Remarks by Kul Chandra Gautam
at World Bank Staff Brown Bag Lunch
Kathmandu, 20 August 2014
It is a real pleasure to join you all – development professionals of the World Bank – a great institution that celebrated 50 years of very productive partnership with Nepal a few years ago.
I was delighted to see that Nepal honoured this partnership with the issuance of a nice commemorative postage stamp.
‘Brown Bag Lunch’ reminds me of my graduate student days at Princeton University in the early 1970s. In fact, I recall one of my first brown bag lunch sessions was a briefing on how to get a job or internship at the World Bank.
I was so inspired by the presenter about the prospects for working at the World Bank, that when I was about to finish my graduate school, I applied for a World Bank “Young Professionals” job, and was selected for a post at the Bank HQ in Washington, DC.
But at the same time, I also got an attractive job offer from UNICEF. So I had to make a difficult choice – whether to join the Bank or UNICEF.
I must say, at that time I really felt the World Bank would be intellectually and professionally more exciting. But I opted for UNICEF, for two reasons.
First, in those days, in the late 1960s and early 1970s, I had been very active in the anti-Vietnam War student movement in the US. In the process, I had become so fascinated with Vietnam that I wanted to go there and see for myself how a relatively small and poor country could fight so doggedly against the world’s mightiest super-power.
To make a long story short, the UNICEF job offer for me was to go to Vietnam. I found that opportunity irresistible. So I opted to join UNICEF instead of the World Bank.
The second reason for my preference was that at that time the President of the World Bank was Robert McNamara, whom many of us, anti-war activists, considered a war-monger, as he had been the powerful Secretary of Defense of the US at the height of the Vietnam War.
So, in my youthful idealism, I did not want to serve in an organization whose leader I detested at that time.
I must say, in retrospect, I began to greatly admire Robert McNamara’s policies and leadership at the World Bank. I think he was the Bank’s greatest President ever.
He was the one who coined the term “absolute poverty” and defined it as “a condition of life so degraded by disease, illiteracy, malnutrition and squalor as to deny its victims basic human necessities, and a condition of life so common as to be the lot of some 40% of the peoples of developing countries.”
McNamara was heavily influenced by Mahbub ul Haq, one of my heroes of the concept of human development, who served as the Bank’s Director for Policy Planning, and introduced the idea of fulfilling “basic human needs” as a development priority, thereby emphasizing investment in education, health, nutrition, and sanitation.
It was during McNamara’s time that the Bank expanded to become a truly global organization like the United Nations. He supported landmark studies on international development, including the famous Lester Pearson Commission and the Willy Brandt Commission whose recommendations were equally embraced by the United Nations.
So I would say, I was wrong in my early, youthful assessment of McNamara. He turned out to be a great partner in UNICEF’s global campaign for child survival and development, and a source of inspiration for me.
More recently, I admired Jim Wolfenshon who many of us considered as a “Renaissance Banker’. It is my hope that the current Bank President, Jim Kim too will distinguish himself as a “Banker with a social conscience”, like McNamara and Wolfensohn.
In my long career with the United Nations, I have had the good fortune to know and work with quite a few senior managers of the World Bank at its Headquarters and in many field offices.
I have personally known Jim Wolfensohn and his wife Elaine (who was very interested in a topic close to my heart – early child development). And Jim Kim has been a good friend since his days as a senior advisor for HIV/AIDS at the World Health Organization, and later as President of my alma mater Dartmouth College, where we have had several occasions to work closely together.
http://www.kulgautam.org/2011/09/dartmouths-2011-convocation-exercises/
I also worked quite closely with most of the World Bank Vice Presidents for the Human Development Network ever since its founding in 1997 – from David Differenti, to Eduardo
Doryan, Jean Lous Sarbib, and Joy Phumaphi, who were in many ways my direct counterparts, and with whom I served in the Boards of quite a few organizations dealing with health, nutrition, population, and basic education.
Based on my personal experience, and the complementarity in the mandates of the World Bank and the United Nations, I have long cherished the hope and a dream that these two great global organizations would work more closely together, bringing to bear their respective strengths for the benefit of developing countries.
Currently, the policies of these two organizations are not always in synch. There seem to be important differences in the ideology, methodologies and approaches to different development issues between the Bank and the UN.
