>> Hello everybody and welcome!
I'm Susan Collins I'm the
Joan and Sanford Weill Dean
of the Gerald R. Ford
School of Public Policy.
And we are delighted
to have everybody here
with us this afternoon
for our annual Citigroup
Foundation Lecture.
Today we are particularly
pleased to have a new event
in this series which
enables the Ford School
to bring very distinguished
speakers and policy leaders
to campus to talk about a
range of different issues.
The speaker that I'm
about to introduce
to you is certainly
extremely distinguished
and he most certainly
fits that belt.
I have the great pleasure
of first meeting him
in 1989 in Washington DC.
I was at the Council of Economic
Advisers and he was at the time
in the state department and
have enjoyed following his
distinguished career since then.
You will see that there's
a complete biography
in your program and
so I am not going
to give all of the details.
But it is a great delight
to mention that in addition
to a law background that
his distinguished career was
launched in part through a
Masters of Public Policy.
And that varied and impressive
career has included a number
of very key positions in
both the private sector
and in public service.
And that includes vice
chair of Goldman Sachs,
US Trade Representative,
Deputy Secretary of State
in the George W.
Bush Administration.
And I am absolutely honored and
delighted to welcome Dr.-- Mr.
Robert Zoellick,
thank you very much.
[ Applause ]
>> We've structured
today's event
as essentially a conversation.
And I also have with me two
of my faculty colleagues.
Jan Svejnar and Dean Yang their
bios are also in the program
but let me just very
briefly tell you
that Jan Svejnar is
a very distinguished
development economist.
He is an expert on issues
related to the economies
in Europe and the post
Soviet Bloc economies.
On my right, Dean Yang is
also a development economist
and has done really path
breaking work related
to micro finance and
also to remittances
which are financial flows
that go between migrants
and their developing
country homes.
My own area of expertise is
in international economics
and in particular I specialized
in understanding growth
experiences in a variety
of countries including
China and India.
Well, I'd like to now get
started for our main program
and essentially we will be
asking Mr. Zoellik a range
of different questions and
make sure to have enough time
for audience participation
later on in our program.
But to just kick things off,
it would be very helpful
if you would share with us a--
just an overview of what this
World Bank Institution is
and what is does.
>> Okay Susan.
Well if I could, let me
just thank all of you
for coming and joining us.
I actually am a midwesterner.
I came from Illinois and
when Susan invited me to come
to this event, one of the things
that attracted me in addition
to having a chance to visit
Ann Arbor was the fact
that I had my first job
in the Federal Government
in the Ford Administration right
after graduating from college.
And had an opportunity to work
later in my career with a number
of the people that are
very closely associated
with President Ford.
And people like James
Baker and Brent Scowcroft
and Vice President Cheney and
Secretary Rumsfeld and others.
And I'll just share
with you because some
of you may have a chance to look
at these or not but a number
of those figures have had some
of their autobiographies
come out recently.
And as topical as the later
chapters are for the press,
the-- sometimes the most
interesting chapters I actually
find are their period with
the transition from the Nixon
and to Ford administration.
And while I only had a chance to
meet President Ford in passing
on a couple of occasions,
actually after his presidency I
think he just again underscores
what an extraordinary individual
and public servant he was.
I of course trace this
to midwestern values
and basic roots.
But so it's a nice opportunity
for me in a way to also
in my respect for what he
stood for in public policy.
The World Bank, let me give you
a little bit of a sense of this
because it-- I think one of my
real interest has been history.
And perhaps, I would have even
tried to make it as a career
but I'm not sure I could figure
out how to make a living at it.
But I often look at issues
from a historical perspective.
And as some of you may know, the
World Bank was created in 1944
as World War II was still
raging at a conference
in Bretton Woods New
Hampshire, along with the IMF,
the International Monetary
Fund, and a similar organization
that became later the WTO.
It was an international
trading system.
And the logic of these
three was the effort
as people were even concluding
the Second World War to try
to avoid what they perceived as
the sources of economic conflict
in the 20s and 30s that had
led to the breakdown and led
to the great depression and
led to the rise of fascism
and then Naziism and led
to this terrible World War.
And so the IMF was really
designed to try to deal
with some of the
tensions in currencies,
it was in a sense this--
the successor at the
point to the gold standard
where the dollar played a
role with fixed exchange rate.
That went by the
board in the '90s
but if you open your
newspapers and see what's going
on with the Euro zone today,
you see the descendants
of those issues.
The World Bank's official name
at the time was International
Bank
for Reconstruction
and Development.
So it's-- and its
loan was to France.
So the real focus was to
try to avoid the problems
after World War I
with the rebuilding
and to create economic
opportunity
and hope first for
Europe and Japan.
And the so called
developing countries
at that time were actually
quite few because many
of them were coming out
of the colonial period.
So the bank started to shift
into the developing world later
with the-- moving to the martial
plan in with the developed world
with Europe and then the GATT,
the General Agreement on Tariffs
and Trade later became the
WTO was to keep the avoidance
of protectionism and tariff
barriers and foster trade.
As a little interesting
[inaudible] to that,
the actual trade
organization that was create
out of Bretton Woods,
it's called the International
Trade Organization.
And it actually failed
to pass the senate,
the treaty didn't pass
and so they took the GATT
as the second best and
later built that as the WTO.
And that's interesting
because part of what--
what is seen over
the history of 60
or 70 years is the
constant challenge
of how these rather thin
modest institutions try
to encourage the international
economic cooperation
in a world economy that simply
becomes more and more integrated
and interdependent also
has to deal with the world
of domestic politics
in legitimacy.
Now the World Bank
itself has gone
through a significant evolution
over the course of 70 years
or so and it added
various instruments.
So the IBRD was complimented
in the 1950s
with an institution called
the International Finance
Corporation which is part
of the World Bank group.
So I'm the president of
the World Bank group.
And IFC does investments
in private sector.
And then in the 1960s, there
was something called IDA the
International Development
Association
which was a recognition that for
the very poorest countries one
might need special support.
The number of these
countries changes with growth
but today there are 79, in
general there are countries
with per capita incomes below
by the thousand dollars a year.
And for those countries
they get grants
or very long term loans
40 years without interest.
In the '80s there was a fourth
institution created MIGA,
the Multilateral
Investment Guarantee Agency
to help support investment
by offering guarantees.
And there's another
body called ICSID
which is an arbitration
dispute mechanism.
Now, just as the world has
transformed tremendously
so has the World Bank group.
And one of the challenges, I've
been president now for 4 years,
is one of the challenges is
how one transformed this sort
of grand old multilateral
institution built for one era
for a very different
set of challenges.
Some of which we'll have
a chance to talk about.
But let me just give you a brief
thought that we can perhaps play
out a little bit over time.
When I talk about the
World Bank group and I try
to explain what it does, part of
the difficulty that I find is--
and it's called bank, and so
most people tend to assume
that banks are primarily
in the business
of lending or investing money.
And that's part of what
we do but in some ways,
it's only a complimentary part
because when the World Bank
group is most effective it
really combines three
different functions.
>> One is to take knowledge
in learning and experience
about development and one of
the changes over the past 10
or 15 years, this is
increasingly coming
from developing countries to
other developing countries,
and we try to understand
that, analyze it, customize
and ensure it for the
developing countries.
But then, a second element
which does distinguish us
from say an OECD,
or a university program is we
do have finance to put the bear
in many different forms.
And so for example our IFC
private sector arm is now
increasing its equity
investment,
so it's not only loans
but its investments.
And we try to change and
adapt the nature of our--
our products to meet
various needs.
But then, third while we're
not and insignificant player,
so since the financial
crisis began in really its--
its heated form in
the summer of 2008,
we have perhaps committed almost
200 billion dollars of finance
across these agencies.
