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Jeremy Warner's Outlook: Wolfensohn bows out, mission unaccomplished

Tuesday 04 January 2005 20:00 EST
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From the moment George Bush was re-elected to the White House, it was perhaps inevitable that James Wolfensohn wouldn't get the third term he desired as president of the World Bank. Mr Wolfensohn was originally appointed under a Democrat administration and his liberal views on development issues are a million miles from those of Mr Bush. Philosophically, Mr Bush remains largely opposed to all that sprang from the Bretton Woods agreement on post-war reconstruction. However, once he gets his own man in the driving seat - another job for Colin Powell, it was being widely said yesterday - his views will probably mellow, as Ronald Reagan's attitude towards the World Bank did in the 1980s.

Mr Wolfensohn's decision to stand aside and let someone else have a go nonetheless raises two important questions: has Mr Wolfensohn left a worthwhile legacy, and is there any point to the World Bank in a global economy that nowadays seems awash with capital for any remotely worthwhile development project?

Mr Wolfensohn is the first president of the World Bank since the legendary Robert McNamara to show any aptitude for the job, his three immediate predecessors being uninspired deadbeats. An Australian-born investment banker by background, he actively lobbied for the job while the previous incumbent Lew Preston was, quite literally, dying in the saddle. He brought a real passion to the Bank's development crusade, and he's done much to dispel its one-time image as a financier of dams and other environmentally and socially questionable infrastructure projects in corrupt regimes run by tin pot dictators.

Critics point to a smug sense of self importance which, try as he does, Mr Wolfensohn can never quite disguise, but there's no doubt that he possesses a formidable intellect and the energy he has brought to the job has helped carve out a new role for the World Bank as an economic and business consultant in the poorer regions of the world. His campaigns on social issues such as primary education for girls have also been highly effective in redirecting the Bank's efforts from the symptoms of poverty to its causes.

Yet the fact remains that the major borrowers of the developing world - China, India and even Brazil - no longer have any need of the World Bank's capital. In these regions the Bank is used only as an imprimatur of respectability for projects that might otherwise be considered environmentally or socially irresponsible. Of course the Bank would say that the situation would be much worse but for its involvement, but that's a view many NGOs wouldn't share.

There is still a huge need for international organisations capable of addressing poverty, as the tragedy of the tsunamis in the Indian Ocean have again reminded us, but how effective the World Bank has been at its task is open to question.

Forget China and India - which everyone is desperate to lend to these days - there are still lots of poor countries in the world, most notably in Africa and parts of Latin America. But here the problem is less an absence of capital as history, corruption and illegitimate government. There can be no place for organisations such as the World Bank in regions of the world where it is bad government, not the absence of infrastructure and capital, which has impoverished the population.

Mr Wolfensohn has done as well as he could given the political constraints of his position, and by reorganising and modernising the Bank's purpose and goals, he has probably saved it from oblivion. But in so doing, he imposed a cult of personality on the organisation which may not sit easily with any successor. In the meantime the Bank's mission statement, "Our dream: a world free of poverty", looks as far away as ever. Now eight years into government, Labour has made little progress in eradicating poverty here in the UK, one of the world's most prosperous economies. What hope for the rest of the world?

Housing slowdown

There's bound to be something unexpected in the macroeconomy that rears up and bites us on the ankle over the coming year, but at this stage housing remains at the top of everyone's list of worries, a place it has occupied to no great disaster for several years now.

A clutch of lending statistics released yesterday confirms beyond any doubt the long anticipated slowdown in the housing market has indeed arrived. Prices are now well below their peak, demand for new mortgages is plummeting, and few any longer believe the present slowdown just the temporary hiatus estate agents wanted us to believe it was when it first began in the autumn. As the peak selling season approaches, there appears little chance of a sudden pick-up in demand.

The big unanswered question is what effect this will have on the wider economy. The Bank of England recently published a series of ingenious arguments for suggesting that the old link between the housing market and consumption may have been broken. But these arguments are mainly based on the observation that consumption over the past three years has only risen in line with earnings, whereas house prices have risen much faster. One obvious possibility is that consumption would have been a good deal lower over the last three years but for the cushion of sharply rising house prices, which gave us the confidence to keep spending.

With that cushion removed, who knows what might now happen to consumption. The Bank's view that the two things have decoupled may be little more than wishful thinking. Anecdotal evidence of poor Christmas spending on the high street - underpinned by the only retailer of any size so far to have declared its hand, Woolworths - confirms the impression of nationwide belt tightening. According to figures published by the Bank of England yesterday, mortgage equity withdrawal in the third quarter of last year fell for the fourth quarter in a row.

Even so, the overwhelming balance of probability is still the hoped-for soft landing. We'll feel less well off, as households attempt to rebuild savings, but as long as unemployment remains low, the economy is unlikely to slide into recession. Yesterday the stock market rose to a new two and a half year high. Markets aren't always right about these things, but that wouldn't be happening if investors thought the housing slowdown was going to culminate in a wider economic crash.

Woolworths

It's no surprise that Woolworths did badly over the Christmas trading period, though it does indeed seem to have come as a surprise to the stock market. Trevor Bish-Jones has done a commendable job in the nearly three years he's been chief executive, streamlining the company and reintroducing some basic retailing and buying skills, but he's yet to answer the question of what Woolworths is really for.

Wander down Kilburn High Road in north London, or any of the other faintly down at heel high streets that litter our major cities, and Woolies is barely distinguishable from the other penny bazaars which have sprung up around it, all offering an eclectic mix of bric-a-brac and keenly priced this and that.

Woolies deliberately aims itself at the low income/single mums brigade but there are an awful lot of retailers that compete in the same space these days, offloading job lots of anything they can get their hands on. A couple of years ago, Woolies misjudged the Easter egg market and ended up having to throw away much of its stock. This Christmas it has over-egged it on the toys.

The Financial Services Authority instructed retailers just ahead of Christmas to release bad news as soon as possible, but I wouldn't read too much into the fact that only Woolworths and House of Fraser have yet done so. Others must surely follow.

jeremy.warner@independent.co.uk

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