World Bank Governance: Let’s Get Real on Reform and Global Public Goods!

November 10, 2009

The central message in last week’s CGD forum featuring former Mexican President Ernesto Zedillo on World Bank governance reform was “let’s get real.” From whom and from where will come any impetus to take up the Zedillo Commission’s good ideas? Answer: G-20, with the United States in the lead.

As I said at the forum, one reform should be relatively easy politically. The G-20 should agree to split voting power at the International Bank for Reconstruction and Development (the wing of the bank that lends to middle-income countries) evenly between developed and developing countries. This shouldn’t be a big deal: it’s already the case at the Inter-American Development Bank and in the World Bank’s own Climate Investment Funds—the multibillion dollar Clean Technology Fund included. The G-20 members should put this on the agenda of the spring 2010 World Bank meeting.

Other simple steps I urged include agreeing to scrap the unwritten rule that the World Bank president is necessarily an American; and establishing separate boards for the IBRD and the International Development Association (IDA), the bank wing that lends on highly concessional terms to the world’s poorest countries.

I also agree strongly with the Zedillo Commission recommendation that the World Bank should focus much more on providing global public goods, the most urgent of which is measures to confront climate change (for some of my previous work on the bank’s role as a provider of global public goods , see here, here, and here).

Indeed, I believe that in this regard we can and should move further and faster than the Zedillo Commission suggests.

In my speech ahead of the G-20 Summit in Pittsburgh, I proposed that the G-20 agree to create a new wing of the World Bank to focus specifically on climate change. I suggested three principles for this new entity:

• Periodic member contributions should be related positively to per capita income and to emissions per capita;
• Developing countries as a group should have influence equal to that of developed countries, whether through 50 percent of weighted votes or other voting rules.
• In legal and operational terms, the new entity would be as distinct or even more distinct from the main lending arm of the bank as the Multilateral Investment Guarantee Agency (MIGA) or the International Finance Corporation (IFC).

The creation of this new entity should be contingent on minimum contributions from the 10 biggest emitters, including China, Brazil, India, and Indonesia as well as the United States and the big European nations. China and other high-reserve countries will surely be interested in intermediating some of their $3 trillion in reserves through a global institution for the global good—as long as they get adequate representation in the new ‘wing’ from the start.

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1. david phillips Says:
   November 10th, 2009 at 2:59 pm

   1. The Zedillo Commission comes up with a lot of sensible proposals – e.g. regarding the selection and performance monitoring of the President, the position of the President vis-a-vis the Board, and the independence of the evaluation function. It also attempts some radical proposals on reform of the Board structure, and some not-so-radical proposals on voting (as Nancy argues above). But one large item is missing which seriously weakens the proposals re the Board.

   2. One of the main reasons why Governance is ineffective is not a matter of votes but because neither the Board of Governors nor the Board of Directors have adequate expertise. As a result the Bank’s management is largely on its own and it has always taken advantage of this to set the agenda. Thus the Board cannot exercise effective oversight even though it walks the halls of the Bank. There is a collusive relationsip – the Board defers to management’s expertise and management in return treats the Board with exaggerated respect. One reason the Board cannot have enough expertise is because they have 24 (25) directors all getting exactly the same infomration as each other and expected to do the same work. In an effective Board management information is passed through specialist functions (finance, strategy, operations, personnel etc) not constituencies. Other reasons are short tenure and civil service (rather then corporate) background.

   3. The expertise problem was painfully obvious during the Wolfensohn reforms. By 2001 a group of managing directors with no operational knowldge of the Bank reported to a President who was often absent who reported to a Board without the skills to judge the process of reform who reported to a Board of Governors that just attended two political ceremonies a year at the Bank. This was a recipe for a mess (please see my book ‘Reforming the World Bank: 20 years of trial – and error’ (Cambridge 2009).

   4. The Zedillo Commission’s Board consisting of only Ministers and their alternates is the same as the Board of Governors constituted as a Board of Directors. From the expertise angle this is even worse. Ministers wont have the time and will have even les knowledge, relying on their civil servants. The “Council of Representatives” is advisory but appears to have no expertise either. And why a “council”??? Will this mean in practice another type of Board??

   5. Let’s use a simple and well tried private sector model. The Bank needs two Boards – one supervisory board for constitutional issues, strategy setting and oversight (like Zedillo’s Board), and one management board for operations. BUT the management Board should be expert. It should be smaller, elected from nominations by Governments, and be open to top notch private sector indivivduals. It should also contain INSIDE DIRECTORS (finance, strategy, operations)to ensure expertise and transparency.

   Much more could be said but no space.

2. Jiesheng Says:
   November 10th, 2009 at 4:00 pm

   No the Bank has too much on its agenda to overly focus on Climate change. It should shake up its own internal culture and move from a neo-liberal perspective into that of working for different situations on the ground

3. Denis Says:
   November 14th, 2009 at 6:49 pm

   I think reform is needed but I have to be a pessimist here, is it achievable and if yes, who’s interest does it still serve. Since the WB deals with large developmental projects, it’s okay if the bank takes on global warning, even though the bank has a checkered record  on developmental projects such as the recently failed project of constructing a hydro electric power plant at bujagali falls in Uganda. The project was riddled with mass corruption, that ended up with millions of dollars being wasted that would otherwise have been used in much needed sectors of the economy. Put it this way, if the WB wants to take on Global warming it should encourage alternative sources of energy, especially in Africa, it is nonetheless an important vehicle for tackling global warming.

4. Laura Melkonian Says:
   November 15th, 2009 at 6:40 pm

   True, so true, that the World Bank, and the IMF, and, let us not forget, the WTO need to be reformed, so that poorer nations get a fairer hearing. Yet, when we propose reform, we should not make the “better” the enemy of the “good”. If we want tangible progress, the (perhaps) “better” design of novel structures should at times, for reasons of prudence, yield to the merely “good” old templates that are already around. We need not always “build” competence within the established international financial institutions but should also not disregard the option of “buying in” such competence.
   It was, if I remember correctly, a suggestion by the philosopher Peter Singer that the WTO, lacking global democratic legitimacy to address, e.g., issues of labor rights, should, instead of starting a cumbersome internal reform, simply endorse the positions that a much more legitimate institution – in this case the ILO – had long since worked out about the minimal standards of worker protection. Likewise, climate change and the stewardship over other global commons could be managed by this model, using the already well established competence and legitimacy of certain NGOs, as opposed to making things from scratch in organizations, which are chronically slow in change — for the all too well known reasons of the perspective bias and the vested interest of the parties that comprise them.
   For instance, if the WB and the IMF wanted to make serious steps towards anti-corruption control in the world financial markets, why not ask (and fund) “Transparency International” for lending a helping hand, instead of tackling the problem in-house? The same could hold for various environmental NGOs, which are only too eager to work with the greater leverage that the WB and the IMF or the WTO could afford them.

5. david phillips Says:
   November 16th, 2009 at 10:17 am

   The Zedillo report also recommends a resource increase for the IBRD because of the demands of the financial crisis. However even if all the crisis lending commitments so far actually go through the Bank still has large “lending headroom.” Also, the record shows that the Bank’s lending plunged after the end of the last (1999) crisis (as explained in my book). So if history is any guide it does not justify an increase. To do that it would need to set out a credible long term expanded and jusitifable lending agenda. This should focus on global and regional public goods which is where it should in any case be engaged.

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