But if you think about the money
in the international
system that's still a drop
in the bucket.
So the question is can you take
this knowledge and learning,
the finance, and in
a sense multiply it.
So what can we learn about
building markets, institution,
and capacity, building
micro finance markets,
building local currency
domestic buying market?
So in this most recent
crisis, you'll see many
of the developing countries
didn't have the same financial
problems they had in the '90s.
One of the reasons where in the
'90s many of them were funded
with dollars, they're
investing and earning
in a different currency.
So if you avoid the
exchange rate risk.
Or the buildings of
institutions often for countries
that are coming out of strife,
Liberia, Afghanistan, Haiti,
so institutions' capacity in--
in markets so that our
investments actually have a
broader effect than
the individual project.
We, like any institution
have to continually to push
to modernize ourselves.
The World Bank has
187 shareholders,
so 187 countries there
are shareholders.
The United States has the
largest percentage shares,
15 percent of those shares.
We have offices in about a
160 countries, we have people
from about 170, 180
countries on our stuff.
And so part of our challenge
also is with our staffing,
with the decentralization of
our operations, with dealing
with new issues that
cross borders,
it may be climate change,
it may be trade issues,
may be biodiversity issues.
And increasingly, and this
is where I'll stop with this,
is that what I think will be one
of the biggest transforming
aspects of our institution,
but frankly the whole
world economy is
that in a relatively
short space of time,
at least in historical terms the
developing world itself is now a
motor and engine of growth.
So I've spoken about multiple
pose of growth in the system.
You wanna understand
the world economy today,
it's not just the question of
Europe, the U.S. and Japan.
About 50 percent of
global growth comes
from developing countries.
So if you're an American
business you are looking
to these because these are
often the growth opportunities.
If you're an American
farmer and you wanna know
about the future
prospects for soy bean--
soy bean, corn, wheat
and others you have
to know what's happening
in those markets.
And of course we're in
Michigan the old challenge
of manufacturing its adjustment.
So this is-- this process that
many of you would have seen,
you know, starting
over a course of 20
or 30 years is now
moving with real rapidity.
And some of the economic
challenges we have today
at the bank are how
do we bring in some
of these middle income countries
and continue to serve them
at the same time that
we have them contribute
to the institution both
in knowledge and finance.
And at the same time, try
to make sure that those
at the bottom, many
of which are some
of the Sub-Saharan
African countries
or fragile countries also have
a chance to climb the ladder.
>> Well that was very
helpful providing the
historical perspective.
I wonder if I could push you
a little further in terms
of where you think this
evolution may be perhaps a
decade from now.
I mean you've talked a
lot about the history,
the change in the balance.
The historical role has
primarily been in relationship
with governments and I wonder
whether you see some change
in that balance as this
evolution continues.
>> Well, let me start with a
couple of sort of basic concepts
or approaches and
then expand it.
One of the things that I've
tried to do in the bank
as a chief executive
is to get people
to focus on their clients.
So it may seem obvious if
you're in a business but one has
to recall, this is an
institution that came
out of this development
thinking.
We had many expert
economists, there's a little bit
of a top-down view of how things
are done and as we we're talking
in the lunch session with some
of the students I think people
have learned the hard way
about pragmatic experience about
what works and what doesn't
and customize it for
different context.
So, I keep emphasizing we
have to stay in close touch
with the clients, and recognize
that these clients are
different, the problems
of Sub-Saharan Africa are
different from China and India
or Southeast Asia,
or Latin America.
And some of the issues now that
we support in the knowledge
and learning area with middle
income countries is very
different than that of say, a
country coming out of conflict.
Second, to approach this is
a problem solving exercise.
You've got a lot
of scholars here,
students that are
studying disciplines.
You know, in a way my point is
that the textbook knowledge is
the important starting point,
but you can't stop with that.
So this is over simplification
but you could have people
who come to a meeting and say,
well they analyze the problem
and say this is the solution,
but if it doesn't work
with the politics
and the institutions
of the country it's
not the solution.
So how do you help
them solve a problem?
Now, what these drive you
towards is an institution
that has to be both
alert to what's happening
in client countries, but also
recognizing it is a multilateral
institution so how does it--
how do you also in a sense
draw the interrelationships
and the mutuality also with
some of the developed countries.
And there are different things
that one can try to do in this.
So for example, in the climate
change we we're talking,
we helped create a series
of climate investment funds
that not only help
developing countries deal
with mitigation and adaptation.
But they also draw developing
countries into the process
of working in climate change.
It breaks down some
of the barriers.
It shows some of the interests.
So I mean much of economics
or business is the
mutuality of interest.
And so how do you find
those points of commonality?
As part of the approach we're
taking as an institution,
one of the probably--
the biggest innovations that
we've had in the past couple
of years is many of you
obviously are familiar
with the whole
anti-globalization
and challenging establishment
institutions,
as someone who's been
a public executive
in different capacities.
I think one of the
best antidotes
to this is open this
in transparency.
So we started an open data
initiative at the bank.
Hope you can check on
our website about this.
And we having been in
existence for a long--
so long we have some
tremendous data sets
that we now make totally
free and available.
We're trying to research
staff and others are working
about ways to mash this and sort
of make it more usable
in different ways.
We're taking we-- we did
some work with some people
from Google to actually map it.
So you can get on our
website, call up a country,
see where we have projects
as I mentioned with the world
of telecommunications before
too long I wanna be able
to have people to interact
with this in real time.
If you think about
development studies even
when you learned
it, you know, it's--
this is a huge transformation
about when we talk
about democratizing development
and making this a
more open process.
It also serves us as institution
because what it means is is
that communities that
might have seen us
as a Washington based sort
of old bureaucratic organization
can interact with us.
We-- we created a software an
apps for development competition
to draw in software
developers to think about how
to use this data
in different ways.
And what I continually
see is the--
if you approach these
in openness there are
endless possibilities.
Let me give you one from Haiti.
We did some over flights
in Haiti after the--
after the earthquakes and
one of the things we learned
from the photography
was that we could work
with structural engineers
who would never have
to step foot in Haiti.
They would just use these--
this photography and they
could assess about the 60
to 70 percent of the
building structural soundness.
But then, we also put all the
photos upon the web and all
of a sudden some
different groups started
to do some interesting things,
they started to do overlays
with for example some of the--
the sort of the waterways,
the potential water
courses and others to look
if you build the ten
cities or rebuild
in certain areas you're creating
additional basis for problems.
So this again is talking
about how the knowledge
and learning experience.
Let me give you another one.
You know, that's-- that's
again of rising interest,
natural calamities, deans
from the Philippines.
If you look at about the
distribution of calamities,
natural calamities in the
world about 90 percent
of them are in the Ring of Fire.
>> We've done a lot of
work now so that's the sort
of volcanic earthquake zone
on the Western of Pacific,
with the Japanese
for example coming
out of their tragedy they're
gonna host our next annual
meeting and they
wanna identify some
of their experience with this.
And there's a tremendous
amount that can be done
about early warning prevention,
how you build the buildings,
how you place the buildings on
and so forth, quick response
which just ends up being one
of the most vital aspects
of recovery and then the
nature of the recovery,
and to show in a way how this
is moving beyond the traditional
North or South patterns.
We offered some of our
services to Queensland
with their floodings, we offered
it with Japan and we're trying
to take their lessons.
So, if I think about the future
of the bank we have to continue
to be agile just as a private
sector organization would be
about how we perform the
services, what the clients want.
But then, as a financial
intermediary and I'll close
with this, we also
have to be agile.
So some of you may have
recalled maybe older people
in the audience, there
was a famous line once
from a bank robber
named Willie Sutton
and when Willie Sutton was
asked, "Why do you rob banks?"
He gave the rather usual answer,
"That's where the money is."
