World Bank seeks role for 21st century

Until its purpose is defined, any attempt at reform will cause chaos, writes Michael Prest

World Bank staff, wearied by a decade of ham-fisted reorganisations, will be watching with trepidation to see whether or not a board meeting scheduled for Thursday approves the latest controversial and radical attempt to overhaul the organisation.

The plan, designed to equip the world's most important development institution for the next century, was supposed to have been approved last week. But a decision was postponed after becoming mired in the politics of Washington, where the bank is based. At one end of Pennsylvania Avenue, the United States administration, the bank's most powerful shareholder, had made no secret of its misgivings about the plan's effectiveness. At the other end, up on the Hill, a Congress invariably suspicious of the bank seized on the proposed increase in the bank's budget to pay for the overhaul as yet another proof of its profligacy. Britain and France, two other large shareholders, dithered in the US's shadow.

Although the delay keeps the bank's 6,000 staff and dozens of very poor countries on tenterhooks, it is probably welcomed by Jim Wolfensohn, the institution's aggressive president. He has personally promoted the overhaul as a "strategic compact" which will be the monument to his term of office.

It might seem strange that the World Bank needs another reorganisation. It has $185bn of capital, lends $20bn a year to poor countries, enjoys great prestige as a centre of research and expertise in all aspects of development, and has an immensely able multi-national staff.

Most important, its record is creditable. Despite well-publicised mistakes and disasters, it is hard to believe that the $330bn the bank has lent since its creation in 1944 has not helped to fuel the extraordinary growth in prosperity throughout the world generally, and the developing world particularly, since the Second World War.

But drastic change is needed. While the bank retains great strengths, it has adjusted slowly to the world around it. Surging private capital flows, declining official aid, many more centres of development expertise, a recognition that development is about much more than funding roads and power stations, and the technological revolution which has transformed commercial companies have largely passed the bank by. The bank remains slow, bureaucratic, paper-driven and unimaginative. It is simply not an organisation fit for the 21st century, let alone fit to be a pillar of the emerging global economy.

Both of Wolfensohn's predecessors, Barber Conable and Lew Preston, tried and failed to bring the bank up to date. Faced with the facts, documents Wolfensohn submitted to the board bluntly admitted "without significant changes in procedures and incentives, the bank will remain inward looking, risk averse and unfriendly to innovation and partnership".

Will Wolfensohn succeed? The compact is nothing if not ambitious. It is a revolution in an organisation addicted to evolution. The compact accepts that one third of bank-financed projects do not meet the bank's own performance targets. Demand for bank loans is flat despite it being the cheapest source of loan finance available to developing countries, and as a result income will fall. Expertise is lacking in key sectors such as human development and health and education, and clients complain that the bank is cumbersomely slow and its services do not fit their individual needs.

The solution is to cut costs and focus the business. Wolfensohn wants to reverse the allocation of resources so that in future about 60 per cent of the bank's $1.1bn annual budget goes to front-line services and 40 per cent to administrative and support services. The hope is the budget can be held more or less constant in real terms.

Achieving this will involve abolishing three central units covering private sector development, the environment and human resources, and merging their experts with counterparts in the bank's regional vice-presidencies to form networks at the disposal of country managers. Armed with the latest information technology, the networks will capitalise on the bank's greatest resource - knowledge to provide a flexible service. More staff will also be redeployed from Washington to developing countries.

Management consultants KPMG have been hired to examine cost savings in areas such as office space, technology, and salaries and benefits. The restructuring calls for about 500 redundancies among staff, and the expectation is that within a few years a higher proportion of the staff will be temporary. Under the revised version of the compact designed to appease the US, redundancies will cost about $100m and the compact's net cost of $250m will be spread over two-and-a-half fiscal years, starting on 1 July 1997.

Much of this makes sense. It faces formidable obstacles, however. First, demoralised staff have greeted the compact with cynicism. While the compact is supposed to be between the bank and the shareholders, it is seen by many staff as being between the management and the shareholders. The atmosphere has been soured by Wolfensohn, who is said to have referred to the bank's "marshmallow middle management", and by US demands that the often generous pay and conditions of staff be reviewed.

Second, many details remain to be clarified. Despite an outpouring of fat documents, most staff have difficulty explaining how the networks will function. The danger of trying to catch up with one mighty bound is that the pieces of the plan do not lock together. The bank is such a complex organism that change in one place can have unpredictable consequences in another. There is a real danger of the exercise running out of control. There will certainly be turmoil.

And third, it is questionable whether bureaucracies, especially international ones, can reform themselves. The bank's staff, including the president, are civil servants, even if they do not always behave as such. The abiding tragedy of the World Bank is that the owners - the 180 member countries - have never taken a lead. They have failed to explain clearly to the bank and their own publics what they want the bank to do and how they expect it to do it.

The result has been an organisation which is too thinly spread. Development no longer concentrates on funding physical infrastructure or even economic reform. Today, development theory and practice embrace virtually every aspect of a society's advancement. No single bank, however well-funded and staffed, can cope with development in its entirety. Yet the list of supposed priorities in the compact under the optimistic heading of "Refocusing the Development Agenda" should make even the stoutest flinch.

Nobody should mind if the World Bank's shareholders delay the strategic compact further to grapple with the future of an organisation which will remain vital for the planet's 1.3 billion desperately poor.

Michael Prest was on the staff of the World Bank from 1990 to 1995