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Interview with Robert B. Zoellick, Former President of the World Bank; Senior Fellow of Harvard Kennedy School’s Belfer Center for Science and International Affairs


Shanghai Forum 2013
Interview with Robert B. Zoellick, Former President of the World Bank; Senior Fellow of Harvard Kennedy School’s Belfer Center for Science and International Affairs
Interviewed by: Jae-ho Yeom, Vice President, Korea University; Professor, Department of Public Administration, Korea University
Date: May 26, 2013
Venue: Crown Plaza Fudan, Shanghai, China

 


Prof. Jae-ho Yeom (Yeom): Thank you for coming to this interview.  It is an honor to have you attend the Shanghai Forum 2013.

In terms of your career path, you have experiences in both the public and private sectors, have represented the United States government, and have even held teaching positions.  You have diverse experiences and extensive expertise.  Notably, when you served as the president of the World Bank, the recent global financial crisis occurred.  Would you like to share your approach in dealing with the situation?  Could you also discuss, based on your experiences, how the images of the world and things like economic trends have changed?

Dr. Robert Zoellick (Zoellick): I came to the bank in the summer of 2007 when it was going through its own internal turmoil because the prior president had just been removed.  It was a very difficult experience for the institution.  My first focus was on trying to get the people back to work.  One of the judgments I made was that the sooner we could focus the people on clients and problems in developing countries, which would be the best motivational device, rather than spending much times in internal issues, the better.

Not long after I came, even before the financial crisis, we started to have the food crisis surge.  I was pleased that we were able to work with non-governmental groups, humanitarian groups and others in trying to make the bank more flexible and able to put in programs to deal with everything from seeds and fertilizers to basic food support.   That was important for the reputation and the image of the bank, including for some civil society groups, which might have been more skeptical of the bank as a long term development institution.  It also showed that the bank plays a role as catalyst, helping bring together some of the UN agencies and helping with private sector groups, NGOs and others. 

The financial crisis was an opportunity as well as challenge for the bank because we were oriented towards understanding the different needs of clients.  For some, this involved trade finance.  Thus, IFC, the private sector on the World Bank, works with banks to try to make sure that trade liquidity kept going forward.  For some in central Eastern Europe, there were poor banks with banking systems primarily based in Italy, France, or Austria.  So we worked with some of the regional banks, EPRD (Economic Policy and Regional Development) or the European Commission, to keep liquidity equal.  For others, we tried to provide budget support.  Like Korea, which learned through its difficult experiences in the 90s, many of the emerging market countries had actually better policies at the time of the financial crisis than some of the developed countries.

What is interesting now about development is that you have some good success stories in different models among developing countries.  Thus, a way to help developing countries today is by showing them the experiences of other developing countries.  Twenty years ago, the models might have been the US, Europe or Japan but not now.  For example, Mexico and then Brazil started safety net programs called “conditional cash transfer programs” - “Oportunidades” in Mexico and “Bolsa Familia” in Brazil.  These programs provide cash support to the bottom 15 to 20% of the population if people send their children to school and get health check-ups.  This probably has done more for women’s health than anything else in the history of Mexico.  In addition, the money is given to the female head of households because research has shown that they are more likely to spend money on children.  By the time I left the bank, we had expanded those programs to some forty-five other countries.  It’s one of the benefits of global institutions that we can draw experiences and apply them more broadly.
Korea is another interesting example.  While dealing with the financial crisis, Korea is also dealing with a structural shift.  Korea was a very poor and dependent country in the 50s but is now contributing to a development model. 

What distinguishes the World Bank group from IMF is that IMF focuses on micro-economic policies such as the fiscal and monetary.  The World Bank really focuses on structural issues like education, health, infrastructure, private sector development.  So the challenge for the institution is always to keep an eye on the clients and trying to keep current with the challenges of the day.

 


Yeom: The World Bank is a bit public oriented, especially in regards to developing countries.  In the last two or three decades, the world has strongly been influenced by neo-liberalism.  However, the world is changing now.  I was very intrigued by a book published by one of your colleagues, Professor Dan Rodrik of Harvard University.  He emphasizes the public good and says that this will be very important in the next several decades.  What do you think about the idea that after the global financial crisis, the world, especially the World Bank and other major international organizations, is moving from traditional views to more public oriented views?

Zoellick: I sometimes think that the divisions have been overstated.  What’s quite striking about this financial crisis is the greed of which countries have not turned away from the markets.  Countries in East Asia did relatively better than some of the developed countries because they have learned lessons in having good macro-economic policies.  They also learned the importance of working on structural policies, whether that is bringing competition to the service sector or adding productivity.  Unless growth benefits a broad basis of society, you will not have a strong foundation for the future. 