And so when I came to the bank,
one of the things that I thought
about was our basic
intermediation structure was we
raise that, we're capitalized,
we raised that, we make loans
or investments, so it's not a
traditional aid type agency.
Sovereign Wealth Funds are a new
source of capital, just this 20
or 30 years ago it was some of
the oil and energy producers.
And so we've now created an
asset management corporation
as a subsidiary of IFC that
is putting together investment
funds and that is tapping
Sovereign Wealth Funds
and others to take our
investment experience which had
about a 20 percent rate of
return on equities over 20 years
in developing countries
and drawn the capital
into these countries.
Now, this is not a charity, it's
not development and when I went
to a Dutch Pension Fund
and asked, "Well, why--
what made you interested?"
We created a billion dollar fund
to do some initial investments
in Sub-Saharan Africa and some--
and Latin American
for diversification.
And their answer struck
me as very interesting.
They said, "We now know
developed markets are risky too,
develop made markets are
clearly where the growth
and the returns are but we don't
know enough about those markets,
we don't know where
to go, we don't--
the transactions cost,
the information cost.
Now, we make revenues from this
which we plow back into it.
But because we're not
a profit maximizer,
my real interest is
expanding the market.
So if those funds can learn more
and support private equity funds
and others they'll be
great opportunities.
So in a way, this is
probably a far stretch
from what you might have
learned, you know, 10 or 20
or 30 years ago about
the World Bank
with traditional development.
It's knowledge and learning,
it's new financial systems.
And of course part of this is--
and this is why I enjoy coming
to universities and also
understand what people are
researching and thinking.
So we can try to understand
what people, you know, in the--
in the academic and policy
community are thinking we should
be looking at.
>> Right, I just have to
intercede that I remember
when I was living in
Washington in a period
in which there was the group
that tried to rob the World Bank
because they thought that must
be where the world's money is.
[ Laughter ]
>> Let me add one
other point of this is
that it shows the
rapidly changing nature
of the international system.
Many of you will have
heard about this--
the G20 group which actually
was created in the late '90s
after the station crisis but
wasn't moved to the summit level
until the crisis in 2008.
Just last weekend I was at the
meeting of the finance ministers
and central bankers for the G20
group and in early November,
I'll be at the G20 summit.
And what, you know, in a sense,
the developing countries use
to be the ones that were kind
of, you know, the add-ons,
they are-- they are the--
in a sense, the objects
of the subjects.
But now that's really changed.
So in this discussion that we
had last weekend what is help
crystalizing the Europeans'
recognition of the challenges
in Euro zone is that
the events in October--
in august started to
have shock waves in terms
of developing country equities,
bond spreads, currencies,
and the real risk for
the economy now is
if the confidence problems
that have affected Europe
and the U.S. go to
the emerging markets
and affects business
investment consumption.
Then, the developing
countries which have by
and large been the
source of growth
in this downturn
will also shrink.
And so it gives you a sense
for international organizations
but also the integration of
the economy, how the world
of developed and
developing has changed is
to give you one other set of
a headline notion of this,
I gave a speech a few years ago
where I said we should no longer
use the term to [inaudible].
First off, we were in
government at the time of '89,
'90 the second world went away,
so at least they
should move up one.
But-- but the reality
is it's a term
that reflects a different
mindset, a different concept
about developing
countries and frankly one
of the most encouraging things
I found was the response I got
from the developing countries,
they didn't wanna be categorized
as the subsidiary,
the remainder.
They recognized that while
they also have issues of income
and development that they wanted
to in a sense have the respect
and dignity that
everybody wants.
>> So I'd like to jump
in if I may about--
and B, ask you to expand on
some of the themes that the--
and some of the points
that you touched on.
Related to the World
Bank's financing arrows
and I appreciate the
distinction you made
between the financing activities
and the knowledge generation
and knowledge dissemination
activities,
the latter of which I've been
very fortunate to be involved
in with some World Bank
collaborators as well
as we discussed earlier.
But on the financing side
of thing one of the--
I think one of the
important contextual features
of the world economy
is that as you said,
World Bank financing is
just a drop in the bucket.
The number one type
of international
financial flow going
to developing countries is
foreign direct investment.
The number two type of
flow is migrant remittances
which is a major
and increasingly
recognized important flow.
Official Development Assistance
or foreign aid only comes,
you know, a distant
number three,
so you put migrant remittances
and foreign aid and--
foreign direct investment
together there are several
multiples of the official
development assistance
on a global scales.
So in this-- in this-- you
started to touch on some
of the points related to what
role international institutions
like the World Bank
can play in--
in a global economy
where the vast majority
of financial flow is going to
developing world are private.
And I'd be curious,
I'd love to hear more
of how you think World Bank
financing and the financing
of other types of international
finance institutions can get
multiple-- can multiply
the impact and the scope
of private financial flows
and other development
impacts of private activity.
>> It's a very good question
and it's a very rich area.
And just to give you a
little flavor of this,
I try to give a major
speech before our spring
and our annual meet
in the autumn.
This year, the speech I
gave was called Beyond Aid.
It's not saying we're there yet,
but it's looking
towards these issues.
Let's give a few examples.
Some of you will remember
a big debate ten years ago
about the digital divide and how
governments had to provide a set
of benefit to people
who didn't have access
to the digital world.
We, along with others work with
Sub-Saharan Africa and simply
through policy and
regulatory changes
in the telecommunications
sector create an environment
where 77 billion
dollars has flowed
into the telecommunications
and mobile phone industry
in Sub-Saharan Africa.
And the number of number
people who have access
from mobile phones has
moved from about 10 million
to 400 million in a
relatively sparse space of time.
These are policy changes.
Now, we can play a role again
in sometimes in financing
to build a capacity and help
people make these changes.
You've done a lot of
work in remittances,
as we discussed a little bit
some of the policy lessons
about how people can reduce
the cost of remittances,
how to create these
in savings vehicles.
But let me give you one that I
didn't have a chance to mention.
We're working a lot with
Australia and New Zealand
on some of the Pacific
Island states
which have unique problems.
When I was in Australia
in August I was able
to sign a finance and
arrangement with Tonga
where we have helped
provide the financing
for fiber optic cable
connectivity which is critical
for their telecommunications
which is critical
for remittances which
is critical for the fact
that people in Tonga may
find jobs in New Zealand
and Australia but wanna
contacts with their families.
So it's a more complex notion
of immigration and movement
of people with [inaudible].
And more generally, if-- if
one thinks about the nature
of a country's problem,
you know, in some cases
like Liberia coming
out of a conflict,
you might need basic
infrastructure and utilities
and others and maybe the private
sector's not gonna invest
in electricity in Liberia.
>> Maybe if you do risk sharing,
you can help create
the basis for that.
So and then where we also try
to combine our projects is
to expand the boarders
and knowledge about some
of these learnings
or alert people.
So let's take another one.
Agriculture, you know,
agriculture prices tend
to trend downwards over
the course of decades.
The world learned
a few years ago
that that process
has probably stopped
and there are some
reasons for secular demand
in emerging markets as
people have more income.
But one of things that we try to
do is how can we take a problem
and transform it
into an opportunity?
So in the Midwest if prices go
up you get a pretty
good supply response.
Agriculture as we-- again,
our research showed can be one
of the best anti-poverty
programs not surprisingly some
rural areas, you get about
three times the effect
on income generation
for poor people.
But in many parts Sub-Saharan
Africa, you have to invest all
across the value chain.
You have to understand the
property rights, the seeds,
the fertilizers,
about 50 percent
of the product is lost
on the way to market.
And so you're not gonna get the
same supply response unless you
help identify those and
then we can put in money,
we generate the context
for private sector
funding in others.
