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Global Affairs

Future Governance: Can the World Bank Be Trusted?

 7 min read / 

Global commodity prices are continuing to plummet. Demand for the IMF and the World Bank is growing. However, in the midst of this, financial institutions are struggling to keep up with the massive changes that can be seen in today’s world. They are becoming more ineffective to the challenges that the world faces when they are needed the most. How to overcome this controversial dilemma? How can the World Bank grow to become the institution it was always meant to be – a preemptive and responsive financial institution that effectively fights poverty and sustains development? And can it be trusted to rise to the challenge?

Since its formation in 1945, the World Bank has been under large scrutiny for failing to alleviate poverty and sustain positive economic development in developing countries. The international organization is either seen as an instrument of power used by developed countries to impose Western values and norms onto the rest of the world, or as a dysfunctional body that has only worsened national and regional situations.

The World Bank’s Legitimacy 

In order to discern if these accusations are indeed true, it is worthwhile looking at the legitimacy and effectiveness of the World Bank. The institution is comprised of 189 member countries, in which the US holds the highest of 16.3 % of the total voting power followed by Japan with only 7.03%. As such, the World Bank is heavily dependent upon the US and vice versa, implying that the institution is largely structured by a hegemonic desire to lever foreign policies.

Arguably, the Bank is therefore founded upon many of the same structures such as the US, especially that of neoliberalism, making it standardised and to some extent normatively illegitimate as it operates within an environment that should warrant multilateral governance structures and ideologies. This decline in normative legitimacy has prevailed for many years but is something that is vital to the future success of the institution.

This is not to say that the influence of the World Bank is not necessary; merely that the current organisational structure should be reconsidered to include a multi-dimensional approach to poverty, where the re-allocation of power and resources would incorporate a new normative framework for the relationship between poverty and economic growth. Naturally, Rome was not built in one day, and in contemporary politics, where the stakes are significantly higher than ever before, it is important to be realistic about the idea of great powers dispersing more and more of their power. So far, events are beginning to point into the direction of increased unilateralism with the protectionist policies of Donald Trump and the UK’s removal from the EU.

Effectiveness

The effectiveness of the World Bank has been held back by the veto power of the US and its interests. However, more importantly, it seems to be disrupted by the lack of holistic understanding and the application of poverty alleviation and development. 30 years ago, it was accepted that economic growth was the main driver behind development and that social policies were relatively insignificant. This perception changed 20 years ago where poverty, rather than economic growth, became the underlying assumption of development. In other words, poverty changed from being a merely economic problem to a multidimensional one, in which other aspects such as social development became just as important. As a result, the World Bank suffered an institutional crisis as it was operating on the former assumption. Today, it operates within a more holistic model but one that is shunned due to its continuous econocentric culture.

Altogether, the capability of the World Bank to be effective in the respective developing countries is limited because of its strongly rooted Western culture and US dominance. The agency of weaker states is often trapped in a pit where overarching voices tend to drown them with their large cheers or quarrels. However,  just because it is underrepresented in the global economic and order, this does not mean that they should be secluded from it.

A New Approach?

Indeed, the World Bank should start thinking about effectively incorporating small agencies of states to participate with their different notions of capitalism that is more equipped to deal with development issues in their respective countries. Although this new multilateral approach would open up a space for slower and ineffective decision-making, it is nevertheless a crucial component for the World Bank to move forward. It could prevent further ineffectiveness by foregoing its long-term vision to try and focus more effectively on short-and medium-term financial and development initiatives or direct its brand from being global in outreach to being more locally focused in areas that need its assistance the most- mainly Africa, Latin America and Asia. Altogether, centralizing efforts so that member states would agree more effectively and purposely on lesser things.

Is the World Bank Relevant?

Is the World Bank relevant? If the venture is so futile, why are so many resources spent on it? Simply put: because it has to, and needs to be done. Financial volatility has never been higher, commodity prices are plunging, the global economy has grown 13-fold but is seeing slowdowns, and we have never seen a migration crisis bigger than World War II as a result of ongoing civil and regional conflicts. Poor and unstable countries simply cannot operate on a large enough scale to deal with economic slowdown, poverty and failing development. Such provides an opportunity for the World Bank to interfere, but it must do so with greater selectivity and a smarter strategic approach to the allocation of capital, so that the vastly diverse set of countries has access to more tailored treatments. As Mark Lowcock, the Permanent Secretary at the UK’s Department for International Development, summarizes:

“The World Bank has been successful with a broadly one-size fits all, first come, first served model which does its best to meet demand but which is careful not to take on too much risk. But it now has a far more diverse set of clients, with different needs, levels of wealth and ability to borrow on the market”

In other words, the world has become too big for one single good idea. It is imperative that models start to reflect the complexity that has emerged as a result of cross-border issues. They might be more uncertain and risk-prone but they would be able to better anticipate outcomes, which is highly necessary when assessing and implementing the allocation of money and resources.

