Global Policy Forum

The World Bank: A Glimmer of a Possibility of Change

Published only days before the World Bank confirmed the appointment of the American candidate, Bretton Woods Project highlights four major issues that a credible new president should tackle. Next to putting an end to the rigged appointment process, the new president should steer away from its neoliberal, unaccountable and unrepresentative ways. A good place to start would be the containment and reform of the International Finance Corporation (IFC), the bank’s private sector arm. This institution is a major facilitator of land grabbing and one of several of the bank’s subsidiaries that is irreconcilable with any legitimate conception of development.

By Peter Chowla

April 13, 2012

Imagine if the UK government was chosen by wealth rather than vote. We would let the leader of Surrey county council, being the richest county, choose the prime minister. That seems mad, but by analogy this is what happens at the World Bank, the largest international financial institution, whose mandate is to reduce poverty by giving grants and loans to developing countries. The World Bank has for 66 years operated out of Washington DC under a white, male, American leader.

This has contributed to the perception that the World Bank acts as an arm of US foreign policy, pushing US political and economic interests around the world. A decade into the 21st century we are still stuck with a sordid backroom deal that carves up the World Bank presidency for an American while a European takes the leadership of the International Monetary Fund. Few people know that the stitch-up goes deeper, with an American always taking the second position at the Fund while a European is always put in charge of the World Bank's private sector operations. No selection process for senior management in either institution has ever been conducted in an open, merit-based or transparent way, despite promises from the G20 since 2009 – ironic for an institution that regularly lectures on good governance.

Despite being structured like an artefact of the 1940s, the World Bank remains influential, with £35bn committed last year on supposedly combating poverty. It's no longer just a bank for funding controversial massive infrastructure projects in poor countries; the World Bank's reach under the aegis of the US-appointed presidents has stretched from project finance to writing the legal, political and economic frameworks that define the public and private sectors in most developing countries. Rebranding itself as a "knowledge bank", it even sets the tone, often with a neoliberal ideological tinge, for economic research into developing countries.

This spring we have the first somewhat competitive process for the bank presidency. With José Antonio Ocampo of Colombia, a former UN under-secretary general for economic and social affairs, and Nigeria's current finance minister, Ngozi Okonjo-Iweala, nominated for the top job, we have the glimmer of a possibility of breaking the vicious cycle of US dominance. One of the biggest obstacles is the unwillingness of the American nominee, Jim Yong Kim, to engage in an open debate about his vision for the World Bank. There are four areas where the bank needs to stop domineering and start listening to the needs of poor countries and poor people.

One of the most pressing issues for the next World Bank president is recognising the emergence of new powerful countries. The bank still essentially operates on a post-second world war power carve-up, and its most recent reforms of voting rights were remarkable only for their temerity. While power reform is not strictly in the remit of the bank president, the new president could first acknowledge the illegitimacy of the institution's governance and then argue for a realignment. But he or she needs to go further. Would one of these candidates create space in the global system for democratic and accountable alternative institutions led by developing countries, which bring new thinking and fresh ideas, rather than trying to co-opt them or reassert old, neoliberal economic dogmas?

The next World Bank president will be called upon to protect the rights of people affected by the institution's projects. The bank currently does not recognise that it has a duty to respect and protect human rights, generally categorising human rights as "political" rather than economic or poverty-related. As even businesses begin to recognise the need to respect human rights, the World Bank looks like a relic. Will the bank first recognise that people have rights, then implement safeguards protecting those rights, and create effective independent mechanisms to redress violations?

The World Bank is renowned for its arrogance, a belief that has seen it attempt to invade the knowledge economy and global public goods spheres. Its ideological support for largely failed carbon markets speaks of an approach where, for every problem, the market is always the solution. In ongoing UN negotiations over climate change and "green growth", the bank continually inserts itself as the potential agent for handling all the cash on offer. Instead, the bank could start by not funding giant fossil fuel power plants with scarce public resources and instead work to meet the energy access needs of vulnerable people with low-carbon decentralised technologies. A new president should take a do-no-harm approach to climate and energy, before even thinking it has the legitimacy to do anything else in the environmental sphere.

Finally, the past decade has seen a massive increase in the size of the bank's private sector arm, the International Finance Corporation (IFC), which is lending increasing amounts to corporate operations in middle-income countries. On top of being the part of the bank most criticised for facilitating land grabs by foreign investors, the IFC is starting to adopt financial structures used by investment banks, with half of its funding now being routed through other financial institutions, such as hedge funds and private equity vehicles.

Don't bother asking how the profit-maximising uber-capitalism of the City and Mayfair can be reconciled with the bank's mission to reduce poverty, since the IFC has struggled to figure it out. Could one of the three candidates find a way to make the IFC stop supporting corporate welfare and instead focus on national sustainable development?

We don't know enough about how any of the candidates would tackle these big problems and the hundreds of others on the World Bank's agenda, but the entrenched system of cronyism and patronage will work to ensure business as usual. The presidency looks set to again be a gift of the US president rather than won as a result of merit and competing ideas among the candidates. To break the vicious cycle, developing countries need to come together and jointly back one of the two non-US candidates, while some Europeans need to finally break ranks with the Americans. Absent that, this dinosaur of an institution will lumber on with even further reduced legitimacy.


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