The World Bank and Redevelopment

MR. POTTS:

It is my great pleasure and privilege, on behalf of all members of The Empire Club and of The Canadian Club of Toronto, to welcome a very distinguished citizen of the United States and of the world, Robert McNamara, President of the World Bank.

Last June I extended an invitation to Mr. McNamara to speak to The Empire Club and I received a very gracious letter from him reading as follows:

"I appreciate your thinking of me once again in connection with The Empire Club of Canada, and it is with regret that I must decline. The problem is that the schedule of World Bank business here, compounded by visits to our developing member countries abroad, make it necessary for me to restrict my speaking almost exclusively to United Nations and official Bank functions.

I do hope you will understand. It was thoughtful of you to write."

Having regard to that let me assure you, Mr. McNamara, that we all very much appreciate that you have subsequently found it possible to come to Canada and to honour us with your presence here today.

We also wish to thank you for bringing this glorious weather with you. I hope that you have had an opportunity this morning to leave the hotel and enjoy this beautiful day. Some of us seem to spend a considerable amount of our lives at the Royal York Hotel. There are many of you attending this luncheon today who also had dinner here last night with the Prime Minister of Canada. Fortunately, however, the price of today's luncheon is much more modest than the dinner last night.

Mr. McNamara will appreciate that many of those at the head table and in the audience today earn their livelihood by giving advice in respect of economic, financial and banking problems. Indeed, some may find themselves in the position of the young husband who said to his wife, "I am glad you are so impressed, my dear, by all these explanations I have been giving you about banking and economics." "Yes, darling," his wife replied, "it seems wonderful that anybody could know as much as you do about money without having any."

Our guest today became President of the International Bank for Reconstruction and Development known as the World Bank, the International Finance Corporation and the International Development Association on April 1, 1968 for a five year term and has recently been reappointed for another five year term. Upon becoming President, Mr. McNamara pledged that the Bank would provide leadership in tackling the problems of development and concluded that a very substantial increase in Bank group activities was both desirable and possible. To this end, he set a target for the five year period 1969-1973 to lend twice as much as during the previous five years. On a geographic basis, he recognized that the Bank group had tended to concentrate its efforts on the South Asian sub-continent. His objective was to have a doubling of the Bank's investment rate in Latin America, and a threefold increase in Africa. This program for the five year period also called for a threefold increase in the Bank's lending for education and development and a quadrupling of the loan volume for agriculture. Further, he stated that the Bank would take new initiatives in the area of controlling population growth since the rapid population growth in developing countries was seen as one of the greatest barriers to their economic growth and social well-being.

The World Bank is well on its way to achieving his objectives. He continues to be concerned about the serious inadequacy of current development programmes and is committed to try to continue to expand the Bank's operations.

For the coming years he has expressed his greatest concern over the quality of life of the low-income strata-roughly the poorest 40%-of the total population in all developing countries. He believes that more attention must be given to policies and actions which can reduce distorted income distributions.

Mr. McNamara attended public schools in Piedmont, California, and graduated from the University of California in 1937. Two years later he received an MBA degree from the Harvard Graduate School of Business Administration.

In 1940 he became Assistant Professor of Business Administration at Harvard, and in 1943 he took leave of absence and went to the United Kingdom as a civilian consultant for the War Department, where his job was to set up a statistical control system over the flow of material, money and personnel. He was commissioned a Captain in the Air Force while stationed in the U.K., subsequently served in India, China and the Pacific, was awarded the Legion of Merit and was promoted to Lieutenant Colonel before going on inactive duty in April 1946.

Upon his discharge from the Air Force, he joined the Ford Motor Company to manage the planning and financial analysis offices. In 1957 he was elected a Director and three years later he became President.

Mr. McNamara agreed to serve as Secretary of Defence of the United States at the request of the late John F. Kennedy and took the oath of office on January 21, 1961 and served in that capacity until March, 1968.

Our guest is a Trustee of the Ford Foundation, Brookings Institution and the Urban Institute. He is also the recipient of the Presidential Medal of Freedom with Distinction and the Distinguished Service Medal from each of the Departments of the Army, Navy and Air Force.

It is now my very great honour to ask Mr. McNamara to speak to us on the subject "The World Bank and Redevelopment".

MR. ROBERT McNAMARA:

Mr. Potts, thank you for a most graceful introduction. You mentioned events in my life I haven't thought of for many, many years. One of them you referred to was my Presidency of the Ford Motor Company-I was President for exactly five weeks. I was explaining to one of your head table guests that it was after that that President Kennedy asked me to join his cabinet.

But speaking of President Kennedy as Mr. Potts did reminded me of another event I haven't thought of for years. It occurred thirteen years ago this week in March of 1960. It is an example of the wit and the humour that attracted many of us to him and although it is a typical American political story, it might amuse you as it did me then as it does me now when I think of it.

