Who’s Afraid of Wolfowitz?

The spectacle of Iraq War architect and World Bank president Paul Wolfowitz hoist on his own petard is certainly one worth savoring. After promising to make the struggle against corruption in developing nations his major objective while in office, Wolfowitz has come under fire for cutting a plush pay and promotion deal for his girlfriend of the time after his appointment as president in 2005.

A recently released internal inquiry into the controversy has concluded that Wolfowitz broke World Bank rules and violated his own contract with the agency. For several weeks, staff members, NGOs, and former senior officials have been expressing dismay at the emerging news of Wolfowitz’s revolving door policy.

While the Bush administration’s predictable response has been to treat all criticism of its appointees with contempt, powerful European members of the bank seem to be balking. Internal opposition is also reaching a tipping point. Wolfowitz’s days at the Bank are clearly numbered.

Yet although the Bank’s official inquiry denounces the Goodfellas-style strong-arm tactics and scatological language he employed during his tenure as president, it fails to focus on the broader forms of corruption promoted by Wolfowitz. Nor does it allude to the disastrously wrong-headed lending policies that ensure that the Bank’s baneful influence will linger long after Wolfowitz’s exit.

Since his acrimonious appointment hearings in 2005, Wolfowitz has repeatedly stressed that there are no conflicts of interest between his current role as Bank president and his previous post as deputy Defense secretary under George W. Bush. Indeed, in his self-defense over the last weeks, he has alleged that calls for his resignation are driven by ire at his central role in the botched invasion and occupation of Iraq. Despite his claims of impartiality, however, three of Wolfowitz’s top five international appointments have gone to prominent members of key right-wing governments that explicitly supported the Iraq War. These appointments to powerful Bank positions smack of payola for enlistment in the thin ranks of the U.S. “coalition of the willing.” Scarcely mentioned in recent press coverage, they suggest that cronyism at the top extends far beyond Wolfowitz’s shady package for his girlfriend. Indeed, the fact that Wolfowitz can hold on to his position despite concerted pressure from European shareholders simply because of the Bush regime’s determination to save face underlines the fundamentally corrupt and undemocratic character of current World Bank leadership-appointment procedures.

But the rot does not stop at individual appointments. For decades, the World Bank’s energy lending policies have helped open developing countries to Northern-based fossil fuel corporations. In 1981, the Reagan-era US Treasury insisted that the Bank play a leading role in “the expansion and diversification of global energy supplies to enhance security of supplies and reduce OPEC market power over oil prices.” Instead of supporting diminished fossil fuel consumption and a switch to renewable energy, in other words, the Bank has led the drive to expand resource extraction to new geographical locales. Nor did this role end as the energy crisis of the 1970s wound down; $11 billion in financing was approved by the Bank for 128 fossil-fuel extraction projects in 45 countries in the period from 1992 to 2004. More than 82% of Bank financing for oil extraction has gone to projects that export oil back to the rich countries of the global North. Investment in fossil fuels outstrips that in renewable forms of energy by a ratio of 17 to 1. The Bank has thus played a crucial role in securing access for the unsustainable consumerist economies of the industrialized nations to the natural resources of the South. In addition, energy lending in non-fossil fuel-related areas such as thermal and hydro-power have hinged on large-scale, grid-based, and therefore centralized projects that have contributed to highly inegalitarian concentrations of power ­ in both senses of the term ­ in developing nations. Bank policies, tied to Big Oil cronyism in the rich nations, thus help to foster authoritarianism and corruption in the global South.

