Martin Wolf Asks: "Where Is Everybody?": The Paul Wolfowitz Case

Martin Wolf wonders why his Economic Forum members are so silent on the issue of Paul Wolfowitz and the World Bank:

Economists' forum: One should not be the only person to comment on one's own column, but I am shocked that not one member of the forum had anything to say on corruption, governance, the World Bank or Mr Wolfowitz. These are surely pretty big topics - or, at least, the first two are.

Some of it is that we are not at all sure what went on, and many people wish to reserve judgment.

But judgment is getting hard to reserve. The principal thing to note is that Mr. Wolfowitz is now on story #4. In order, the stories are:

1. That Shaha Riza's extra-sweet deal at the U.S. State Department was decided on not by Paul Wolfowitz--who had nothing to do with it--but by the World Bank's Board of Directors.
2. That Shaha Riza's extra-sweet deal at the U.S. State Department was negotiated by Paul Wolfowitz, but he was doing exactly what the Board of Directors wanted.
3. That Shaha Riza's extra-sweet deal at the U.S. State Department was dictated by Paul Wolfowitz, but that he had kept the Bank Board of Directors informed of what he was going to do beforehand.
4. That Shaha Riza's extra-sweet deal at the U.S. State Department was dictated by Paul Wolfowitz, and Wolfowitz did not inform the Bank Board of Directors, but a whistle blower wrote to the Board's Ethics Committee after the deal was done, and the Ethics Committee did not object, so nobody now has any standing to object.

From this and other evidence, I don't know but I think I can guess what the story Paul Wolfowitz tells himself is, and it goes like this:

They hated me. And so they told me that I couldn't have Shaha Riza as one of my close personal aides and pay her what I was paying Kellums and Cleveland. They told me I couldn't have her as one of my close personal aides at all. This was unfair: she, after all, was the reason I got interested in being World Bank president in the first place. Well, if I couldn't have her at my right hand, I was at least going to make sure that she was paid well. What I did was no deep secret--anybody who wanted to could have found out about it. But I was strong then, and nobody's home government wanted to pick another fight with the Bush administration, so they pretended that they did not know. Now I am weaker, and they think they can take me down, and so they pretend to be shocked! shocked!--they are having their own little Claude-Rains-Captain-Renault-Holier-than-Thou moment. Liars. Hypocrites. Bureaucrats. Corrupt friends of kleptocrats. They knew, and they didn't object. Or they ought to have known. Or they could have found out if they had dug for the details. And it's all their fault.

By contrast, the Bank staff have not changed their public story. And, reading between the lines, I think I know what the real story is:

We told Wolfowitz that he could not recuse himself on personnel matters involving Shaha Riza and yet keep her in the Bank as one of his confidential aides and with him as her boss. We told him to move her somewhere outside his authority. We never imagined--having told him that recusal on personnel matters was insufficient--that he would then interfere in personnel matters affecting her to the extent that he would dictate her salary and give her a massive raise: we expected him to delegate that task of exactly where and at what pay grade to some vice president somewhere.

When we discovered what he had done after the fact, we knew that our home country governments did not want another fight with the Bush administration, so we let it drop. But it was still a bad and unethical thing for Wolfowitz to do. And now that the Bush administration is weak and people care little about appeasing further, now that it is clear that Wolfowitz has been a disaster as World Bank president, now that the issue has been raised not by us but by the press, and now that Wolfowitz has responded by telling lots of lies, we are ready to do now what we should have done when we discovered this and make a huge stink--hopefully, a huge enough stink to drive him out of the World Bank presidency, for which he has shown himself unsuited.

As corruption goes, this particular episode is penny-ante corruption--a matter of $50,000 a year, perhaps $500,000 in present value--but it is corruption, it is a straw, and it is the straw that breaks the camel's back.

Should this be the straw that breaks the camel's back? The only difference between Wolfowitz's intervention in Riza's salary and his intervention in Kellums's and Cleveland's is that there were rules against the first because Riza was already at the World Bank. If Wolfowitz were highly qualified to be World Bank president and were doing an excellent job, it would be time for a simple reprimand. This doesn't mean that what Wolfowitz did is a good and ethical thing--it is a bad and unethical thing. But it is not worth ending the tenure of an excellent and effective World Bank president.