And so, across the range
of activities in a way,
we try to see how we can
catalyze both the financing
and knowledge side
to move beyond it,
to move beyond dependency
and recognize there's
always gonna be a need,
natural disasters,
humanitarian response,
things with the World
Food Program
and others have been
involved with, whether you see
in Somalia or other locations.
But even there, we're
trying to bridge the gap
between the humanitarian side
and the development side.
Many people may not
realize those tend
to be rather separate
communities
and they go their own way.
We're trying to work for example
[inaudible] the World Food
Program and have tenders
for its grain products
in emerging markets so that they
can get the supply they need
and at the same time
we can build this
into a development model.
So in a sense the
logic is ultimately
to see how the development
operations
and encourage local ownership
share the information,
build regional integration and
create the frameworks ultimately
for private sector growth.
>> If I may step in.
>> Yeah go ahead.
>> Just one-- one
other piece of this
that I don't wanna
lose sight of,
what we're increasingly seeing
is there can be lessons that,
you know, where people used
to see this as north south,
there's not only huge
amount of south, south,
there's also potential
south north.
And let me share
one with people.
I can't go to a developing
country today
without having interest
in public private
partnerships for infrastructure.
So one of the lessons
of course of China
in the '90s was you invest
a lot in infrastructure
which they did with
the down turn.
It creates jobs today,
productivity tomorrow,
and actually it's a nice mutual
beneficiary 'cause it boosts
exports of services in many
developed country goods as well.
But in every developing country,
people are trying to think
about how you bring
in private capital.
Now interestingly, in a lot of
the middle income countries,
the primary interest
is not the capital,
it's that the public
private design leads
to better designer projects,
maintenance of projects,
operational efficiency,
and so we've formed an
infrastructure center
of excellence in Singapore
where we're not only trying
to encourage projects but we're
trying to look at the regulatory
and legal framework, we're
trying to, in a sense,
mill the pipeline and
we're actually working
with the Singaporeans about
creating a new investment fund
to invest in infrastructure.
Now, flip back to
the United States.
Obviously there're big
concerns about debt and deficits
at the state level as
well at the federal level.
When I studied accounting, it
was a long time ago but we used
to have two parts to
the balance sheet.
And we had assets and
we had liabilities.
So you got liabilities but
a lot of states are sitting
on big assets called toll roads.
And interestingly enough
Mitch Daniels the Governor
of Indiana a few years ago
privatized this toll road,
he did a long term lease.
Got about four billion dollars,
put it back into the
toll road system.
It was politically sensitive
at the time, it worked out fine
for him in Indiana, but
they also learned some
interesting things.
So for example, they learned
in one part of the toll road
that the 15 cents that
they were collecting
at each toll booth
didn't pay for the workers
that were collecting
the toll so they moved
to smart cars and other things.
Now look at, you know, in
the State of Pennsylvania,
so I won't focus on
Michigan but the State
of Pennsylvania not long ago the
legislature wouldn't go along
with a toll road modernization.
Intriguingly, in Chongqing
China, Communist China,
we're working on
privatization of the toll roads.
So you ask yourself, you know,
if in communist China they can
do privatization of toll roads
to invest in infrastructure.
Maybe there is somethings
the US can learn too.
>> Great. I'm gonna shift gears
just a little bit and go to one
of the big challenges that
you alluded too earlier
namely Europe.
Now Europe is only partially
within your purview in the sense
that you have the
new member states
as your clients and so on.
But Europe obviously being
the largest street trade area,
largest economic block has
historically had huge effects
on the rest of the world and
is likely and some probably
to have huge positive
and negative effects now.
How do you analyze it from
the World Bank's stand point
and what kind of
challenge do you see
if things don't go
really well in Europe,
what will be the impact on
your-- yeah, rest of the world?
You are one of the truly
global institutions
so your view obviously
is very important.
>> Well it's also
an interesting--
your question and
the observation
or an interesting comment on the
change role of the World Bank.
You know Robert McNamara was
president of the World Bank
from the late '60s
to 1980 or '81.
People probably wouldn't have
asked him about European buyers.
And he chose to change
nature and in fact in August,
I was starting to make public
statements or I was trying
after the new member
markets were ruled in August.
I was starting to worry that up
to that point the developing
countries had recovered
quite nicely.
If anything, the
danger is overheating
but I was worried this would
start to have the effects
which we did see
and I mentioned.
So a World Bank president now
engaged with Europeans on some
of their fundamental challenges
shows the interconnection.
More particularly,
we're actually headed
up to very important set
of meetings this week
at European Union Summit.
And in the short term, I think
there're three challenges
that Europe has been
stumbling its way towards.
In my view the markets have
assumed that there's going
to be some resolution
so that some
of that expectation is built in.
And the question which
we'll see this weekend
and at the G20 meeting
that follows is whether
there're enough actions
that that match the
commitments to deal with some
of the market anxieties.
Number one is the
recapitalization of banks.
And here the European seem
to be moving towards a method
where you would have the banks
be given a certain period
of time to either raise
private capital, if not take it
from national governments,
if not,
take it from a fund they've
created that was just passed
by 17 of the ozone
parliaments, the EFSF.
Now the devils and the
details, how much time,
what are the standards and this
is gonna be quite critical also
because many of those
banks may decide the way
to meet the capital
standards is by selling assets
or shrinking loans so
it comes right back
to the story of the
world economy.
You mentioned central and
eastern Europe or the Balkans,
we at the World Bank are working
closely with the EBRD and others
because you have to
suspect that some
of those European Banks are
gonna pull back from some
of those regions and you could
have a negative multiplier
effect which we'll
try to offset.
But those banks are
global banks.
It could affect the
developing countries too.
So that's one issue.
The second issue is Greece
is obviously highly indebted.
And they'll have to
figure out what they--
how they deal with
Greece's debt.
But the real question is most
analysts believe that Spain
and Italy which are much larger,
if given amount of time and roll
over their debt will
be able to manage
if they keep the
budget discipline.
But when markets get scared
and panic as we saw in the US
in 2008, they could
find themselves
where they could
roll over their debt.
And indeed, this is what
we saw people moving away
from these markets in 2008 and
the European Central Bank had
to step in and buy their debt.
So the second question is how
will Europeans use this roughly
600 million dollars
in this EFSF in a way
to perhaps create
guarantees for lost provisions
so they roll over the debt?
And then the third issue
of course is Greece.
Now it's not only-- and in here
the big issue is will there be a
further discount
in Greece's debt?
It's not only the substance
of these three decisions
it's the sequence.
So if somebody decides
to take a further hit
to Greek debt before you solve
the other two problems then
markets are gonna pull out
and you've already seen
in many European banks that
it's much harder to get
if not impossible to get term
funding unless you got it
collateralized and for
extremely good credits
and so all these conditions when
markets get nervous as we saw
in the United States
are being exacerbated.
>> I'll go one step further
though and that is the things
that I have described
fundamentally allow Europe
to buy time.
And I've been in a lot
of public sector jobs.
I'm not against buying time.
But you have to use the time.
And I think there's still
a fundamental issue,
there are two fundamental issues
that Europe is going to have
to address beyond this.
They're not quite as eminent
but you can't ignore them.
One is what is the future
of this monetary union?
So you got to this problem,
okay, you roll over the debt
but sort of what's to prevent
it from happening again?
And in European terms,
this is discussed as,
do you create a political
and fiscal union
that matches the monetary union?
And if so, what disciplines?
This is the issue that
Alexander Hamilton faced early
on with the creation
of the US credit.
And these are hugely political
issues but I think the system's
at a point where they have to
decide either they go this way,
and there's different
ways to do it,
or they face the consequences
for overly indebted countries
that aren't competitive.
The second issue, and this
is true for the United States
as well, what we just talked
about are fundamental issues
of macroeconomics
in terms of debt
and credit then financial policy
and sort of monetary policy,
but you can't ignore
the structure of growth
and this comes right back
to the developing countries.