It starts with creating opportunities for sending children to school and getting them proper nutrition.  We did a lot to emphasize the early level of nutrition because from the time of pregnancy of -9 months to 18 months after the child is born is a very critical period for health.  We also did a lot of work on gender.  If economy ignores 50% of its people, it will not be very successful in terms of growth, productivity and opportunity.

Rather than saying true public, true private, one ideology or another, I think there is pragmatism.  If you are here in China and look at the Chinese model, it was under Deng Xiaoping who didn’t care whether the cat was black or white as long as it could catch mice.  If you think about the Korea, it achieved success as a developing country on the one hand but, in the 90s, the structure of some chaebols and financial sectors caused problems.  One of the issues you see being discussed in China today is the structural reform.  China relied on export-led growth and heavy fixed investment in assets, often by the government, and now the authorities realize that this model has to be changed. 
I don’t think any one model fits all.  Lessons of East Asia have been very important for others because they have seen how emerging markets - first Japan, Korea, Taiwan, Hong Kong, and then spreading through the ASEAN countries - have created a very good growth story.

 


Yeom: Neo-institutionalism especially emphasizes varieties of capitalism and your idea in that sense is perfect.

Zoellick: I think good governance and local ownership are very important.  What I mean by local ownership is this: Experts from different parts of the world can bring in great ideas, money, and so on for a developing country but unless the local people own the development process, it will not work. 

Yeom: Let’s move onto economy and security issues, which are very important for the East Asian region.  The South Korean president, Park Geun-hye, has brought up this issue in her address to the US Congress earlier this month, saying that the region is “suffering from the Asian Paradox.”  The countries in the region are very close culturally and economically but have very serious tension when it comes to security.  There is mistrust because of historical issues.  Tension is also intensified because of political populism.  What do you think are the most significant challenges for the new leaders in China, Japan, South and North Korea?   

Zoellick: In 2005 when I was the Deputy Secretary of the State, I gave a speech about China where I urged the country to be a responsible stakeholder.  Part of the logic was that the international system that the United States had helped create after World War II provided security, stability and also economic environment for growth.  Under the Deng Xiaoping’s leadership, China had used that system quite effectively with the hard work of the Chinese people to create incredible growth and opportunities.  However, as the world changes, the systems had to change.  Even though the US security engagement in the region remains important, countries need to adopt their own positions while being sensitive to lessons from history and concerns about geography.  Then, they need to figure out how to develop relations that builds on the positive while managing potential frictions.

Korean, which has been very successful, is well aware of its history where their peninsula has been marched up and down by big powers searching for control in North East Asia.  There is obviously also a particular problem in the case of North Korea with a legacy of the past and a new leader Kim Jong-un, someone who is not well-known and there is not a very clear sense of his relations with the military.  Frankly, when the government has taken hostile actions, including use of force against South Korea, that’s a very dangerous issue.  Even though China has long considered North Korea an ally, China runs a risk to its own interest if North Korea continues this type of behavior. 

In the case of Japan, I think you have both economic and security issues.  Economically, Japan has been struggling well over a decade.  Steps that Prime Minister Abe is seeking to revive the economy could turn out to be very important but they would need to be fully implemented.

The monetary and fiscal policies will not be enough unless there is structural reform.  If monetary policies are pursued alone, you run the risk of getting into currency competition.  I think it’s important that you use things like TPP or Trans-Pacific Partnership to try to further the structural reform.  At the same time, Japan needs to be very sensitive to its historical place after World War II – obviously, issues with Korea but also China and Southeast Asia.  I hope that as Japan pursues economic revival, it can become a constructive partner, particularly with Korea given the uncertainty in North Korea.  From the US perspective, it would obviously be better if the relationship between South Korea and Japan becomes stronger. 

I had a chance to meet Xi Jinping when he was a party secretary.  I think he has charisma and potential to be a strong leader.  He and Li Keqiang may have a stronger position in the Standing Committee than their predecessors had.  But they face structural economic issues that I mentioned about changing the system.  The World Bank gave the China 2030 report with the Chinese looking at these structural changes. 

As its power grows, the challenge for China in Southeast Asia will be not to seem threatening because more powerful countries can appear that way whether they wish to or not.  Inevitably, this will create a counter-reaction among the countries, for example, in the ASEAN region.  There are common interests in maritime security, energy access, resource access, open skies, information and an overall sense of stability in the region.  For the past six or seven years, the United States has been a key component and I think it will continue to be.  The question now is on the complementary roles that Korea, Japan and other Southeast Asian countries will play, and whether China will rise in a way that serves its objective of peaceful development.

