Foreign Aid & Civil Society

What is the World Bank Good For?

The Wall Street Journal is carrying a detailed piece describing how the World Bank has “winked at bribery, and worse” in projects in India, but particularly Cambodia. I thought it worth reproducing here for three reasons. First, because the WSJ is not standard fare in the development community. Second, because the article is scathing in its criticism, suggesting that the US Congress disengage from the institution. Third, to argue that the WSJ’s suggestion of disengagement is both wrong and irrelevant.

We long ago became accustomed to the toothless catchphrases by which the bank shovels money (now more than $30 billion a year) out the door, and it remains to be seen if Mr. Zoellick’s agenda will amount to more than a high gloss on the status quo. To his credit, the former U.S. Trade Rep is emphasizing the importance of free trade to economic development, still a controversial point at an institution that was once home to anti-globalization guru Joseph Stiglitz. But the real test of his tenure will be whether he can restore the bank’s reputation, especially regarding the corrupt uses to which its loans are often put, and the bank staff’s habit of looking the other way.

That point was brought home last month by Paul Volcker’s report on the bank’s anticorruption efforts, which painted a vivid picture of institutional resistance to having its projects “exposed as rife with corruption.” Mr. Volcker avoided specifics, though we revealed the devastating 2005 report by the bank’s internal anticorruption unit (INT) on bank funding for drug procurement in India. The losses in that one case ran into the tens of millions of dollars.

A senior operational bank source has now showed us a second set of INT reports concerning corruption in seven projects in Cambodia. The reports are so sensitive that they were never shared with Cambodia’s government, lest they put the lives of whistleblowers at risk. We have therefore agreed not to publish or quote directly from the documents, as well as to obscure certain details. But take our word for it: These are remarkably specific reports that document corrupt practices and name officials and companies by the dozen. Even more astonishing, senior bank officials have essentially let the Cambodian government get away with it.

…Mr. Zoellick is still new to his job, and no doubt he is eager to win over the staff that ousted his predecessor. Yet Mr. Zoellick’s most basic obligations are not to them. They are to the bank’s donors and to the world’s poor, both of whom are cheated when corruption is tolerated. Cambodia is one country where that happens. If the bank isn’t willing to act against it, then Congress should deny the bank more money until it does.

Where the Wall Street Journal is Wrong

The WSJ is not the only one recommending disengagement from the World Bank. Wolfowitz’s departure sparked debate in all kinds of places on the institution’s future, including at the BBC. In a recent debate on CNN, on the future role of the Bank, Prof. Jagdish Bhagwati went further, suggesting the Bank is, or should be, a think tank with a staff strength of about 300 people, in contrast to the existing 8000+.

These are drastic suggestions from some very respectable quarters. But the World Bank will not go away. Indeed, as the evaluations by the World Bank show, even corruption will not go away. Contrary to popular belief, the World Bank is not all powerful and does not have the ability to pressure even small economies to improve their accountability. And everyone has an incentive to keep it that way. Because the system assuages the concience of rich donor governments, funds the palms of recipient governments, pays the salaries of 8000 employees and scores of consultants, and gives many more diplomats, experts, and NGO representatives a reason to exist. Now who would spoil this party?

What is the World Bank Good For?

Let us, therefore, take the World Bank as a given. The question to ask, then, is not whether the Bank should wither away. Rather, one should ask what the World Bank can do while causing the least damage.

The more recent view, articulated by the new President is that the Bank should advance an agenda of “inclusive and sustainable globalization” by preaching the benefits of free trade. But was that not the role of the World Trade Organization? Is the Bank to become a marketing agency that organizes road shows and conferences for converting free trade skeptics and the poor into free traders? Probably not.

A more deep seated view presented by the Bank’s representative at CNN, in response to Prof. Bhagwati’s suggestion, was that the Bank is essential to “poverty reduction” considering there were still billions living in poverty. But this is hardly accurate. After all, the poverty reduction that has happened in the past half century has had nothing to do with the World Bank and everything to do with countries’ own actions. Indeed, Cambodia itself is doing rather well and will probably do just as well without the World Bank.

Clearly, the Bank has a serious existential dilemma that has persisted for a while.  But the answer to its dilemma may be the most obvious - and least attractive one. It is based on the old adage, “if it ain’t broke, don’t fix it.” Just let the Bank be, because it is doing ok and so is the world. Getting it to do “better” is both unlikely and fraught with risk.

© 2007 The Discomfort Zone.