Stung by criticism of its lending practices, the World Bank has repeatedly promised, and failed, to do the right thing. During the 1992 Earth Summit in Rio, for instance, the Global Environmental Facility (GEF) was created within the World Bank with a mandate to compensate developing countries for their efforts to protect the Earth’s climate and its flora and fauna. Yet GEF funding suggests that it is a thin green fig leaf designed to divert attention from the Bank’s true priorities since financing of the GEF amounts to $10 million per year, while fossil fuel projects are funded to the tune of $2-3 billion annually. Moreover, the Bank has helped deflect pressure for a concerted switch to renewable energy by offering to take the lead in pursuing green initiatives and then quietly conducting business as usual. At the 2005 G8 meeting in Gleneagles, Scotland, leaders of the industrialized nations turned once again to the Bank, charging it with developing a framework for clean energy. The resulting policy, the “Investment Framework for Clean Energy,” projects greenhouse gas emissions so high that they would unleash catastrophic climate change. Although the Bank admits that carbon dioxide concentrations above 450 parts per million would be disastrous for the planet, the “Investment Framework” adopts a 60% growth of emissions by 2030 as a reference case, and predicts atmospheric concentrations of carbon dioxide ranging from 450-1,000ppm. A revised version of the Bank’s policy statement dropped any reference to carbon levels, as if global warming will go away if we simply ignore it.

In addition to lining the pockets of fossil fuel corporations, the World Bank is embroiled in its own serious conflicts of interest around the issue of carbon mitigation. Through the Clean Development Mechanism (CDM), the Bank allows polluters in the industrialized North to offset their greenhouse gas emissions through the purchase of “emissions credits” that are intended to promote forms of carbon sequestration, typically in the poor countries of the global South. As a result of these twenty-first century pardons for ecological sins, the North can continue in its profligate consumerist behavior. In addition, the World Bank gets a commission of up to 10% on all the carbon credits it purchases. With over $1 billion in its carbon credit portfolio, the Bank has become the world’s largest public broker of carbon purchases, profiting from while also influencing the CDM’s rules. Thus far, CDM funds have succeeded in producing emissions reductions that constitute only a fraction of the pollution produced by its predominantly fossil fuel-based energy investment portfolio, accounting for less than 0.5% of global investments in renewable energy according to the World Wildlife Fund. Moreover, just as is true in the Bank’s so-called renewable energy portfolio, CDM projects tend to foster inequality and corruption in the global South. In the eucalyptus farms established as carbon sinks in places like Minas Gerais, Brazil, for example, local indigenous people are displaced to make way for large single-crop plantations that destroy biodiversity, suck up ground water, pollute what remains with fertilizers and pesticides, and undermine national food sovereignty.

It would be rash to imagine that the current crisis around Paul Wolfowitz’s leadership will precipitate the collapse of the World Bank. Nevertheless, there are clear signs of a broader crisis brewing over the Bank’s policies. After submitting to years of intrusive regulation by the Bank’s structural adjustment policies while seeing minimal decline in poverty, for example, Latin American countries are moving to pay off their debts to the Bank and its sister institution, the International Monetary Fund. Earlier this year, Venezuela and Argentina announced the formation of the Banco del Sur (Bank of the South), whose governance structure is an explicit repudiation of the World Bank’s non-democratic institutional architecture, which awards voting rights based on nation’s financial contributions­ an arrangement that essentially hands over control of the World Bank to the U.S. Treasury. No matter what happens to Paul Wolfowitz, it is likely that the World Bank’s broader crisis of legitimacy is likely to intensify. Crises such as that provoked by Wolfowitz’s leadership are, however, an opportunity to underline the broader corruption that characterizes the Bank. In addition, they offer a chance to advance arguments for a truly international institution that is not dominated by the interests of the North. Perhaps most importantly, the current crisis underlines the need to abandon the World Bank’s corrupt subsidies for fossil fuels, to address the energy needs of the poor in a genuine way, and to redirect public subsidies to energy efficiency and truly renewable energy projects. Paul Wolfowitz’s corruption is, after all, just the tip of a quickly melting iceberg.

ASHLEY DAWSON is the co-author with Malini Johar Schueller of “Exceptional State: Contemporary US Culture and the New Imperialism” forthcoming from Duke University Press in June 2007. Dawson’s book Mongrel Nation: Diasporic Culture and the Making of Post-Colonial Britain will be published in by the University of Michigan Press in June.