But Wolfowitz is not an effective and excellent World Bank president. In a good world, this act of corruption would be the straw that breaks the camel's back.

Comments

[Peter Eggenberger]

Gedanken experiment: Imagine that the World Bank is a large financial institution (e.g. Citigroup, UBS, etc.) known for high standards of corporate governance. Would its Board of Directors fire Wolfowitz out of concern for the institution's reputation? Or keep him because he is supported by a major shareholder?

[RKimble]

Mr Eggenberger:

The result of your experiment is a function of the share price of your LFI, which is one of Prof deLong's points. The shareholders did not want to pick a fight with PW at some recent time when the P/E ratio was high (partly because the major shareholder was doing better at that time). Now that the P/E has fallen (partly because of the ineffectiveness of the CEO and partly because of the fecklessness of the major shareholder), they have developed some spine.

On the question of -- " What I did was no deep secret--anybody who wanted to could have found out about it." -- this is true because of a well-known feature in the Bank's MIS (the odious SAP, may God curse its mustache) which allows users to determine the salary of practically anyone in the WB. If you look at the document dump, this is discussed in a memo from the Bank's VP for HR to PW. From that memo, I infer that PW was surprised (unhappy ?) to learn how many staff could access the salary data which could be, one might say, evidence of guilty knowledge.

[RT]

I disagree, Brad. If this were a local sheriff who had his deputies work on his house while they were on the clock, we'd expect to see his ass fired, no matter how good a sheriff he was. (Nowadays, that is. Not so long ago, this wouldn't have been as true.)

I don't think we can afford to let high officials be above the law, no matter how good a job they're doing. If that had been Bob Rubin (who would if anything be underemployed as World Bank president) making sure his doxy got paid a bit more than she ought to, he'd still have to go.

If a high standard is enforced, then high officials learn to keep a high standard, and not use their jobs for personal advantage. And in the long run, we're all better for it.

[Robert Waldmann]

I too wonder why people have been so quite on this one. It might be because everyone assumes that Wolfowitz is going to be fired. It might be because the underlying bad act is penny ante. I have a theory though. I think that if Wolfowitz and Riza were married, the left blogosphere would be more outspoken about the scandal. Since they are not and Wolfowitz is separated but not divorced, there is a sense that some of what is going on is Clinton-Lewinsky style panty sniffing. That is, we want to make sure that people understand it is about the conflict of interest, the money and the lies not the sex.

I agree with RT and Peter Eggenberger that Wolfowitz's corruption should not be tolerated even if he were otherwise a fine world bank president. I think this because the World Bank must fight corruption and relative shame has some effect.

[Jack]

I agree with your overall analysis, however, I would add one point, which I do think is important. One more thing Wolfowitz is telling himself is certainly:

"By Bank standards, this is nothing. Everyone else here seems to be able to give their wives and girlfriends special treatment, why not me?"

To be fair I suggest a two step solution:
1) Fire Wolfowitz.
2) Audit treatment of other bank staff in relationships with senior management, firing those with similar records.

[Bruce Bartlett]

I think Wolfowitz brought all of this trouble on himself for this reason: If his girlfriend hadn't been working there, I doubt that it ever would have occurred to him to apply for the Bank job. If he hadn't applied for it, it never would have occurred to anyone at the Treasury Department to put him on the list.

[Very true, I think]

[Bupa]

Wolfowitz and his enterage entered the World Bank like a virus in body. It took a while for the body to fight off the virus.

Now it is clear that Wolfowitz was up to similar tricks at the Defense Department:

http://www.ft.com/cms/s/39d5004e-fe85-11db-bdc7-000b5df10621.html

He got Riza a contract with SAIC in Iraq in 2003. Riza probably violated Bank rules in taking this contract. Wolfowitz probably broke US Government rules in getting her a security clearance for the assignment.