There is an organization in the United States known as the Grid Iron Club. It's made up of some of the reporters stationed in Washington and it has only one purpose in life and that is to poke fun at the political leaders of the country and to that end they hold a dinner every March at which through song and dance they satirize the events of the government and show up our weaknesses and those of our colleagues. And this particular March thirteen years ago they had asked a representative of each of the two parties to speak at the end of the evening. Senator Kennedy, then Senator Kennedy was the speaker for the Democratic Party, he stood up and he said "I don't want to divert your attention from my major theme but I must tell you of an event that occurred a little earlier today." You must recognize that this was March of 1960, it was in the midst of the heated campaign for the Democratic presidential nomination and the three major contenders were John Kennedy, Stuart Symington and Lyndon Johnson. And Kennedy said "I walked into the Senate this morning, passed through the Senate Courtroom, ran into Stu Symington and Lyndon Johnson." He said "The events of the previous evening were so vivid in my mind I couldn't help but relate them to them." He said "Yesterday was an exhausting day in the Senate, I went home, I had an early dinner, I went to bed and during the night the Lord appeared in my chambers and he anointed me and said I was to be the next President of the United States." And he said at this point Stu Symington interrupted "Through an extraordinary coincidence I had the same day in the Senate, I was exhausted, I had an early dinner and went to bed and the Lord appeared in my chamber and said I was to be the next President of the United States." And then John Kennedy said at that moment Lyndon Johnson interrupted and said "I don't remember doing that to either one of you."

Well I don't know what that has to do with the World Bank or development but this is what the introduction brought to my mind.

The Bank, as you know, is a specialized agency of the United Nations. It's owned and governed by its 122 member countries. Canada, of course, is one of those countries and over the years Canada has contributed much to the achievements of the Bank. We are very indebted to you for the right of access to your capital markets. We are indebted to you even more for the support you have given to governmental appropriations to our soft-loan affiliate, the International Development Association. But perhaps we are indebted to you most of all for lending us your former Prime Minister, Lester Pearson. He's been eulogized by the noted and famous of our era but I would like to say a word on his behalf this afternoon for the hundreds and millions of villagers, workers and peasants throughout the developing world. They're not noted and they're not famous but he contributed to their lives and the lives of their children in ways that will influence the behaviour of those nations for decades ahead.

And when the Pearson Commission Report was published in 1969, the then Prime Minister of the United Kingdom said it was one of the most important documents of this century and I don't think lie exaggerated the case. And as you will observe from what I describe about the Bank and from what I say of our view of developments throughout the world, you'll see that much of our actions in the Bank and many of my views can be traced to that Pearson Commission Report.

There are three principal points I would like to make this afternoon:

First, that the World Bank, as your President pointed out, has been moving in new directions over the past five years.

And secondly, that the Bank has made these shifts in emphasis which I'll describe because the problems which confront the developing world are becoming more acute and these problems are much more serious than most of us realize.

And finally, that given a situation, the developed nations, the rich nations, must realize that it is in their own interest in many, many ways, economic, political, social, moral, it's in their own interest, as well as in the interest of the entire developing community, to make a much greater effort to assist the roughly 100 developing nations and the two billion people who live in those nations.

Now let me begin first with the changes we have introduced in the Bank.

Five years ago, toward the end of the United Nations' First Development Decade that ran from the beginning to the end of the 1960's, I think it was evident that a mood of disillusionment threatened the efforts of the developing community. A number of the developed countries were growing skeptical of the value of foreign assistance. There had been roughly 20 years of development aid up to that point. I think there was general agreement that the Marshall Plan had been a success in Europe. There was much less agreement, however, about the effectiveness of the development assistance to the developing nations of Asia, Latin America and Africa.

There were the usual complaints about the waste or mismanagement in specific instances, but I think the disenchantment with foreign assistance at that time went much deeper than that. The question in the minds of many of those in the developed countries was whether foreign assistance, even if it were managed effectively, whether it could do any good. Was it a feasible objective? Did aid really matter? Was it necessary? Could a convincing case be made for it?

Now the fundamental case for foreign assistance, in my opinion, is the moral one. The whole of human history has recognized, at least in theory, that the rich and the powerful do have an obligation to assist the poor and the weak and that's what the sense of community is all about-whether it be the community of the family or the community of the village, or the community of the nation or the community of the entire international family.

But moral principles, if they are really sound, and this one I think is, moral principles if they are really sound are practical ways to proceed. Social justice is not simply an ideal. It is a sensible way of making life more livable for everyone.

I was interested in development long before I went to the Bank. In 1966 in Montreal, while I was still U.S. Secretary of Defense, I had pointed out that development assistance was essential if all of us wanted to live in a world in which there were reasonable alternatives to the social tensions and to the civil chaos that the frustrations of poverty can generate.

