What's next for the World Bank?

At roundtable, bank veterans see continued but diminished role

By Jonathan Miller, Mario Einaudi Center for International Studies

For a CornellCast video of the roundtable, please click here.

World Bank headquarters in Washington, DC.

“These are momentous times for multilateral banks,” says Ravi Kanbur, T.E. Lee Professor of World Affairs and former Chief Economist for Africa at the World Bank. “The world has changed, and I think we need to create a totally new structure to deal with the way the world has changed.”

But what should that structure look like? And who should decide?

Those were the questions Kanbur and three other former World Bank officials considered at an April 4 roundtable sponsored by the Mario Einaudi Center for International Studies.

When the World Bank was founded in 1944, Kanbur explained, its brief was to help countries rebuild after World War II. Designed by British economist John Maynard Keynes and Harry Dexter White of the U.S. Treasury Department, the bank was fundamentally an Anglo-American project. Its policies reflected not just the two countries’ global power, but also their economic and political priorities. The bank’s first loan went to France, a major ally and trading partner.

Today the bank’s mission – to “end extreme poverty” and “promote shared prosperity” – is very different. So is the world in which it operates.

A crowded stage

Among the changes cited by Kanbur and the other participants are a widening gap between low-income and fast-growing middle-income countries; the urgency of cross-border issues such as climate change, terrorism, and migration; and the emergence of foundations, businesses, and other institutions that provide many of the same services, including several regional development banks whose missions are almost identical.

The World Bank still has comparative advantages, argued Johannes Linn (Ph.D. 1972), a senior fellow at the Brookings Institution and a former World Bank vice president.

With its low interest rates and ability to mobilize funds, the bank should play a central role in financing the new Sustainable Development Goals adopted by the UN, Linn said. But it’s no longer the only game in town, he added, and needs to do better at coordinating with other actors.

Financing development is not the bank’s only role, said Caroline Freund, a senior fellow at the Peterson Institute for International Economics and the World Banks’ former Chief Economist for the Middle East and North Africa.

World Bank roundtable
Roundtable participants Ravi Kanbur, Caroline Freund, Homi Kharas (foreground), and Johannes Linn. Photo by Varun Hegde.

“Private capital flows dwarf multilateral lending,” Freund noted. But she said the bank remains an important intellectual resource. She cited its capacity for collecting, collating, and sharing economic and social data.

“That’s a huge, huge service to the world,” she said.

Seeking a niche

For decades, the World Bank’s main function has been to make loans to individual countries, and to work with governments to develop “growth-enhancing policies,” said Homi Kharas, the bank’s former Chief Economist for the East Asia and Pacific Region and now a senior fellow at the Brookings Institution.

Today, with so many transnational issues demanding attention, the world needs institutions to invest not just in country-level development, but in “global public goods,” Kharas said. He cited earthquake warning systems, response to pandemics, protection of the world’s oceans, and better emergency food distribution as examples.

But the World Bank, UN agencies, and other international bodies tend to be too specialized to do that kind of multi-sectoral, cross-national work, he said.

“The big question is how we take big institutions that were built for a specific purpose and change them for a different purpose,” Kharas said. “What we’re really talking about is some kind of instrument or mechanism for collective action.”

Ravi Kanbur questioned whether the World Bank was suited to true collective action. He noted that the bank is highly politicized, with the United States having disproportionate power. Fast-growing countries like China and India have their own ideas about how to develop, and their own sources of funding.

Meanwhile, Kanbur said, the bank’s funding base is stagnant. “The World Bank is becoming irrelevant at a rate of 7% per year,” he joked, noting that this is the rate at which emerging economies are growing.

The event was part of the Einaudi Center’s Roundtable Discussion Series. In his welcoming remarks, director Hiro Miyazaki explained that the center seeks to spur debate and collaborative research among scholars from many disciplines on complex issues of international importance. 

Miyazaki cited the center’s Global Finance Initiative (GFI) as one such effort. The Einaudi Center, GFI, and Cornell Law School are co-sponsoring an international conference on the politics of central banking on April 18-19.