So in-- what do you do
to increase productivity
that so it's not just
an issue of austerity?
So here I'm not just talking
about macroeconomics
spending programs.
I'm talking about how trade
can boost competitiveness?
In the United States this
is probably discussed
about the tax policy.
Should you move back to the type
of tax reform that I was part
of in 1986 where you flatten
the base, you add to the base
and you flatten the tax rates.
What innovation policy
should you have?
Ultimately, and this, as you
know, from your experience
and challenge for Europe
is it's not just a question
of what the government
does directly,
but does the government create
the enabling environment
for the private sector
to boost productivity
and innovation and growth.
And that's an issue that
both the United States
and Europe would still face.
>> So we have a lot of
issues that are on the table
from the evolution and financing
roles and the private partner--
public partnerships that the
World Bank is engaged in,
issues related to the financial
crisis and how it goes forward.
At this stage, I would
like to open things
up for questions from the floor.
We have a microphone there.
I'm going to ask that the
first questions be given
by Ford School students.
And then we will open
it up from there.
But I will ask people to be
very brief with their questions
so that we can try to get
a number of people in.
So again we have a microphone
that is there, and
if people are--
>> And maybe if you
could give your name
and if you're a student
or a graduate student or--
>> That would be
great, yes please.
>> Hello-- yes, my name
is Alexander Robinson.
I'm a graduate student.
I want to ask you a question
you recently been criticized
by economists for calling
for a standard, gold standard
or some kind of form
of gold standard.
Why did you say that?
Why do you believe you
were criticized so heavily?
>> Okay. I didn't call
for a gold standard
but let me tell you what I did
call for and I'll explain some
of the basis of the criticism
but also the support.
This was an opinion
piece I wrote
in the financial times
early in the year.
And part of this goes back
to what I was discussing
with the IMF and the things
that happened after 1945.
We're in a process of transition
in the International
Monetary System too.
So you used to have a gold
standard then you had the dollar
and effect is gold and other
currencies were pegged to it.
And since the early
'70s, you had--
for developed countries a
flexible exchange rate system.
And some of this debate
focuses on around the US dollar
as a reserve currency.
My own belief is the US dollar
will remain the predominant
reserve currency but you're
likely to see as China opens
up its capital account that the
Chinese may play a role along
with the Yen and
Pound and the Euro.
So you're moving to a world
multiple exchange rate,
multiple reserve currencies.
And I was suggesting
a series of steps
that actually should be taken
to make the flexible
exchange rate currency system
work better.
Starting with the G7,
the developed countries,
the idea that they shouldn't
be intervening unless they all
agree that special
circumstance permit,
this is for example
what Japan did once.
Second, you have a group
of countries such as Brazil
which should have been--
may have been reading
about in the paper
that have independent
monetary policies,
have had flexible exchange rates
but the exchange rate appreciate
then it came back down,
this raises questions about
how you can use policies
that may sort of regulate or
deal with capital moving in
and out and kind of whether
there are best practices
to be learned about this.
Third, I was trying to emphasize
that I think the
system would be better
of if China moves more quickly
do an open capital account
and there is something
that was created
at the IMF called the
special drawing right
which is really just a
form of combined currencies
that allow a country to
borrow special drawing right.
China is not a member of SDR
because it's not a
freely exchange currency.
So the suggestion was could
you create incentives for China
to move more quickly by saying
if you meet these criteria
you would be part of SDR.
It's a similar approach we
use with China when it came
into the World Trade
Organization.
Now-- and then I suggest that
the IMF would play a role as a--
as kind of half referee,
in other words,
not be able to impose a
penalty but be able to point
out in the system when somebody
was in effect abusing it,
to try to bring some
pressure to bear.
Now on that, gold
was one last point.
And I was basically saying
that as the IMF looked
at the performance of
currencies, I was pointing
out that what I was perceiving,
and remember this was January,
was that the price of gold was
starting to tell me something
about whether markets
were confident
about monetary policies
and currencies.
It was starting to go up.
So frankly if you've read
my article Invested in Gold,
you'll be a wealthy man today
because I was suggesting
that this was showing
uncertainty.
Now that's different than a
gold standard, that was fixed,
it was saying that gold
like other commodities sometimes
are an indicator of something.
Now, one reason that it created
the tension, this a lesson
of communications,
is the financial times decided
they wanna make a front page
story by saying it was a gold
standard which it wasn't.
Well it was great for them
and for me 'cause it
started this debate.
But the other is a deeper point.
And that is the system that
I described is basically
in the hands of central bankers.
Central bankers wanna be seen as
the master of monetary magicians
of the modern era and in a sense
when I was pointing to gold,
I was saying that the markets
were raising some questions
about their performance.
And not surprisingly the
traditional central bankers
didn't like anybody
raising questions
about their performance.
So I'm glad you asked
the question
because what it kinda integrates
is a little bit how the
system changes?
How in this international
interdependent economy,
you need to have some norms
but it's not necessarily gonna
be rules like within a country.
How do you encourage
cooperative behavior,
but how do you also use
institutions like the IMF
and the World Bank, to
kind of help prod this
and how do you use
markets to read signals?
And market prices for gold
or other commodities are
totally dependent on this issue.
They're dependent on
supply and demand.
But it was quite clear in
January and it was clear
through out the year as
people to gold, it was--
it was adding to
their uncertainty
above monetary policies and
the value of currencies.
>> Thank you.
[ Pause ]
>> I'll do the best I can.
Hello, my name is
Allan Haber [phonetic].
I studied economics
here and I worked
in many years in
antipoverty work.
I'm part of the movement
for democratic society
as I've looked at
international economics
and development economics,
it look like while you
paint a rosy picture,
an optimistic picture,
this is really one
of significant failure,
the demonstrations all
over the world now point
to the distress of people,
that the structural adjustment
and austerity programs
that are promoted
out of the bank,
the privatizing of the commons.
One example, the opposition
to the postal saving system
which is the most efficient way
of primitive private
accumulation in--
all over the world that
the banks did not support,
it seems to be that you
really need a different view,
not of bailing out the elites
but of somehow redistribution
of power in the system so that
the people actually have a voice
and restructure in the economy.
And this is not what I see
happening from the World Bank
and the local opposition all
over the world now not only
on Wall Street but in
virtually every country
and in Ann Arbor
Michigan itself.
There's a challenge to the
theories that you're promoting
where the rich gets richer and
the poor state poor or poorer
and we need a different system
of how the economy
is gonna work--
how does the World Bank
perceive all this, what is going
on in the street and
the increasing distress
in countries all over the
world, that's the question
that I pose to you, thank you.
>> Okay. Well, first open
debate's a good way to learn
and discuss these things,
we should get on our website
and learn actually what the
bank's been doing because a lot
of things you referred to,
the bank hasn't done
for 10 or 15 years.
Second, I always think
as part of transparency
and healthy debate, the bank and
any institution makes mistakes
so we should have an open policy
to continue to try to learn
from our mistakes
as individuals do.
Third, most of the
demonstrations you're talking
about are taking place
in developed countries,
non-developing countries
and this isn't to say
that you don't have
huge problems
of poverty elimination but,
you know, keep in mind,
there's a millennium
development goal
about cutting poverty in half.
China alone, will
have achieved that,
remove some 400 million
people from poverty
over the course of
the past decade.
Now you said there're all these
objections to the World Bank
and developing countries.
That used to be the case.
I really don't find that today.
Now we're open and we find
that people have ideas
of things we should
do differently
but actually China considers us
an extremely valuable partner.
India considers us
as valuable partner.
The African countries
consider us a valuable partner.
We try to have a two-way street
about how to try to learn
about things and
there's no doubt.
