If it really wants to reduce poverty, the bank will have to slaughter some of its sacred cows.
- By Vishnu Sridharan<p> Vishnu Sridharan is program associate at the New America Foundation's Global Assets Project. </p>
Jim Yong Kim, selected as the World Bank’s new leader on Monday, has his work cut out for him. Sure, the bank has helped halve the poverty in the developing world over the past two decades — part of the first Millennium Development Goals — but progress in South Asia has dwarfed that in Africa, and 1 billion people will still live below the poverty line by 2015. And there’s more bad news for Kim: The World Bank’s narrow economic approach to poverty eradication simply will not work today, because the root causes of certain types of poverty are as structural as they are economic. This means the global health expert and former Dartmouth College president will have to think about international development in innovative, outside-the-box ways.
Here are five ideas that Kim could implement to make the bank more effective in its mission to “help reduce poverty:”
1. Forget about growth
One of the World Bank’s purposes is to “promote private foreign investment … for the development of the productive resources of members,” and its priority lending goes to “financial and private-sector development.” Criticisms in the 1990s (from Kim, among others) of this growth-centered approach led the bank to shift its focus to “inclusive” growth — growth that purported to take into account health, education, and environmental concerns. But if the bank is indeed interested in health, education, and the environment, it’s far from clear why it’s so intent on increasing productivity. In his inaugural address in 2007, outgoing World Bank President Robert Zoellick admitted that economic growth could only do so much to alleviate poverty:
Nearly 300 million people have escaped extreme poverty [as a result of economic growth].
Yet many remain on the fringes and some are falling further behind … Their exclusion has many causes — including conflicts, poor governance and corruption, discrimination, lack of basic human needs, disease, the absence of infrastructure, weak economic management and incentives, lack of property rights and rule of law, and even geography and weather.
Many of these causes have nothing to do with economic growth. If poverty reduction is truly the mission of the Bank, it needs to focus more on sectors such as education and health and reflect that reorientation in its investments.
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2. Address poverty’s root causes
Although economic growth (in terms of increased productivity or GDP) has reduced the headcount of those in poverty, it has done little for those who face social and cultural barriers to opportunity, such as religious discrimination and racial oppression. Social change, of course, is a topic approached with caution by the World Bank, given the wide variety of societies in which it operates.
One problem is that, in countries such as Ethiopia and Yemen, the bank works through central governments that often perpetuate and ultimately benefit from structural inequality. Yet reducing poverty for the most vulnerable and marginalized will be impossible without confronting topics such as gender parity in the Middle East, the caste system in India and Bangladesh, and the plight of those with physical and mental disabilities the world over.
To its credit, the bank is implementing policies aimed at “social development, gender, and inclusion.” At the same time, to get an idea of the level of priority the bank gives such initiatives, we need look no further than its budgetary allotments: In 2011, its investment in financial and private sector development was nine times its investment in social inclusion, and in 2010 the ratio was more than 18:1. To improve life outcomes for the poor, it’s high time the bank bring issues of oppression and structural racism out of the dark and into the limelight.
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3. Get rid of money
Cash-based economies harm the poor by heightening the risks they face when carrying money and fueling government corruption and inefficiency. So why not eliminate cash altogether? When governments electronically transfer money to beneficiaries of public benefit programs, it decreases administrative costs, diverts more of the money budgeted for the programs to the poor, and reduces the chance that recipients will be robbed. Depositing public benefits such as pensions into poor households’ bank accounts, as is done in Peru, also enables them to reliably save money and better prepare for emergencies. What’s more, in the context of international development assistance, electronically transferring funds directly to beneficiaries, as opposed to foreign governments or aid agencies, decreases corruption and thus has a greater impact on the people we aim to help.
USAID recently announced its intention to be a leader in this realm, but the World Bank has been slower to embrace the concept. Many of the bank’s programs rely heavily on physical currency, such as its Primary Education Stipend Project in Bangladesh and its Child Support Program in Pakistan. Luckily, as a start, the bank recently conceded that “program operators, financial institutions, and IT innovators have developed a wide range of strategies to deliver transfers effectively … [and] cut fraud and achieve wider coverage.”
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4. Don’t focus (only) on the poor
The World Bank was a pioneer and early supporter of cash-transfer programs for the poor. It currently supports more than three dozen countries with such programs, and is working to improve their efficacy and impact in contexts ranging from low- and middle-income countries to fragile and post-conflict states.
While these programs that target poor households have been widely hailed as key components of poverty reduction, in many contexts they often don’t get widespread support precisely because they target a small portion of the population. As the bank has acknowledged, “both the public and politicians tend to support universal programs since they benefit the entire population.” Though universal programs are more expensive than targeted ones, the former mobilize a broader base, which translates into larger budgets as successive administrations try to capitalize on the popularity of the programs. If the bank hopes to build support within a given country for public benefits, it should start with a program the general population is most likely to back.
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5. Institute a meritocracy, starting with yourself
Although Jim Yong Kim’s selection as World Bank president was nominally contested, the opaque and essentially non-competitive process of appointing the U.S. nominee to the post is outdated and counterproductive. While the system may have been justified when Washington was the main supplier of the bank’s capital, that time has passed.
An open election for the World Bank presidency would give the victor a clear mandate to implement his vision for how the bank ought to operate. For true development to be implemented and sustained, change must occur within each country and, ultimately, within the hearts and minds of its people. Without a say in who leads the institution, developing countries and their citizens are more likely to resist the type of radical change that is necessary to actually make eradicating poverty possible. One suggestion that Kim should consider is to implement voting structures in the World Bank that mirror those of regional development banks, in which the outcome of votes is determined by the majority if countries as opposed to simply the largest stakeholders.
When he was interviewed for the position, Kim told the World Bank executive board that he is someone “who asks hard questions about the status quo and is not afraid to challenge existing orthodoxies.” As he takes over a loan portfolio of over $250 billion, he’ll have to upset the status quo to fulfill the World Bank’s goals. An institution predicated on economic growth does not easily shake its focus, an institution working with cash does not easily abandon it, and an institution that derives legitimacy from state power does not easily confront it. Kim is the first person of color and non-economist to head the 68-year-old institution. Let’s hope that he’s ready to break a few more molds.
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