A popular strategy to derail those trying to reform an institution is to brand them as opposed to the cause of the institution itself. This was tried with Nikki Haley at the United Nations, Scott Garrett at the Export-Import Bank, Scott Pruitt at the Environmental Protection Agency, Mick Mulvaney at the Consumer Financial Protection Bureau, and Betsy DeVos at the Department of Education. Each of these individuals may very well have had individual pros and cons to consider, but criticism of the institutions they were being considered to head cannot seriously be considered a problem unless the point of securing a new leader for a given institution is to obtain no real leadership at all. An institution that is fine as it is does not need a new leader, and the idea that any institution in the alphabet soup of federal agencies — or, God forbid, “international organizations” — is just fine as it is is laughable.
And this brings us to David Malpass, the Trump administration’s selection to head the World Bank. Critics are out in force arguing that the distinguished economist is ill suited for the job because he has been openly critical of the World Bank’s coziness with China (particularly the country’s Belt and Road initiative, a boondoggle of infrastructure projects that has been as wildly successful as one would expect a hybrid of Communism and cronyism to be). Malpass has been critical of inadequate accountability at the bank, a lack of defining metrics to objectively evaluate progress, and a flawed foundation in the execution of the bank’s mission. The bank, in Malpass’s view, has veered from that mission — fostering sustainable economic growth across developing markets — and instead become a bureaucratic nuisance in the failed cause of unsustainable aid.
If there is to be a World Bank at all, its core mission must be rediscovered. Facilitating a dependence on interest rates below market levels is not a sustainable mission, is distortive to economic stability, and creates malinvestment that is revealed as such at the most inopportune times. Using the bank’s vast financial resources to drive a turn towards “strong growth principles” (Malpass’s words) is not to reject the World Bank’s mission, but rather promotes the greatest of solutions for the world’s poorest countries. His agenda centers around accountability — finding ways to measure success so that the dollars provided from the bank can be optimized and constantly in pursuit of their most effective allocation. Malpass sees transparency as fundamental to accountability and has promised to enforce requirements that borrowing nations reveal the terms of their debt agreements. It strikes me that someone demanding this basic step from those the bank lends money to probably cares about the viability of the lender more than those cheerleaders of the institution who fail to demand such do.
Those genuinely supportive of the mission of the World Bank should praise the substance of David Malpass’s criticisms. China received nearly $2 billion in loans from the World Bank in 2018 alone and yet is the world’s second-largest economy, with unfettered access to capital markets. The argument Malpass makes is irrefutable: When World Bank resources are used to help powerful countries that do not need them, the mission of the bank is called into question.
Those livid at the idea of accountability and transparency entering the fray of their treasured bureaucracy have understandably chosen to pounce on the most obvious vulnerability in the Malpass résumé — his role as the chief economist at Bear Stearns up until its collapse in 2008. It is a fair potshot, but one that provides only optical shade, not substantive criticism. First of all, to dismiss any economist or financial thought leader who failed to perfectly predict the financial crisis in 2008 would be to dismiss everyone, everywhere, with the one possible exception being Christian Bale’s character in The Big Short (trust me, the truth behind this story requires a whole series of articles). Most offering this criticism (not all) are well aware that the macro guys at the big firms are separated by light years from the proprietary trading desks where real damage (or profit) is done. If you believe those running the trading books at Bear Stearns had connectivity to David Malpass, who wrote white papers and offered macroeconomic perspective for the firm, then I have a subprime-mortgage pool from 2006 to sell you.
The fact of the matter is that 2008 managed to leave a real stench on the résumés of many entrenched financial personas, with Brad Pitt and Ryan Gosling skating through unscathed. While most of the guilt-by-association is laughable, Malpass did underestimate the impact to credit markets that the housing correction would have (failing to appreciate how much systemic risk had managed to accumulate in the shadow banking system). But painting Malpass with the brush of Bear and Lehman is logically absurd and factually preposterous. (Now, if we want to talk about people who really were knee-deep in the causes of the financial crisis, and who received major government positions as their reward, I am happy to discuss Tim Geithner and Jack Lew any time).
David Malpass does not hold to a utopian view of global institutions and has been critical of multilateral dreams of curing poverty. That does not make him unsuitable to lead the World Bank — it makes him the ideal choice.
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