The World Bank concluded its annual meeting Saturday with the organization’s president, Jim Yong Kim, vowing to turn the organization into a “solutions bank.” We agree that change is needed, but we have a better solution. Dissolve the World Bank.
This international relic no longer has a relevant role. It was established in the wake of World War II, when a lot of people who should have known better were infatuated with the notion that large international institutions could fix every problem in the world. The idea was that poverty throughout the world could be alleviated if only there were an institution big enough to bankroll long-term projects in poor places, managed by big governments. The idea was great for the leaders of the countries that got the big checks because there was always an opportunity for skimming a little off the top (“the juice,” in mob parlance). The record of actual improvement in the lives of the poor was not very impressive. In terms of gross domestic product, 37 of the 66 countries that got “help” from the World Bank over the decades are no better off than they were.
Developing countries have turned away from the bank to private investment; the free market is far more efficient. An internal World Bank audit found that the $4.2 billion effort to improve telephone communications in the Third World failed 70 percent of the time. While bank bureaucrats wasted money on expensive telephone wires, roadside stands popped up on streets in New Delhi with inexpensive cellphones. Productivity was enormously improved.
The bank’s new president wants to adopt internal reforms that move the bank away from giving aid to governments and to increase partnerships with the private sector. The way the bank is currently set up, work is divided among offices arranged by geography. Mr. Kim sees the bank with 14 “global practices” defined by subject area, ranging from agriculture, education and energy to health and nutrition, and trade and competitiveness. Sanjay Pradhan, who has worked in eradicating corporate corruption, is the new vice president for “change, knowledge and learning.” It’s a grand title, but there’s little prospect for success.
The most sustainable path out of poverty is not an expensive prescription for a large bureaucracy with a new-and-improved organizational chart (even if in full color). Prosperity grows from a commitment to voluntary exchange and secure property rights. That’s how America prospered, and to the extent China and India have embraced market reforms they, too, have prospered. Despite much progress, India and China still have a large percentage of the world’s poor. Their best hope lies in continued liberalization of their markets, bringing in companies such as Wal-Mart. More bureaucrats to distribute money for government stimulus boondoggles won’t help.
The only remaining justification for keeping the World Bank is keeping 10,000 bureaucrats employed. Restructuring isn’t the solution. Dissolution is.