Remarks to the World Congress of Accountants
James D. Wolfensohn
The World Bank Group
Paris, October 26, 1997
(Mr. Wolfensohn participated by live teleconference from Washington, D.C.)
Let me first congratulate the organizers of this magnificent event. The World Congress has made enormous strides. I doubt very much whether the founding fathers meeting in Missouri in 1904 would have imagined that almost a century later they would be discussing "Partnerships between the public and the private sectors in emerging markets" or "The Accountant's Role in environmental and sustainable development." Your agenda today is a tribute to your continued development as a profession.
Let me offer you some thoughts from my own perspective as a development banker, on how accountants can best serve the public interest, the title you have set yourselves for this Congress, and one that is central to my daily preoccupations.
Today we sit in Paris and in Washington. But the 4.7 billion people who are my clients live in a different world. Three billion live under 2 dollars a day; one billion three hundred million live on under 1 dollar a day; one hundred million go hungry every day; 150 million never even get the chance to go to school.
These aren't numbers at the margin; nor are they numbers which for much longer can be pigeon-holed into boxes labeled overseas aid or development policy and then promptly forgotten. We can sit comfortably in Paris or in Washington and ignore them. But our children cannot.
There are not 2 worlds, Mr. President, there is one world. We breathe the same air. We degrade the same environment. We share the same international financial system. We have the same health problems. AIDS does not stop at borders. Crime does not stop at borders. Drugs no not stop at borders. Terrorism, war and famine do not stop at borders. Money does not stop at borders, and neither do accountants.
And economics is fundamentally changing the relationships between rich and poor nations. Today the developing world accounts for 18% of global GDP. By 2020 that may be 30%. Today China, India, Indonesia, Brazil and Russia - the emerging Big 5 - account for 50% of the world's population but their share of world trade is only a quarter that of the European Union's. By 2020, their share in world trade could be 50% more than Europe's.
Today we think of London, Paris and New York as the major centers. But by 2020 we will be thinking of Jakarta and Beijing, and we will be thinking of Sao Paulo and Mumbai, because these will be the major cities.
What does this mean for 4,000 accountants and auditors gathered in Paris?
First and foremost it means that a key part of your clientele - far more so even than today - will be in developing and transition economies. The emergence of the Big 5 economies will not only redraw the economic map of the world as we know it. It will have knock-on social and political effects throughout the developing world and beyond.
But it means something more.
Over the last 15 years, we have seen freedom blossom and with it an expanded role for civil society. Today 2 in 3 countries use elections to choose their national leadership.
We have seen a dramatic expansion of the market economy. Today 5 billion people live in a market system - up from 1 billion a decade ago. We have seen some extraordinary success stories in East Asia, and parts of Latin America.
But we have also seen something else:
We have seen that lack of institutional capacity, poor governance, and public sector management remain major impediments to growth and development. Often in those very countries which for the first time are experiencing political and economic reform and where reforms are at their most fragile. We have seen rampant corruption, by some economic estimates at the cost to countries of half a percentage point of GDP growth per year. And most recently in South East Asia we have seen that lack of disclosure and the free flow of information, are key ingredients in financial crises. That the miracle, was perhaps not quite so miraculous after all.
What does this have to do with auditors and accountants?
The single element which unites these issues is transparency. We know that corruption and financial crises flourish in the dark. We know that lack of transparency imperils effective governance. We know that social consensus is built on information. And we are beginning to gather evidence that voice is a crucial aspect of sustainable economic reform.
Irrespective of political systems, public decisions must be brought right out into the sunshine of public scrutiny. This is not a luxury: The icing to be added once countries have reached a certain point of development. This is not a political issue "off limits" to those of us who deal with economics. This is a fundamental prerequisite for maximizing growth and poverty reduction. And it needs to be regarded as such.
Take corruption. Eighteen months ago I couldn't talk about corruption. Eighteen months ago I was told that corruption was a political not an economic issue. Since that time we have come a long, long way. Last year in my annual meetings speech, I spoke of the cancer of corruption - the first time a World Bank president had mentioned the word. This year in Hong Kong, corruption was a central issue. Why? Because we know that corruption is detrimental to development.
My bottom line on corruption is simple. Corruption impedes growth and investment and penalizes the poor. If a government is unwilling to take action despite the fact that the country's development objectives are undermined by corruption, then the Bank Group must curtail its level of support to that country. We have already done so in the case of one country. And I have no doubt that we will do so again in the case of others.
We are also working with a first half dozen countries on anti-corruption strategies, holding anti-corruption seminars and workshops for parliamentarians and journalists; making sure that our own processes meet the highest standards of transparency and propriety and pushing ahead with deregulation, institutional and policy reform.
But it is not enough to focus only on the corruptees. We also need to focus on the corruptors - however painful and close to home it may be for some of us. It takes two to corrupt. They are the corruptors and there are the corruptees. A tax-break for bribes in an OECD country is a tax hike for the poor of the developing world. And yet, to date, such penalties as exist are directed almost exclusively at the bribees not the bribers.
We must all strongly support the OECD's efforts to end the tax deductibility of bribes and criminalize the bribing of foreign officials.