I'm not trying to sugar coat,
you know, the challenges
of poverty are enormously hard.
But one of the things I tell my
staff is if they were so simple,
somebody would have
solved them long ago.
So, on the one hand we have to
be honest and open about trying
to learn from mistakes, but
on the other hand we also have
to keep trying to
address these issues.
So, if I look at the progress
of developing countries
I actually think
that they've made
enormous progress.
China has grown 10 percent a
year for the past 30 years.
Sub-Saharan Africa has
grown 5 percent a year
over a decade prior
to the crisis.
It's actually come
back relatively well
and of course Sub-Saharan
Africa,
of course has great variation.
So, you've got about a third
of the continent's population
that is looking for regional
integration, infrastructure,
energy, private sector,
development, in a sense,
they're the new cheetahs
that are part of the system.
And we need to help them
also benefit growth.
You got about a third
of the population
on natural resource
development countries
and for them the real issue is
governance and inclusive growth,
how to make sure that their oil
and energy resource isn't just
ripped off by certain people,
get corruption, avoid the Dutch
disease for exchange rates,
and those are issues that
we and others can help with.
And about a third are in post
conflict or conflict states
where not only brings
down their--
the states themselves
but the neighbors.
But let me just give you an
example of the sort of things
that we're trying to do
to prod people's thinking.
We just put out a report
about our most recent World
Development Report which is one
of our big flagship reports
on gender and development
and I don't know if you've
done any work on gender
and development but I
was struck by the fact
that a Bloomberg reporter
in the midst of an interview
about the Euro zone said,
"This is really interesting."
They said, "This could be
the next emerging market
because of the growth
potential."
Because what you see is a
country that ignores 50 percent
of its population is
not likely to succeed
and we have a rich amount of
detail on how changing policies
with property titling,
access to credit, openness
and occupations can have
huge productivity increases.
So, again, I respect
your point of view.
Learn a little bit more
about what we're doing.
>> The next question,
next question please.
Thank you.
>> Hello, Mr. Zoellick.
I'd like to welcome you to
Ann Arbor our fine city.
Also, I would like
to compliments you
on your most excellent
mustache and--
[ Laughter ]
>> You know, I was
told actually somebody
in Europe mentioned
this is very stylish.
I didn't know I've had
it for 50 years, so.
[ Laughter ]
>> Back in bold, right?
>> And I would like to ask you
a question regarding Citigroup,
Citigroup is the, you know,
the financier of this event
and they released some
internal memos back in 2005
and 2006 regarding what
they called the plutonomy.
Now, this sort of relates
to what the last speaker
was talking about,
the gap between the rich
and the poor in America.
>> The what?
I'm sorry.
[ Simultaneous Talking ]
>> What's that?
>> You, said memos
related to what?
>> Memos, they called
it the plutonomy.
The gap between the rich and
the poor and that's also known
as the Gini index or the Gini
coefficient and they predicted
that this would continue to rise
and America, Japan, and Canada
and that it was creating
structural problems
and their recommendation
was to invest in companies
that service the
richest Americans
and also they predicted
a populus backlash
against this sort of wealth
inequality as it were based
on if the American economy
went into a recession
and I'm wondering how you feel
about, you know, the Gini index
in America and that
it's increasing.
>> Well, I obviously don't know
about Citicorps and its memos.
It struck me Citicorp
had a serious
of its own problems more
basic as it tries to recover.
But your point, I
think is a powerful one
and let me address it this
way, we have tried to stressed
at the bank the importance
of inclusive
and sustainable development
and the inclusive is
important economically
as well as politically.
So, I think again, one of the
lessons that people learn is,
there is a benefit
for example in China,
you've had a worst distribution
but you still have rapid growth
and so people by and large
feel there's a benefit
as they all increase,
but in China as well.
A lot of the work that we're
doing is how do you make sure
with education policies
rural and urban and others,
you brought in the
benefits of growth.
But let me give you an example
from another group I spoke
early this week, Latin America.
Latin America is a region that
of course was characterized
by very sharp maldistribution
and when--
and yet over the past 10 years
there have been some real
benefits in Latin America,
about 60 million people have
been removed from poverty.
They have learned
a lot of lessons
about better macroeconomic
financial management,
better actually than
the developed world has
and so they actually had a
form of silent revolution
in that part of their
macroeconomic management
that helped them deal
with this downturn.
They've clearly also benefited
from the linkage to China
with so many agriculture
ends of commodity prices.
But when I was asked,
what's next?
I have, I-- my focus was the
development of a middle class
because if you really wanna
think about sustainable growth
in Latin America, the real
target and this were a number
of private sector parties,
would be that middle class.
Now, this is-- when
I talk about this,
it has different dimensions.
One, it's the competitiveness.
What do you need to do in
terms of skill development,
what do you need to do
in terms of productivity?
What do you need
to do in education
so that people can earn
the money to be part
of the middle class but
there's another part of it,
which is what do you need to do
with some of the basic health
and social conditions.
So, I was saying actually at
this seminar we had before one
of the lessons of the 1990s
financial crisis hard learned
as it was that the macroeconomic
stability wasn't enough.
You could lose a generation,
literally lose a generation
if you don't get proper
nutrition particularly
for children between negative
9 months and 18 months.
It's the most formative period.
So, what does that mean
in terms of policies, it--
we were talking about targeted
safety net programs not ones
that bust the budget but
actually drawing on some
of the lessons that Mexico did
with Oportunidades or Brazil did
with Bolsa Familia
we've now expanded these
to some 40 different countries.
So, for about a half
of one percent of GDP,
you have a transfer program
that focuses on the poorest
on the conditions they
send the children to school
and they get health checkups.
These came from developing
countries.
So, without going through all
the detail, the thrust is,
I don't think that simple
growth numbers are enough
for people to target.
The inclusive and
the sustainability,
the sustainability means
resources environment
but also means systemically,
and recall as we were talking
about it, I started off
by saying economic
textbook is not enough.
You have to think about this
in political institutions.
Many of these countries are new
democracies, they're fragile.
So, how do you try to
build support in the sense
that everybody is got
buy-in in the process?
And let me give you a very
real example of this, you know,
we've all been stunned by what
happened across North Africa
in the Middle East,
the final chapters
of that story haven't
yet been written.
But we're working with
those countries not only
on their growth, each have
relatively good growth
but growth in a way that
allows other people to feel
that they have the
breath of opportunity.
Now, where there
will be political
and policy debates 'til the end
of time is what your balance
in terms of some of
equality of result
versus equality of opportunity.
And so you might have a debate
about people that say, "Look,
we got to give everybody a
chance no matter where they're
from to have opportunity,
but I may not wanna have
the same tax policies
that force same quality
of results."
And that's what politics
are about but so, you know,
coming back to the question
you asked, I think, you know,
it's different for businesses.
Businesses are gonna do
segment different strategies.
Wal-Mart focuses on a set
of-- a different income group,
than Nordstrom focuses on.
That's a business' decision.
But for a society as a whole I
think the healthiest thing is
to make sure that
everybody has the opportunity
and everybody has
the opportunity
to fulfill themselves both
for individuals but also
for the society, and
I think that makes
for healthy societies
and policies.
>> Let me just interject
here if I may,
to what extent may it happen
over the next several years
that some of these countries,
they are somewhat successful
this way, will graduate
from the poor to lower middle
income while they still have a
lot of poverty and will
not qualify for the IDA,
for the soft loan and grant
window, and if so, are you ready
for it, what will you do?
>> Well, as an institution,
we have the IBRD lending
and recognize that the World
Bank's a triple A borrower,
okay, so that means we
borrowed rates not too much
above the U.S. treasury and
our total cost on top of that,
maybe 45, 50 basis point so
they get long term loans,
very attractive to
deal with that.
