’m hoping I can come work for Forbes when I’m finished.

[Laughter]

PAUL MAIDMENT: I hope it doesn’t come to that, but- I mean for your sake, rather than ours. What do you think I mean is there, is there anything more that the bank can do to turn those good intentions amongst developed nations into an active political will? Because all the points you made just then seem to be absolutely on the button, I mean there is this tremendous demographic change of the world you know, to, to paraphrase your own words you know, we no longer live in the world of rich and poor, we live in one world that’s connected by crime and terrorism and everything else and by economy. So what can be done to make those aid promises become you know, real money on the ground to just, to shape the political will so those domestic priorities don’t take precedence?

JAMES D. WOLFENSOHN: Well I don’t, well let me tell you what we’re doing. I’m trying as much as I can to speak out, but I’ve discovered that that’s a very modest contribution. It may be all I can do. I mean last week I was in Paris and London and Australia and Singapore and God knows where else, and you know, you get a wonderful day. You get fifteen press reports. And for a day you’re a star and it’s on the front page of Figaro [phonetic] and other things, and you get photographs and everything’s wonderful, and so your twenty-four hours you get the story there, but the continuity of it is pretty lousy. Then you might follow up with an editorial and, and I found that, I found a tremendously receptive audience, but the continuity and the focus I don’t know how to get without the leadership of the politicians, and so last week I did a thing with Gordon Brown in London and the Archbishop of Canterbury and week before in Paris with the leadership there and, and so you try and encourage the leaders to do it, but if you take our own country there’s not a word about aid and trade and these issues in the presidential debates, and I’d be surprised if there will be.