The World Bank is no stranger to controversy. As perhaps the leading world institution concerned with development, it is at the vortex of debates about what works and what does not work in international assistance, and where responsibility for bringing change lies. Burdened by a history of inward focus and technocratic communication habits, the Bank is difficult to penetrate and understand. So, in many circles, the World Bank is known primarily through the reflected image projected by its critics. These critics range from reformist observers to fundamental, jugular questioners of the institution’s legitimacy, mandate and approach. Allan Meltzer’s viewpoint on this issue—that the World Bank no longer has a role—falls into the latter category. The new Obama Administration will need to navigate the shoals of varying discordant views of World Bank supporters and detractors.Debates about the World Bank play out in many places. Around the turn of the millennium, the staid World Bank became a lightning rod for anti-globalization coalitions with myriad causes, from environment to debt. The combination of highly publicized public protests and faltering confidence about much Bank work among key shareholders, including the United States, galvanized the institution to introspection and successive reforms. Partly as a result, today’s debates tend to be less strident and more varied. The myriad questions and critiques of the World Bank fall into five broad categories: (1) that the Bank represents empire, the “project” of extending the influence of the rich and powerful across the world; or that the Bank is an elephantine and arrogant institution flaunting its power; (2) that the Bank follows inappropriate economic policies, representing bad or outdated economics, or, a quite different critique, policies attuned to the world’s rich, not the poor communities the World Bank is supposed to serve; (3) that the effects of Bank policies and operations (especially infrastructure construction and macroeconomic reforms) hurt more than help poor communities; (4) that the Bank takes ethical considerations lightly into account, ignoring corruption, working with corrupt and undemocratic regimes, and failing to advance basic human rights; and (5) that the Bank, despite efforts to open up, is secretive, hard to understand, and, overall, an enigma. It behooves American policy analysts to take note of much-propagated views of the international financial institutions (particularly the IMF and World Bank) as blunt instruments of U.S. “empire”—acting not as truly international players but serving the political and economic interests of the powerful, and increasing their wealth at the expense of poor countries. The “democracy deficit” some hold against the World Bank refers to its voting system, which links voting shares to financial contributions and wealth. This controversial hallmark of the World Bank and the IMF sets them apart from other United Nations institutions. Adjustments to member nations’ voting power over time (and particularly over the past year) align capital shares with shifting economic strength, thus increasing the weight of middle-income countries. As to poorer countries (especially in Africa), efforts to enhance “voice” with procedural and attitude changes rarely impress critics who see an irredeemable system. The “empire” critics question the sheer size and reach of the World Bank, an “undemocratic” institution seen to exercise excessive and unhealthy power over the fate of poor countries, which have little choice but to engage the Bank to survive crisis and secure financing to support their development. These critics argue against conditioning funding on macroeconomic reforms, though it is hard to imagine a financial institution making loans or grants without agreeing on how they will be used. Others propose bolstering regional banks to increase their development finance, starting new ones (Hugo Chávez’s Bank of the South), or breaking the World Bank up into smaller and thus hopefully more nimble and responsive entities. The “empire/elephantine” critique addresses what is sometimes termed “mission creep”, positing a World Bank that has expanded willy-nilly, incapable of saying no. With its successive expansion of programs, the Bank appears to some critics to be stretched to a point of ineffectiveness that also undermines the capacity of other institutions (both national and United Nations agencies) designed to act in the same fields. The problem is real; witness the Bank’s extraordinarily wide range of activities and failure to cut back on any activity on which it has embarked. But so are the urgent calls from shareholders for the Bank to take on new roles, like administering funds on behalf of the Global Fund for AIDS, Tuberculosis and Malaria, leading planning efforts for an avian flu epidemic, coordinating programs in post-armed conflict situations, acting on climate change, and, recently, responding to the food crisis. Comprehensive approaches that link the strands of the development process are essential, and the days when one could plausibly argue that the World Bank should stick to infrastructure are long gone. The World Bank’s mandate starts with economics, though