Guest Post by Danny Leipziger,Professor of International Business at George Washington University, and former Vice President for Poverty Reduction and Economic Management at the World Bank
A new president will take over the World Bank on July 1st. Dr. Jim Kim inherits a venerable institution that has lost its way. As a lender, the Bank peaked with its massive precautionary lending in 2008-2009, only to be left capital poor. As an adviser, it has lost too many experienced staff to be taken seriously by more adept policy officials in borrowing countries. And as a voice for development, it has grown faint. To be sure, the Bank still has assets, its past reputation among them, but it is precariously perched, being surpassed and outclassed by regional banks, by the IMF, and by new lenders.
Re-enforcing this rather bleak diagnosis is the fact that senior officials of the Bank have lost hope; staff are now told that policy briefings with Ministers are a thing of the past, that others can analyze World Bank data better than the economists in-house, and that budget constraints limit the Bank’s ability to reach for new challenges. This is the institution that Jim Kim inherits. It needn’t have come to this. A recent Diagnostic Report of the 1818 Society, the Bank retirees group, noted many self-inflicted wounds caused by poor management, excessive decentralization and lack of accountability, mission creep, and horrific human resource policies.
Faced with this situation, a new CEO might be inclined to look for the silver bullet of one new initiative, one new partnership, or one new theme. That would be a colossal error. Turnaround management will require a new business model for the 65 year-old development bank. That new model should include retrenchment into regional hubs, staff reductions, a new organizational structure, and a return to a sensible human resource policy. The World Bank staff, its primary asset, needs to be recruited from the best places and needs to embody the best global skills. Only then will they get their meeting with ministers.
Its financial model needs to be rethought to gain more leverage from existing capital and to start lending to sub-national entities that will for the next decade be the growth drivers and either the greatest polluters or largest carbon-reducers. Its mission must change from an excessive focus on fragile states and its IDA business to a better balance with middle-income engagements based on bundled services of expertise, financing, and convening power. This work cannot be done by term- contracted appointees with neither the requisite experience nor the institutional memory of knowing what has worked and what has failed in the past.
Most of all, the Bank needs to get it "mo-jo" back! It has been on its heels since 2005. It has not reacted to new global challenges to redefine its role. It failed to capture the climate change agenda; it responded to the financial crisis with one-time lending, but failed to provide the risk mitigation instruments that emerging market economies want; and it has not responded well to the growth and employment challenges facing middle-income countries. And it has lost its intellectual leadership on issues that matter to those not in the developed world.
New leadership can turn the World Bank around, but piecemeal reforms will not work. Visionary leadership and hands-on management is required, and one can only hope that President Kim will have the perspicacity and the perseverance to re-invent the Bank, restore its excellence, and regain global relevance.