Lost in a busy week that included the State of the Union address, Virginia politicians behaving badly and a Democratic Green New Deal was the news that President Donald Trump made an outstanding nomination to head the World Bank, one of the world’s most important financial institutions. David Malpass might not be a household name, but he brings an impressive arsenal of experience and ideas that will help him enact vital reforms to an organization that badly needs it and thereby reorient it to its original mission of helping develop impoverished countries.
Malpass, who has served in the Department of the Treasury as undersecretary for international affairs since 2017, is a superb economist. His deep grasp of markets and financial systems enables him to recognize unintended consequences that elude others.
Perhaps most notable were his frequent warnings against “quantitative easing,” the preferred approach of the Federal Reserve during President Barack Obama’s administration. Malpass warned that quantitative easing would inhibit growth, which it did by warping credit markets. Large corporations like Apple have easy access to ultracheap credit while small businesses, startups and households went without.
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Malpass wouldn’t be a naive rookie working with the World Bank. He has experience working with the institution from his days as deputy assistant Treasury secretary in the Reagan administration, before he went on to serve President George H.W. Bush as deputy assistant secretary of State.
And Malpass will bring an attitude that the World Bank desperately needs. He understands that providing capital is not enough — a nation cannot develop a robust and thriving economy without the right conditions and habits in place.
Malpass will empower the free market
He knows how crucial low taxes, sound money and respect for property rights are for propelling poor countries to a muscular, long lasting prosperity. To that end, in 2015 he recommended that the World Bank promote “growth the old-fashioned way through robust after-tax profits at small businesses, investment in startups and more jobs. In most of the developed world, that kind of growth has been on hold, waiting to find a path through regulatory obstacles.”
That means Malpass will resist the allure of mega projects that might have wonderful intentions but little chance of succeeding. Such projects tend to rely on crony capitalism and even socialist systems that do not channel the World Bank’s grants and loans efficiently. Instead, he’ll emphasize entrepreneurship over crony capitalism and encourage deregulatory efforts to empower free markets.
In short, Malpass understands that free markets provide opportunity, and under his leadership this is what the World Bank will promote. Given what we’re seeing in Venezuela, this should be welcome news.
Malpass will also question why the World Bank is still lending billions of dollars to China, the second largest economy in the world and hardly a developing nation.
Doing good doesn’t mean spending the most
The most common argument against Malpass is that he has been critical of the World Bank. The Washington Post disapprovingly quoted his assertion that the institution’s lending policies have “a lot of room for improvement,” and that “globalism and multilateralism have gone substantially too far, to the point that they are hurting U.S. and global growth.”
If those remarks seem entirely reasonable to you, you’re not alone. The story even acknowledges that Malpass fought for a $13 billion increase in capital funding for the World Bank last year. In other words, he has no intention of killing the institution. He only wants to make sure it does the most good possible, and that’s not synonymous with spending the most money possible.
Clearly, Malpass will battle a smug, insular status quo. And since when has that been a disqualification for holding a position?
Changing the World Bank will be no easy task, but it’s an important one that can help lift millions of people out of poverty. President Trump has made a wise decision in choosing David Malpass for the job.
Steve Forbes is chairman and editor in chief of Forbes Media. Follow him on Twitter: @SteveForbesCEO