Jim Yong Kim’s arrival sets the scene for a shakeup in which World Bank aid favours neither privatisation nor nationalisation
The appointment of Jim Yong Kim to the presidency of the World Bank is a signal that the development institution is changing, but it is by no means the first sign. In spring 2010, the World Bank committed to improving its cost and development effectiveness by focusing on three inter-related areas: results, openness and accountability.
In an interview with the Bank’s head of external affairs, Cyril Muller, I was struck by how keen the Bank seems to be to move on from its hubristic and ideological past; the speed with which many staff members want to consign the “Washington consensus” to the history books is breathtaking.
But I wanted to find out just how much the Bank has really changed on controversial issues. After three decades of pushing liberalisation and privatisation, it is not enough just to take the foot off the pedal. Is the Bank now prepared, for instance, to support governments wishing to (re-)nationalise key industries?
Muller’s answer was careful but clear: the Bank has no preference for privatisation over nationalisation – what matters is how and why either process is carried out. As it is owned by nation states, it is hardly surprising that the World Bank will not endorse the unilateral non-fulfilment of contractual obligations, but otherwise the case for or against nationalisation needs to be weighed on its merits just like any other development option. What matters is what works; can the country afford it, and will it make things run more effectively?
The World Bank criticised the recent nationalisation of Repsol by the Argentinian government not on ideological grounds, says Muller, but because it was carried out in a non-transparent and unfair manner. In contrast, the recent Bolivian nationalisation of Red Electrica, another Spanish company, went unopposed by the Bank, despite opposition from the usual quarters, presumably because it thought it was carried out well.
If this is a true reflection of the Bank’s thinking, it is a seismic shift; privatisation has until recently been a common condition for World Bank aid. According to a 2007 report by Eurodad, a respected network of European NGOs, 71% of World Bank concessional loans and grants at the time were conditional on sensitive economic reforms, mostly privatisation and liberalisation, although the World Bank disputes these figures.
Let’s take some examples. In the past decade, to access World Bank finances, Burkina Faso was required to promote private-sector participation in the energy sector to secure money; Mozambique, Ghana and Tanzania were required to implement a strategy to privatise national banks; Benin had to show progress in the privatisation of its cotton ginneries, telecoms and energy sectors; Rwanda was required to negotiate privatisation of its telephone system and tea factories; Mali had to privatise its textile development company and national bank.
The privatisation of Zambia’s copper mines was totemic of all that was wrong with aid conditionality, both in terms of process and content, leading to vast revenues being foregone as the copper price soared. The World Bank now appears to be saying nationalisation is a perfectly reasonable option for Zambia and other countries, as long as it is pursued fairly.
This non-ideological turn is immensely welcome. While in some contexts, the results mantra can imply a focus on short-term gains over longer-term institutional development, in the case of the World Bank it seems to herald a self-conscious move away from a model-based approach where policies are argued for on the basis that they should work, towards a real world analysis of what actually does work.
A focus on results may also increase accountability to shareholders and even citizens. Muller noted that Publish What You Fund ranked the Bank highly on openness, but it wants to do better, and has therefore committed to publishing all research documents online, with only a few held back for confidentiality reasons. Muller claims the Bank is the first large international institution to do this, and that it represents a major change in culture.
The changes begun by the World Bank will be couched in the bureaucratic language of efficiency and effectiveness, but this is not just another modernisation of business practices. The realisation among many senior World Bank officials that removing the emphasis of the role of the state in development was a historic wrong turning that needs to be corrected goes hand in hand with geopolitical power shifts balancing the traditional shareholder power of Europe and the US with countries (in Asia and Latin America) that understand the decisive role an intervening state can play in poverty reduction. Nationalisation is only one extreme of this generalised shift, but one worth emphasising because it remains of supreme importance to many countries.
The World Bank is on the cusp of a radical reinvention and the arrival of Kim will raise expectations yet further, as he has demonstrated his willingness to challenge orthodox economics and follow the evidence. While some seek to paint his outspoken positions as incompatible with heading the World Bank, in fact the opposite is the case – the Bank needs precisely this kind of shakeup if it is to fulfil its destiny. Asked to predict what the Bank will be doing in 10 years’ time, Muller was relaxed: “If you are really client-driven and evidence-based, you need to be open.”
Culled from http://www.guardian.co.uk/global-development/poverty-matters/2012/jun/14/world-bank-jim-yong-kim