Friday, January 1, 2010

Balance of Power Shift Coming Says Wolfensohn, Former World Bank President

In the next 40 years, a global power shift will see today's leading economic countries drop from having 80% of the world's income to 35%, says John Wolfensohn, former World Bank president.  By 2030, two-thirds of people in the world's middle class will be Chinese.

STANFORD GRADUATE SCHOOL OF BUSINESS -- James Wolfensohn is all about balance. The former World Bank president introduced himself to a student audience Jan. 11 by talking about how he is grateful at this point in his life to devote time and money to a "balance between business and nonbusiness activities." And in the speech before an overflow crowd, he urged students to "enrich your life as you enrich your business."

"That aspect of duality is the thing that has made my life meaningful" he said.

But the balance of power in the world is what Wolfensohn spent the majority of his hour-long appearance on. A huge power shift will occur in the next 40 years that will reduce the influence of the wealthiest countries, he said. As population and GDP grows in countries such as China and India, they will assume a larger role in relationship to the United States and Europe. The developed countries will drop from having 80% of the world's income to 35%. "There will be a monumental shift of economic power. It's not just a moderation trend, but a fundamental change in the world balance," he said.

By 2030, two-thirds of people in the world's middle class will be Chinese, Wolfensohn said. "These are not trivial changes -- they are tectonic changes in the way the planet works. In my generation we didn't have to think about it. We knew we were a rich country."

But today's students will have to confront a new world in which Africa is no longer an isolated continent but the fastest-growing market for cell phones.

Looking around the auditorium, Wolfensohn noted that many more students from China and India travel to the United States to study, rather than the other way around. In 2007 just 11,200 Americans studied in China. That year more than 110,000 Chinese were studying in the United States.

"It's a tragedy in terms of the potential of young people that they're still being guided to look at European countries," he said.

Wolfensohn was making a repeat appearance at the Stanford Graduate School of Business as a speaker in the Global Management Program's Global Speaker Series. In 2004, while still at the helm of the World Bank, he spoke about how developed countries were delivering on the promise they made to aid developing ones.

He stepped down in 2005 from a decade-long career heading the agency that is in charge of redistributing the world's wealth from the rich to the poor. He now heads an investment banking firm in New York. At 76, he is still advising organizations and governments on economic policy and helps developing countries through his foundation.

Asked about whether humanitarian aid to Africa was a help or a hindrance, Wolfensohn said aid organizations need to be selective. "There are some extremely corrupt countries," he said, adding that the best countries should be rewarded. "I say to the others: it's not acceptable to steal."

He also predicted a shakeup in how the leadership of the World Bank and the International Monetary Fund would be appointed. Traditionally, the president of the former was from the United States and the latter from Europe. The bank may be "internationalized" in the future.

The World Bank's stated goal is to reduce poverty. As an international financial institution, it provides loans to developing countries for capital programs. It was created out of World War II with France as the first recipient of world aid. In the late 1960s the emphasis shifted to loans for developing countries.

Wolfensohn is a native of Sydney, Australia, and a naturalized U.S. citizen. In addition to his firm, Wolfensohn & Co., he is an honorary trustee of the Brookings Institution. He was appointed to head the World Bank in 1995 by President Bill Clinton and served two terms.