It is the kind of power that has never quite been seen in history: the world’s most populous nation, run by a centralized dictatorship fully capable of violently clamping down on dissent and democratic demands, and still the rest of the world is beating a path to its door. Its GDP growth runs at ten percent a year. It has the world’s largest standing army and a formidable nuclear arsenal. It is also riddled with corruption and abuse that comes from being an opaque society where basic rules of accountability, transparency and sound governance have yet to take root.
But when a steady stream of bad news out of China —from melamine in wheat gluten that contaminated U.S.- and Canadian-made dog and cat food, to fake vitamin tablets and counterfeit toothpaste containing diethylene glycol, and now, just this week, lead in children’s toys— hit North America, the public seemed shocked —shocked that corruption and lack of integrity in China could actually be affecting their lives.
China’s contempt for intellectual property laws and copyright standards makes Kazaa- downloading college students look like disciples of the late Jack Valenti. Recently, Wal- Mart settled with the designer Fendi over the retailer’s selling of counterfeit handbags which it claimed were made in Italy. Where do you suppose they really came from? Two-thirds of all the products recalled in the U.S. come from China. The Chinese stock markets, where modest wage earners have borrowed and have mortgaged themselves to the hilt to put huge amounts at risk, are overheated and poised for serious meltdown. When it comes, it would not be entirely surprising to see it accompanied by widespread violence. China, by the way, continues to receive billions in loans from the World Bank, despite its ability to double its number of billionaires on an annual basis and the fact that it is one of America’s largest creditors. Not surprisingly, China remains the principal sponsor of the despotic and genocidal thugs who are responsible for the African holocaust in Darfur. China doesn’t much care about where it gets its oil, as long as it gets it. Does the West embrace these values too, unable to resist the allure of cheap ski jackets and good buys on patio umbrellas?
We have discussed before on these pages there are consequences when consumers and policy makers decide that where they do business and with whom is not really that important, as long as the price is right. This short-sighted approach not only creates an invitation to the kind of tampering, short-cutting and outright criminal activity that has come to be associated with China’s exports in recent months, but it makes even stronger and more powerful a regime that places little value on freedom, integrity, openness, human rights or even human life. China’s air and water pollution, not to mention its people’s endemic cigarette smoking, will someday tender a health care bill that the country might not be able to pay. It may not even bother to try, as the ease by which state-run companies and cronies of the regime are permitted to pollute rivers and lakes with impunity already foreshadows. These facts, like anything else critical of established power in China, rarely make their way into the state-controlled media. There is no freedom of the press. Internet access to many popular Western news sites is prohibited. For the oligarchs and elite in China, this, too, is seen as an admirable departure from Western-style governance.
That China has embarked on an interesting experiment in its approach to capitalism there can be no question. Rather than extending freedom for all its citizens, it has chosen to elevate a privileged few and allow them to attain and keep enormous wealth —wealth doubtless shared with the appropriate party official. There have been two Chinas for many decades. The concept will continue for many more. Creating a well educated and affluent elite with connections to government and the ability to get things done in ways democracies might find offensive is how the current regime hopes to maintain power and stave off the wider push for reform. With its ever increasing demand for cheaper products from knock-off antiques to mp3 players, the West may well be accommodating the rise of a more powerful, but nevertheless authoritarian, unaccountable and unfailingly communist, regime. Yet the West continues to slumber in the face of the potential political consequences of those trends, just as it does over the implications of a more powerful China within its own economy and corporate sphere.
Now the tentacles of that regime are making their way into the ownership of long- standing America business icons. State-run investment funds have bought their way into a piece of the Blackstone Group. This was revealed only because Blackstone is about to make available shares to the general public. How much else China owns by investing in private hedge funds and other secretive pools of capital may never be disclosed. And what are the consequences when large private corporate interests become more closely aligned with the state interests of this closed and unaccountable totalitarian system? On this question, Western policy makers remain asleep, just as they were over the possibility of contamination of North America’s food chain from Chinese imports.