But as we've discussed, it
depends on the institution,
many of them may not
need the money, it's--
it goes to the same set of
policy questions and so,
but let's even take a harder
one, let's take China,
'cause China has
grown, as I mentioned,
10 percent a year for 30 years.
But what's intriguing is the
Chinese are now recognized
that the growth model they used
over the past 30 years
is not likely to continue
to be stable for the future.
They've relied very
heavily on exports,
and domestic investments,
so consumption is a much
smaller share of GDP.
They give you a reference point
on this, if China by 2030,
continued at the
same growth rate,
it would be like
adding 15 South Koreas
to the international
economy, it's hard to believe
that would be sustainable.
So China is working on how can
it increase domestic demand,
how can it increase consumption,
and some of these go
to these same issues, many
people may not recognize
that China will probably be
having more people leave the
workforce in 5 years that
come in, so they wanna move
out of the low value
added manufacturing
and move up the value chain.
Now, coming back to some
of these other questions,
this actually presents
opportunities.
So we're-- I don't wanna
suggest this is an easy jump,
but we're working
with China and Africa,
to see whether you could
create some of the enterprise
and industrial manufacturing
zones
in Africa, what does it take?
Energy transport
logistics, so that some
of those manufacturing
enterprises,
could move to Sub-Saharan
Africa.
And just to give you a sense
of how these interrelate,
we estimate roughly there're
some 85 million low wage
manufacturing jobs in China.
In all of Africa,
north and south,
there're about 8 to 10 million.
So even if you can just move
5 million of those jobs,
you would be able to
have 50 percent increase
and in a sense take
what has been the story
of East Asia's success, starting
with Japan and Korea and Taiwan
and Southeast Asia, then China
and create an opportunity
for Africa to move that ladder.
Now, maybe it requires more the
agriculture development first,
and create the higher incomes.
But part of this and they
answered the people's question
is, look, I'm totally open, this
is a field where people have
to learn as you go, but I
guess part of this is let's try
to understand what has worked.
There have been some interesting
things that have worked
out there, and increasingly it's
things from the developing world
that can be transferred to
others in the developing world
and frankly what
I'm most worried
about now is actually the
problems in the developed world
that would drag down the
developed world as well
as the developing world.
>> Yes.
>> Hi, my name is
Chris Maze [phonetic],
I'm a sophomore economics
and I'm actually interested
in what you are involved in
which is the World Bank so,
I'm really honored to have--
sorry, to ask this question,
with the recent United States
economy and being downgraded
in the credit rating, I was
wondering what do you think
that we can do to help improve
our situation, how can we get
out credit back and how long do
you think that that would be?
>> Yeah, that's an
interesting question.
Let me start with the
credit rating issue,
and then I'll move
to bigger policy.
We have, as you'll see, I'm
somewhat experienced based
with my answers to questions,
we have some examples,
this actually happened
to Australia and Canada
and the unfortunate news
is it tends to take longer
than you think to get back.
And so remember what a
triple A rating really is is
that just a total
assurance of payment
and so this was partly
dead in financing,
it was partly also
I suspect with some
of the rating agencies,
a sense that some
of the political impasse
that raise questions.
And so it may take a little
longer, but if you look
at what happened at markets
after the rating declined,
actually the value of
U.S. treasury's increased,
interest rates came down.
Now that reflects a little
bit what we were talking
about answer to the
prior question
in that the U.S. securities in
dollars are still a safe haven.
So there's problems in Europe,
you can expect money will go
to the U.S. securities.
What I think about the grading
downgrade is perhaps reflect a
little bit the historical
perspective.
I think the real issue
will be 10 years from now.
Will people look
back on this and say,
"Didn't they take this
as a wake up call?
Did they recognize that there
were some fundamental things
that had to be addressed here
or did they just
continue as they went on?"
So that's the context
I would look at it.
Now, on U.S. side-- again,
I'll divide into the
macroeconomic and the growth.
Look, United States clearly
has spending and debt issues,
and Congress has been
focusing more on the spending,
maybe that's a good thing, so
far they've been focusing on,
what people call the
discretionary spending,
sort of the annual amounts.
And the reality is that's
not where the real money is,
that's not where Willie Sutton
is gonna be over time, okay?
So the real issue is how do
you slow the rate of growth
for Social Security,
and Medicare?
Now, my own view, in this--
having dealt with this
for a while is, again,
remember I didn't say cut,
it slowed the rate of growth.
The good news is you could
slow the rate of growth
and deal with this issue.
And I frankly suggested
to both parties they look
at Social Security because
it's an issue, it's not as big
as Medicare, but it would
send a very powerful signal
to other governments,
the U.S. public markets
that the U.S. government
can function.
And the reality is, you
know, if you say to people,
you're gonna have cuts,
you're gonna have a
turn off right away.
In reality, what you could say
to people is you can keep the
Social Security you have today
plus the cost of
living increase.
It probably would make sense
to increase the retirement
age gradually over time
which reflects longevity.
Now, you know, is that a cut?
Or is that an assurance of
a cost of living increase?
The difference is Social
Security right now is indexed
to wages, and the wage
index rises fire faster
than the cost of living index.
So, the good news is you could
actually deal with this problem
in a reasonable way
if you start now.
But if you keep waiting, it's
like Europe, you're gonna get
to a point where the
costs are bigger.
So whether it's this
idea or something,
the government's gonna have to
deal with the rate of increase
of entitlements, or
frankly, it's gonna eat
up everything else
in the budget.
The second thing, I talked
about tax reform, and again,
what I'm sharing with you a
little bit is the experience
I've had at both policy but
also political and institutions,
what I'm seeing out there
across different constituencies
and different political
interest instead of an interest,
a little bit like you had in the
early '80s, about saying, "Look,
we don't like all
these tax preferences,
lets broaden the base
and lower rates."
And frankly, I think that
would be good for growth
in the United States,
it would help investors
and business people but I also
realize having kind of been
through this once before,
it's easier to say than to do,
and I believe that would be
another important action.
A third one would be trade.
Look, I'm a big believer
in open markets and trade,
fortunately the Congress just
passed these three free trade
agreements, but there
isn't a pipeline,
people haven't really been
developing this issue.
Trade, remember, the
United States is 4 percent
of the world's population, if
you wanna grow you gotta look
and take advantage of some
of these other markets.
And trade is a wonderful way
where everybody reduces
their barriers
and frankly it forces people
to become more competitive
and that means more productive.
So those would be three
areas to start on.
But look, you know,
this will be worked
out in the political
system, it's not my decision
but the core question is the one
really, I'm glad you're asking,
which is coming back to
the ratings business,
the U.S. really is gonna have
to face up to this question
and I'll just share one
other aspect of this.
I work internationally as
I have for some 25 years,
so I spend time in the U.S. but
I spend a lot of time abroad
and I cover all regions,
developing, Europe, Asia,
and others and I
can't emphasize enough
that there's still
a feeling out there
that the United States
is a special place.
It's the wealthiest country,
it's an innovative place,
it's standing to
reinvent itself,
but because of these
financial crises and because
of the problems and some of the
political impasse, I'm starting
to get a feeling that I
haven't gotten in the pass of,
"Well will the U.S.
get its act together?"
And all I can tell you is
that it's not only important
for the U.S. but it's important
for the rest of the world.
Jan's from the Czech
Republic, I dealt with the end
of the cold war, you know
frankly U.S. did some very
important things with German
unification at the end
of the cold war, the
U.S. can't do this alone
but if the U.S. sidelines
itself,
it's gonna be a much
nastier world.
>> Thank you sir.
>> And this is probably
our last question.
>> Okay. Well, thank
you for coming in.
You've given so many eloquent
and articulate answers I gotta
keep replaying my question.
