Donald Trump has infuriated nearly the entire foreign-aid-industrial complex with his nomination of Treasury Department official David Malpass to lead the world bank. Liberal groups this week labeled Malpass an economic “arsonist” and other such niceties, which should give you a clue that Trump is on to something here: What has ruffled feathers about the nomination is Malpass’s clear-eyed advocacy of long-overdue World Bank lending reforms.
Malpass put his criticism of the World Bank bureaucracy well at a House hearing in 2017. “They’re often corrupt in their lending practices, and they don’t get the benefit to the actual people in the countries,” he said. Instead, the money flows to “the people who fly in on a first-class airplane ticket to give advice to the government officials in the country . . . but not so much the actual benefit to normal people within poor countries.”
Malpass’s willingness to challenge the Bank’s status quo could make him a savior to poor nations as they try to jump-start growth and lift incomes. Inside the Bank headquarters, it is clear he will rattle some cages, hold Bank economists and lenders accountable, and shift the U.S. role to one based on actual performance, rather than good intentions.
The World Bank’s mission is to serve as a lender and economic adviser to poor and financially distressed countries for vital development projects. But over the past half century, the Bank has leant hundreds of billions of dollars with precious little to show for it in terms of poverty reduction.
A seminal Heritage Foundation study examined the actual results of tens of billions of dollars of World Bank loans over several decades. Here is what it found:
Of the 66 less developed countries receiving money from the World Bank for more than 25 years (most for more than 30 years), 37 are no better off today than they were before they received such loans.
Of these 37 countries, most (20 in all) actually are poorer today than they were before receiving aid from the Bank.
Almost all studies of the World Bank and other foreign-aid groups come to the same conclusion: These institutions are incidental to growth and can even inhibit long-term rises in living standards by creating a dependency culture. Some $50 billion has been spent in Africa by the Bank, the IMF, USAID, and other aid programs, and living standards in many of the recipient nations — tragically — have hardly budged.
Even groups on the left have called out the World Bank for its corrupt practices in Africa and other poor nations. A report by the International Consortium of Investigative Journalists found:
Over the past decade, the bank has regularly failed to enforce its rules, with devastating consequences for some of the poorest and most vulnerable people on the planet. . . .
The World Bank often neglects to properly review projects ahead of time to make sure communities are protected, and frequently has no idea what happens to people after they are removed. In many cases, it has continued to do business with governments that have abused their citizens, sending a signal that borrowers have little to fear if they violate the bank’s rules, according to current and former bank employees.
I’m old enough to remember almost annual protests by left-wing activists who would surround the World Bank Headquarters in Washington, D.C., and call for the Bank’s closure because of its inability to bring real benefits to the poor. They were mostly right in their attacks against elitist Harvard and LSE-trained bankers bullying developing countries. As Richard Easterly, an award-winning development economist, puts it in his book of the same title, the World Bank is an example of “the tyranny of the experts.”
What David Malpass can bring to the World Bank is a new appreciation for the reality of economic development, which is that it comes when political leaders free the productive forces of their own economies.
Hong Kong and Singapore are good examples. Neither received much in World Bank money, but they both flourished in the second half of the 20th century because of the economic freedom their governments provided. Property rights, rule of law, low taxes, minimal political corruption, light regulation, and free trade are the preconditions for prosperity, as this chart from the latest Heritage Foundation Index of Economic Freedom study shows.
Malpass knows this, and is likely to refocus the World Bank on what works. That’s what really scares his adversaries. President Trump should make clear that if this corrupt elite prevents Malpass’s ascension to the post, America will pull out of the World Bank and take our funding dollars with us.