>> 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 ]