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Foreign Affairs
The World Bank's Mission Creep
By Jessica Einhorn
Jessica Einhorn is former Managing Director of the World Bank and is now a consultant at Clark & Weinstock.
Less is More
The World Bank and the global community have learned a lot about development in the past 50 years. The bank is justly proud of its commitment to being a knowledge-based institution and has consistently responded to development setbacks with thoughtful analysis followed by new areas of lending. At the same time, critics have repeatedly faulted the bank for overlooking certain issues and constituencies, from environmental concerns in the 1980s to civil society in the 1990s. Along the way, the bank has added new tasks to its mandate. In recent years, it has been called on for emergency lending in the wake of the Asian financial crisis, for economic management as part of Middle East peacekeeping efforts, for postwar Balkan reconstruction, and for loans to combat the aids tragedy in Africa.
By now, its mission has become so complex that it strains credulity to portray the bank as a manageable organization. The bank takes on challenges that lie far beyond any institution's operational capabilities. The calls for greater focus through reform seem to produce little beyond conferences and consternation, since every program has a dedicated constituency resisting change. To counter these problems, the countries that own the bank — its shareholders — need to elaborate a worthwhile and suitably modest agenda. The views of emerging-market countries, which have shared in the bank's successes as well as its failures, should count a great deal; they are the ones who have lived the lessons of the past decades. Policymakers should consider a broad array of options, including devolving some of the bank's functions to new institutions or redistributing them to existing ones. But whatever the remedy, it is time to redefine the bank's unwieldy mission.
History Lessons
The World Bank, along with the International Monetary Fund (IMF), was established at Bretton Woods as part of the post-World War II international financial architecture. This system was meant to avoid future world wars by ensuring an open international trading system and global financial stability. At the founding conference, the economist John Maynard Keynes called for an institution that would focus first on postwar reconstruction and then on development in poor countries. The bank was thus established, beginning the great postwar experiment of using public loans for economic development.
Fundamentally committed to open trade, the bank initially emphasized loans to build public infrastructure — railways, roads, ports, power plants, and communication facilities. It believed such projects, accompanied by financial stability and private investment, could do the most to trigger development. The bank then learned lessons along the way. Latin America showed the deleterious effects of inflation and macroeconomic instability. South Asia demonstrated how the state could distort markets through price and regulatory controls, producing scarcity and skewed prices. Africa taught the importance of education, training, and human-resource development for economic progress. Thus the bank came to understand the importance of policy. And money became the vehicle for policy advice, displacing the old notion that foreign capital alone would spur greater productive investment and, over time, development.
Economic theory kept . . .