Wednesday, May 09, 2007

The Wolfowitz Principle

Almost forty years ago, Dr. Lawrence J. Peter enunciated the principle which bears his surname. Peter believed that "in a hierarchy, every employee tends to rise to his level of incompetence." There were, said Peter, many reasons for this. But the prime reason was that the set of skills which led to an employee's success at one level of the organization were not the skills required at a higher level. And, never having developed the required skills to succeed at a higher level, the employee -- and the organization he or she worked for -- failed at the task at hand.

Paul Wolfowitz is a stunning example of the Peter Principle. A mathematician by training, he is universally acknowledged as a very bright man. But, like another technocrat before him -- Robert McNamara -- he has been a remarkable failure at the American Department of Defence. And, also like McNamara, the man he worked for sent him off to the Presidency of the World Bank. The jury is out on Mr. McNamara's time at the bank. But it is becoming increasingly clear that Wolfowitz's tenure there, like his tenure at the Defence Department, has been a train wreck.

Both McNamara and Wolfowitz made their reputations as gurus of statistical analysis -- techniques which are widely thought to accurately predict the results of human endeavour. But, as McNamara now readily admits, those techniques are only valid if one thoroughly understands the terrain -- geographical, cultural, historical and political -- over which one travels. During McNamara's time at Defence, the numbers -- particularly the body counts -- were always on his side. But he, and the government for which he worked, did not understand Vietnam at all. By 1967 he wasn't sleeping at night, his wife had an ulcer and he knew that -- despite the numbers -- the war he had crafted was not winnable. Lyndon Johnson thought McNamara was melting down and replaced him with Clark Clifford, who understood that McNamara had stumbled upon the truth.

It would appear that Wolfowitz and his president have had no such epiphany. Even though his predictions that the war in Iraq would be easily concluded and paid for by Iraqi oil money have proved to be so much smoke, Wolfowitz went off to the bank convinced, as ever, that history would vindicate him.

And, if Wolfowitz did not understand Iraq, he understood the World Bank even less. That is not to say that, in some ways, Wolfowitz was not a good fit for the job. He, like several of his predecessors, believed that the way to improve the lot of the world's poor was to practice what John Ralston Saul has called "crucifixion economics," a set of economic principles perhaps best illustrated by the bank's requirements before it loaned money to Russia in the early nineties. Essentially, all the major assets of the state were privatized at fire sale prices and found their way into the hands of a few wealthy Russians, thereafter referred to as "the oligarchs." Then state services were drastically curtailed. The result was unemployment, loss of pensions and a crisis in Russian health care. Wealth was shifted up into the hands of a few, not down to the masses.

Naomi Klein, in a recent column in The Nation, provides a laundry list of similar demands which had to be met by other poor countries before the bank would lend them money. " . . . it forced school fees on students in Ghana in exchange for a loan; it demanded that Tanzania privatize its water system; it made telecom privatization a condition of aid for Hurricane Mitch; it demanded labor "flexibility" in the aftermath of the Asian tsunami; it pushed for eliminating food subsidies in post invasion Iraq." And if -- as in Russia -- things got worse rather than better, what was Wolfowitz's solution? Eliminate corruption and crony capitalism in the offending countries -- as if the bank's own demands had not encouraged, indeed, demanded such corruption.

And then came the case of Shaha Riza, Wolfowitz's companion. She had worked for the bank before Wolfowitz's arrival. And, sensing a potential conflict of interest, Wolfowitz took steps to -- at least temporarily -- remove her from the organization. To that end he worked out a deal whereby she would remain a bank employee, but she would be seconded to the U.S. State Department. However, the storm broke when reporters -- like David Corn, also of The Nation -- discovered that Riza's transfer included a 36% pay hike (from $132,000 a year to $180,000 and guaranteed annual raises of 8%). Nice work, if you can get it. Or, more precisely, nice work if you know someone who can get it for you. The salary increase will also effect Riza's pension. Under the new regime, she can expect an annual pension of $110,000 a year. Had she not been offered the promotion, her annual pension would be $56,000 a year.

All of this makes it hard for the bank to rail against crony capitalism. Mr. Wolfowitz does not owe his rise to competence. Instead, in the idiom of the day, he knows how to network. He has demonstrated his incompetence at not just one but two of the world's most powerful institutions. That kind of incompetence is greater than even Dr. Peter recognized. It needs a new name. Call it the Wolfowitz Principle.

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