Reforming the World Bank: some good ideas, but where’s the power, politics and feasibility?

By Duncan Green - 27 June 2023

Duncan Green reports on the feasibility of welcome proposals for reforming the aging bank.

Spent a half day at ODI recently discussing the reform of the Multilateral Development Banks (MDBs) – the global ones like World Bank, the regional ones like the Asia or African Development Bank, and the new ones like the BRICs Bank. It was interesting for what was said, but also for what was missing.

First what was said:

On World Bank Governance

Governance is a mess, especially at the World Bank, according to the ODI’s Mandeep Bains (here’s her recent paper on this). The Bank has 3 tiers: Ministers of shareholder governments; a Board of Governors (officials from shareholder countries), who are resident and full time; and senior management, led by the President.

So the Board of Governors finds itself sandwiched between two layers, ending up neither strategic nor executive. Plus the President chairs the Board. If you apply Corporate Governance Principles (although questions were raised about whether these fit for a public institution like the Bank), the Board should have a strategic focus, delegate supervision and oversight to management, and (shock!) appoint directors with the right skills. None of that happens, not least because resident BoG members have far too much time on their hands, so constantly meddle in decisions that should be left to management.

Why is it like this? Chris Humphrey acknowledged the politics at the heart of it. Every government rep has to balance its domestic interests with those of the institution. In recent years, that balance has tilted towards the domestic, especially for the US, where its representatives have prioritized placating domestic constituents, including CSOs and Congress, over GSD (Getting Shit Done – my acronym, not his!). It’s always ‘much easier to put in another rule to make sure we don’t get beaten up’ (his words).

Mandeep had plenty of recommendations for reform, but Tim Lankester outlined just how stuck the Bank is. As the UK’s Governor in 1987, he made many of the same proposals and got nowhere. 1987, sheesh.

On Climate Finance

Interesting disagreements here. Shanta Devarajan argued that while CC Adaptation finance is a national public good, CC mitigation (reducing emissions) is a global public good, which has very different politics. He believes mitigation financing should be given to some kind of Green Fund and taken away from the MDBs because their governance is a load of government reps putting their national interest first – that works for Adaptation (and maybe Loss and Damage) but not for emissions reductions. ‘For climate mitigation, we need people who are reps of the whole planet.’

Michael Jacobs disagreed, arguing that most mitigation involves the holy grail of ‘co-benefits’ – clean energy transitions help countries’ own development as well as the global climate. So no need to hive it off. Kathy Hochstetler wanted co-benefits to be true (don’t we all) but saw clear trade-offs between mitigation and national development/poverty reduction in areas like fossil fuels. Josué Tanaka thought the GPGs frame was not helpful – we need to translate everything into national interest, e.g. mitigation has to do with air pollution or water. Focus on the overlap not the difference.

Shanta was willing to go to 30% of mitigation providing co-benefits, but suggested a way of redefining poverty that might help square the circle. Intergenerational poverty, aka ‘we have to stop frying our grandchildren’.

Finally, ‘the Borrowers’, aka poor countries. More and more of them are voting with their feet, preferring to take more expensive loans on the private finance market because they are quick, and fit the political cycle of a politician keen to show results before the next election. How to reduce the MDB hassle factor, asked Ganeshan Wignaraja? Could they not at least harmonize reporting requirements and other paperwork between all the different development banks?

And a powerful critique of the limited value of much of the research on offer to borrowers. For Ganeshan responsive advice is often more useful than money to borrower governments. But it often comes as indigestible longform set-piece reports, without enough inputs from local staff, experts and thinktanks. Ken Opalo was even more critical: ‘Policy research is too close to the academic publication process, and removed from policy relevance. We need to divorce it from faddist chasing of journal editor needs. What we’re doing now may be good for careers and journals, but not for developing countries.’ Ouch.

Opalo also argued that researchers need to take borrower country politicians seriously, understand their ideas, and where they’re coming from, if their research is to be useful.

Which brings me to the big gap in the conversation. Back to Mandeep Bains, who set out some very sensible governance reforms and then a throwaway line ‘As these are unlikely, an intermediate step is to appoint some independent/non-government directors.’ Okaaaay.

Other speakers did focus more on what is politically feasible: Nancy Birdsall proposed leaving the core governance structure alone, rather than waste decades trying to reform it (back to Tim Lankester). Instead, seek ‘A hack that allows us to bypass deeply entrenched domestic problems.’ (Chris Humphrey), such as setting up new funds. There, money talks, and if China wants to put in more than anyone else, it gets a much larger say in the governance. Julie Katzman from the Inter-American Development Bank said they have done something similar, setting up IDB Invest.

As well as the power of new money, another driver of such changes is borrowers voting with their feet. As countries stop borrowing, the pressure on the Bank to change will grow – like any Bank, it relies on its customers to keep it solvent.

Final, broader point: This discussion on feasibility was very much on the margins, coming after a lot of ‘If I Ruled the World’ presentations on reforming the MDBs. I think it should be mandatory for any policy research paper setting out recommendations for change to have an appendix setting out its theory of change: who would decide these changes, what are their (dis)incentives, what events, narratives or messengers might persuade them to move. Any takers?

And here’s the evening panel at LSE involving many of the same speakers.