“Powerful states seek to construct international political economies that suit their interests and ideologies.” To explain the statement further, it means hegemons create such a set of rules and organisations that would protect and maintain those sets of rules so that the rest of the world abide by them to sustain their own goals and interests. In 1945, after the second World War ended, the USA emerged as a hegemon. And as a hegemon, the USA constructed liberal-capitalist economic order based on multilateral principles and facilitated cooperation under its hegemony. As a result, we see the birth of two organisations through the Bretton-Woods Agreement that would dictate global financial governance- World Bank and International Monetary Fund. However, with the turn of time, we have witnessed many international incidents and the hegemon power of the USA declining. Naturally, with time the regimes built by America should lose their appeal as well. But in the case of the World Bank, we see that even after many allegations and criticism of its relevance the importance of its stature has not declined. What is the secret? Well, I believe the secret lies in the World Bank’s desperation to stay relevant with the trending global problems. Robert Keohane argues that international regimes sustain even after the hegemon declines. The reason behind this is that the hegemon only plays a crucial role initially to create the regime. But once the regime is built the member states help with its existence through their mutual interests and the prospects of their relative gains. Similarly, the relevancy of the World Bank can be explained through the shared interests it creates.
Bretton-Woods and The Creation of World Bank
With the evolving political scenarios, the World Bank has also evolved significantly. Today’s World Bank is a far different institution than the one envisaged by its founders in 1944. While describing the evolution of the World Bank Katherine Marshall said, “Its basic objectives have evolved from a relatively straightforward focus on financing reconstruction to aspirations to act and speak for the poorest segments of society worldwide.” The joint birth of the Bretton-Woods twin in 1944 was majorly influenced by Anglo-Saxon ideology. The World Bank, known as the International Bank for Reconstruction and Development (IBRD) was mainly created as an afterthought as more importance was given to the IMF. Nonetheless, the Bank was important to spur reconstruction and development by catalysing private sector investment in war-ravaged countries. At that time countries getting assistance from the World Bank were also the ones who had any sort of strategic importance to America such as Europe and Japan. Due to the overlapping between the World Bank’s strategic plan and American foreign policy agenda, many critics accused the World Bank of being a puppet organisation that solidifies the American agenda and Western ideologies. The debate is still more or less prevalent. Moreover, it does not help that the majority of World Bank Presidents have also been important US officials such as McNamara who was the former US Secretary of Defence, and Paul Wolfowitz, the former US deputy Secretary of Defence. However, during the Cold War when the bipolarity of the ideologies was heightened by the rapid independence movements of the former colonies, fear among the supporters of the liberal economic order rose over the possibility of nationalism and socialism converging in post-colonial states. In parallel, the members of the non-aligned movement vehemently opposed the inequality of wealth and power between the global North and the global South as well as condemned their former colonisers’ role in their underdevelopment. As a response to the anti-Western sentiment and containing socialism, the World Bank created IDA or the International Development Association in 1960, to put greater emphasis on the poorest countries. The creation of IDA was indeed a success. Many who opposed western ideologies found a medium in the World Bank to increase their relative gain. It can also be seen as the first transitional phase of the World Bank from reconstruction to development.
The McNamara Era
However, an extreme transition came during the McNamara era. Robert S. McNamara was the World Bank President from April 1, 1968 to June 30, 1981. President Lyndon B. Johnson nominated Robert S. McNamara as Bank president, and he immediately began to put his stamp on the institution. Many features of the Bank today have clear roots in the McNamara years. It is during his time that the World Bank emphasised poverty alleviation as one of its core purposes. According to McNamara, it was no longer valid to suppose that growth would necessarily lead to the reduction of poverty. It was necessary to distinguish them conceptually and to approach them in a separate and direct manner. However, it is also important to analyse the reason behind such a sudden transition. According to critics, this transition of the core activity of the World Bank came from the assumption that economic backwardness and the contradiction to modernization gave rise to radical ideologies like communism which in turn hindered US security and foreign policy agenda. So as a way to extinguish the social activism of peasants in underdeveloped countries, the transition was made. But it will be sceptical of us to see it only from this lens, no matter what the reason was that the McNamara administration started the tradition of lending funds to projects that were not directly linked to growth but helped with building human capital and as a result of it helped in eliminating poverty.
The Fundamental Change
If we fast-forward to 2016, when the world looked very different from the 1980s and the unipolarity of the USA was challenged by the rise of China, we can trace the second extreme transition of the World Bank. In 2016, Jim Yong Kim took the role of the Bank’s President. He came into power during the era of Trump who was not a huge supporter of multilateralism. Naturally, losing its biggest donor’s support, which is also a 16% shareholder, ignited an existential fear and pushed the administration to look for alternatives. To revitalise the importance of the World Bank he proposed the ambitious goal of ending poverty by 2030. One can also see it as a justification for his next step that fundamentally changes how the World Bank works. To quote an article from the New York Times: “Mr Kim’s mission is to revitalise the World Bank by increasing its firepower and winning over the United States. To do so, he is fundamentally, and controversially, changing how the bank operates.
Instead of relying solely on contributions from reluctant donor governments, he is pushing private investors — sovereign wealth funds, private equity firms and insurance companies — to pony up trillions of dollars for projects in Indonesia, Zambia, India and elsewhere. His pitch: They can reap rich returns by putting their money to work alongside the World Bank.” Above all, the World Bank is a fund-lending organisation which needs funds to operate, so its existence largely depends on its donor states. However, the strategy of moving to private actors for funds instead of reforming the age-old accountability and democratic deficit problem seems to me a ploy for staying relevant and sustaining instead of alleviating poverty. As the New York Times article suggests through this fundamental change: “For the moment, at least, the World Bank was relevant again.”
The Messiah of the Climate Vulnerable?
This assumption keeps on getting clearer and clearer with the recent works of the World Bank. The World Bank is currently actively working on climate funding. Jim Yong Kim himself famously announced that the Bank would no longer fund oil and gas drilling projects. However, most of its works fail to address the fact that many of the adversities these climate change-vulnerable countries face have in some way been funded by the World Bank. Its development projects have displaced millions of people and pushed them to extreme poverty. Moreover, the global extreme poverty rate increased reaching 9.3 per cent, up from 8.4 per cent in 2019. So, in such circumstances, a relevancy-efficiency debate on the works of the World Bank seems justified.
Author- NAYEEMA NUSRAT ARORA
