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.
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.
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.