Zoellick, the World Bank and the Arab world

The WSJ is running an interview with Robert Zoellick, the new president of the World Bank,in which Zoellick’s idea of increasing the Bank’s focus on the Arab world is explored, albeit briefly. The impression I get from the interview excerpts below is that Zoellick is very much informed by his experience as US Trade Representative in the Bush administration, which coincided with the launch of a Middle East Free Trade Area and US policy of aiming at bilateral FTAs that would eventually create a super-FTA between the Middle East and the US.

While the Europeans have been aiming at something similar for a while to encourage both EU-Arab world trade and inter-Arab trade, much attention was given to the new US policy because it was implicitly and explicitly tied to other Bush administration aims, notably the “Forward Agenda for Freedom” and its desire to cultivate “moderate” regimes with a commitment to economic liberalization. For those who followed the US-Egypt trade relationship in the last few years, it was notorious that Zoellick was often exasperated with his Egyptian counterparts and dealt very brashly with them. Eventually, one of his successes was pushing for a QIZ agreement with Egypt and Israel (arguably something that Egypt needed to do anyway to protect its garment and textile industry, but that is another argument.) He also cultivated that part of the Egyptian regime that was willing to carry out economic reforms, and helped them to some extent face off more conservative elements.

One then wonders, then, whether Zoellick might not pursue, even more strongly than his disgraced predecessor Paul Wolfowitz, aggressive promotion of neo-liberal economic policies and tie them to political reform issues. Considering the debates that have taken place in the World Bank in the past decade (Wolfensohn, Stiglitz, Sachs etc.) one might be tempted as this trend as going to the bad old ways of the 1990s, with a pro-Israel element to boot. Not that, mind you, Zoellick is wrong to say that the Bank should play a role in boosting social peace by promoting job creation and so forth. But one wonders what strings will be attached.

WSJ: You’re interested in putting together an initiative aimed at the Arab world. Tell us why?

Mr. Zoellick: This is a set of countries [that have] probably been underserved by the bank, and so what I’m trying to identify how can we work with some of these governments and the private sector to create additional opportunity and development. I think you have a changed approach among a number of these governments, that they’re trying to pursue economic reforms to create opportunity, create jobs, but — critically important — also meet social development needs. If you look at Egypt, one of the challenges will be, can people create jobs and opportunity and have a sense that the government is meeting social needs? [If not], others will try to meet those needs, as you have seen elsewhere in the Arab world.

WSJ: Does your work as U.S. trade representative inform your ideas?

Mr. Zoellick: The U.S. Congress had created something called QIZs, qualified industrial zones, which Jordan used to great effect. What they permitted was duty-free access to the United States for goods produced in these zones. But the country had to work out with Israel a certain percentage of Israeli investment, and that was to be negotiated by the countries.

Egypt had held off, and so one of the last things I did [as U.S. trade representative] in 2004 was to participate in an event in Cairo with [Israel’s Ehud] Olmert, who was then the trade minister, and [Rashid Mohamed] Rashid, who was commerce minister, to create a number of these QIZs.

What stuck in my mind is that as I was leaving for the airport, there were reports of two demonstrations. One was of about 300 intellectuals that were protesting Egypt’s doing an agreement with Israel. The other was thousands of workers who were protesting that there weren’t more QIZs, because they wanted the jobs. It’s a good example of how economic development is not only necessary to drive jobs, but fits into hope and better relations as well.

Also from the article that accompanied the interview:

Mr. Zoellick says he plans to focus more on the Arab world and encourage the kinds of reformers he met when negotiating free-trade pacts with Oman, Bahrain and Morocco and pushing for stronger trade ties among Egypt, Israel and Jordan. Boosting employment is a huge challenge in the Middle East, where the birth rate is high and economic growth isn’t. Mr. Zoellick believes that focusing on labor-intensive export industries, like textiles, could help. His theory: The bank can help “create societal cohesion by giving people the chance to have opportunity and development.”

To come up with specifics, Mr. Zoellick has consulted his onetime economics professor at Swarthmore, Howard Pack, now at the University of Pennsylvania’s Wharton School. Mr. Pack says trade liberalization won’t work unless other changes are made too, including building better ports and roads and making customs systems less corrupt. Education and social mores are critical, too. When Asian nations in the 1970s and 1980s jumped into textiles and manufacturing, they began with workers trained in manufacturing and women willing to work outside the home. That is often not the case in Arab nations.

One thing about Zoellick is that he was always one of the best elements (in terms of talent and ability to get things done) of the Bush administration, and appears to be a much more skilled, and tougher, operator than Wolfowitz. So this kind of initiative could really have legs, for better or worse.