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

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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.  

What are some of the Structural Inefficiencies of the World Bank? (Part 1)

One well-known aphorism that has circulated the halls of the World Bank over the years is it is generally less than the sum of its parts.  Part of this tongue-in-cheek observation is based on a cynicism that can grow within any bureaucracy.  However, with regards to the Bank, it is also based in part on the cold reality of its unique environment.  From personal experience and research conducted for The World Bank Unveiled, I have identified a number of structural inefficiencies that keep the Bank from reaching its full potential in achieving its poverty reduction mission.  Here are four key ones:

  1. Senior management sculpts visionary reforms to tack with the geo-political pressures of the Bank’s member countries, external watchdogs, media and the evolving global financial and economic environment.  This has led senior officials to engage in regular reorganizations, but to implement reforms they must rely on the institution’s mid-level management.  As these external pressures have grown, the information revolution and a heightened interconnectivity of the global economy have reduced the amount of time senior officials have to react.  As a result, their reliance on mid-level management to implement these reforms has increased.  Concurrently, mid-level management is in reality a culture of fiefdoms.  The internal culture of the Bank, hardened over six decades, rewards managers for conservatism and adherence to the status quo.  So, these fiefs are wedded to maintaining the status quo as a strategy for advancement and accruing power.
  2. The institution is layered with a rigid hierarchy. The separation between senior officials and staff is stark and ingrained.  Such an environment creates warped perceptions and information vacuums.  Senior officials, focused on the big picture, are often given a skewed view of how things actually operate at the staff level. Problems and potential problems become hidden as accurate information often fails to move up the chain of command.  Additionally, senior management’s intense desire to not receive unpleasant information results in an institution-wide fear of candor.   Finally, these behaviors are exacerbated by one of the native instincts of the institution’s fiefs – an aversion to information sharing and transparency.
  3. The Bank’s culture is one that disdains selectivity and embraces the notion it must do many things well. As a result, staff is continually addressing new challenges, engineering temporary fixes, and moving on to the next problem.  Since it tries to do everything, preventable failures are inevitable and activities it pledges to support are not always funded.
  4. Institutional hypocrisy, a theory espoused by Robert Wade of the London School of Economics, occurs when the Bank tries to “control its external environment and manage the contradictory demands being made by states, NGOs and firms.”  The Bank provides actions/services and talk.  Clients and customers value its services.  Spectators and watchdogs values what it says.  The disconnection between the two is common and real.  Wade provides examples.  One includes: “increase the density of declarations and policies designed to satisfy and pacify spectators and watchdogs, and increase its promises to bring its actions into line with its policies, while not making the corresponding resource allocations.”

These observations are not to say the World Bank does not do some things well or to impugn the motives and actions of the dedicated professionals who work there.  However, my experiences suggest these structural inefficiencies are systemic and have led to both unsound decisions and a failure to learn lessons from failure. 

This is the third 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.

Is the World Bank an Effective Steward on the Global War on Poverty?

In 2008, The New York Times revealed that pledges by the richest nations such as the U.S. and Western Europeans in Monterrey in 2002 and Scotland in 2005 to increase development assistance had not been met.  Times research indicated promises to reach 0.7% levels of GDP had in fact only reached 0.28%.  The U.S. was only at 0.16%.  Concurrently, most experts agreed key U.N. Millennium Development Targets for reducing global poverty by 2015 would not be achieved.  The World Bank is the leading international institution charged with reducing poverty.  Prior to the 2008 global financial downturn, the Bank failed to convince rich donors to live up to their commitments.

 I believe there were three basic reasons why the Bank had not been a more effective advocate during the 2000s:

1 –  Donor countries were deeply skeptical the Bank’s lending was effective.  Research from a number of development think tanks, economists and NGOs question suggested important shortcoming in the Bank’s lending effectiveness.  Weaknesses in the Bank’s lending portfolio undermined appeals by the institution to donors for more aid.

2 – Borrower countries found the Bank’s lending “conditions” stringent, draconian and often creating unnecessary hardships on their populations.  Conditions, such as structural adjustment lending that forced poor countries to reduce public spending, increase savings and reduce inflation may have been sound macroeconomic policies but belied the political realities facing developing economies.  As a result, borrowers have increasingly shied away from the Bank and turned to private capital financing for their development needs.  This led to an evolution of the Bank’s portfolio with more emphasis on emerging market economies rather than developing economies.  And importantly, the Bank influence over client countries weakened.

3 – Shareholders – donor and borrower members – and stakeholders such as NGOs, community-based organizations and private citizens viewed the Bank as a monolithic society where well-connected financiers close their doors to debate the economic fate of millions.  Critics accused the Bank of having a culture of secrecy, an aversion to transparency and a lack of accountability.  As a result, they hesitated to trust the Bank.  The result was the moral standing of the institution had been weakened and its ability to advocate for policies it supports had deteriorated.

In April 2009, the G-20 met in London and pledged to infuse $1.1 trillion in capital to the Fund and Bank.  Nevertheless, concerns for donors, borrowers and civil society stakeholders about the Bank have not been fully addressed.  Questions remain as to whether the Bank will be any more effective in using the aid provided from the G-20 or future aid than it had before the global economic downturn.

This is the second in a series of blogs to be offered in the next few months on the World Bank and transparency, accountability and reform issues.  I invite you to share your own experiences and observations with a wide community of international development practitioners and interested readers.

The World Bank and Transparency: A Perspective

1 – The World Bank and Transparency: A Perspective

As the author of a new book, The World Bank Unveiled: Inside the Revolutionary Struggle for Transparency, I recount my dozen years inside the institution.  I examine a number of aspects of the organization that range from its culture and bureaucracy to its day-to-day activities.  Among the key questions the book analyzes is the meaning of transparency inside the Bank.  In fact, my experiences suggest it means different things to different internal stakeholders and that these sensibilities are often conflicting and reflect a vast array of backgrounds.  For example, in recent years the Bank merged a knowledge sharing mantra into a culture that horded information and it implemented greater disclosure measures that were often viewed by external observers as rhetorical flourishes. 

When he left the Bank in 2005, former President James Wolfensohn said transparency reduces corruption, reduced corruption leads to better governance and better governance increases development.  Transparency, he believes, is the key.  But history suggests the Bank’s management believes transparency is something that should apply to its clients and other external stakeholders.  Its enthusiasm regarding the internal application of transparency seems less than robust.  Consider the following:

  • It has a long history of reluctance toward releasing documents external observers believe are central to helping foster development.
  • When its staff has gone public with views that counter the Bank’s traditional orthodoxy, they have been dismissed.  Nobel Prize winning economist Joseph Stiglitz and William Easterly are two prominent examples.
  • In 1997, as part of its Strategic Compact reorganization, the Bank began to recast itself as a “knowledge bank.”  It has not been a success because the cultural instincts of the institution favor information hoarding rather than knowledge sharing.  The World Bank Institute, the branch of the institution charged with implementing knowledge sharing, is a pedagogical unit that promotes fostered learning.  Former Bank economist David Ellerman’s insightful paper, Helping People Help Themselves: Toward a Theory of Autonomy-Compatible Help documents how fostered learning creates client dependency which diametrically counters knowledge sharing.

The World Bank Unveiled offers numerous other examples.  But much more importantly are the perspectives of others who have worked inside or outside the Bank.  This blog post wants to encourage others to share their own experiences and stories …