The World Bank Needs to Return to Its Mission
With a clear plan, the World Bank would be able to find partners to help it support progress toward achieving the Sustainable Development Goals, which has been disappointing so far. Instead, the Bank is adopting an approach that would leave poor countries mired in debt, by relying on Wall Street to finance their basic needs.
NEW YORK – The World Bank declares that its mission is to end extreme poverty within a generation and to boost shared prosperity. These goals are universally agreed as part of the Sustainable Development Goals. But the World Bank lacks an SDG strategy, and now it is turning to Wall Street to please its political masters in Washington. The Bank’s president, Jim Yong Kim, should find a better way forward, and he can do so by revisiting one of his own great successes.
Kim and I worked closely together from 2000 to 2005, to scale up the world’s response to the AIDS epidemic. Partners in Health, the NGO led by Kim and his colleague, Harvard University’s Paul Farmer, had used antiretroviral medicines (ARVs) to treat around 1,000 impoverished HIV-infected rural residents in Haiti, and had restored them to health and hope.
I pointed out to Kim and Farmer 18 years ago that their success in Haiti could be expanded to reach millions of people at low cost and with very high social benefits. I recommended a new multilateral funding mechanism, a global fund, to fight AIDS, and a new funding effort by the United States.
In early 2001, UN Secretary-General Kofi Annan launched the Global Fund to Fight AIDS, Tuberculosis, and Malaria, and in 2003 US President George W. Bush launched the PEPFAR program. The World Health Organization, led by the Director-General Gro Harlem Brundtland, recruited Kim to lead the WHO’s scale-up effort. Kim did a fantastic job, and his efforts provided the groundwork for bringing ARVs to millions, saving lives, livelihoods, and families.
There are four lessons of that great success. First, the private sector was an important partner, by offering patent-protected drugs at production cost. Drug companies eschewed profits in the poorest countries out of decency and for the sake of their reputations. They recognized that patent rights, if exercised to excess, would be a death warrant for millions of poor people.
Second, the effort was supported by private philanthropy, led by Bill Gates, who inspired others to contribute as well. The Bill & Melinda Gates Foundation backed the new Global Fund, the WHO, and the Commission on Macroeconomics and Health, which I led for the WHO in 2000-2001 (and which successfully campaigned for increased donor funding to fight AIDS and other killer diseases).
Third, the funding to fight AIDS took the form of outright grants, not Wall Street loans. Fighting AIDS in poor countries was not viewed as a revenue-generating investment needing fancy financial engineering. It was regarded as a vital public good that required philanthropists and high-income countries to fund life-saving treatment for poor and dying people.
Fourth, trained public health specialists led the entire effort, with Kim and Farmer serving as models of professionalism and rectitude. The Global Fund does not stuff the pockets of corrupt ministers, or trade funding for oil concessions or arms deals. The Global Fund applies rigorous, technical standards of public health, and holds recipient countries accountable – including through transparency and co-financing requirements – for delivering services.
The World Bank needs to return to its mission. The SDGs call for, among other things, ending extreme poverty and hunger, instituting universal health coverage, and universal primary and upper secondary education by 2030. But, despite making only slow progress toward these goals, the Bank shows no alarm or strategy to help get the SDGs on track for 2030. On the contrary, rather than embrace the SDGs, the Bank is practically mute, and its officials have even been heard to mutter negatively about them in the corridors of power.
Perhaps US President Donald Trump doesn’t want to hear about his government’s responsibilities vis-à-vis the SDGs. But it is Kim’s job to remind him and the US Congress of those obligations – and that it was a Republican president, George W. Bush who creatively and successfully pursued the battle against AIDS.
Wall Street may help to structure the financing of large-scale renewable energy projects, public transport, highways, and other infrastructure that can pay its way with tolls and user fees. A World Bank-Wall Street partnership could help to ensure that such projects are environmentally sound and fair to the affected communities. That would be all for the good.
Yet such projects, designed for profit or at least direct cost recovery, are not even remotely sufficient to end extreme poverty. Poor countries need grants, not loans, for basic needs like health and education. Kim should draw on his experience as the global health champion who successfully battled against AIDS, rather than embracing an approach that would only bury poor countries in debt. We need the World Bank’s voice and strenuous efforts to mobilize grant financing for the SDGs.
Health care for the poor requires systematic training and deployment of community health workers, diagnostics, medicines, and information systems. Education for the poor requires trained teachers, safe and modern classrooms, and connectivity to other schools and to online curricula. These SDGs can be achieved, but only if there is a clear strategy, grant financing, and clear delivery mechanisms. The World Bank should develop the expertise to help donors and recipient governments make these programs work. Kim knows just how to do this, from his own experience.