its role and attendant organization and staffing are multisectoral and multidisciplinary. Much debate nonetheless centers on its economic approaches. The Bank’s ideal is to be a skilled, disciplined, altruistic, and pragmatic institution, looking objectively at each country’s situation, bringing to bear the best global knowledge. Many, however, paint the institution as pursuing a neoliberal economic ideology and applying that ideological vision across the board with little adaptation and little real room for discussion with those affected. “Washington Consensus” is the label applied to a batch of specific economic reforms; the recipe’s merits are widely debated, even as the economist who coined the term (John Williamson) protests that such a consensus never existed. A significant and different critique views the World Bank as fatally tinted by statist approaches that interfere with markets. These different narratives—presented here in caricature form—all contain grains of truth, but the “theology” image is a distortion. Debates about theory and practice rage continuously inside and outside the World Bank, which encompasses widely differing schools of thought and approaches. A 2006 evaluation of the World Bank’s 1998–2005 research work, commissioned by the Bank and led by Angus Deaton of Princeton University, affirmed the breadth and general high quality of the Bank’s economic work. However, it raised important and troubling questions about how far its research and findings are skewed toward positions the Bank has already adopted or wishes to advocate. The direct, on-the-ground effects of World Bank investments in individual projects, and its economic policy advice, particularly when it conditions finance on specific economic reforms, spark the most significant debates. These turn on three questions: whether Bank approaches to project and policy design are appropriate, whether they are sufficiently geared to different country circumstances, and whether there is proper evaluation of programs and learning from experience. Environmentalists led the charge against World Bank project lending three decades ago. Criticisms centered on the perceived failure of the World Bank to take into account environmental damage and displacement of people, and critics have since contested a host of other facets of project selection, design and implementation. Today dam construction projects are subject to extraordinarily intense scrutiny, such that some governments opt to secure financing elsewhere if they can as World Bank involvement seems more trouble than it is worth. The World Bank has changed in response, for example by focusing far more sharply on community participation and requiring rigorous environmental and social analysis. Further, the “investment project” model that many criticize is barely recognizable anymore, as today’s World Bank is more a “wholesaler” than a retailer, supporting broad programs with multi-donor partnerships, engaging civil society and private actors. In many if not most country settings, the Bank links investment lending and economic and social advice. How the Bank advises governments, and the effects of this advice, are actively debated. What should the advice be? How “persuasive” ought the Bank be in delivering it? How far should it delve into detailed policy implementation? These questions play out many times daily across widely different country settings. They touch on practical issues like water and irrigation, as well as theoretical and sometimes esoteric topics like investment climate and intergenerational tradeoffs. World Bank-supported programs that bolster countries’ adjustment reforms come in for sharp debate, too. Critics charge variously that such programs harmed poor communities by cutting jobs, raising prices and increasing fees for education, health and water services; a contrasting view holds that programs stayed on paper. Extensive reviews of adjustment programs by both the Bank and critics offer widely differing accounts of what the Bank tried to do, what actually happened, why countries failed to follow the intended path, and where recommended economic reforms successfully transformed a country’s prospects. With extraordinary variation among different situations, simplistic images tend to produce more noise than light. Debates about the World Bank are increasingly cast in moral and ethical terms. For many years the Bank avoided any public discussion of corruption; there was a tacit assumption that corruption was best dealt with by technical approaches and private, not public, discussion. Corruption came out of the closet at the Bank almost 15 years ago, and current debates are focused more on how best to combat it rather than on whether combat is needed. Strict financial management and, more recently, a battery of “safeguard policies” have been put in place to guarantee honesty and policy integrity. Other ethical concerns involve human rights issues. Human rights activists remain frustrated in dealing with the World Bank, which, again under pressure from some shareholders, was hesitant even to state publicly its support in principle for human rights. Others argue that the Bank, which must eschew political