 


Yeom: But it may be a bit more complicated because you have emphasized that China should be the more responsible stakeholder, and that its role is important.  But if it becomes too much, it may be against the US interest or the G2 power.  Japan is also concerned about the rise of China.  A responsible stakeholder means being cooperative.  From Korea’s point of view, as we are a very small and fragile country, good relationships between China and the United States, between China and Japan, and Japan and the United States are very important.  What kind of functions should a responsible stakeholder take?

Zoellick: First, I think in the economic area, if you look at many of Chinese policies and crises, even the ‘97 crisis has been constructive in the international system.  There are challenges whether they deal with currency policies or rebalancing the economy.  I think the greater danger might be in the security area.  This actually suggests the need to understand where their mutual interest lies and assess threats to those interests.  One of the problems is that, in the economic area, there is a rather rich network of ties by public and multilateral institutions.  There are challenges but there is a mechanism to work on.  In the security area, there isn’t really the same structure for political military dialogue on these issues like in the economic side.  This is in part because the People’s Liberation Army of China reports to the Central Military Commission, which only has one or two civilians on it.  However, there is some discussions about China about creating a system more like the National Security Council to integrate the foreign policy, defense policy, and economic policy.   

The second point that I make in my discussions with my Chinese collogues goes back to the existing security system.  The US is an alliance partner with Korea, Japan, Philippines, and Thailand; and has other relationships with Singapore, Australia, and others.  Because of that, the US perspectives on China are not simply a bilateral issue.  In other words, how China relates to Korea, Japan and the others would inevitably affect the US relationship with China.  That may seem odd to the Chinese and so they ask: Why are you focusing on other countries?  But it is important to understand that those alliance relationships provide stability in the system.

On the other hand, when a country like North Korea says that it wants to end the 1953 armistice or when it threatens South Korea and the United States and develops nuclear weapons and ballistic missiles, China has to understand that there would be responses with things that China may prefer didn’t happen such as missile capabilities. 

Again, I think there are commonalities of interest.  It starts with security’s stability.  This region has been economically very successful and there is great economic interdependence.  Look at the ties that South Korea has with China when South Korea was not even recognized by China as a state a little over twenty years ago.  But interdependence alone isn’t enough.  You also need to pay attention to some of these security dimensions.  If you ask the Chinese perspective, China may want to have its interests respected in the Western Pacific.  Respected, fine, but not at the expense of others.  If they do try to do things at the expense of others, there will be a counter reaction.

 


Yeom: In this sense, North Korea has just attempted to threaten this region and shoot missiles.  However, China was not that supportive.  Do you think that this Chinese decision shows that China is trying to move more toward being the responsible stakeholder?

Zoellick: I hope so.  At the time that North Korea torpedoed the South Korean ship, I remember talking to some of the very senior Chinese leaders.  I was outside of the government at the point.  I warned and said: “You need to send strong messages to the North Koreans because this is unacceptable.  If you don’t, they may try again.”   And they did with artillery, and I said to the Chinese: “Look, if this were a US ship or Chinese ship, I’m not sure if either of us could have been so disciplined as South Korea was not to react.” 

Now, I think the Chinese have learned a lesson from that.  However, to understand the Chinese position, one also needs to recognize their complicated relationship with North Korea.  It’s an ally, but they are not sure how effective their leverage is.  I think China is also struggling to find its way with North Korea.  Also, as you know, Koreans are very independent people.  I don’t think North Korea wants to be told by Beijing what to do either.  I encourage deeper dialogues with China, North Korea, South Korea, the US and others, not to gang up on North Korea but try to deal with some of these uncertainties. 

Yeom: Let’s move on to economic issues in the East Asian region.  You have served as the US trade representative from 2001 to 2005.  China, Japan and Korea are not only very closely interrelated in terms of economics but also have achieved trade agreements with Chile, the EU and the United States.  Even though the economic inter-relationship amongst the three countries is very strong, we are still struggling to agree on a China-Japan-Korea Free Trade Agreement.  We are trying to make a free trade region like NAFTA or the EU but there are still some conflicts.  For example, Japan is focusing on the Trans-Pacific Partnership, while China is emphasizing the Regional Comprehensive Economic Partnership.  What do you think is more promising or desirable for the three countries? 

Zoellick: Let me start with this.  I know there is always an anxiety in South Korea about being a small country among bigger neighbors.  In reality, South Korea is now one of the top ten economies in the world and it’s a member of G20.  You describe it as a middle rank power, perhaps, but its influence is expanding.  I would never have expected ten years ago that South Korea would take the steps to negotiate free trade with the United States but it did.  The Korean trade minister at that time was Hyun-jong Kim, who served in WTO was very forceful in getting this done.  If he hadn’t been the trade minister, I don’t think it would have ever gotten done.  Because you negotiated that agreement with the United States, then the EU came.  You now have Free Trade Agreements with the US and the EU, which is pretty impressive.

