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Posted 11.2.05

Paul Wolfowitz, the 10th President of the World Bank Group, whose appointment to that position from Deputy Secretary of Defense was as controversial as many of the bank’s activities themselves, spoke to 1,100 attendees from 42 countries as the opening keynote speaker at the 2005 annual Business for Social Responsibility (BSR) conference. In his new position, Wolfowitz is at the top of the list of those who could be most influential in eradicating poverty and dealing with other important BSR issues.

He told the crowd packed into the Regency Ballroom at Washington, D.C.’s Omni Shoreham Hotel that some of his friends believe CSR (corporate social responsibility) is an oxymoron, but he believes it is an important cross-cultural dialogue. CSR is a topic of vital importance to the World Bank’s efforts to fight poverty, according to its new president.

Wolfowitz, who visited Bangladesh in August 2005 and saw women whose lives had been changed by small loans from BRAC (formerly the Bangledesh Rural Advancement Committee), believes that although not that long ago fighting poverty and fostering business were, at best, unrelated, business has a better understanding today. He sees sustained economic growth as the only growth that will increase the economic sector and alleviate poverty.

“Jobs offer the most promising path out of poverty,” said Wolfowitz. “We are seeing a bold change in the attitude of many governments toward private investments. Most governments have moved from tight controls to active investments with the patterns in investment flows changed and a host of new actors on development landscapes.”

He believes 2005 has been one of most dynamic years in development the world has ever seen, but much hard work lies ahead and progress remains slow. There are specific challenges where CSR could make specific contributions, such as places where regulatory frameworks are outdated in many countries, unchanged since colonial times and burdening firms while providing little if any benefit to broader community. The more cumbersome the regulations in developing countries the more it encourages high levels of informality and corruption, he says. In many developing countries half of the economy runs in the informal sector.

One out of every 50,000 people in many African countries works in the formal sector or private sector, but most work outside the law, particularly women. Most businesses don’t pay taxes. Some can’t get over the barriers imposed by regulations. Wolfowitz told the audience that if it costs 2 ½ times per capita income to register a business ($500 there) then the business will never start. Small business in developing countries confronts different obstacles than big business.

“I’m encouraged at the response we are getting when we raise these sorts of issues,” he said. “We are the strongest engine for job creation in countries trying to get capital enlargements. Sometimes big businesses are part of the problem. CSR should start with accepting the fact that fair competition is part of the business. It should start competitively rather than shutting others out of the business.”

He see the people who have the most at stake in the upcoming Sixth World Trade Organization (WTO) Ministerial Conference, which will take place in Hong Kong December 13 to 18, as the people who live on $1 a day. To strengthen the investment climate in general we need to help countries enforce regulations. Poor infrastructures make it difficult for poor to do business. Wolfowitz was impressed, while on a trip in Rwanda, with a flower farm he visited. The owner, a woman, told him she wants to grow beautiful flowers out of the ruins of genocide. But she was faced with huge problems as to how to ship the flowers to Europe from Nairobi, where poor electricity and poor communications make doing business with the outside world nearly impossible. He sees the government as playing an important role in proving these services.

“We cannot underestimate the impact of corruption,” he said. “It is a disease and no country is immune from this disease. Corruption drains resources and scares away investors. It scares away prospects for a better life especially in developing countries.”

“Let’s remember that there are two parties for every corrupt transaction,” he continued. “Developed countries giving money share responsibility for this problem. Every development institution, including the World Bank, has a responsibility to safeguard every dollar and set standards we can be proud of.”

He sees some improvements, citing a recent visit to South Africa where, two days prior to his arrival, the president let his deputy go for taking a bribe; the recent jailing of some senior officials in Nigeria for corruption; and the return by the government of Switzerland of millions to Nigeria stolen by its former dictator, Sani Abacha. But punishing corruptors isn’t the only or the best solution, in his opinion. The best solution is improved transparency and improved accountability so the corrupters know ahead of time they can’t do it. Prevention, says Wolfowitz, is the best part of the cure.

He sees the need for beneficiaries of reforms to speak up and be part of the solution and believes medium and large corporations can be a voice to the needs of others. Reforms are more successful in an environment where there is less public speculation about business, however suspicion exists in all countries and public perception carries more weight than brand loyalty. Governments need to help business improve the investment climate and this, according to Wolfowitz, is one of pillars of the World Bank’s overall development strategy.

There is a strong catalyst for reform in many countries and he says they are trying to link CSR to governments in these countries. To that end, he says, they are helping to transform small NGO’s into sustainable corporate enterprises with support from across corporate sectors. Thirty major financial institutions have voluntarily adopted the IFC’s policy, the “Equator Principles,” he says, which safeguards the poor in their environment.

“Locally developed, locally owned solutions that link entrepreneurs with funding is the solution,” Wolfowitz said. “We hope, through collective efforts, we can build thriving corporate environments in developing countries.”

Although well received by the audience, Wolfwowitz did not escape questions about his former position as Deputy Secretary of Defense. Kevin Sweeney, a consultant and professor at the University of California at Berkeley, asked how the audience could find his assertions credible when his assertions in his former job regarding WMD’s and an Iraq connection to 9/11 proved not to be true. Wolfowitz responded that he had nothing to apologize for as this was something done by the Clinton Administration and the current Bush Administration and was not his campaign.

Questioned about the World Bank’s role in helping companies who recognize their hard assets may not be enough and that soft assets are three quarters of their market value, Wolfowitz agreed that in some respects soft assets are 80-90-100% of the market and said the World Bank brings expertise to companies on how to apply wealth to poverty problems and devastated landscapes.

“We are a conduit of ideas for those developing countries that want to learn about how it is done in other places,” he said.

Wolfowitz recommended companies come to the IFC with good, bold investment ideas. Seed money can be important and the World Bank has a certain amount of trust fund money. He admitted they are more geared to governments and profit making businesses, but are making progress to get the Grameen Banks of the future off the ground.

“Give people a chance to give their children a better future by working hard and it is incredible what they will do,” he said.

By Janet Roberts

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