But you also have a critical role to play. You are the custodians of probity. You are the ones who are signing off on public accounts. You have a moral and an ethical responsibility to serve the public interest. It's the title of this Congress.
And in many cases you are. But take money laundering. Where is the accountancy profession? If you are not there voluntarily, ultimately you'll be pushed by legislators into being there. Wouldn't it be far better to take the first step yourselves and begin to build up a compliance mechanism for ethical standards?
Governments must also take action. Institutionalized accountability mechanisms are a central part of the fight against corruption. We need independent offices of Auditors-General for public sector auditing as well as for the private sector. We need to agree on common global accounting and auditing principles and standards and we need to extend them throughout the developed and the developing world. We need disclosure and we need open government. All these are crucial.
But they are crucial not only in the fight against corruption or for greater financial stability. They are crucial because they lie at the heart of successful development.
If education and investment are the essential building blocks of development. Good governance, and within that I include open government, is the lifeblood.
In country after country we see that the institutional foundations - government capacity, an effective and agile public sector, a responsive and clean bureaucracy - are critical to progress. And yet in country after country we know that if private businesses ran their operations and their finances, in the way that the public sector does, they would flounder. And no one would be surprised.
We at the Bank can and are working to improve accounting and auditing capacity building - in Ghana, Zambia, China, Pakistan and Indonesia among others. Last year we had a landmark meeting in Washington with the Big 6 accounting firms. As a result of those discussions and other developments we are now strengthening our approaches toward improved financial management with our borrowers, which we can only do by recruiting more financial management specialists with professional accounting qualifications.
But you also have to play your part:
Push the agenda for international harmonization of accounting standards to meet the needs of the global marketplace. In a world that is growing more and more like a single economic household, it makes no sense to be speaking in different voices. We urgently need a unified global language of business.
And work with your colleagues in the developing countries. IFAC and IASC have about 90 countries in their membership ... and yes... they cover a significant proportion of world GDP. But there are at least 90 more countries who are members of the World Bank and the IMF who probably don't have what it takes to develop their own professional accountancy bodies. Reach out and help them develop such bodies, as well as appropriate regulatory financial frameworks and accounting standards boards.
But, Mr. President we also need something more.
I have now visited over 60 countries. And one of the most profound impressions I have from those visits is of nascent enterprise. Small businesses that are taking root amid urban slums and rural villages. People who for the first time in their lives have a sense of hope and independence.
The woman entrepreneur in Katwe, Uganda, converting banana peels into charcoal briquettes and showing me her pencil-written records with all the pride of the head of Societe General. Women in India setting up microenterprises with small loans of less than $100, showing me passbooks with their expenditures and their receipts. The father in La Paz, borrowing to raise a small herd of milk cows on the outskirts of the city, and for the first time in his life beginning to do accounts.
These people need your help. These people have a real and pressing need to understand business practice, double entry book-keeping, simple computation. I have looked through the 862 pages of the IFAC Handbook on Technical pronouncements. It is a very impressive volume. Covering almost everything from ethics, to quality control, from education to management accounting. The only thing I missed was any reference to civic responsibility or indeed to corruption.
Many of you here come from firms that already have the networks, and branches and representatives in developing and transition economies. You are already out there. But you must be out there with something other than drumming up immediate business. You must be out there thinking in terms of what we you can give back; thinking in terms of creating a better world. And for those who prefer to think in terms of self-interest - yes, thinking about creating the clients of the future.
Encourage your people to do pro bono work with communities on basic accountancy skills. And reward them for doing it. Set up service awards. Create incentives. Donate your redundant computers and technology. Add a section to your handbook about civic responsibility.
It should become part of all our business lives. Staffs in many of your organizations are already doing this because of their personal concern. Your organizations are already doing a good deal of charity work in a number of different areas. But what are your firms doing individually and collectively to pass on basic business and accountancy skills?
Mr. President, multilateral, bilateral and international organizations can do much to stimulate growth and poverty reduction and help create the kind of enabling environment to attract private capital. Governments can do much to throw open their doors to public scrutiny. To reform their public administrations. To create independent auditor generals and to invest in their people. Civil society can do much to use voice to combat corruption and to monitor transparency.
But the role of the private sector is crucial. Not just in transferring private capital to developing countries or record amounts of FDI. But in helping to provide the skills and technology to those 3 billion people who live on less than $2 a day to help them help themselves and take that crucial first step towards entrepreneurship.
Mr. President, we need to create a private sector peace corps. We could start here today, simply by having half a dozen service awards to recognize civic contributions in each one of the larger accounting firms - especially the Big 4, 5, or 6.
Let me conclude by quoting the very first sentence of your handbook. "A distinguishing mark of a profession", it says, " is acceptance of its responsibility to the public."
We surely have enough environmental, financial and economic evidence of the interlinkages between the developing and the industrialized worlds to convince us that whether we talk about auditing or accountancy standards, professional ethics, or civic responsibility, in the world of 1997 that "public" is international.
For more than 90 years you have proved your ability to keep the profession relevant. I am confident that in pioneering civic responsibility, in agreeing on international standards for auditing and accounting practices and in taking the first steps towards creating compliance mechanisms for ethical standards, you could enjoy 90 more.