So when I came to the Bank in 1968 I was resolved that we would not accept the view that development assistance was of decreasing importance. The facts I thought then were clearly the other way round. Development assistance was becoming all the more urgent. And the great danger was that there would be a loss of momentum. Most of the developing countries were making a huge effort, much greater than most of us realized. They were financing 85% of their productive investment out of their own savings. But the difference between their success and failure would depend on their access to the crucial 15% that represented the foreign exchange that they needed but didn't have.

Now part of that 15% could come from private capital flows. But a crucial residual amount would have to come from economic aid and without that aid, the capital required for achieving a reasonable rate of growth simply would not be available; and the political and the social stability that would make private capital flows even more feasible would be lacking. So economic aid was a necessary requirement for economic advance.

And we decided that the World Bank could play a much greater part in providing that aid. A whole new set of goals for the Bank were established and they were incorporated in a Five-Year Program. As your President pointed out, our overall objective for that Five-Year Program was to double the lending in the five years 1969-1973 compared with the previous period. If we were to achieve that objective it would mean that we would lend in this five-year period about $11.6 billion which would be equal to the entire amount of lending by the World Bank in its previous twenty-three years of operation. And, as your President pointed out, we are succeeding. The five years end this next June 30 and I think that there is every reason to believe that our new financial commitments during that period will exceed $12.5 billion.

But simply doubling the level of Bank operations was not our only goal. We weren't merely interested in a quantitative advance. We wanted particularly a qualitative change as well. And that called for shifting our emphasis, as he pointed out, into new sectors of operation and into new geographical areas.

Because of the immense long-range impact of education on development, one of your publishers asked me today do we lend for social purposes, and in a sense of making up budget deficits for welfare or for pensions or unemployment, the answer is "no"-basically we lend only for capital activities. But education is an investment in the future, at least when it's associated with development, and in many, many countries it is the limiting factor affecting the rate of development. So we did decide to dramatically expand our educational lending, we've tripled it in this period. And because of a central need for agricultural sufficiency and I think all of us who are aware of the immense food grain shortages in the world today recognize that, we decided to quadruple our educational lending and we are succeeding in that objective as well.

But there was a more decisive sector that we never operated in before, it was a very controversial sector, a very difficult one, but one which we believed had the greatest implications for achievement of any reasonable rate of growth-and that was the population sector.

So we created a Population Projects Department and almost immediately we received far more requests for the assistance of our limited staff of experts than we could possibly handle. We began by providing assistance to a number of small countries because we didn't know how to deal with the problems of the larger countries. But in the last year we approved population projects in two of the largest nations-India and Indonesia.

The Indian population problem is, as you know, immense. The population of India today exceeds half a billion people. It's growing at the rate of roughly one million persons a month and to cope with that problem the Indian Government has organized a force of eighty thousand people to provide service to one hundred million couples--an extraordinary administrative effort and one which so far, in any measurable way, hasn't had any great impact on the rate of growth. The Bank's project is designed to support that immense program with experimentation cause and effect analysis and systems analysis required to make it effective.

In Indonesia, which is already the world's fifth most populous country with a population of one hundred and twenty-five million, a population growth rate of about 2.5% per year means that it doubles its population every twenty-seven years. In Indonesia we have provided a loan of $13 million to help expand its family-planning program. And that loan will provide for the construction of 300 district health centers, it will provide for the training of thousands of new field workers, it will provide for the design of specialized public school curricula and it will provide a comprehensive program of research and evaluation.

But the most important thing you can say about it is that if it succeeds--and both we and the government of Indonesia believe it will succeed--if it succeeds then at the end of this century, during our lifetimes, the population of Indonesia will be 50 million less than it otherwise would be.

So this is the type of the shift in emphasis that we have been emphasizing during this past five years. It hasn't been limited to agriculture, education, population. We've set up a new department for urban projects to help the developing countries deal with their exploding urban populations. We've set up a tourism projects department to help them earn the foreign exchange that they so badly need. We've set up an environmental office to ensure that our projects conform with reasonable standards protecting the environment. And as your President pointed out, we've made geographical shifts as well. We trebled the lending to Africa because it is so deficient in sources of external capital and for the group of our poorest member countries--those with per capita incomes of less than $100 per annum--we have quadrupled the lending.

And to meet these operational objectives we have, of course, expanded the staff, nearly doubled the professional staff during this period and that hasn't been nearly as difficult as you might think. We've had a recruiting program worldwide and the Bank has proven to be a magnet attracting young people from all over the world. Last year we had in our young professionals program openings for fifty-two individuals. This is a program to which almost all professionals under the age of thirty enter the institution. And for those fifty-two openings we had 2800 applications of qualified individuals from over ninety-eight countries.

So we think we are ending this five years in a position of strength. Last year we made new financial commitments of about $3 billion-that made us the largest development agency in the world and we are very proud of that. But it doesn't mean that we are complacent. And how could anyone be complacent when he examines the real world that exists in these 100 countries and in which these two billion people live. Let me consider with you for a moment some of the factors that affect the lives of those people.