What Mr. Wolfowitz and World Bank Shareholders are Really Fighting About

A quick read of the news coming out of Singapore (see the Financial Times on Setback for Wolfowitz on anti-graft plan) might lead one to believe that some of the World Bank's key shareholders don't like Paul Wolfowitz's tough stance on corruption. As with most of life, the issue is more complicated. Mr. Wolfowitz and his shareholders agree that corruption is a serious development issue. They disagree on two related issues: what the costs are of doing something about it; and who decides when those costs are worth paying.The antagonists in this debate reach for the extremes when making their points, which is not helpful. No one argues for doing development business in a country in which circumstances and leadership make it impossible to serve the poor. And no one argues that MCA countries shouldn't be held to a high governance standard (it's the price of admission, after all). What is interesting and at the core of the debate are all those countries in between these extremes. For these countries, there can be--and often is--a trade-off between clamping down hard on corruption, and the international community's ability to help the poor. Someone has to decide when to get tough on corruption and accept this trade-off and when not to. This brings us to the second disagreement.To date Paul Wolfowitz has made it clear to his management, his staff and his Executive Board that the judgment-based decisions on these trade-offs will be made by him. The Board has not taken kindly to this and is insisting that Bank management, that is, Mr. Wolfowitz, come up with clear rules on when these trade-offs are acceptable and when they are not to ensure “equal treatment” of its member countries. This is Bank-speak for "non-political" and is something the Bank takes very seriously. As the Bank and the Board are finding, setting ex ante rules will not work. Why not? Because, these are inherently complex judgment-based decisions--exactly the decisions Bank management and its Board are paid to make.The fight between Wolfowitz and the Bank's shareholders is about more than corruption; it's about who makes the judgment calls that determine case law - which set the future course of the institution. In other words, it's about who runs the Bank. The Board wants in, Mr. Wolfowitz wants to go it alone. Interesting in an organization that promotes transparency.