Ideas for Change

Ultimately, in order to keep up with the growing demand, the World Bank needs to expand, but at the same time let go of its naïve notion that it can save everyone with its broad and global outlook. In order to be more effective and responsive to the massive socio-economic challenges, the World Bank must become more multilateral to gain deeper understandings of capitalism in its varied forms. It must also become more selective and centred around certain areas so that financial initiatives offered can be tailored, and thus more effective in combating economic and social issues in that respective country.

Another suggestion is to divert its culture from its econocentric state so that the normative framework of the institution successfully grasps the relationship between economic growth and poverty; and finally, it must create a more holistic system such that initiatives become sustainable and where high-performing countries also get rewarded.

However, one thing is to come up with all these new ideas- another is to bring them to life and to implement them effectively. Whether or not the World Bank can be trusted to do so might not be a matter of ability, but rather a matter of trust and respect.

Conclusion

As mentioned, the World Bank has suffered exhaustive critique, especially pointed towards its legitimacy and identity – arguably because Western notions of capitalism along with the US’ dominance is so imprinted in the institution. Through earning the respect of peoples, institutions, governments and regional associations, the World Bank would gain an unwavering trust and support that would certainly aid its general mission. Whether this shall happen or not is for the future to reveal.

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America

An Update on Trumptopia: What’s Going on in the USA?

 5 min read / 

Whiskey Tango Foxtrot (WTF)

This 2016 movie, produced by and starring Tina Fey, is based on a book that was written as a memoir by the main character, Kim Barker. It follows a period of three years between 2003 and 2006 – it was initially supposed to be a three-month assignment – when Kim takes an assignment to be a war reporter in Afghanistan.

The premise of the movie is that one’s perspective shifts to adapt to the circumstances, however bizarre, in the manner of the proverbial frog in increasingly hot water. Kim exits before she is boiled, but only just. The most poignant moment in the movie (there are not that many – the emotional tone is mostly flat), is when Kim returns home to visit a marine who lost his legs to an IED in Helmand Province. She had been told by a fellow reporter that the marine’s assignment to Helmand resulted from a segment she reported where he discussed his habit of keeping his weapon unloaded. He had greater fear of an accidental discharge than of an engagement with the enemy.

Barker felt guilty and wanted to give him the opportunity to reproach her. His response was not to blame her at all: “You embrace the suck. You move the f**k forward. What other choice do we have?” He gives her a brief history lesson on the murky issue of causation of the war in Afghanistan and the Middle East.

It is a telling lesson on the complexity of the human condition, people’s tendency to overestimate the magnitude of their own causal contribution to world events and a reminder that there are fewer easy answers than might be desirable.

Fire and Fury

The recent book by Michael Wolff is an excellent read not because it reveals anything the reader has not already heard or suspected, but rather as a sober chronicle of dysfunction and a reminder of what government should be about and what it should not be, but all too often is about.

There was drama in the LBJ administration. There was inappropriate behaviour; foul language; manipulation; ego. LBJ’s time as Vice President was a marked contrast to his stature as Master of the Senate. The transition to President in the wake of JFK’s assassination was remarkable. As the world watched, wondering how this would go, Johnson worked the levers of power to bring in a budget below the level of $100bn demanded by Harry Byrd, Chairman of the Senate Finance Committee as the price for releasing JFK’s tax cut bill that was holding up consideration of the Civil Rights Bill. LBJ continued to work his inside the ropes knowledge of the legislative process to get the Civil Rights Bill passed into law. This was American government at its best.

The picture Wolff presents is American government at its worst. The legislative initiatives that have been undertaken by the current administration are healthcare reform; tax reform; immigration reform. Healthcare struggled and failed; tax reform passed and immigration reform is caught up in the politics of funding the government.

The President’s approval ratings are in the doldrums; he is forced to deny the racism revealed by his vulgar language and he is fighting with his Chief of Staff via twitter. In the meantime, those whose deportation hangs on immigration reform live in fear of arrest and infrastructure reform is on hold.

