Is Reforming the World Bank Possible?

In April 2009, the G-20 pumped funds into key international financial institutions (IFI) such as the IMF and Bank to mitigate damaging effects of the global economic downturn on the most vulnerable developing countries.  Estimates from international organizations, including the Bank, indicated the crisis was returning tens of millions of people back into abject poverty.  The G-20’s decision and the impact of the crisis have heightened pressure on the Bank, both from a political and a humanitarian level to achieve results.  It has also provided a new opportunity for critics of the Bank to call for reforms.

For years, developing countries have wanted more say in Bank decisions.  External watchdog groups have urged the Bank to reform its internal governance and information disclosure policies.  One outcome of the global economic crisis has been to successfully pressure the Bank into implementing internal reviews for both areas.  The results have been mixed. 

In July 2010, the Bank implemented a new “Access to Information” disclosure policy.  The new policy was formed after significant consultation with civil society actors and key external players have praised the result.  Most notably, the Bank has shifted from a “positive” list to a “negative” list: There is a presumption of publicly disclosing a document unless it is classified as an “exception” instead of listing document types that can be disclosed and nothing else.  Another important advance is the ability of external stakeholders to appeal for disclosure after a document has been classified for non-disclosure. 

Nevertheless, watchdog groups believe there are gaps in the new policy.  Draft documents are considered “deliberative” and as such can be considered an exception for disclosure.  Moreover, member governments and Bank contractors can veto the disclosure of documents, there are limitations on the appeals process and access to documents from Board of Executive Directors remains largely unavailable or available only after many years.  On balance, many observers view the new policy is seen as a step forward for the Bank in terms of its transparency – and one that should be acknowledged – but also as a journey yet to be completed. 

In late 2008, the Bank launched a commission to examine internal governance reforms.  The commission, chaired by former Mexican president Ernesto Zedillo, made its recommendation in October 2009.  The commission offered a number of suggestions, but the Bank’s enthusiasm to embrace them can be best characterized as lukewarm.  (One notable exception is, in light of the global economic crisis, the commission supported strengthening the Bank’s resource base and the institution has moved aggressively to secure its first major capital increase in two decades.)

The Bank did move to give more voice and vote power to developing countries this past spring (a commission recommendation), but the change was incremental and the 50-50 split sought by many development think tanks and NGOs remains years away.  Interestingly, the Bretton Woods Project, a UK-based NGO, said its analysis indicated voting power for low-income countries may have even declined.   The concept of a transparent and merit-based selection for the next Bank president – and possibly a non-American – has stagnated for the time being.  It could be DOA given reluctance within some U.S. circles, but only a succession process may actually provide the true impetus for whether this informal policy will change.

These developments suggest change can happen.  When it does it is usually the result of large forces pressuring available fault lines.  However, when change does occur, it tends to be incremental, moving with sudden lurches and equally sudden periods of stillness.  My experiences in the Bank suggested drivers of change were opaque.  From my vantage point as an internal reformer, operating from within the organization offered opportunities not available to outsiders.  On the other hand, it also imposed limitations.  There were times when I came to believe true change must come from external forces.  As it turns out, both suppositions may be wrong.  Perhaps the will or efforts of internal or external reformers is not enough.  Only some tectonic shift of the world order can force the Bank or any IFI to reform.  The lesson of the global financial crisis may be that it may take an international crisis of some magnitude to shift the Bank’s thinking about its internal governance and accountability mechanisms.

This is the fifth of a series of blogs on the World Bank and transparency, accountability and reform issues.  I invite you to share your own opinions with a wide community of international development practitioners and interested readers

The Structural Inefficiencies of the World Bank (Part 2)

In the previous blog post, I examined four key structural defects in the World Bank’s bureaucracy that reduce effectiveness and ultimately create hurdles for its poverty reduction activities.  In this vein, I continue with several more observations that suggest effectiveness is undermined.

1. Maintaining the status quo compels Bank managers to be risk-averse.  This tendency exists in tandem with another characteristic known in the institution as its “approval culture.” Managerial success is measured by the volume of outputs: The amount of projects approved and lending dispersed. Personnel who are successful in getting projects accepted by the board climb through the hierarchy.  Banks like to make money. So, lending projects that are approved are ones considered safe or of less risk, but significant evidence suggests it does not translate into insightful lending or successful projects. 
2. The Bank is not a normal business. It seeks to make a profit, but success is not measured by profits. Managers may be considered successful if their projects receive board approval, administer units and tasks within annual budget allocations and appear loyal to superiors.  In such an environment of strict funding allocations, short-term considerations often take precedence over long-term and strategic interests.  Moreover, there is little reward for the texture of their administration – for their leadership qualities or how they administer their staffs.  Successful technical service and subservience lead to promotions.  Managers are rarely held accountable for poor leadership or abuses of staff.  Since there is little accountability for managerial abuses of Bank personnel, staff productivity has declined and staff cynicism has grown.
3. Former Bank economist David Ellerman has researched the concept of the institution’s adherence to “Official Views.”  “Power,” he wrote, “corrupts the ecology of knowledge—the conditions under which knowledge grows and flourishes. Those in power in an organization tend to enshrine their views as the Official Views … Experimentation, debate and the exercise of critical reasons are curtailed to stay within the safe boundaries of Official Wisdom.  To those in power, others who argue within the organization against Official Views only reveal their unreliability and lack of fitness for positions of authority. Those who argue against Official Views outside the organization – particularly with any public notice—are seen as traitors being disloyal to the organization itself.”  Ellerman questioned whether the Bank as a knowledge institution should even have Official Views when the issues, causes and questions surrounding development and poverty reduction are vast, complex and changing.
4. Some structural inefficiency is unavoidable and inevitable.  The multi-cultural Bank has a plethora of personalities, each with different perceptions of what is important and how the institution should act.  Senior management, economists, financiers, engineers, environmental auditors, transport specialists, urban planners, external affairs, unit managers, administrative staff and country-based staff all have their own opinions.  Personnel come from almost every country in the world.  Even some from the same country have grown up in sub-cultures that are entirely different.  Individuals can view the same issue and draw diametrically different conclusions.  The result is an institution that often acts in conflicting ways and thereby creates institutional hypocrisy on a daily basis.