Wednesday, April 16, 2008

the World Bank and poverty

According to the World Bank's website, 'at the heart of the World Bank’s work in more than 100 countries is the focus on poverty reduction. Almost one billion people live on less than $1 a day; 2.5 billion live on less than $2 a day. Beyond causing hunger and malnutrition, poverty makes people vulnerable to economic shocks, natural disasters, violence, and crime. They are often denied access to education, adequate health services, and clean water and sanitation.'

Excluding China, the number of people living on less than $1 a day has gone up since 1985. Excluding China, the number of billion living on less than $2 a day has gone up since 1985. This begs the question: if 'working for a world free from poverty' is at the heart of the World Bank's mission, why have the numbers of poor people increased in the past 20 years?

The people that work in the World Bank are not evil. They do not arrive at their office, in Washington, or in Hanoi, or in Maputo, and think 'How much poverty can I create today?' Indeed, the World Bank is full of well-meaning people who care passionately about poverty, who have learned a lot about the causes and consequences of poverty, and who have often worked very, very closely with poor people, in order to try and make the world a better place. I should know: many people I know have worked with, or still work for, the Bank, and they are not wicked people.

At issue, then, is how an institution full of well-meaning people can end up deepening the very phenomenon that they purport to want to remedy. How is it that the doctor ends up making the disease worse?

The answer lies in the institutional structure of the World Bank, and the career structure for those that work within it. The World Bank as an institution is dominated by representatives from the North, and, as Robert Wade of the London School of Economics has admirably shown in work that was published almost a decade ago, within those representatives, the role of the United States Department of the Treasury (the US finance ministry) is paramount. The US Treasury ultimately decides who becomes President of the World Bank. It has a disproportionate degree of influence in who assumes senior positions within the World Bank. Further, non-American Executive Directors at the Bank, who, along with the President, tend to set day-to-day policy and do pivotal things like approve loans, tend to understand the need to follow the lead of the United States in decision making. Thus, the Bank, which is staffed by a heterogeneous group of often very talented people, is an extremely hierarchical structure--almost Leninist in its design--in which those at the top make decisions in light of their belief system, and often (willingly) ignore good advice from those at lower levels of administration.

In terms of career structure, the World Bank tends to reward the orthodox. The World Bank is dominated by economists trained in the United States in neoclassical economics, which formally demonstrates the efficiency of free markets and private producers and the benefits of international trade and competition. People whose economic ideas stray from this agenda--people like Branko Milanovic and Joesph Stiglitz--have had a very hard time getting their ideas listened to, let alone accepted, and the message to the vast majority of the staff of the Bank is clear: don't upset the apple cart if you want to maintain the privileges that being a World Banker brings. Again, then, the career structure of the Bank is one that reinforces a pre-existing set of views, rather than challenging those views.

It is this combination of a hierarchical institutional structure and a career path that rewards orthodoxy over challenge which results in the World Bank clinging to a set of policy prescriptions that have, in essence, changed very little in 25 years and which have had a significant global impact, in that they have contributed to increasing the number of poor people in the world.

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