Q&A: “The Challenges of Global Development”
Paul Wolfowitz
Frankfurt, Germany
May 31, 2006
Chairman Thank you very much President Wolfowitz for the very impressive speech. Mr. Wolfowitz, although he arrived two hours ago from Korea and he has to leave tomorrow very early, has agreed to answer some of your questions. From the floor Mr. President I am very impressed by your speech and you were stressing that people in developing countries are in particular eager for [inaudible]. I would agree with that. My question would be whether you could say a few words on the World Bank’s position towards international labour standards and towards the [inaudible] as promoted and developed by the International Labour Organisation (ILO)? Paul WOLFOWITZ I am going to give you a general answer because we are still working on the specific one. This was raised with me actually by some labour union representatives whom I met with [inaudible]. I have to be a little careful, because our lawyers are still looking at all the implications of the specific details. However I can tell you as a general principle, I think one of the things that globalization can do is raise labour standards, and it is something that we should support. We should be careful not to do it in such a way that makes countries that could be competitive otherwise uncompetitive. Usually women are the first to suffer from unsafe working conditions; the kinds of things that really are not a matter of competitiveness but are more a matter I think of indifference and laziness. President Lula of Brazil is a wonderful man and I think it has been a wonderful surprise for the world, because he comes from the left, he was elected on a populist platform. I think some people thought he would turn Brazil’s economy upside down. To the contrary he has continued a lot of important reforms. I met with him when I was in Brazil in December and I learned when he was a labour union leader, I think maybe he had been working in a German automobile plant, but he was working in a automobile plant and he said, ‘I always prefer to work in a company run by multinational corporations, because they adhere to higher labour standards.’ Well that is what we ought to aim at. As I say sometimes it is used as an excuse, and it can be a form of protectionism if you try to impose standards that are just inappropriate to the competitive conditions but I believe ILO standards are in the right ball park and I certainly would like to see it promoted. I was the American Ambassador in Indonesia for three years and I saw a lot of development there based on competitive labour and I saw the difference between factories that treated their workers properly and factories that did not. The factories that treated their workers properly were perfectly able to be competitive, it does not have to get in the way. From the floor One of the big obstacles of the development in the south is agricultural protectionism in the north; particularly in the European Union, United States and Japan to name just a few. What would your recommendations be for that problem? Paul WOLFOWITZ Well to me we get rid of all of it. I think that I have the number right; the estimate is the taxpayers and consumers in the US, Europe and Japan today, each year are spending $260 billion. Let me repeat the number $260 billion, to maintain inefficient agriculture. More than half of that burden is borne by the consumers, because it is easier to hide the cost that way, it looks like it is a market. Some of it is direct subsidies. One shocking figure that I know of are the subsidies paid to American cotton farmers. I think it is $2.5 billion a year divided up amongst the cotton farmers of the United States; it averages at $250,000 per farmer. We are not talking about poor peasants. We are talking about people who are doing very well thank you. And they are doing well at the expense of cotton farmers in Burkina Faso whose markets are hurt by it. I really think there is an opportunity for progress here. I hope that we will be able to get a successful bill in the negotiating round, although I would have to say that is more hope than realism at the moment. However I think the stakes are large. I do not think you have to change it over night. As I said, I would eliminate it if it was up to me. It is not up to me I know that. I would settle for a gradual reduction, I think that would make a big difference. The last point I would make is that our studies show that protectionism between developing countries costs them about as much in terms of lost opportunities as what we call north‑south protection. Also the barriers to trade among African countries are very high, especially if you have informal barriers. Some of their most promising trading partners will be right next door, so that is a problem they need to work on too. Thanks for asking the question. Do anything you can to promote a successful [inaudible]. The negotiators need to hear from business people. Participant However 100 years ago core technology for development was considered electricity, which has in developed countries, lead to the power grid ideal. Now at this point in time, should the [inaudible] promote advantages to help us have to a more decentralised power supply; not only emphasising renewability and [inaudible] but also decentralisation. Paul WOLFOWITZ We are doing some. I visited a project that we are funding in Mexico that takes the garbage from a large Mexican city and converts it into electricity. I think actually they did say they were eventually going to hook up to the grid but it is decentralised. In a lot of the small village projects that we developed there, I have seen biomass generation. I have never seen anyone suggest that we might do that on a larger scale. I think it is frankly a question that ought to be looked at a bit more because I think some of the calculations we make about efficiency of a grid, make assumptions about the distribution system that simply do not hold up in the environment of developing countries. There are a lot of [inaudible] that take place that you need to factor in, it is not just an engineering matter. More attention should be paid to it, but clearly electricity is a very big need and it is a big need as I think I mentioned, in small villages where people are cooking with these terribly unhealthy indoor fuels. A lot of health problems, especially among women, are caused by the lack of any local source of electricity. I think it is something to look at. My son, who is in Indonesia right now looking at the decentralised electricity network there, so I have the family side pushing me on this. If you ask our experts though, the will still say, ‘You are not going to make a big dent that way, you have got to do the big projects as well.’ It is a question of balance. Either way it is $70 a barrel for oil. Some things that may have been inefficient and ineffective before suddenly look different. Production of ethanol from sugar cane, which was I think competitive already at $40 a barrel, is doing very well in Brazil and it is a very interesting possibility. I think that earlier energy prices ought to get re‑looked at if these prices are going to stay up. A lot of people have made major mistakes trying to predict the oil market, as we know. However it does seem, when you see the demand in China, India and Brazil and other developing countries that are pushing this, I do not see the prices coming down by a significant amount but I do see people looking at alternatives and conservation. From the floor President Wolfowitz, many Germans have come to know the World Bank by investing in World Bank bonds. Indeed, the World Bank was the first foreign deutschemark issuer in 1959, so they have very good experiences with World Bank. You mentioned about the success of the private sector and the IFC. The IFC is a very successful investor in its own right, and also in Africa. You mentioned the phenomenal growth [inaudible] and the stock market. We would have funds here in Germany where Germans would go and invest with the IFC in such countries. Maybe this could be a contribution for the development of Africa? Paul WOLFOWITZ I would very much like to see that happen. By the way, I did not realise that we participated in the first deutschemark issue, we just recently participated in the first renminbi issue in China through the IFC. People ask me why is the World Bank still involved in China when China has so much money? They do have money. We do not do concessional lending in China anymore, it is not aid. It is on commercial terms. However the things the Chinese are interested in with us are precisely things like how to strengthen their financial structures. As to your question, I would love to see us doing some cooperative ventures, especially in Africa. I would like to recognise, you have a wonderful representative on the Board of Directors, Mr. Deutscher. Someone said, what is the expression in German? [German Audio]. In any case, there is a lot of cooperation now. I would really like to see it pushed as hard as we can into Africa. We have just set up an Investment Climate Facility with the British and German participation would be welcome. This Investment Climate Facility goes through analysis and studies and other support and helps African governments undo some of those regulations that I talked about. I think the biggest need that I encountered in my travels there is lack of finance for small businesses. I know there has been a lot of good cooperation between the German private sector and the World Bank in pushing financial institutions into Eastern Europe. It has made a big difference, a dramatic difference. I would like to see something like that happen in Africa. Actually one other thing about the private sector in Africa by the way the IFC, and for those of you, you obviously know something. I should say this briefly. The World Bank Group, we call it a group because it is a group, we have nearly five different branches, the International Finance Corporation or IFC is just purely private sector lending. The International Bank for Reconstruction and Development does basically commercial terms lending. IDA, the International Development Association, is the one that is our concessional lending arm, and it is very concessional. It is zero interest and 10 years grace, and if you find any bank that will give you a loan on those terms, let me know. Obviously that is really grant aid. However, the IFC, about eight months ago started an export finance facility for Africa, excuse me, worldwide for developing countries. They estimated that the demand would be $100 million in the first year and that 6% of that demand would come from Africa. After two months they had to revise the figures upward to $200 million for the first year and 20% of that demand coming from Africa, so again, a sign that private businesses out there are doing something. I know I am really in danger, especially the kind of remarks I made tonight, of being too optimistic. There is still a lot that is wrong. The HIV/AIDS epidemic is still terrible. Malaria is as bad as HIV/AIDS. There are many African countries that are in a nearly hopeless condition like Somalia. However, to give you one more little ray of optimism that I think is hopefully significant; five years ago there were 16 active wars in Africa. A horrible number. That number is down to five now. One of the ones that has been settled is the civil war in Liberia, which destroyed a country that had once been promising. The good news in Liberia is that they had an election last year. The election brought into office the first woman president in Africa. A woman named Ellen Johnson‑Sirleaf who by the way, worked at the World Bank at one point in her career. She is a real reformer. Her Finance Minister I am proud to say, is a young woman in her forties – to me that is young – who was working at the World Bank who resigned her position with us to become the Finance Minister in a country that has almost no finance ministry. These are pioneers, they are heroes. The Liberian people obviously want something like this. They voted for it overwhelmingly. Ellen Sirleaf defeated a soccer star. That should tell you something right there. Therefore, I think there is a chance for at least some African countries to start turning the corner, and I think those of us who care about having the world that is globalised but healthy as opposed to a world that is globalised and sharply divided between rich and poor, should do everything we can to help those that are turning the corner to turn the corner. When you think back how Asia proceeded, it started with the success of some of the smaller countries like Korea, Taiwan, Singapore. As a result, that stimulated China to change and China in turn stimulated India to change and the result has been dramatic. Maybe we could see something like that in Africa too. I certainly hope that we can see German business there and I hope that World Bank can help to get you there and help you manage the risks when you go there, because it is, in spite of any good things I said, it is a risky environment still. Thank you very much. [Applause] Chairman Thank you very much President Wolfowitz. There will be a small reception, if you could stay just a few minutes, it would be a great pleasure for us. President Wolfowitz As long as I can stay I will stay. I am not quite sure what time zone I am in tonight. Thank you. [Applause] |
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