interference, should not insert itself into the detailed engineering of public management that many governance reforms entail. The Bank prides itself as a world leader in openly and actively fighting corruption and now engages more directly on human rights. But healthy questions continue to arise about how effective the Bank is on the panoply of governance challenges, and how skillfully it navigates the shoals of its Articles of Agreement, which render the “p” word—politics—a constant source of sensitivity. The World Bank’s enigmatic image results both from its diversity of operations in over a hundred countries and its obtuse organizational structure and practices. The Bank’s extraordinary propensity for jargon and acronyms exacerbates the underlying complexity of its work. Its past policies promoted a veil of secrecy around most of its operations. Employees were barely allowed to speak about their activities, leading, not unnaturally, to the common and distorting practice of managed leaks. Information policies today are vastly different, with much Bank work in the public domain, accessible through public information centers and the Bank’s extensive website. Even so, many procedures remain rather enigmatic and opaque to most observers. The Bank has a way to go toward its stated goal of transparency and clarity. The formal governance structure of the Bank is comprised of governors representing 185 governments, each with complex accountability structures. Add to that the Bank’s fundamental responsibility to its client governments and, in borrowing countries, to institutions, public and private, with direct interest in the Bank’s work. The Bank aims to speak and act for the poorest segments of the population. At times Bank staff members feel like they are accountable to everyone, everywhere, all the time. Allan Meltzer offers a critical narrative about the Bank that leads him to conclude that the World Bank should be closed down. His line of argument is essentially that the World Bank, created largely to support Europe’s reconstruction, played a bit part in that project, then turned its attention to investment finance. As its mandate expanded to social sectors under Robert McNamara’s leadership, the Bank failed to achieve results. Insufficient commitment to reform by country leaders and politicians, as well as corrupt practices, derailed well-intentioned policies. Meltzer sees the Bank as “incapable” of reforming, reluctant to adapt needed policy reforms and hampered by internal resistance to anti-corruption measures. He views the semi-autonomous but internal World Bank evaluation apparatus as inadequate, claiming that its outputs mask overall poor results. Besides, he argues, most middle-income countries do not need the World Bank, preferring not to engage with its policy analysis and advice (“hectoring”, he terms it). And anyway, foreign aid, particularly in very poor countries, does not spur economic growth. My barebones counter-argument, following the same historical thread, arrives at a different conclusion. The World Bank’s mandate and role have changed fundamentally through post-World War II reconstruction, Cold War geopolitics, post-Cold War economic and political reconfigurations, and evolving thinking about what produces economic development. The World Bank has grown and adapted, and its contemporary role differs sharply from that of even 15 years ago. Its analytic work and policy advice are linked to lending and grants; ideas are as important as money. The Bank is adapting to its varied roles as a player in today’s immensely complex, often dysfunctional international institution architecture. The Bank’s performance varies widely by country and sector, but many of its practices have been transformed: Witness, for example, today’s participatory community involvement and rigorous environmental safeguards. The Bank well appreciates that neither reform nor capacity building can succeed without country commitment and leadership, and it works to bolster both. Development and foreign aid are an immensely complex business, but overall the field is advancing with substantial success. The Bank plays dynamic and significant roles in many middle-income countries and needs to continue its work there. But its real focus should be on the poorest countries, especially in Africa, that present the greatest challenges both for global social justice and security. The contemporary World Bank has great strengths, significant roles to play, and important challenges it is well placed to address. At its best, the World Bank exemplifies what contemporary multilateral institutions can be, with a bold vision (ending world poverty), a genuine commitment to excellence, and strong analytic capabilities, qualities sorely needed across the international system. The Bank has three important assets: unparalleled reach across different “domains” of activity (macroeconomic, sector-specific, enterprise and community, and cross-cutting); a well tuned knowledge capability; and an enviable convening power. The World Bank’s capacity to oversee large financing packages is an important part of international aid architecture. The United States should help the World Bank to reconcile and surmount