But my background is my name
is Amar Ickbal [phonetic],
Michigan grad with econ and then
a fellow Kennedy School grad
with masters in public policy,
briefly was at the
World Bank IDA division
on 1818 8th street and--
but spent 14 of the last 18
years abroad with IFC working
on infrastructure projects and
places like Equator, Guinea,
Kenya, Indonesia,
and Bangladesh.
>> Well, thank you
for your service.
>> I wanna call.
Excuse me?
Oh thank you.
>> Thank you.
>> And thank you for
the opportunities, but,
I wanna reflect on Bangladesh.
When I started there with the
IFC, we worked on a power plant
in the energy sector which at
that time was the largest
foreign direct investment
in the history of Bangladesh
and IFC was a critical component
in bringing in even Citibank
loan B and other programs.
And since then, after that,
110 million dollar project,
Bangladesh has done
several much larger projects
and they have their own
niche within energy sector
and of course at the same time,
we know about Bangladesh is
a micro finance especially
through Grameen and
other institutions
that have been supported
by a soft institutions
such as the World Bank.
But what I feel when I go to
these places like Vietnam,
Thailand, places in
Africa, what's missing is
that institutionalized
entrepreneurism especially
for the middle class.
I mean, there's a lot
of red carpet treatment
for large projects,
there's a lot
of special emphasis
especially with women
and poverty on the microfinance.
So, what my question
would be, I mean, again,
you were very articulate about
the challenges coming before,
but my ground view
is that if we can,
we could ma it more sustainable
if we had these, again,
middle class type of
entrepreneurs who have
that drive who aren't
pulling favors
and can really drive
those economies
and what could the
World Bank group do?
>> Yeah.
>> The IFC asset management
but you know, to further that.
>> A very good-- and it
goes to a core question
and there are many dimensions
but I'm just gonna
emphasize two,
'cause I think they'll
be a broader interest.
We talked about microfinance and
many people know about the idea
of set of small scale credit
to sort of small producers.
In a sense what your
question goes to is something
that we're trying
to work on which is,
what's the level above?
So, what's above micro finance
in terms of instead of micro,
small, and medium
size enterprises?
What are the impediments
to getting that forward?
Now, one aspect is finance,
and so, we are trying
to be innovative partly to help
with financial institutions
in the country, on
the same logic
that it's not just what we do
but can you build the structures
and how do you support
people who learn how to lend,
these are small projects
just like microfinance
but they're a different set
of project, because it's easy
in many countries
for these banks
to simply buy the
government bonds.
So, how do you try this
to support that activity?
Second, we're probably one
of the biggest investors
in private equity funds,
small scale funds at least
in Sub-Saharan Africa, maybe
globally, I think we invested
about 170 of them around the
world and we're trying to--
and again, sponsor these so that
they can support the development
of private sector entrepreneurs.
So, and then, as
you probably know,
beyond the financial sector,
we try to look for areas where,
again, we're kind of
at a wholesale level
but how can we connect
other activities.
So you mentioned
the big players,
you may know we have a linkages
program, so we're trying
where you have a big investor,
a foreign direct investor,
how you connect them to small
business development, so.
I remember in Mozambique,
visiting a major power
plant operation and we tried
to support them with
their suppliers and others
that they were drawing some
of the local customer base.
But there's a second dimension
that is critically important
which you alluded to, which is
that it goes to the rule of law,
the governance, the NI
corruption, the transparency.
So, when we look at some of
the North African countries,
even the ones that
had reasonable growth.
One of the things
that led people
into the streets was it looked
like it was gained that it was
for an elite, it was for the
family of the ruling group,
everybody, it wasn't
an open chance.
So, part of the challenge is
to try to work with countries
and persuade them that this
is in their own interest,
at their own capability, but as
you know that it sometimes runs
against vested interest.
It's one reason again why
these pieces interconnect,
one of the reasons why
open trade is useful is
that some people always
emphasize the exports.
The imports sometimes
challenge the oligopolies
and the oligarchies
that are connected
to the fancy families, okay?
So, I think part of
this is also then trying
to fraud these countries and
whether we partly do this
through our own efforts
with anti-corruption
with our own projects but we're
trying to expand this much more.
How can we help them develop
institutions with freedom
of information act,
open and transparency,
we created an international
corruption hunters network
to try to support people doing
the prosecutions we've got
and investigations.
We're trying to-- I think we
need to do more in this area
but we're trying to help build
legal and judiciary systems,
so is to create the
enabling environment
for those opportunities and,
you know, again, I'll come back
to a point that I've
mentioned then answer a couple
of the other questions.
You know, what I've seen in my
own policy making experience
and what I've see
in the developing world is was
one the most powerful things is
what works elsewhere, you know?
And so, again, you could come up
with the papers and the analyses
and show people things but
when they see the demonstration
effect, I think this is one
of the reasons why East Asia
had the growth, to in people,
you know, Vietnam
is a later comer
but they could see what
happened along the way
and they can see the process
and kind of try to imitate it,
and so, I think that again the
good news is you're actually
seeing a lot of success
out there.
It's frustrating when you
see the amount of people
that are still in mesh
poverty and the people
who don't have an
opportunity, but we just need
to keep multiplying those that
see the opportunity and kind
of press whatever the
political system is,
to allow people to have it.
The one last aspect
that I'll come back
to though is I've talked
about the private sector
and the business, I don't
wanna ever underestimate the
fundamentals and the human
development side, the nutrition,
the education, the basic safety
nets with things go down,
you know, if we have a
program in Africa now,
it's called Lighting Africa,
it's using off grid sort
of lighting systems, you know,
so that even though only
30 percent of the people
in Sub-Saharan Africa
have electricity
that in a sense it's driving
down the cause for people
to be able have lightnings so
that kids can study, you know.
So, you gotta keep,
if we're gonna try
to increase opportunity and
productivity, you also have
to help with the
nutrition, the education,
and the one other piece
that we're encountering
in all societies,
developed and developing,
is this critical nexus among
education, skills, and jobs,
and this is an issue for
Michigan too, you know, how to--
how to fit that more
effectively depending
on the level of development.
>> Well, thank you very much.
We have come to the
end of our time.
We very much appreciate
your thoughtful perspective
on such a wide range of things
and it has been a pleasure
to host you here at the Ford
School in the University
of Michigan and also I'd like to
thank my colleagues Jan Svejnar,
and Dean Yang and before
we close the formal part
of the session I did
want to make sure
that our audience knows that we
have an informal reception just
outside of the auditorium
and we hope you will stay
and continue the conversation
informally in that venue.
>> Can I make one other point?
>> Yes please.
>> I also-- I wanna thank
all of you for coming
for another reason
and that is, you know,
I very much appreciate
your interest
in America's engagement
internationally whether it'd be
development or trade,
or business, you know,
as I said I grew
up in the midwest,
it was a very different
era, I've mentioned
to people many times that
there's still a huge interest
in the united states, but in
many countries there's a worry
that the United States
turns inward, it's natural
when people have problems
and it's natural they
become self absorb.
My own sense is that
one of the things
that has always been Americas'
trump card is it's openness
to goods and ideas, and
people, and capital,
and I often tell people
abroad, as you know,
sometimes I think unfairly
people associate midwest
with isolationism
and other things
like that there's much
more interest in this
than sometimes people expect
but I very much appreciate the
interest that all of you have
and demonstrate in this
because when you think
about the challenges
that we've just discussed
in a relatively short time
and then add another one
like climate change or
biodiversity and security,
I'm a firm believer that
it's gonna take kind
of US playing a critical role,
but part of the challenge is how
do you do it in this changing
and multilateral system which is
where the World Bank
comes back in.
How do you adjust this old
institution built in one era
to play this role, but
ultimately, I've been involved
with politics and policy
enough to know that it depends
on an informed electorate
and people who care.
So, thank you very much.
[ Applause ]