My Two Big Worries about the World Bank

For the first time in its seven-decade-long history, World Bank staff staged a work stoppage earlier this month. Staff are unhappy about the “Change Process,” aka the ongoing internal reorganization that President Kim initiated on his arrival at the bank now more than two years ago. A Staff Association update of October 9 says: “We are riding a bicycle as we build it, and staying upright is getting harder and harder.”* 

The reorganization process is the first of my two big worries about the World Bank.

The second is more troubling: The bank is well past its heyday as a major supplier of funds to developing countries. Short of a new vision, it faces an existential threat of growing irrelevance and obscurity as rising incomes in big emerging markets reduce the demand for and logic of the bank’s country loan model. I believe the world still needs a World Bank. But it needs a World Bank built for the development challenges of the 21st century, not the 20th. 

One: The Troubled Reorganization

This I would lay directly at the feet of President Kim to fix. 

Disruption is good, but two years of disruption with no clear end in sight is too much. An example: In the last two years at least five of the bank’s most senior managers, with an accumulated 50 years or more of bank experience (yes, insiders) have been (apparently) summarily dismissed. Recently the vice president for Africa “resigned” just days before last month’s Annual Meetings of the World Bank and the IMF—only to be brought back two weeks later.

From outside it is easy to assume that a well-paid staff is grousing about losing status or position or even employment itself because of a reorganization. But after living through and observing reorganizations at the World Bank over the last 30 years, I have the sense that the press gets that part of the story mostly wrong.  What staff are concerned about is the continuing uncertainty that affects their work in the field. Who is going to now be in charge of the water and sanitation program I’ve been working on in Mali?  Will my dialogue with the Karachi school authorities on the verge of agreeing to try contract teachers fall apart because a new department head will cut the travel budget?  Can I get funding without a vice-president in place to champion technical analysis of a crop insurance program in eastern China?

World Bank staff traditionally settle down after a reorganization and get back to the business at hand.  They know they have great jobs, mostly well paid and with a deeply satisfying mission; they also have passion about their mission: to work for a better world. But when President Kim agreed to an emergency town hall meeting several weeks ago, 8,000 (out of about 10,000) staff attended, including 5,000 online (many connecting in the middle of their night from overseas).

Staff, it seems, do not believe this reorganization is done, let alone at the stage of fine-tuning. Their specific concerns are fundamental: the new reorganization has created fourteen silos where there were four and more not fewer management layers; decision-making is more centralized not less; transactions costs to organize teams are higher than ever and budgeting for work with clients is not flowing; a few senior managers get bonuses while a big budget cut is slashing travel budgets. Surely management should share in the austerity.

It sounds as though structure and incentives are less aligned than before. Something is wrong, and it seems right to ask President Kim to say so and fix it.

Two: The Threat of Irrelevance—Global Goods and Bads

The second thing that troubles me about the World Bank is a deeper sign of the disjunction between what the world needs the bank to do, forcefully and with full funding, and its current limited mandate: to support countries qua countries, for the most part one country loan at a time.

President Kim’s quick response to the Ebola pandemic in West Africa was impressive because it responded to a global concern—and not with the usual one-country-at-a-time process. Kim was able to commit $400 million because the bank had the cash in its wallet—yes “cash” in the form of big grant (not loan) money.  That special grant money is there because the donors to the bank’s “special funds” (IDA money for insiders) for the poorest countries put it there; in 2013 the United States, Japan, Germany and other rich countries contributed close to $30 billion for the bank to deploy over the subsequent three years in the form of grants and highly concessional (cheap) loans for the poorest countries.  This special funding included an even more special set-aside for disaster relief and other emergencies in the poorest countries (which the $400 million disbursed for Ebola largely depletes).

But there is an irony here. The Ebola pandemic is what economists would label a global public “bad”; although it is taking place in a few small poor countries, it puts everyone everywhere at risk (and no one country has much reason to take sufficient action alone since the benefits will go also to other countries). Other global public bads include climate change, financial crises (such as the 2008 crisis that started in the United States and spread worldwide), growing antimicrobial resistance to drugs, and global terrorist movements.  Weak governments in poor countries are increasingly a global public “bad” in themselves—consider pirates off the coast of Somalia and consider Ebola itself, seeded in three of the world’s poorest countries. 

There are also global public “goods”: an Ebola vaccine, the agricultural breakthroughs that brought the Green Revolution, standing forests that sequester carbon. But the World Bank’s mandate is to make loans and grants to countries, mostly one country at a time. It has no mandate to finance more of these global “goods” or to attack the global “bads,” despite the fact that in a thoroughly interconnected world all of these goods and bads matter hugely for reducing poverty and advancing prosperity.

In the Ebola case, President Kim had some good luck. First, special funding happened to be available.  Second, other poor countries that might have resisted having money taken from their common pot were eager to spend it to contain a problem putting them at risk as well. 

Now comes the irony: What was lucky in the Ebola case is being undone elsewhere in the bank. Word is that the budget-cutting that President Kim has promised as part of the reorganization is leading to the elimination of the small but crucial and catalytic grants the bank has historically made from another “special” facility, the Development Grants Fund for global initiatives. The DGF is tiny compared to bank capital and country lending (about $200 million a year over the last two decades compared to $35 billion in lending in 2012); it is a kind of ad hoc way to engage in obvious high-return investment opportunities in the absence of a clear mandate to support global initiatives. Since 1997 it has provided core funding to support global-public-good institutions such as the Global Development Network, which funds researchers in developing countries, the Extractive Industries Transparency Initiative, which promotes disclosure of natural resource deals and profits in the interests of reducing corruption, and CGIAR, the network of research institutions that produced the Green Revolution. Word is that this window will be gone entirely within a year. Meanwhile, the bank’s more extensive if still ad hoc multi-country bank-managed program of surveillance and response to the Avian flu crisis a decade ago has disappeared; an independent evaluation of the program concluded that the global public good nature of the program meant it was difficult for the bank to sustain once the sense of crisis passed.

In an internal reorganization meant to strengthen “global practices,” there has been no leadership on acquiring a “global” mandate. Almost 10 years ago, in this 2005 CGD report, a distinguished expert group proposed that the World Bank have a mandate and a pot of money to set priorities for the funding of cross-border, global investments. It could then deploy its expertise and its resources to cover the incremental cost of solar or wind energy instead of coal in South Africa; to help finance licensing fees to speed up access to new patented technologies on behalf of developing countries; to co-finance, with the Global Environment Facility, payments to Indonesia for retaining its forests; to collaborate with WHO on financing the testing of a vaccine for avian flu or Middle East respiratory syndrome coronavirus (MERS-CoV); to jumpstart a new round of agricultural research geared to Africa’s soils and land use constraints; and most of all to invest strategically in global goods to prevent global bads, rather than responding with repeated rounds of emergency relief after global bads strike.

I put this second worry, the growing gap between what the world needs from the bank and what the bank has the remit to do, to President Kim to fix, too. A truly global mandate is not about big money but about effective leverage of the bank’s singular combination of financial heft, technical depth, and global know-how in an institution designed for international collective action. Kim’s leadership on Ebola positions him well to ask the Bank’s board to open a serious conversation about a new mandate and to ask the White House and the US Treasury to contribute actively to that conversation.

It is time for the World Bank to take on the 21st century—to further its mission and save itself.

* The Staff Association update cited above was sent to me by a third party who received it from a staff member.