Trump and other world leaders are personally accountable for the SDGs. They need to do vastly more. So, too, do the world’s super-rich, whose degree of wealth is historically unprecedented. The super-rich have received round after round of tax cuts and special tax breaks, easy credits from central banks, and exceptional gains from technologies that are boosting profits while lowering unskilled workers’ wages. Even with stock markets’ recent softness, the world’s 2000+ billionaires have around $10 trillion in wealth – enough to fund fully the incremental effort needed to end extreme poverty, if the governments also do their part.
When going to Wall Street, or Davos, or other centers of wealth, the World Bank should inspire the billionaires to put their surging wealth into personal philanthropy to support the SDGs. Bill Gates is doing this, with historic results, for public health. Which billionaires will champion the SDGs for education, renewable energy, fresh water and sanitation, and sustainable agriculture? With a clear SDG plan, the World Bank would find partners to help it fulfill its core, historic, and vital mission.
The World Bank’s Recipe for Irrelevance
World Bank President Jim Yong Kim’s nomination for a second term is moving forward with a lack of transparency that has become all too typical. The US monopoly over the Bank's top position has resulted in one disastrous pick after another, yet few member countries seem to care enough to do anything about it.
PHILADELPHIA – World Bank President Jim Yong Kim’s nomination for a second term is inexorably moving forward with a lack of transparency that has become all too typical. Many observers are once again gnashing their teeth at the United States’ continued monopoly over the top post, despite the poor performance of past US nominees. As the late Yogi Berra once put it, “It’s like déjà vu all over again.”
The US has been particularly brazen in subverting the nomination process to ensure Kim’s re-appointment. For starters, despite having another ten months left in his first term, Kim – surely with the US government’s blessing – asked the Bank’s Executive Board to accelerate the appointment process. The Board agreed – with no notable dissent – and even shortened the selection process to a mere three weeks.
A compressed schedule makes it difficult for World Bank members to rally around an alternative candidate. And Kim already had a head start, after quietly lobbying member governments at the G7 summit in Japan this May and in personal visits to China and India in recent months.
Moreover, as the incumbent, Kim can grant favors to win support: make loans that play to influential shareholders’ pet preferences, promise certain countries spots on the leadership roster, and stamp the Bank’s imprimatur on particular governments’ own domestic initiatives. Given the contents of Kim’s political toolkit, this match was never going to be played on a level field.
Many people can stomach questionable means if they consistently generate positive ends, but this has not been the case with Kim, who is among the worst presidents in World Bank history. His administration has been marked by authoritarianism and capriciousness, and he has forced out senior managers at unprecedented rates, sometimes requiring the Bank to reach quiet settlements with those affected. In four years, the president’s office has had five chiefs-of-staff, and several of the Bank’s senior women have left, hinting at a wayward leadership culture.
Last month, in a letter to the Bank’s board warning of a “crisis of leadership” under Kim, the World Bank Staff Association wrote, “We preach principles of good governance, transparency, diversity, international competition, and merit-based selection. Unfortunately, none of these principles have applied to the appointment of past World Bank Group Presidents.”
Kim has set such a low bar for the Bank presidency that it would not be difficult to find a better candidate. A short list would include Ngozi Okonjo-Iweala, a former finance minister of Nigeria; Nandan Nilekani, an entrepreneur who led an impressive bio-identification program in India; and Tharman Shanmugaratnam, Singapore’s deputy prime minister.
But even if Kim were to go, America’s problematic role would remain. The US has long insisted that the Bank’s president be a US national, and yet it has repeatedly nominated unsuitable candidates to run the institution. For example, former US Deputy Secretary of Defense Paul Wolfowitz’s World Bank stint, from June 2005 to July 2007, was a disaster, but the US faced no consequences (such as losing the right to choose the next nominee).
The US has chastised China for rejecting the Permanent Court of Arbitration’s ruling against Chinese territorial claims in the South China Sea. And yet, in supporting Kim for another term – in the face of objections from the World Bank’s own staff – the US is showing itself to be no less defiant when its own interests are at stake.
There is nothing new or surprising about great powers making and breaking rules as it suits them. The surprise has been emerging economies’ apparent nonchalance regarding America’s roughshod reign at the World Bank. While other member governments often express outrage at the US monopoly over the Bank’s leadership, and at Europe’s similar monopoly over the International Monetary Fund’s leadership, they, too, are willing participants in the charade.
One reason is that countries are happy to strike their own side deals to ensure generous lending. This fact is reflected in the World Bank Group’s official leadership, where the first three people listed after the president – hailing from Brazil, China, and India, respectively – are carefully distributed by nationality.
A second reason is that, while emerging-economy members dislike the US monopoly, they are even more worried about the prospect of a president from a rival emerging economy. The Europeans and Japanese have their own monopolies – over the IMF and the Asian Development Bank, respectively – and the Chinese have created their own with the Asian Infrastructure Investment Bank.