Unified Field Theory

Steve Bannon, the early architect of the Trump administration policy (since ousted and discredited by the President) and the author of the President’s Inaugural Address, was widely considered to be a proponent of a comprehensive policy to take the country back – a kind of unified field theory. His premise was that the American people had spoken through the election of Donald Trump. His organizing philosophy was a robust ‘America First’ policy on trade; a very restrictive immigration policy (widely interpreted as White Nationalist and anti-Muslim) and generally tearing down the administrative state to restore power into the hands of the executive branch.

This political philosophy was well targeted to flatter the ego of the President. Wolff’s book reveals that the President does not read and rarely listens. His attention wanders quickly and the passage to his understanding is apparently a narrow window defined by short-burst images and soundbites frequently played out on his favourite cable news network, Fox News.

There could not be a sharper contrast to the skill set required to approach the long-term issue of, for example, infrastructure repair. There could not be a sharper contrast to the achievement marked by the Civil Rights Act. There is no unified field theory of human progress. It is about hard work, incremental steps and the occasional watershed victory. Bannon was short-lived.

How Hot is the Water Right Now?

Kim Barker refers in her book and in the movie to the concept of “Kabubble”, the world in which the reporters are analogized to frogs in boiling water. The need to keep the war top of the media’s mind at home requires ever more extreme assignments at increasing levels of risk to the reporters and their teams.

The US is currently living in its own Kabubble: Trumptopia, a land where hours of media coverage are devoted to discussions of whether the President used the word “shithole” or “shithouse” to describe certain countries whose populations are considered unsuitable for immigration by the President on the basis simply of their geography (and perhaps, coincidentally, the colour of their skin).

Senators sacrifice their credibility in the cause of loyalty to a President who never repays it. If the key issue is which word was used, the story has missed its mark. If the public wishes the coverage would end because, not surprisingly, it is tired of the noise, then the essence of Trumptopia is revealed: the use of the bizarre to distract from the appalling.

Heads are spinning, and the frog has only a little time left…

Keep reading |  5 min read

Europe

2018: A Bullish Year for Greece?

 4 min read / 

Greece Economy 2018

Two things of importance have recently occurred. The yield on Greek bonds has reached a new low (though, just in time to participate in a potential bear market) and the Syriza led government has enacted measures likely to secure the next tranche of euros. With the Greek economy heading towards achieving 2.5% growth YoY in 2018 and hopefully ending its Sisyphean 10-year cycle of bailouts this summer, the economy is starting to look ripe for foreign investment.

As Q4 2017 approached, things were starting to look up. Either because, as some have thought, after almost 10 years of crisis we’ve reached Greece-fatigue with comparatively lesser news coverage or because, as some notable commentators (such as Deutsche CEO John Cryan or American ambassador to Greece Geoffrey Pyatt) have argued, conditions are genuinely ameliorating.

With return linked to risk, the lowering of the Greek bond yield (which has fallen from more than 7% at the start of the year to 3.92% at the time of writing) is the market’s way of telling us that the outlook is improving.

Equity markets in Greece aren’t doing too shabbily either: Athens Composite Index (ASE: ATH) is up 32.24% at the time of writing, compared to last year. On one hand, it’s tempting to ignore the performance of the index. After all, since the shares have started trading again following the 2015 debacle, most of the companies included in the index – Greek banks, largely – had nowhere to go but up. On the other, reports on Greek industry are surprisingly positive, with the latest IHS PMI report on the region conveying high confidence in the sector and the ‘most marked growth in over nine and a half years’.

The reportage of the past few weeks has been centred on the possibility of Greece exiting its bailout successfully this August, on what it would take to do that and even what success might look like. This past Monday, amongst a furore of protests, the Syriza government moved to enact several fiscal and industrial reforms aimed at hopefully bringing Greece more in line with the criteria of its debtors (more here) in hopes of securing its next tranche of monies.

The vehemence of the protests (with some claiming new quorum rules on strikes are akin to slavery) seems to be inversely correlated with efficacy: Prime minister Tsipras and Finance minister Tsakalotos must surely be looking ahead to Monday the 22nd and up towards mitteleuropa in hope of approval. Whether this is a democratic stance to take is irrelevant, and with the party having a mandate to rule until 2019, they are surely gambling on a return to borrowing at European market levels and financial normalcy without too many stringent conditions. It’s a gamble, yes, but a politically expedient – and perhaps even an astute – one.

