Saving the World Bank

Sebastian Mallaby

From Foreign Affairs, May/June 2005

Summary:  The next World Bank president will confront a nearly impossible challenge: saving the institution from a curious alliance of conservatives and radical activists that threatens to undercut its financial viability and effectiveness. Failure to head off the danger will mean the gradual decline of the best tool the world has for managing globalization, just when that tool is more needed than ever.

Sebastian Mallaby is a Washington Post columnist and the author of The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations.

WRESTLING WITH THE OCTOPUS

The single biggest obstacle to efforts to rally the world to the bank's defense is the perception that the institution is a sprawling mess, sluggish and unfocused. If the bank were truly a mess, the task for its next president would be simple: fix the management chaos, and the financial troubles will become easier to deal with. Most incoming World Bank presidents have acted on this theory. Following Barber Conable's dramatic attempt at reorganization in the 1980s and Lewis Preston's persistent tinkering in the early 1990s, Wolfensohn sought to revitalize the bank with private-sector management ideas. But all of these reformers have discovered that the scope for improving the bank's management is limited: most of the institution's shortcomings reflect forces that its president can barely influence -- the result of the demands of the same people who decry its failures.

The most common criticism of the bank is that it is sluggish. The charge is in many ways fair: although the bank is more efficient than most multilateral agencies, it can still take two years to design and get a project through the board before implementation even begins. Part of the reason for this sluggishness is that no profit motive compels speed. But it is also that social, environmental, and anticorruption safeguards require all manner of time-consuming precautions. (In the case of one especially sensitive project, the bank commissioned an environmental and social impact assessment that ran to 19 volumes.) This sort of slow perfectionism cannot be corrected by the bank's management alone. The safeguards exist because the bank's critics have lobbied the U.S. Congress and other legislatures to demand them. Since the bank depends on these political masters for contributions to its soft-loan kitty, it is hard-pressed to resist them.

The bank is also slow because of its board, the group of 24 government officials who represent its lending and borrowing shareholders. Corporate boards tend to meet once a month at most; their officers are part-timers who seldom challenge the chief executive. The World Bank's board, in contrast, holds formal sessions twice a week and informal meetings on most other days; nearly all its members devote themselves to the World Bank full time, and they are supported by busy teams of bright officials from their various finance ministries who are temporarily posted to the bank. The board members, in turn, report to government departments in their home capitals, where more mandarins oversee the bank's overseers. This vast, far-flung machinery generates a constant flow of queries and directives, and the bank's beleaguered staff is forced to respond with e-mails, briefings, phone calls back and forth, and sometimes with doorstop-sized reports justifying the bank's activities. The bank's slowness, in other words, reflects a governance structure that the new president cannot hope to change without considerable help from the bank's key shareholders.

A similar conclusion holds for another familiar critique of the bank: that it is insufficiently focused. Four years ago in these pages, Jessica Einhorn pointed out that the bank has spread into sector after sector over its 60-year history and almost never withdrawn from one. But once again, it is important to ask why the bank has taken on such a bewildering range of projects. It is not simply that self-aggrandizing bank bureaucrats are bent on expanding their power; it is that shareholder governments are forever driving the bank into new areas -- sometimes against the judgment of its leaders and staff.

In 1994, for example, the bank's bosses tried to resist U.S. pressure to get involved in postwar Bosnia. But the Clinton administration got its way, and the bank obediently plunged in, adding postconflict reconstruction to its many other specialties and setting a precedent that later sucked the bank into Kosovo, East Timor, and Afghanistan. In 2000, to cite another example, the bank was not especially active in education. But the Clinton administration, acting in alliance with Oxfam, embarrassed the bank into redoubling its effort in this field, and when rich countries launched a drive for universal primary schooling, they turned to the World Bank to lead it. Indeed, scarcely a year goes by without the group of highly industrialized nations plus Russia (G-8) announcing some lofty global goal -- on HIV/AIDS, private-sector promotion, and so on -- and then turning to the World Bank to do something about it. No matter that other global institutions are already active in these areas. (Education is supposedly the province of UNESCO, and the World Health Organization ought to lead the field on HIV/AIDS.) Because the bank is more effective than these bodies, it is forever called on to expand its mission.

So the bank's lack of focus, like its sluggishness, reflects the political sea in which it swims. Its major shareholders, who often denounce the bank's failings while helping to cause them, need to experience a Pogo moment: as the character in Walt Kelly's comic strip said, "We have met the enemy and he is us."

UNDER NEW MANAGEMENT