Now Riza is parked at the "Foundation for the Future" which has received tens of millions of dollars of support from the State Department but apparently has not many any progress in carrying out its mission.

http://www.channel4.com/player/v2/player.jsp?showId=6302

[Tuco]

I think RT gets closest to it when he says "I don't think we can afford to let high officials be above the law...".

Is this not the essence of King George and his coterie, that they see being above the law as an *entitlement* for people of their wealth and stature? This is something that should be challenged in every instance.

[guy in the veal calf office]

Maybe people don't care because this is a typical hatchet job by cozy bureacrats against a brutish reformer. This is a common story in all sorts of organizations, employees pissed off when an outsider comes in and trims perks and expense accounts. Maybe PW is a lousy president, but no one is saying that (in fact, four African finance ministers said in April that he very effective).

The whispering campaign is trying to hang him by a thin thread that carries no weight. WB's chairman of the ethics comm., Ad Melkert, has backed PW the whole way, so why should we believe anonymous leakers that something is amiss?

On July 27 Melkert wrote "the potential disruption of the staff member's career prospect will be recognized by an in situ promotion on the basis of her qualifying record . . ."

The ethic committee authorized PW to arrange the transfer and salary by an August 8 letter to PW: "The EC cannot interact directly with staff member situations, hence Xavier should act upon YOUR instruction." (emphasis added) Xavier Coll is WB's human resources vice president.

Melkert must have assumed the salary was commensurate with her qualifying record, because on October 24, 2005 he sent another letter: "because the outcome is consistent with the Committee's findings and advice above, the Committee concurs with your view that this matter can be treated as closed."

On November 25: "I would like to thank you for the very open and constructive spirit of our discussions, knowing in particular the sensitivity to Shaha, who I hope will be happy in her new assignment."

After the complaining bureaucrats pulled out the long knives and started their anonymous whispering campaign, Melkert told him not to worry because they "did not contain new information warranting any further review by the Committee."

I guess I side with the ethics commitee and not with some petulant bureaucrats circling the wagons around their rich sinecures. If any of you are accused of impropriety by guys like Jean-Louis Sarbib & Callisto Madavo, I'll give you the benefit of the doubt, too, sight unseen.

[Eric Rasmusen]

I don't know how good a job Wolfowitz is doing at the World Bank, but it's significant that all the documentary evidence supports him and not his accusers, who now say that they objected at the time but somehow can't produce emails or memos to contradict the documents showing how happy they were with what was going on. The only exception I can think of is that Wolfowitz's memo to VP Coll acknowledges that Coll would have preferred a lump sum payment to a pay raise--- and even that doesn't say whether Coll's lump sum would have been more generous or less generous than Wolfowitz's pay raise. Coll hasn't told us details, which may be significant.

[JoshK]

IMHO, when evaluating the quality of job he is performing, the compliments coming from the recipient countries should be noticed.

[Bupa]

>

None of this is true. PW has not trimmed perks or expense accounts.

Wrong again. He is a lousy managers. Even his friends admit that.

The thread is strong enough to hold his overweight body as well as the bodies of his fiendish entourage.

The fundamental problem is one of legitimacy. Tallyrand would understand.