TPP is something that is a long way from completion.  So one of the challenges for the United States is whether the rhetoric will match the action.  I hope it will.  It took a long time for the Obama administration to get the free trade agreements with Korea, Columbia and Panama.  While I support TPP, I think the challenge would be to make it a truly liberalizing event and then connect it with other agreements.  I think it’s very important for the United States as a major world economy to also look to see whether if we can have the Doha round get done.  There is an agreement on things like services, digital information accords build on IT, the first information technology accords.  It’s important for the United States to continue to engage China on trade.

 


Yeom:  I’m concerned about free trade agreement between China, Korea and Japan.  One stumbling block may be the public sentiment on different historical interpretations, based on not just economic reasons but on other issues.

Zoellick: The other issue is that people use a free trade agreement to cover lots of different types of things.  When the US agrees on a free trade agreement, as Korea knows, they are very comprehensive and include all manufactured goods and try to include all agricultural products although there is an exception like rice.  A lot of “so-called” free trade agreements that you see in the region are of modest quality.  They will open up some goods but not others.

Yeom: I’d like to ask you about the China-US relationship and Japan-US relationship in terms of dealing with the Korean peninsula and the North Korean issue.  There have been some interesting situations on the Korean peninsula.  Public sentiment regarding the Japanese prime minister and politicians is not very good in South Korea.  Interestingly, North Korea doesn’t want to appear in the six-party dialogue but, instead, it wants to knock the doors individually.  For example, they just called the Japanese political leader and also tried to contact the United States.  South Korea is unstable and fragile in terms of security so we have a keen interest in the relationship between the US and China.  Also, we are very interested in how supportive the United States is of the Japanese right or populist tendencies.

Zoellick: I would start out not with China, but with Japan and the Republic of Korea.  I think the key relationship in this is the US alliance and partnership with South Korea.  In that sense, the FTA is good because it combines the security relationship with the strong economic relationship.  My father fought in the Korean War.  I think the starting point is that there needs to be a close alignment of the US and South Korea in terms of sharing information, perspective and strategy as to how to deal with North Korea.  The United States has tried to be a good consistent partner.  

Second, in terms of Japan, it’s obviously in the US interest to have Japan and South Korea become better partners.  I think the US has been pretty clear about not being patient with Japanese revisionism of history.  Indeed, I think in 2005, when there were comments by the Japanese about comfort women, the resolution passed by the US congress was very critical.  The US thinks this is a mistake as well as being historically false.  I don’t think most Japanese reflect a harsh nationalistic view.  I think it’s probably rather a small group and it affects the politics but I think it’s very important for Japan as well as other regions to face their history.

In terms of China, I think South Korea and the United States have interests in trying to see if China in minimum tries to pull back North Korean from threatening action, and tries to set them on the path of some reform.  When I had my strategic dialogue with my Chinese counterpart, Dai Bingguo in 2005 and 2006, I made a point that the United States would be contented if North Korea would look like China.  I think all countries, particularly Japan, South Korea and the United States, need to be aware of North Korea’s effort to try to split them and manipulate them.

 


Yeom:  You’ve already made some comments on South Korea’s position but what would you recommend to Korean political leaders and opinion leaders for the security and prosperity of the East Asian region?

Zoellick: I worked closely with President Lee, his administration and different ministers.  They were very good counterparts on development and were supportive to the World Bank and the G20 process.  I worked on the German unification in 1989.  There was a period in the 90s where Koreans would come and try to draw some lessons from what happened.  It is important for Korea, regardless of what an uncertain future may bring, to try to develop good relations with neighbors and international institutions to prepare for uncertain events.  In the case of Germany, even after 40 years of close alliance and European ties, there are still great stresses and strengths.  I think Korea tries to play a role in regional and other systems, and that’s one of the reasons why if Japan is willing to deal with some of these historical issues.  I hope that Koreans are gracious to the Japanese because it’s in Korea’s interest over time to have Japan as a supportive partner.  I think Korea has done that pretty well.

One of these issues also came back to the role of the women in the workforce.  You have a lot of highly educated women but they still don’t have the same career paths men do.  This is true in all societies.  In some ways, as a society ages, there are some similar challenges about allowing work life so people can work more from home so they don’t have to commute as often and have more flexibility.  These are the types of things that you need to do to keep older people in the workforce and also for women that have had children and want to re-engage in the workforce.  My sense is that Korean officers are very alert to these challenges while continuously thinking about keeping Korea‘s competitive edge. 

Yeom: Thank you very much for your interesting comments.
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