These arrangements amount to a cabal of mutual complicity, whereby world powers designate economic spheres of influence through regional governance institutions. Each major power knows that if monopoly control is threatened in one sphere, then it is threatened in all spheres, so they hang together to avoid being hanged separately.
But, perhaps most important, the world’s emerging powers no longer need the World Bank as much as they once did. Having found their own alternatives for most of what the Bank does, their indifference to a second term for Kim suggests that they simply don’t think the Bank matters much anymore. Indeed, it is the US, whose global influence is waning, for which maintaining control at the World Bank matters the most.
So, because US President Barack Obama’s administration has not bothered to follow credible procedures in making its nomination, much less select a better candidate, a failed World Bank president will get another crack at the job. By the time he leaves, his successor may well be welcomed with a collective shrug.
The Risk of a New Economic Non-Order
The upcoming IMF and World Bank annual meetings offer a critical opportunity to start a serious discussion on how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root.
LONDON – Next month, when finance ministers and central bank governors from more than 180 countries gather in Washington, DC, for the annual meetings of the International Monetary Fund and the World Bank, they will confront a global economic order under increasing strain. Having failed to deliver the inclusive economic prosperity of which it is capable, that order is subject to growing doubts – and mounting challenges. Barring a course correction, the risks that today’s order will yield to a world economic non-order will only intensify.
The current international economic order, spearheaded by the United States and its allies in the wake of World War II, is underpinned by multilateral institutions, including the IMF and the World Bank. These institutions were designed to crystallize member countries’ obligations, and they embodied a set of best economic-policy practices that evolved into what became known as the “Washington Consensus.”
That consensus was rooted in an economic paradigm that aimed to promote win-win interactions among countries, emphasizing trade liberalization, relatively unrestricted cross-border capital flows, free-market pricing, and domestic deregulation. All of this stood in stark contrast to what developed behind the Iron Curtain and in China over the first half of the postwar period.
For several decades, the Western-led international order functioned well, helping to deliver prosperity and relative financial stability. Then it was shaken by a series of financial shocks that culminated in the 2008 global financial crisis, which triggered cascading economic failures that pushed the world to the edge of a devastating multi-year depression. It was the most severe economic breakdown since the Great Depression of the 1930s.
But the crisis did not appear out of nowhere to challenge a healthy economic order. On the contrary, the evolution of the global order had long been outpaced by structural economic changes on the ground, with multilateral governance institutions taking too long to recognize fully the significance of financial-sector developments and their impact on the real economy, or to make adequate room for emerging economies.
For example, governance structures, including voting power, correspond better to the economic realities of yesterday than to those of today and tomorrow. And nationality, rather than merit, still is the dominant guide for the appointment of these institutions’ leaders, with top positions still reserved for European and US citizens.
The destabilizing consequences of this obstinate failure to reform sufficiently multilateral governance have been compounded by China’s own struggle to reconcile its domestic priorities with its global economic responsibilities as the world’s second-largest economy. Several other countries, particularly among the advanced economies, have also failed to transform their domestic policies to account for changes to economic relationships resulting from globalization, liberalization, and deregulation.
As a result of all of this, the balance of winners and losers has become increasingly extreme and more difficult to manage, not just economically, but also politically and socially. With too many people feeling marginalized, forgotten, and dispossessed – and angry at the leaders and institutions that have allowed this to happen – domestic policy pressure has intensified, causing countries to turn inward.
This tendency is reflected in recent challenges to several features of the economic order, such as the North American Free-Trade Agreement, as well as America’s withdrawal from the Trans-Pacific Partnership and the United Kingdom’s renunciation of European Union membership. All are casting a shadow on the future of the global economic system.
America’s inward turn, already underway for several years, has been particularly consequential, because it leaves the world order without a main conductor. With no other country or group of countries anywhere close to being in a position to carry the baton, the emergence of what the political scientist Ian Bremmer has called a “G-Zero era” becomes a lot more probable.
China is responding to the global system’s weakening core by accelerating its efforts to build small networks, including around the traditional Western-dominated power structures. This has included the establishment of the Asian Infrastructure Investment Bank, the proliferation of bilateral payments agreements, and the pursuit of the “Belt and Road Initiative” to build infrastructure linking China with western Asia, Europe, and Africa.
These dynamics are stoking trade tensions and raising the risk of economic fragmentation. If this trend continues, the global economic and financial configuration will become increasingly unstable, amplifying geopolitical and security threats at a time when better cross-border coordination is vital to address threats from non-state actors and disruptive regimes, such as North Korea. Over time, the risks associated with this shift toward a global economic non-order could have severe adverse effects on geopolitics and national security.
