Geithner and the Post-WWII Utopian Vision

Yesterday, Treasury Secretary Timothy Geithner laid out the case for increasing our financial commitments to the World Bank and its sibling regional development banks. The argument for increasing our commitments is sound, and the commercial case for it essentially four-fold.

First, these development banks constructively reinforce transitions by empowering disenfranchised groups to participate in the global economy. Second, in doing so, we create short term opportunities for our businesses to help facilitate that participation through procurement opportunities. Third, by fostering these new entrants in the global economy, we are also cultivating future consumers of American products and thus vibrant export markets. Fourth, we are competing with countries such as China for these short, medium and long term financial opportunities. Moreover, it is important to appreciate that China benefits from its investments in emerging markets by gaining privileged access to the types of primary commodities that fuel its industrial prowess.

Paradoxically, we have become a country rightfully skeptical about the wisdom of solving conflicts through arms that nonetheless finances our Defense Department at far higher levels than the State Department. We appreciate the leverage that a strong military affords us on the international stage. However, we do not always recognize that investments in multilateral investment banks afford high leverage for advancing US interests as well.

It is worth remembering that the World Bank emerged out of the ashes of the Second World War. The basic idea was that we could not as a country, or as a a community of nations, afford to solve our problems through military means. We and our allies had emerged as victors of that devastating war but nonetheless decided that our national interest was best served by creating the World Bank as a way of investing in commercial linkages. A world with countries that invest beyond their borders and trade together stays together. The Marshall Plan also arose out of this same utopian vision.

We have nonetheless become more realistic over time about this utopian proposition.

Secretary Geithner ended his testimony with proposals for ensuring that the World Bank and its sibling regional banks improved their financial discipline, transparency and accountability, and concern for impact and results.

I would flesh this out a bit. Our early experience with the World Bank had been mixed with a tendency at times to reinforce inequalities. Over time, we have become increasingly mindful of working harder to make our investments through the World Bank benefit those fighting to be included abroad through programs directed at alleviating poverty, empowering women, and offering avenues for redress to the legally disenfranchised. In many ways, the World Bank looks very different today in how it runs, what projects it invests in, and how it measures impact. Progress can still be had though.

We need to appreciate fully why these reforms to the World Bank and its siblings increase our ability to leverage our investments to advance our national interest. Geithner's testimony recognizes this; however, we must be much more explicit so that we understand how commercial leverage actually works. We must increase our investments into these international development banks. However, our leveraging ratios will be much better if we allocate existing and new streams of financing in targeted ways attuned to the benefits accrued from building upon the successful reforms that have often been driven by public interest groups and those striving for greater inclusion abroad. We should also recognize that the US Congress has itself enhanced our leveraging ratios by its insistence on investments that promote labor standards and indigenous rights.