OPINION:
I recently gave a presentation to more than 700 World Bank employees from more than 100 countries. In preparing for my speech, I was struck by the fact that several of the bank’s largest donors - for example, the United States and Japan - have much greater fiscal challenges than some of its largest borrowers. Even more striking, most of the World Bank employees did not realize this fact.
Much has changed in the 68 years since the World Bank was created by the Bretton Woods Agreement. The United States is no longer producing almost half of the world’s GDP and has become the world’s largest debtor. In this same time period, China - the World Bank’s second top borrower - has emerged as the second-largest economy and has become a major creditor to the world. These two countries are in stark contrast to their standing back in 1944.
For example, based on the Comeback America Initiative’s (CAI) “Fiscal Fitness Index,” the U.S. and Japan are ranked 28 and 33 out of 34 countries, respectively, while China and India rank 5 and 10. This index reflects key indicators of a nation’s economic health, including current and projected debt as a percentage of gross domestic product, fiscal transparency and fiscal enforceability. The full list of country rankings can be found at www.keepingamericagreat.org.
These rankings, along with the economic and other realities of today, demonstrate how vastly different the world has become. They also raise serious questions regarding the bank’s and other institutions’ traditional definition of developed versus developing nations.
It seems clear that the World Bank’s lending, donor and governance practices need to be reviewed and revised to reflect the world of today and tomorrow. The same can be said for the related practices of other multilateral institutions, such as the International Monetary Fund and the United Nations.
The current fiscal and economic turmoil in Europe further highlights the direct and indirect risks associated with sovereign debt challenges within the developed world. There is little question that as developed nations struggle to address their current and projected deficit and debt challenges, they will be less willing and less able to help other nations. Therefore, the adverse effects will not only be felt within their borders and regions, but around the world. After all, today’s world is interconnected and interdependent, and bad news flows downhill.
While many major nations need to restructure their finances, the recent elections in France and Greece underscore the difficulty in bringing about sudden austerity measures. In reality, some European nations have tried to do too much too fast, whereas the U.S. has done little to address its short-term economic and employment challenges and the structural deficits that lie ahead.
The time has come to recognize that the U.S. and other major industrialized nations need to develop a comprehensive and integrated approach to stimulate their economies, address employment challenges and restore fiscal sanity over time. In the U.S., this should involve targeted investments in the short-term combined with a “grand bargain” to recapture control over the budget, restructure social insurance programs, reduce defense and other spending, and engage in comprehensive tax reform that will, among other things, generate more revenue.
Fiscal prudence and political reality require that our short-term and structural challenges be addressed at the same time and in an integrated manner. After all, trust in government is at an all-time low, and the American people have become disgusted with the gridlock in Washington.
The time has also come for Europe to recognize that while maximizing the size of its common market may make sense, the eurozone needs to be restructured to make it more successful and sustainable. For example, Greece, Portugal and possibly other countries may need to exit the eurozone while the fiscal standards and enforcement mechanisms for those countries that remain need to be strengthened.
Addressing the above challenges will serve to help both the developed and the developing world over time. After all, we all share the same planet, and no nation is an island in the world of today and tomorrow. To ensure a strong global economy, we need to get our individual houses in order - starting now.
David M. Walker is former U.S. comptroller general and CEO of the Comeback America Initiative.
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