On Incentives

"Never penalize those who work for us for mistakes or reward them for being right about markets. It will go to their heads, is counterproductive and, in any event, material compensation will not correlate with their ability to predict the future next time."

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Treasury Department Reunion
April 25, 2020

When Don Allison asked me to make some remarks at this reunion dinner, I was ambivalent. For several reasons:

I was concerned that I would sound like one of those out-of-it old-timers who pretended that we were smarter, wiser, more innovative, bolder, worked harder, than those who followed us, that things were better in the good old days. Such nonsense. I was reminded of the story about the customer, who upon entering a restaurant, asked to be seated. The maître d’ politely explained that there were no empty tables and that the customer had no reservation. The customer insisted on a table. The maître d’ again politely explained it was not possible. They were overbooked. The customer persisted. "Don’t you know who I am?" The maître d’ replied, “No, who were you.”

I was also ambivalent about this whole business of reunions. As Byron put it more eloquently:

“When we too parted
In silence and tears
Half broken-hearted
To sever for years. . .
If I should meet thee
After long years
How should I greet thee?
With silence and tears.”

And, I was concerned that you would notice my cane, my walker, my slowness of speech and the quivering in my left hand. You would whisper among yourselves, “He’s changed.” I remembered that 10 years ago, when I was 80, I bragged to my doctor that I saw no evidence of dementia, I had no short-term memory loss, my deductive skills were just fine and I could still figure present value calculations in my head. He simply replied, “Just wait until you’re 90.”

Soon I realized that my ambivalence about speaking to you reflected my overwhelming need to be loved and respected without any qualification by all of you – that I was the same as 50 years ago. But, as Iris put it, You are 90 years old. Get over it. So, here I am.

But one thing I will not get over is what you have done.

You and your successors simply raised $900 billion and invested those funds pending their disbursement to poor countries. To what end? Life expectancy went way up. Fewer children died before the age of five. Hundreds of millions of boys and girls for the first time went to school. Safe water and electric power became available. Far fewer lived in absolute poverty. Far less starvation. Less heartache over dead children. Hundreds of millions more could read and write. Fewer little girls work knee-deep in mud in rice fields. Far less infant and maternal deaths at childbirth. There is more democracy. There is more civil discourse. Hundreds of millions now have hope because of you.

Let me be more specific. In the 1980s two billion people on our planet lived in extreme poverty earning less than $2 a day. Today, 500 million. In China, GDP per capita went from $90 in 1960 to $10,000 today. In 1970, 280 million children under the age of five were underweight. Now 80 million. Life expectancy in India went from 41 years in 1958 to 65 years today. In Bangladesh 21% were literate in 1960, 65% today can read and write. In China, in 1960, 37% were literate; now over 90%. Child mortality worldwide in 1960 was 22%. It is now 4%.

To what end? There would have been little direct foreign investment or commercial bank loans had you not first provided the resources needed for infrastructure, roads, airports, rail, ports, schools, hospitals, health centers, inoculations, agricultural finance, dams, disease control, power grids, safe water supply, policies encouraging export. But, you will not get the credit - your name will not be recognized - because immortality is mostly reserved for writers and poets, for artists and composers and sculptors who leave behind the evidence of their work, with their names attached, and whose works are seen and heard over and over, generation after generation. Verdi's "Va Pensiero" and Mahler's "Adagios" will bring chills forever.

Ovid, the Roman poet, 2,000 years ago, put it this way at the end of his great poem, “Metamorpheses:”

“I shall have mention on mens lips forever,
And if the propheses of bards have any truth,
Throughout all the ages I shall live in fame

But, you will have no such legacy. Your name will not be attached, even though without you the enormous changes for a better world would not have happened. Children simply would not have been born. That little kid flying a kite in Afghanistan, that little girl bent over washing clothes in a stream in Peru, owe their lives to you. One day they will work together, at Mayo Clinic or Geneva and find a cure for cancer. That is your immortality. It is of a different kind - silent, unknown. No medals, no chills.

Second, you shared your wisdom and expertise with the poorest in the world. And with your successors: You trained hundreds who went back to their home countries with your expertise in raising resources and investing wisely. The result: Some of the poorest countries in the world, in their own names, have raised $250 billion in capital markets throughout the world - to alleviate the corrosive effects of poverty - violence, lethargy, heartache. Ghana, Bulgaria, Columbia, Ivory Coast, Dominion Republic, Egypt, Equador, Fiji, Indonesia, Morrocco, Pakistan, Peru, Vietnam – even IDA.

Third, there is another development that reflects on what you did – rarely acknowledged. You showed the world how even the poorest country could intermediate another country’s savings to purchase goods and services from a third country to be used to facilitate the economy of all countries. You provided the indispensable finance to facilitate trade among nations, to integrate the economies and the peoples of the world. You were, are the linchpin – the “sine qua non” of globalization. Irreversible.

Let me conclude with some personal remarks. When I came to the Bank, I hardly knew a stock from a bond. You protected me from foolishness. You let me take credit for what you developed. You covered up my mistakes. You let me introduce innovative ways to evaluate risk and raise resources as if they were my ideas.

When I left the Bank, you were still working on that magic zero coupon bond with a perpetual maturity. And your successors are still trying. You let me pretend, because I was the public face of the Treasury Department, that I understood the cash flow of swaps. You permitted me to ignore administrative and management matters. Indispensable stuff for which I was quite unequipped and disinterested in handling. In short, you permitted me to love going to work every day for two decades. All of that goes way beyond thank you. When I left the Bank over thirty- three years ago, in a letter to all of you, I quoted from a poem by the English poet, Robert Bridges:

“I will not let thee go
I hold thee by too many bands Thou sayest farewell and lo,
I have thee by the hands And will not let thee go.”

It still applies to all of you.

Finally, a word about those who informed all of us. And whose names mostly have already beenforgotten. Those whose names will never appear in the history books. Those whose names soon, perhaps in a generation, will never be spoken again out loud publicly except for this one last time.

Burke Knapp, Bernie Bell, Shahid Hussein, Munir Benjenk, Dennis Ricket, Bill Diamond, Mohamed Shoab, Siem Alderweld, Peter Cargill, Raymond Cope, Joe Uhrig, Jocelyn Radifera, Ray Deely, Del Harris, William Clarke, Bill Van Sagsveldt, Hugh Scott, Ronnie Broches, Ray Goodman, David Hopper, Monte Yudleman, John Adler, Ben Prinz, Jean de Boeck, Aritoshi Soejima, Lester Nurick, Y.L. Chang, Victor Chang, Frances Poole, Bob Cavanaugh, Maboub Al Haq, Roger Chaufournier, George Gabriel, Ibrahim Shihata, Warren Baum, Hans Hittmair, Ernie, Kessie.