World Bank, in a changed economy, pushes focus to building a middle class

In its six decades, the World Bank has helped rebuild Europe and expanded its anti-poverty efforts to the most remote parts of the planet, but today it may be wrestling with its toughest issue yet: irrelevance.

The developing world is succeeding faster than expected, and the countries that are among the World Bank’s biggest borrowers and best sources of profit — including Brazil, Mexico and China — don’t really need the money anymore.

So as World Bank President Jim Yong Kim convenes the bank’s spring meetings this week, he will have in mind a subtle but significant shift in the $330 billion institution’s mission — expanding its effort to build the global middle class.

“It is going to be a laser focus” to ensure that bank projects directly address either benefits for the poor or better incomes for those approaching the middle class, Kim said in an interview last week. “We have a lot of evidence. . . . We actually know what works.”

Kim’s public statements and the dramatic banners on the bank’s 18th Street headquarters building focus on the headline-catching goal of ending extreme poverty over the next 17 years. But the world is already on track to achieve that end, even though Kim says the heaviest lifting remains to be done in places such as India and the conflict-ridden states of sub-Saharan Africa.

Given equal weight in Kim’s evolving strategy is “inclusive growth” — expanding economic progress for the bottom 40 percent of wage earners regardless of where they live. That would serve not just a moral end — capturing the billions of people worldwide who may have gained an economic foothold but are a single mishap away from trouble — but also would secure the bank’s role in the large middle-income countries that are growing smartly on their own, rather than risk a winnowing of its mission to a few pockets of severe poverty.

Those nations have access to private capital markets on terms that are often more convenient, if slightly more expensive, than those offered by the World Bank Group’s main lending arm, the International Bank for Reconstruction and Development (IBRD).

But the bank needs them to spin the profits that pay the salaries for 14,000 staffers around the world and subsidize the work of the International Development Association (IDA), the branch of the umbrella World Bank Group that gives cut-rate loans and grants to poorer nations. The IBRD, on the basis of capital paid in by members such as the United States, sells bonds on the open market and lends that money to developing countries, charging upfront fees and interest.

A draft of the “Common Vision for the World Bank Group,” posted online by the Government Accountability Project, describes an organization “overstretched” by the breadth of what it does and needing to “identify and validate our actual comparative advantages in the context of today’s global economic landscape.”

“Even if extreme poverty has ended in many countries — and were to end globally in the foreseeable future . . . poverty continues to exist in most countries as defined by the specific standards of each society,” the document states, in a focus on relative rather than absolute measures of deprivation. The bank, the document said, will begin to analyze incomes and economic progress for “the bottom forty percent of every country,” providing it a perpetual constituency and potentially pushing its attention to issues of income inequality in the developed world.

The strategy is meeting criticism from a number of directions — from civil groups worried that the bank is poised to weaken some of its safeguards to encourage development, and others who say that Kim is using ambitious language to describe incremental change. Analysts at the Center for Global Development have argued that Kim should be bolder in admitting that the bank’s core mission is contracting: A number of the countries that qualify for concessional lending, for example, are expected to “graduate” in coming years, leaving the IDA with a remnant group of fragile and conflict states.­­

Kim, speaking in the open “bullpen” where he works alongside top bank staff members, said in the interview that the twin goals he has proposed will help sharpen the bank’s focus regardless of where it works. The poorer parts of the world, particularly conflict states, will remain the World Bank’s “bread and butter,” Kim said. But he also says the massive infrastructure needs in India or China’s battle to control pollution and better manage its cities are central to the bank’s mission. The bank even has a toehold in the euro zone, providing technical assistance to Greece on efforts to improve the business climate.


World Bank President Jim Yong Kim speaks at a news conference of the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18. (Yuri Gripas/Reuters)

Private investors might fund plenty of ports or power plants on their own, but “it is not clear that the infrastructure that is built will actually have the kind of development impact that it might have,” he said. Bank involvement can ensure a more “transformational” outcome, Kim said, that will build incomes for those on the verge of joining the middle class.

Kim’s focus on the necessity of growth and the importance of the private sector marks an intellectual shift for a man who was skeptical that growth alone would fix the developing world health problems he has worked on for much of his life. The president of Dartmouth College when President Obama picked him a year ago to lead the World Bank, Kim was also skeptical of the bank itself. Two decades ago, he participated in the “50 Years is Enough” protests against the organization, seen as enforcing U.S. economic orthodoxy.

By contrast, he now sprinkles his conversation with talk of “leveraging” or “catalyzing” private investment, and the World Bank’s “unique value proposition.” Some clients may not need the bank’s dollars, he argues, but they still value the expertise it has developed from working around the world.

He also talks of “pruning” an organization that has a sort of all-things-to-all-people sprawl — building power plants and roads, dabbling in futures markets for small farmers, designing national welfare and governance systems.

“We have to sit down and say: ‘Here’s what we are not going to do,’ ” Kim said.

It is an organization that is tough to steer. Change comes slowly, the politics of a global governing board are complex and different imperatives sometimes clash.

Kim has promised a detailed strategy — the nuts and bolts of the “pruning” — by the bank’s annual meeting in October.

But if all goes as planned, the key governing committee will endorse his broad goal — “end extreme poverty and boost shared prosperity” — this week.

In doing so, they’ll set in motion what Kim hopes will be a noticeable transformation, so that bank projects are driven less by what any given country brings in the door and more by what contributes most to helping the poorest and securing the place of the 40 percent.

“Ending extreme poverty is not enough,” Kim said at a recent Georgetown University address. “We must also work to boost the incomes of the poorest 40 percent of the population in each country. . . . Our work is in any country where there are poor people.”

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