PW was the illegitimate candidate of a regime despised around the world. Imagine, if one is concerned about good governance, if a banana republic gave away multi-billion dollar sole-source contracts to the company (run a few months before by the vice president of banana republic) to carry out services not scrutinized by any independent body in a war zone. (Remember dear students one must practice corruption to better understand it and sharpen one’s anti-corruption warrior skills). The war zone itself was the result of a war of aggression launched by the banana republic. One of the chief architects of that war of aggression is then put forth to run the World Bank, a puffy institutions full of bleeding-hearted peaceniks fighting poverty. Before joining the World Bank, the architect of war bullies his defense department into hiring his girlfriend, a foreign national and employee of the World Bank as a consultant through a private defense contractor and sends her to the war zone to give political advice on the mechanisms for establishing a new constitution in the war-torn country. While still in the department of defense the future president of the World Bank and promoter of good governance obfuscates the fiscal cost of the war he helped to launch, demoting generals who had the gall to try to give an honest estimate of the cost of the war of aggression in public testimony before the parliament of the banana republic (once again the future president of the World Bank hones his anti-corruption skills by practicing corruption). After negotiating an unprecedented salary with the World Bank foregoing all precedents of promises to waive royalties and speaker fees in future, the new World Bank president and chief fighter of poverty in another unprecedented move brings with him to the bank an entourage of fiends from his banana republic -- initially as highly paid ad hoc advisors, later placed in formal positions far exceeding their qualifications -- to act as a Praetorian Guard around the president to protect him from the hostile peacenik staff and managers of the institution he purports to lead.. One such fiend’s previous job was to obfuscate fiscal policy, especially the component of fiscal policy involved with the war of aggression launched by the banana republic, notwithstanding the anti-corruption pillar embraced by the new World Bank president. This fiend also was purported to have been involved in selling favors to defense contractors in an effort to get her brother a job, thus boosting her credentials as fighter of corruption -- for one must practice corruption in order to understand it. The board of directors of the bank, while turning a blind eye to the thugs being brought in at unprecedented salaries to surround the president then finds the courage to stand up to the new president and insist that he could not convert his girlfriend, long since safely back from Iraq, into an overly paid member of his Praetorian Guard. The president arranges for a lucrative leave of absence for his girlfriend at the State Department of the banana republic under a division led by the daughter of the banana republic’s vice president (fortunately the girlfriend’s security clearance is probably still valid from her stint in Iraq). The lucrative deal violates a number of bank rules but is not investigated for sometime. In the mean time, the president, in an experiment of practicing poor governance for the sake of better understanding corruption to improve his anti-corruption warrior skills, throws out the short list of candidates from around the world to head the bank’s department of institutional integrity in places a lackey from his banana republic in the job. The lackey, despite her terms-of-reference to root out corruption an protect the institutional integrity of the World Bank surprisingly shows loyalty to her new boss and refuses to investigate allegations of favoritism towards his girlfriend (still paid by the World Bank), who by then has been parked at a nebulous Foundation funded by the banana republic. Finally, a few months after the grip of power of the rulers of the banana republic loosens following parliamentary elections bringing opposition socialists to power, the weak-kneed peaceniks of the World Bank openly rebel against their president and his Praetorian Guard.

Luckily for the president and his fiendish friends, folks like guy in the veal calf office stand ready to defend them through thick and thin.

[A]

Well, it does not matter who is right; the next time the U.S. Congress has to put a contribution to the World Bank in the budget, or otherwise approve of any financial aid to international institutions, the Republicans will point to the popular impression,
(engendered by this scandal,) that the World Bank and similar institutions are corrupt, and vote against it, full of indignation.

[Barkley Rosser]

Bupa has it right on the button, and veal and Eric Rasmussen are living in lala land.

Robert Waldmann,

It is unclear if the Wolfowitzes are divorced or not. Clare had the class to say something diplomatic about Shaha Riza in a Style section WaPo story this morning.

More generally,

That story has details that contradict earlier reports in other places such as Wikipedia. Thus, it says she was born in Saudi Arabia and partly educated in Libya, while Wikipedia has her born in Libya and raised in Saudi and Tunisia. WaPo said she is worried about her relatives in Libya (presumably her father was/is Libyan, mother Saudi). She is definitely a Brit citizen.

WaPo also pinpointed another weird link to the neocon projects; Riza was associated with the Iraq Foundation, which supported the exiles and apparently was much admired by Wolfie's fave to take over Iraq, Ahmed Chalabi. Really, the whole thing stinks, and I do not know why people are being so coy about this. The man has lied repeatedly about what he has done.

Also, regarding his palace guard, so far it is the less corrupt one who has left office, Kellams, while "help her brother" Cleveland is still lurking about.

[piotr]

Some want us to believe that a highly educated individual cannot on his own figure out that one is not suppose to decide on the salary of his girlfriend, and least of all, decide in a highly preferencial manner.

This is George Constanza defence "If I were only told that this kind of thing is being frown upon". Except in his case, it was quite probably true (staying after hours to have sex with a cleaning lady on top of his desk to fulfill a fetishist fantasy).