the sharply contradictory pressures it confronts: to expand and to consolidate, to reach far and wide and to focus on fewer sectors. The broad perspective that goes with being a global institution is invaluable, but the Bank needs to navigate the shoals of potential dispersion of effort even as it strengthens its analytic capabilities. Information and research may be its most valuable service, but needs are changing fast in the digital age. Fresh thinking and new tools are needed in the development field; as an example, consultative groups that for years coordinated country development programs and vertical sector programs (especially in the health area) cannot now achieve their objectives. New instruments that can frame the larger picture, including private and public, nongovernmental organizations, foundations, and other actors, have yet to emerge. In this brave new world, the World Bank needs both superb professionalism and a strong ethical compass and habits of integrity. Its data, advice and global pronouncements must be trusted if they are to play their intended role. Financial management must be beyond reproach if the Bank is to press for accountability and integrity in others. The World Bank needs not a sweeping revamping but thoughtful, continuing reforms that focus as much on culture and values as on structure and organization. Reorganizing departments and tweaking mandates is not the answer; the Bank has often smashed organizational china with uncertain results, so a sensible watchword is “handle with care” and look case by case. The Bank’s complex mandate and global reach lend themselves poorly to sweeping approaches. The ongoing strategic exercise launched by Robert Zoellick, president since July 2007, covers six sensible if well-traveled issue areas: how the Bank can best support the world’s fragile states; the Bank’s role in middle-income countries that have ample options to raise finance; approaches to supporting progress in the Arab world; “knowledge”, that is, the intellectual component of development work; exercising leadership on “global public goods” (like transnational health and environmental challenges); and the challenges of the poorest societies. Despite its déja vu quality, this agenda addresses the major challenges facing the development community and thus the World Bank. The United States has an important role to play as well. The Obama Administration has promised a much needed revamping of American approaches to its multilateral roles. Two early steps could be launching a thoroughgoing reform of American bilateral aid and volunteering a multilateral and merit-based stance on selection of the next World Bank president. These moves, one a serious substantive challenge, the other more a signal of intent, could ease the path for broader reforms and regaining leadership high ground. U.S. international assistance has become a bewildering maze of programs and institutions. The panoply of programs (Millennium Challenge Account, the President’s Emergency Program for HIV/AIDS, Department of Defense development work and USAID, for a start) present practical problems, especially when they butt up against other international programs and private activities (notably foundations). Redefining the balance between bilateral and multilateral approaches will bring greater clarity, but the United States also needs to get its house in order. I join with those who advocate a Cabinet-level development czar to give this work the priority and discipline it deserves. An odd historic legacy has the United States naming the World Bank’s president (who serves a five-year term). Every time the position vacates, editorials and commentaries advocate an open selection process for this coveted bully pulpit. A preemptive American nomination is then announced. Affirming that the next time the United States will indeed nominate a U.S. citizen who meets high standards, but that it will also join the broad effort to ensure that the best candidate is selected, whatever his nationality, would symbolize a fresh, constructive commitment to multilateralism. And the unfolding 2008 global economic and financial crisis highlights how sorely creative and credible multilateral leadership is needed, to keep the world’s poorest countries at center stage, and to help craft responses to today’s barrage of new development challenges. The World Bank is a truly global institution; all key world players (G-8, G-20, G-77 and so on) are active members. With long experience, a raft of different instruments forged over the decades, flexible and proven capacity to manage large financial packages, and a multidisciplinary and highly professional staff, the World Bank is the fittest institution we have to help shape the complex partnerships and bold and coherent response the situation demands. Counterpoint: Allan Meltzer—The World Bank has been marginal at best and a bust all along at worst.
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Appeared in: Volume 4, Number 3Mend It, Don't End It
Published on: January 1, 2009
Published on: January 1, 2009
Should we shut down the World Bank: No, it’s the fittest, most experienced institution we have to address the problems of development.