David Rubenstein of the Carlyle group gave an interview to the Financial Times recently in which he described how good private equity funds make money. Equity funds look for companies that have assets that are being poorly used. Often the existing managers and workers know what needs to be done, but there is something keeping them from doing it - lack of capital or permission from the board. So the equity fund buys these companies and helps them better leverage their assets to exploit market opportunities. The profits and therefore the value of the companies rise, which means that the equity fund can sell the companies, make money, and start the whole process over again.
Although there have been mistakes and excesses, overall Rubenstein argues that private equity funds have driven substantial productivity increases, especially in the US.
I worked at the World Bank for over 14 years, and it is hard to imagine many organizations that have a greater abundance of underutilized assets. The Bank has thousands of extraordinary experts in an amazing range of subjects. The Bank has billions of dollars of financial assets and lending power. The Bank has an unparalled global network of access to top policy makers. And yet, and yet...
The Bank as a whole is far less than the sum of its parts. It achieves far less impact than it could, and its influence is declining as it fails to adapt to the new era of globalisation and the rising influence of civil society and the private sector. Despite some significant reforms, especially under Jim Wolfensohn from 1995-2005, the Bank remains constrained by its post-WWII structure and has an exceedingly risk-averse culture and board of directors.
So here is a crazy idea: What if a group of folks got together and launched a leveraged buyout of the World Bank? Though this is likely infeasible politically, in theory it is not only possible but desirable. There is plenty of both philanthropic and private money available to finance the deal, and the amount of expertise that could be brought to bear in running the place better has never been higher. These excellent people come from all sectors - many are from top-notch NGOs, others from private companies, some from government agencies, and many from within the World Bank itself.
I am starting to compile a list of my own dream team of colleagues at such a revitalized institution. If you have suggestions, please send them to me at dennis at globalgiving.com.