What future for the World Bank?
Sunday, April 15, 2012
Daron Acemoglu and James Robinson

There is now a healthy — and heated — debate about the nomination of Jim Yong Kim by President Barack Obama to be the next President of the World Bank, whether Mr. Kim is the right person for the job, and whether he will clinch it. (For example, for Lant Pritchett’s contributions see here and here; for Bill Easterly’s here and here; and for some more positive views, see here, here and here).

Some of the criticism has focused on the arrangement that essentially reserves World Bank Presidency to a US citizen. This is not an easy arrangement to defend, and one could definitely see a principled position that opposes Mr. Kim’s nomination just for this reason (see this interesting article on the history of this arrangement).

Nevertheless, it seems unlikely that this antiquated arrangement will end this year. It may still be worth opposing Mr. Kim’s presidency just as a way of criticizing this arrangement. But perhaps this year offers another historic opportunity: to change the vision and structure of the World Bank.

Many of the critics of Mr. Kim would agree that the World Bank’s mission has been unclear, and the Bank has done little to alleviate poverty despite its massive workforce and resources.

One reason for this has been the World Bank’s approach to economic development — outsiders trying to kickstart economic growth with aid and advice, and for the most part, ignoring politics and institutions.

Another reason has been the unclear mission of the World Bank. It’s a bank, it’s a charitable organization, it’s a think-tank, it’s an advocacy group, it’s a project management consortium, it’s a research institution, it’s a think-tank, it’s whatever you like it to be. In economics, it is generally believed that multiple — potentially conflicting — objectives weaken incentives and lead to inefficiencies. They also make capture more likely. One can justify organizations designed to perform many tasks at the same time, but only when these tasks are strongly complementary and cannot be performed more effectively when housed in different organizations. This is not the case for the many missions of the World Bank. For example, it’s not clear why providing (subsidized) loans and aid should be bundled with running development projects or with playing a leadership role in formulating the international community’s approach to economic development (if such an approach indeed needs to be formulated at all by a body in DC Washington which is quite doubtful). And why should all of this be bundled together with the very useful role that the World Bank plays in collecting and disseminating economic data.

The appointment of somebody like Mr. Kim with a proven track record of running very specific and narrow pro-poor health programs and hospitals — and equally notably, with no track record of being a banker, finance minister, or a development guru — might exactly be the opportunity to rethink what the World Bank is about and for the World Bank to focus on some of its missions. Perhaps the Bank under Mr. Kim’s leadership can stop feeling obliged to give loans to almost every government in the world provided that they undertake some — any — project. Perhaps the Bank could focus on doing a few things such as investing in health infrastructure, hospitals, perhaps some educational facilities targeted for the most disadvantaged populations in only the parts of the world that are most in need. Perhaps this could be the beginning of a conversation about what the future of the World Bank should be given that most would agree its future shouldn’t be the same as its past — though it must be said that Mr. Kim has not himself articulated this vision….

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (http://whynationsfail.com/).
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