The Chinese people are a noble people whose yearning for freedom and opportunity has captured the hearts of millions around the world. We do a disservice to their hopes by our ever-increasing business with dictators who are propped up by secret police and the use of torture and a so-called justice system where an email complaining about corruption can send a Chinese citizen to years in solitary confinement.
The West cannot continue to claim shock and surprise over the untoward effects of China’s growing power, since it is the industrialized world’s own consumers, corporations and governments that are making it possible. It needs to take responsible action to minimize those impacts. As long as North America, in its dealings with China, continues to turn a blind eye to the values of freedom, democracy and human rights it is supposed to cherish —values its young men and women fought and died to defend— and as long as accountability and openness are relegated to bit players on a stage where low, low prices and big, big markets have the lead parts, the problems of China’s corruption will continue to infect our imports, our health and, soon enough, our economy. This is not to suggest that we should isolate China or refuse to do business with that country. But it is to put forward the proposition that the repeated failure of everyone involved —from ordinary consumers to major corporations and democratic governments— to grapple with the gathering storm posed by China’s economic might, lack of transparency and failure, to observe principles of sound governance and accountability, are bound to have even more far-reaching consequences which will make the recent flurry of consumer recalls look like a calm breeze. And it is our choice for the Outrage of the Week.
A special board committee found that he broke the Bank’s ethics rules to advance the financial well-being of his girlfriend —not an admirable position to be in when you head the institution involved and claim to be a champion of higher standards of ethics and governance around the world. An avalanche of powerful stakeholder nations and groups demanded his resignation. Former executives of the body wrote a joint letter to the Financial Times which called upon him to step aside for the good of the organization. Yet when it came to dealing with World Bank chairman Paul D. Wolfowitz, the Bank’s board adopted a demeanor more resembling a fledgling new regime negotiating the terms of abdication for a dethroned monarch than a governing body that supervises the CEO. It was, to say the least, unbecoming. A board is supposed to hire and monitor the conduct of a CEO. When that conduct is wanting, because of ethical shortcomings or misjudgment, it is the duty of the board to act with strength and conviction. This is a fundamental principle of sound governance without which no public institution can long function.
Faced with pressure from Mr. Wolfowitz’s lawyer, Robert S. Bennett, the World Bank’s board decided to rewrite history and back away from its findings that Mr. Wolfowitz violated the Bank’s ethics rules. In doing so, it not only demeaned itself in adopting language that was substantially inconsistent with its previous report, but it also opened the door to its own credibility now being challenged. Can the Bank’s word be trusted? Does it mean what it says? Or can an unpleasant truth be ameliorated by a lawyer’s bombast and clever negotiation? The dictators of the world, for whom the Bank’s push toward principles of transparency, ethics and improved governance is about as welcomed as a visit from Senator Paul Sarbanes in most North American boardrooms, will no doubt be taking cues from how the board approached the problem in dealing with one of its own.
Some will argue the Bank finally got rid of Mr. Wolfowitz, so what’s the problem? One can be glad that the Bank will have new leadership. But an ends-justifies-the-means approach to institutional decision-making by a body with the power and influence of the Work Bank is a slippery slope upon which many a despot and shady actor would like to glide. We will not be joining them. It would have been better for the Bank to have stood by its findings, privately advise Mr. Wolfowitz that his conduct had damaged the institution and his ability to lead it and demand that he step aside —or remove him from office if he did not. Leaders who violate ethical standards and bring discredit to their organizations do not generally get to dictate the terms by which they will relinquish their positions.
We will have further comments about some steps that should be taken to bring the Bank’s own governance practices into line with 21st century realities. For now, it is clear that the board took too long to act, was too indecisive about asserting itself and permitted a passage of time and events that brought needless ill will and a troubling erosion in its moral authority, which makes the World Bank board’s mishandling of Paul Wolfowitz’s departure the Outrage of the Week.
The New York Times reports that the committee of World Bank directors which was set up to review the actions of Bank head Paul D. Wolfowitz in connection with the compensation and promotion of his girlfriend, has found that he violated Bank ethics rules. This follows the resignation earlier today of top aide Kevin Kellems. It is inconceivable that Mr. Wolfowitz can, or would wish to, cling to his position in these circumstances.
