FORGET LARRY

Mike & Friends Blog

Robert Weissman

Robert Weissman is president of Public Citizen

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March 22nd, 2012 3:51 PM

"Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?"

Do those sound like the words of a man who should be running the world's leading economic development institution?

They don't, but the man who put his name on the memo in which those words appeared -- Lawrence Summers -- does in fact appear to be the Obama administration's leading candidate to head the World Bank.

For the sake of hundreds of millions of people for whose lives and life chances are shaped in some significant part by World Bank policy, please urge President Obama not to nominate Larry Summers to be World Bank president.

The World Bank is supposed to be the development bank for the world's poor. It has a very poor record of fulfilling its mission -- precisely because it has pushed the kind of deregulatory policies that Summers has advocated.

By indefensible tradition, the United States is given the power to name the Bank's president, and it has always named an American -- even though the Bank is governed by a board that represents the world's nations, and the Bank's mission is to serve poor countries. In 2005, the Bush administration named neoconservative Paul Wolfowitz to run the Bank. That ended in disaster, when Wolfowitz was forced to resign amidst a personal scandal. It's hard to imagine the Obama administration is on the verge of making a similarly outrageous pick to head the Bank, but that seems to be the case.

What's the matter with Larry?

Consider his public service career.

As chief economist at the World Bank, Summers authored (or at least put his name on) a 1991 internal memorandum that argued for the transfer of waste and dirty industries from industrialized to developing countries. "Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?" wrote Summers. "I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. ... I've always thought that underpopulated countries in Africa are vastly under polluted; their air quality is vastly inefficiently low [sic] compared to Los Angeles or Mexico City." Summers later said the memo was meant to be ironic, or a thought experiment.

What Summers never explained was how he disagreed with the memo's "impeccable," if ironic, logic. Indeed, that kind of logic has guided World Bank policy for decades, as it has pushed deregulation, privatization and corporate globalization, with horrific results. The Bank needs as its leader someone who categorically rejects this way of thinking.

As Deputy Secretary and then Secretary of the Clinton administration Treasury Department, Summers helped lead the deregulatory charge that enabled the financial crash of 2008 and the Great Recession. Among his notable achievements was stifling the efforts of Brooksley Born, then head of the Commodity Futures Trading Commission, to investigate and regulate the trade in financial derivatives. The trade in unregulated financial derivatives amplified the financial crisis far beyond the unavoidable troubles connected to the popping of the housing bubble. AIG made aggressive bets on credit default swaps that went bad with the housing bust, and led to a taxpayer-financed rescue of more than $130 billion. AIG was able to put itself at such risk because its CDS business was effectively subject to no governmental regulation or even oversight -- a direct result of the efforts of Summers and his confederates in the Clinton administration.

In recent decades, blind financial deregulation has contributed to a long series of financial crises with absolutely catastrophic results in developing countries. The World Bank does not need a financial deregulator as its leader.

As Harvard University president, Summers set records for offending vast portions of the faculty. He also provoked a firestorm with comments suggesting that innate differences helped explain why relatively few women have top scientific positions.

Effectively running the World Bank requires managing a vast bureaucracy and dealing sensitively with diverse global constituencies. The job requires finesse, about the last word anyone would use to describe Summers. The job also requires someone able to function as an advocate for women's empowerment, given the gendered inequality and power imbalances in the global economy.

The history is not yet written on Summers' role in the Obama administration. What is clear is that the Obama economic team both failed to deliver a large enough stimulus plan to address the economic and jobs crisis it inherited, and that the administration made a political decision to coddle rather than confront the Big Banks and Wall Street interests responsible for the mess. Not exactly the kind of performance that recommends being given the top job of dispensing economic advice to developing countries.

The World Bank has its own colossal failures to answer for. For 40 years, it has promoted a brand of market fundamentalism that has served rich corporate interests but impoverished hundreds of millions in the developing world. Bank-imposed privatization and downsizing of the public sector has left poor countries unable to educate their young, treat the sick or build up their economies. The Bank's penchant for mega-development projects has devastated ecosystems around the world, destroyed the livelihoods of millions of indigenous people and small-scale farmers and set developing countries on dirty and unsustainable energy pathways.

Yet for all its failures, there are many very good and committed people at the World Bank, and the institution exerts a dominant role in policymaking in poor countries. Who runs the World Bank makes a lot of difference.

The people of the developing world deserve a lot better than Larry Summers.

Unfortunately, those people have no power to determine who will run the Bank. People in the United States do. Tell President Obama not to nominate Larry Summers to head the World Bank.