None of this is new. Yet, year after year, top government officials at the IMF/World Bank annual meetings fail to address it. This year is likely to be no different. Instead of discussing concrete steps to slow and reverse the march toward a global economic non-order, officials will probably welcome the cyclical uptick in global growth and urge member countries to do more to remove structural impediments to faster, more durable, and more inclusive growth.
While understandable, that isn’t good enough. The upcoming meetings offer a critical opportunity to start a serious discussion of how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root – and the higher the probability that a lose-lose world economic non-order will emerge.
A Practical Agenda for Revolutionary Times
OXFORD – As the world’s financial leaders gather for the International Monetary Fund and World Bank spring meetings, many working people around the world are demanding radical change, because they sense that their voices are not being heard. Those who are supposed to represent them should not ignore this anger and frustration any longer.
According to the 2017 Edelman Trust Barometer, the public’s confidence in the status quo has collapsed worldwide, owing to widely held concerns about globalization, innovation, immigration, the erosion of social values, and corruption. At the same time, the response from elites who regard themselves as the guardians of economic growth has sometimes made matters worse. If they think they can allay public concerns simply by explaining the benefits of the current global economic system and tweaking policies to compensate those left behind, they are in for a rude awakening.
Earlier this month, the IMF, World Bank, and World Trade Organization published a joint report extolling the benefits of trade as a driver of productivity growth, competition, and consumer choice. The report’s argument in favor of free trade is not new, nor is its recommendation that “active labor-market policies” be used to cushion the blow of lost jobs and livelihoods. What is new is that repeating these claims, without also addressing people’s deeper concerns, can now do more harm than good.
Global public opinion has changed dramatically in recent years. A majority of people worldwide – and up to 72% of people in France and Italy – now believe that the system has failed them. Moreover, only 29% of people across 28 countries now trust government leaders, while three-quarters of those surveyed say they trust reformers who would upend the status quo. These findings suggest that those defending free trade have lost credibility with the people they hope to persuade.
World leaders need to recognize that today’s populist revolts are being fueled by a sense of lost dignity – a sentiment that does not factor into most policymakers’ prescription for economic growth and compensatory payments. Working-class voters have lashed out because they feel not just economically abandoned, but also socially disdained and culturally marginalized. Their vote is the only means they have left to hit back at the establishment.
To address the public’s concerns requires a three-part agenda. The first order of business should be to reach out to those who feel voiceless and unrepresented. During the US presidential campaign, Donald Trump tapped into this sentiment when he vowed to punish any company that moves jobs to China or Mexico.
As the filmmaker Michael Moore explained prior to the election, American working-class voters were desperate to hear someone promise to take on big business. The fact that it took a populist plutocrat to do it underscores the extent to which the American labor movement has been extinguished. Political parties that originally emerged from the labor movement have long since shifted to the “center.” They now accept political contributions from big business, and have accordingly adopting the language of common prosperity and “consensus politics,” leaving the many working people who do not share in that prosperity and consensus feeling disregarded and displaced.
Second, the quality of work, and the status that it confers, must be improved. In wealthy countries, precarious, poorly paid, and even dangerous forms of employment are becoming increasingly common. A recent Bloomberg Businessweek story describes how temporary workers at auto-parts factories in Alabama are paid just $7.25 per hour, and must work in hazardous conditions with no safety training. In 2010, these workers suffered work injuries at a 50% higher rate than unionized auto-parts workers elsewhere.
As the OECD has shown, “non-standard” work is proliferating globally. This trend is contributing to deteriorating working conditions, making workers feel increasingly helpless and vulnerable. Reversing it will require robust standards to ensure workplace safety, fair pay, and the right to enter into collective-bargaining arrangements. Governments will have to intervene to set these standards, as they did during the nineteenth and twentieth centuries to improve abysmal conditions in factories. Otherwise, businesses will not be able to behave decently, for fear of being undercut by unscrupulous competitors.
Finally, more opportunities must be created for the next generation – and not just economic opportunities. Since the 2008 financial crisis, many governments have reduced their investments in health, education, housing, and other forms of human capital. Many have also cut support for the unemployed, homeless, or indebted. As a result, those who have fallen behind are deprived not just of resources, but, more important, the chance to pursue their aspirations.
As the IMF, World Bank, and WTO show in their report, free trade and globalization have certainly increased the size of the overall economic pie. In theory, this should have expanded governments’ capacity to compensate those left behind and create the conditions for them to get ahead. In fact, the opposite has happened, owing to government cutbacks since 2008.
The establishment’s agenda has been failing for too long. And as elites continue to proclaim the benefits of free trade and globalization, they are merely widening the chasm of popular mistrust.
Over the past year, that mistrust has boiled over in many countries, with voters in one election after another rejecting the status quo. Piecemeal curbs on globalization will not be enough to quell the revolt. Instead, world leaders must leave their echo chamber, take ordinary people’s concerns seriously, diversify their views, and think about why so many have lost faith in the system.