We predict he will be gone within 24 hours.
Larger men give up their posts before bringing disgrace upon themselves or their organizations. Smaller men cling to them like life rafts.
When a CEO shows up at a board meeting with his lawyer and demands “fairness” after bringing embarrassment upon the institution he is supposed to be leading, it is time for somebody to leave the room and not return. Usually, it is not the board.
Embattled World Bank CEO Paul D. Wolfowitz makes the mistake that too many CEOs make. He fails to understand that it’s not about what’s good for him. It’s about what’s good for the institution he heads. Mr. Wolfowitz and his lawyer, Robert S. Bennett, may try to do an elaborate tap dance around the board over the issues that brought them to this impasse. But the central point, as we have noted here previously, is that the credibility and respect essential to the sound functioning of the office of the World Bank’s chief is no longer there.
The greater danger in Mr. Wolfowitz’s staying is that it will almost surely compromise the Bank’s own governance reputation and make it apparent to the world that the board is merely a rubber stamp for the dictates of the U.S. administration. The Bank’s efforts to bring governance reform to developing countries will be terribly undermined if it becomes apparent that its own governance system is a sham.
Making accusations that the board is treating him shabbily, just days after being called upon to resign by dozens of former World Bank officials, only confirms that Mr. Wolfowitz does not grasp the nature of the relationships and the esteem that are necessary to carry on with the job. One by one, important constituencies are withdrawing their support, and with each unheeded demand for his resignation Mr. Wolfowitz appears a lesser and lesser figure. In this he has much in common with another Bush appointee, embattled attorney general Alberto Gonzales. Both these men give the impression of being smaller than life figures occupying the huge offices they hold. Larger men give up their posts before bringing disgrace upon themselves or their organizations. Smaller men cling to them like life rafts.
Great institutions like the World Bank cannot be headed by little men. Nor can they be governed by those who are unable or unwilling to stem the erosion in the stature of the body they are entrusted to protect. The Wolfowitz girlfriend ordeal must be ended. If Mr. Wolfowitz does not step aside —and soon— the board must do the job for him.
He was appointed by his friend, the President, after detailing plans for the invasion of Iraq. His mission included tackling corruption and addressing issues of growing global poverty. And, in fact, he discovered a new tool for narrowing at least part of the wealth gap that plagues much of the world: direct the appointment of a woman with whom he was romantically involved in such a way as to maximize her salary without going through the customary formalities. Now, World Bank chair Paul D. Wolfowitz is faced with a revolt by staff and an embarrassment on a world scale.
He excuses his actions as a mistake in judgment. That might work for a teenager who has never been away from home. Mr. Wolfowitz, however, is a sophisticated man who has travelled in the company of kings and presidents. Perhaps he thought he was one. His infamous fiat to the bank’s vice-president of human resources:
“I now direct you to agree to a proposal which includes the following terms and conditions …You should accept immediately her offer to be detailed to an outside institution of her choosing while retaining bank salary and benefits.”
certainly is suggestive of such a regal self-image. But what is not plausible is that he did not know what he was doing was wrong. Of course, if he really wants to maintain that line, then the institution has an idiot on its hands as well as a scandal. The World Bank doesn’t need another Alberto Gonzales at its helm.
All that leaders who head important public and corporate institutions have is their moral franchise. Their reputation for ethics and integrity is both their shield and their sword. Once that is lost, their ability to lead by example is compromised beyond repair, and with it their ability to perform. The staff of the World Bank appear to understand this. The question is: Do the directors who make up its executive board? And does President Bush, who appointed Mr. Wolfowitz and appears to hold the keys to his fate?
We have chosen Mr. Wolfowitz’s failure to resign in the face of the humiliation he has brought upon this institution as a result of his ethical misadventure as our Outrage of the Week. He has made those who supported him look like fools. Let us hope they do not adopt also the trappings of clowns in failing to demand his resignation.