Greece offers a tempting arena for investment, but it will take more than access to the European purse to improve things, especially if SMEs and startups – surely an indicator of health in any economy – are to get off the ground. Gone are the days described in Michael Lewis’ Boomerang with its tableau of incognito meetings in hotels with tax collectors who were reprimanded for being too good at their jobs: taxation in Greece has become stringent enough to seriously affect entrepreneurs:

‘For an employee to receive over 2,000 euros net per month, their employer must pay more to the state – in taxes and contributions – than to the worker. When an employee collects 3,000 euros, their final cost to their employer each month is 7,127 euros, of which 4,134 euros goes to the state (58 percent of the total).’ Source

Even maritime activity, traditionally a staple of the Greek economy, is being affected by these strict taxation measures. Despite stirrings amongst Greece’s nascent venture capital community, Syriza-led Greece is hardly shaping up to be entrepreneur friendly and it may well be that we’re looking at an environment better suited to quick-witted, short-term speculators than investors hoping for long-term growth.

More than money is needed for the kind of recovery and environment beloved by investors.

The minotaur is still in the labyrinth, but perhaps 2018 may just turn bullish.

Keep reading |  4 min read

Brexit

Brexit Phase Two: EU-UK Trade Talks

 4 min read / 

What unites European political parties across the political spectrum is a demand that while Britain discusses its future with the EU, it adheres to the principle of freedom of movement throughout the phase two transitional period. This is together with all the other rules of EU membership, including compliance with decisions of the European Court of Justice (ECJ).

EU Solidarity

While Brussels conducts day to day negotiations, it will fall to rotating EU presidents to secure cohesion and solidarity among EU27 member states holding diverse agendas for the conduct of Brexit talks. For the next six months, this leadership task falls to Bulgaria. Romania – the EU’s fastest growing economy (in 2017) – takes on the role in January 2019 at what will be a critical time when Britain (finally) leaves the European Union.

On the 29th March next year, Britain will become a ‘third country’ putting its relationship with the EU on a par with Turkey subject to any refinements on single market entry or a ‘bespoke’ customs union granting limited rights for its financial services sector. Business confidence continues to focus on going concerns that without regulatory alignment with the EU, few benefits will be provided from Brexit. It lobbies for ‘frictionless’ trade, which effectively must keep it in line with single market rules for both goods and services.

Car manufacturers have constantly reminded government ministers of potential damage to supply lines by the imposition of trade barriers. They would assert that decades of foreign investment (FDI) in the UK car industry was made in good faith in the knowledge that Britain, with its flexible and liberalized economy, provided the best entry point for the more lucrative EU market. In fairness, other factors also played a part – not least that UK employment laws were less restrictive than in mainland Europe as a result of the Thatcher government’s reforms in the 1980s.

No Deal?

There is still a question whether Britain leaves next year without a deal. Although this looks unlikely, Michel Barnier’s team at the EU Commission prepares for this scenario – taking repeated threats from the hard Brexit camp at face value. Tracking progress for the shape of an eventual deal is not easy, but clues are already appearing. French President Macron’s visit to London on Thursday 18th January helped to re-invigorate the ‘Entent Cordiale’ which historically focused on European military defence cooperation. A renewed Calais Agreement to maintain a tight border on migration would also help to improve Franco-Anglo relations.

But on a post- Brexit trade agreement Macron stands firm in stating:

“If you want access to the single market – including financial services be – my guest. But you need to contribute to the budget and acknowledge European Jurisdiction. There will be no hypocrisy in this respect otherwise it would not work. It would destroy the single market.”

It is hard to see from this statement that the EU27 will weaken from this stance, or that France can be persuaded of a more pragmatic approach by other EU members.

However, this did not stop PM Theresa May from re-iterating her desire for a deep and special partnership with the EU: “I believe it should cover goods and services.” She went on to say “I think the city of London will continue to be a major global financial centre… That is an advantage not just for the UK, it’s actually good for Europe and good for the global financial system.”

Conclusion

In the coming months, understandably, Britain will seek to pick off different EU states to push forward its vision of future trade relations. It is unlikely this “divide-and-rule” strategy will ultimately succeed, and it may well delay the satisfactory outcome of negotiations within the agreed timeline. It is in the interest of both sides to hammer out a deal for the stability of the EU and UK economies.

Keep reading |  4 min read

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