When the World Bank’s new president, Jim Jong Kim, took over in July of this year, he did so after the first-ever open competition for the job. This, along with significant long-term changes in the structure of the world economy and its unsettled state, makes it an opportune time to re-think the role of the bank as one of the great international institutions. Such re-thinking must start with the lessons learned from our experience of development co-operation as well as from a clear understanding of the changes now taking place in the world economy. It means adapting the World Bank to the changing needs of the international community but also, in some cases, taking the institution back to its roots.
The World Bank was created in 1944, just as the United Nations system to which it belongs was in 1945, on the conviction shared by its founders that the world had to be reconstructed from the ashes of World War II on the basis of the balanced, inclusive and peaceful development of all countries. Most would agree that the world has achieved progress in this regard, and certainly the World Bank has made a central contribution to that effort. But over two billion people still live in poverty, countries have made very uneven economic and social progress, and the development gap between rich and poor countries remains unacceptably wide.
This means that the World Banks’s core mandate must remain that of reducing poverty. This relates primarily to the poorest countries, of course, but also to middle-income countries, where most of the world’s poor are in fact to be found. This means that the bank should focus on helping to counteract the trend towards greater inequality that has characterised many countries in recent decades. The strength of this trend implies that the development task should not be limited to adding social safety nets to compensate for the market and social tendencies that generate inequalities, but rather it should design mechanisms that mainstream equity objectives into economic policy-making. This could be done by putting the creation of quality jobs at the centre of the development agenda, favouring small producers, developing universal education, health and social protection systems and eradicating gender inequalities.
The food and financial crises engulfing much of the world, and the visible effects of climate change, have been a painful reminder that the world also needs institutions that can in cooperative ways address the enormous long-term global challenges of our time. In this regard, the World Bank is an essential contributor to the supply of global public goods. It has to give its support to the actions that developing countries must make to mitigate climate change and preserve the world’s remaining natural forests and watersheds and our planet’s biological diversity. The most important challenge the World Bank should be contributing to relates to climate change as this will require a veritable revolution in the global energy system, as its main clients, the developing countries, are set to be the largest source of increased energy demand.
A new area in which the World Bank should contribute to global co-operation stems from the weaknesses of developed economies and the growing importance of the largest emerging economies as generators of global economic growth. We need an inclusive forum for policymakers, from both developed and developing countries, to discuss the issues this raises and to co-operate on ways to accelerate global growth. With its strong analytical resources, the World Bank can provide the best forum to discuss how changing trade and investment patterns, knowledge and migration flows and the restructuring of production sectors around the world can be made compatible with faster yet equitable growth around the world.
To achieve the three objectives of reducing poverty and inequality, helping to manage our global commons and co-operating to accelerate global growth, the World Bank has four major instruments. But they all need to be improved if we are to face the challenges of the 21st century. The first is concessional and co-operative financing, an area in which the World Bank operates both as a multi-lateral channel for official development assistance (ODA) and as a successful, and indeed profitable, global financial co-operative that facilitates access to external financing at reasonable terms for countries that lack adequate access to private sector finance.
But if the bank is to continue doing this, it is essential that there should be in due time a strong 17th replenishment of its International Development Association (IDA), the arm that is in charge of helping the world’s poorest countries. But more immediately, it will also be important to re-establish the long-term financial sustainability of its non-concessional arm, the International Bank for Reconstruction and Development (IBRD). Its shareholder governments and institutions should therefore engage in an honest discussion about the latter issue because with its current capital position, the Bank has been forced to reduce its lending programme. To be very clear about this, it now lacks the capacity to respond to the on-going global crisis in the productive manner it did back in 2008-9. It requires a new capital injection based on a clear and shared set of priorities.
This will also mean changes in its lending practices compared to what was typical during the period of market reforms. Increased attention needs to be paid to quality physical infrastructure, an area to which the bank contributed significantly in its early decades but unfortunately left aside later on. Fortunately, it is now back on the agenda. Much the same can be said of agriculture, which of course plays a key role in low-income as well as in many middle-income countries.
A fresh focus on industrialisation and technological upgrading would be equally welcome. This would underline the way that economic development is above all a process of structural change towards production activities with more technological content, which was a central concept in the bank’s early days. And as this requires domestic development banks to play a role, more support for well-designed national development banks should also be on its updated agenda. This would not only recognise the role that these institutions have played in successful development, but also the fact that the World Bank is itself a public-sector development bank.
The second instrument is knowledge. This requires the cross-fertilisation of research and the lessons learned from country programmes, as well as a capacity to transfer knowledge from one region to another, and from middle-income to low-income countries. Remaining global is key to the most effective use of an instrument which has become critical when so many countries will need to reinvent their development and growth strategies. It also requires diversity, among World Bank staff particularly, on the very different approaches around the world to development issues.
The third instrument is close co-operation with the private sector. Given the immense demands for financing, and the private sector’s leading role in investment, partnerships are essential. The World Bank Group therefore must play an even greater catalytic role, especially for non-natural resource investments in low-income countries. Middle-income countries also play a critical role, both as recipients and increasingly as sources of investment as we have already seen substantial rise in South-South investment flows.
The fourth instrument is a clear recognition that the World Bank should operate at country level as a single institution and not as separate ones that are part of a loosely tied group. Equally important is recognising that the bank is part of a global system of governance: a specialised agency of the United Nations system and the apex of the system of multi-lateral development banks. Building and maintaining its place as a strong, credible and trusted partner are essential to providing leadership at the global level.
But the bank can only fulfil this potential if it retains the support of all its members. This adds up to reform, not least in the selection process for future presidents, which should not only be a competitive process but, as a G-24 statement put it after the recent election, also “transparent and truly merit-based.” That also means continuing the reform process started in 2009, which should lead to an enhanced commitment of those members whose voices are still incompatible with their growing share of the world economy. And that needs to be buttressed with a clear recognition of the contribution to development being made by different members, recognising for instance the role that Europe has played as the greatest provider of development co-operation.
Finally, building trust also means a clear acceptance of the principle that development policies should always be subject to decisions adopted by representative national authorities. Indeed, only when there is strong ownership of development processes are they likely to succeed. What this means, of course, is that it is not the role of the World Bank, or, for that matter, any international institution to impose a particular development model on any country. This is a fundamental lesson that the bank seemed to have forgotten during the zeal of market reforms which must now be put back at the centre of its agenda.
José Antonio Ocampo is a professor at Columbia University, a former finance minister of Colombia and was one of three candidates who earlier this year competed for the World Bank presidency. email@example.com