Disclosure: The World Bank is a funder of Global Integrity.
Governance has been one of the key issues that the World Bank has been focusing on and pushing for on recent years. But, how does the World Bank fare itself in this department?
In the fall of 2008 Robert Zoellick, the current World Bank president, invited the current Director of the Center for the Study of Globalization at Yale University and former President of Mexico Ernesto Zedillo to chair an international commission that would review the World Bank’s governance. This was an 11 member commission which issued a report this past October. As a follow-up, the Center for Global Development (CGD) organized a panel discussion in early November for the Washington DC launch of this report. The panelists, including Ernesto Zedillo, agreed that the Bank’s initiative to complete an internal review is a forward-thinking effort.
The World Bank’s governance strengths and shortcomings
Zedillo gave a brief summary of the report and highlighted some of the key findings. Some of the World Bank’s governance strengths he mentioned are the representation of member countries in the governing bodies of this organization, and the link between shareholding and voting (at least in principle) which creates a flexible system.
The report indentified three main shortcomings:
- Strategy formulation. It is not produced to have full support and ownership of the shareholders. The Executive Board (Board of Directors) isn’t held responsible for the World Bank Group’s overall strategic direction. Consequently, decisions of strategic significance are left to management as part of the Bank’s day-to-day business.
- Voice and Participation. The report finds that there is not a fair distribution of votes. Some of the main issues are a voting gap between developing countries and developed countries, and the over-representation of European countries in the Executive Board.
- Accountability. There is a fundamental problem where the Executive Board wants to fulfill three contradictory roles: political representation, managerial responsibility and oversight. Zedillo called it an “impossible trinity” (or since the Board tries to fulfill these roles it may be an “improper trinity”). Besides the conflict of interest issues related to overseeing yourself, the Executive Board’s multiple responsibilities leave it with little time to deal with strategy formulation and oversight.
(For a more in-depth anaylsis of the report see the CGD blog.)
The discussion: The hows are more important than the whats
What was notable from the discussion was learning that there have been similar reports that have called for governance reforms in the past with strikingly similar recommendations that have been ignored. Lawrence MacDonald, a Vice President of CGD and moderator for this panel, mentioned as an example the 2005 report Five Crucial tasks for the New President of the World Bank, in which one of the panelists, Nancy Birdsall was an author. MacDonald remarked that “unfortunately I think all five of those tasks remain undone.”
One of the panelists Moisés Naím, the editor-in-chief of Foreign Policy, was a former Executive Director of the World Bank and thus was a part of the Executive Board. He also was part of a committee that was set up to change the Executive Board’s procedures. Naím pointed out that previous studies/reports on World Bank’s governance, including one he had worked on in 1994, and the most recent one reach similar conclusions. This shows that there is an apparent consensus among what should be done, but nothing has changed. So Naím brought up the question that why if there is practically the consensus on what to do, things don’t change? He argued that it is a matter of power, a reluctance to give in concessions.
Birdsall, the CGD president, suggested that to stimulate change, the leadership must come from the US with a partner like Brazil or China. To her some changes can be obtained through bargaining. She drew attention to the fact that World Bank governance reform might entail different governance structure and thus different boards for two of the World Bank’s institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA). So the Europeans could relinquish some of their chairs in the IBRD if their participation in IDA is increased.
Zedillo sees the World Bank as a necessary institution, among other things a venue for international cooperation (he argues that the lack of international cooperation before the financial crisis of 2008 was at the root cause of the crisis). Some of the main assets he recognized are its capacity to raise and channel funds into development, and a highly skilled and trained staff which includes a cross-country stock of development expertise.
Zedillo insisted that governance reform in the World Bank is necessary to ensure its sustainability. A “good governance” structure would enable the institution to be adaptable, accountable and consequently be legitimate. He added that the current state of the Bank is not sustainable and this may lead to it becoming irrelevant or inconsequential; then in the future there would be a need to create a new World Bank from scratch.
The written report, Zedillo and the panelists agree that change must come from the leadership of the heads of state and possibly the ministers, not from the Executive Board itself. Zedillo admits that the report doesn’t include a strategy to convince the key players to implement a governance reform. As he eloquently put it, it is a matter of vision and political leadership to undertake the necessary changes. A short-sighted perspective will doom this institution.
— Renato Busquets and Global Integrity