In very broad, simplified terms, the views of the UN seem closer to the mainstream of the global South, whereas those of the Bank tend to reflect the heavier influence of its dominant donor supporters.
This is partly due to the contrasting voting systems of the two institutions. In most parts of the UN (except the Security Council), each country has one vote, and developing countries have had an overall majority since the 1960s.
In the Bretton Woods Institutions, as you know, votes are in proportion to the shares allocated by a formula that has always ensured a majority weight to the Western industrialized countries.
Recently, we are very encouraged that Jim Kim and the UN Secretary-General Ban Ki-moon, both of them Korean-born, seem to have established very good rapport. They travelled together to Africa twice – in 2013, and have vowed to get the two organizations they lead to work more closely.
Many of us today have forgotten or never knew that the 1944 Bretton Woods Conference that established the World Bank and the International Monetary Fund (IMF), intended these institutions to be an integral part of the United Nations.
But from the very beginning there were some powerful dissenting voices, particularly that of the US, whose chief negotiator Harry Dexter White and Secretary of the Treasury Henry Morganthau, were “determined that that the UN was never going to tell the World Bank or the IMF what to do.”
In the end, a compromise was worked out whereby the Bank and the IMF were made formally, part of the larger UN system, with a dotted line, in their organograms, but in reality, they acted completely independently with no allegiance to the UN.
Sadly, much has been lost over the decades because of the estrangement and resulting tensions between these two great institutions.
Luckily, Jim Kim seems to appreciate the original intention of the founders of the Bank and IMF. At his first meeting with Ban Ki-moon at the UN in August 2012, Kim recalled the initial vision
of the founders of the multilateral system and vowed to rekindle it, as the two organizations work together in crafting and implementing the post-2015 global development agenda.
I believe this gesture of Jim Kim could be of historic importance, as is his vision for ending extreme poverty by 2030 which dovetails perfectly with the evolving post-2015 agenda of sustainable development goals which is being negotiated at the UN right now.
It is worth recalling that beginning in the 1960s, the UN set various development goals, with almost universal support, except from the Bank and the IMF. It is only in the late 1990s that for the first time the Bank accepted such goals in the form of the Millennium Development Goals (MDGs).
Over the 1970s and 1980s, the Bank was a latecomer compared to the UN in recognizing the importance of supporting primary education, environment, protection of vulnerable groups during structural adjustment, and, in general, the non-economic dimensions of development, including people’s participation and even democracy.
The long philosophical and practical estrangement between the Bank and the UN has been very unfortunate, and quite damaging to the best interests of developing countries.
These countries often got mixed and sometimes even contradictory messages from the Bank and the UN, and occasionally they even tried to play off one against the other.
Now, I must say there were weaknesses on both sides. On the side of the UN, its Economic and Social Council has never lived up to its institutional role of coordinating global economic and social policy and actions even within the UN system, let alone with the Bretton Woods Institutions.
The UN has generally been rather weak in economic analysis and management. It has been too process-heavy and overly obsessed with inter-agency coordination rather than with results, efficiency and impact.
On the other hand, the UN has been stronger in non-economic areas of social analysis and action. The UN also enjoys broader global legitimacy in ways that the World Bank and almost all other institutions operating globally lack.
For its part, the World Bank has generally been more rigorous in economic analysis. It has always been more generously financed and commands strong support from the United States and most of the Western countries that have a commanding majority in its Executive Board.
In contrast, most UN organizations are starved of core funding and ever more dependent on uncertain and limited amounts of supplementary funding, now increasingly focused on humanitarian assistance.
With its stronger funding base, the Bank has certainly made some important contribution in infrastructure development, and more recently in human development as well.
But it suffers from allegations of a certain intellectual arrogance, and is criticized for inadequate responsiveness to the views and voices of developing countries and civil society. Remember, we even had a nasty “50 Years is Enough” campaign at the time of the Bank’s and IMF’s 50th anniversary.
(About the Bretton Woods Institutions’ intellectual arrogance, it has been noted that contrary to the general perception that perhaps the world’s most brilliant economists work for these institutions, there has been only one World Bank economist – Joseph Stiglitz – who resigned from the Bank before he won the Nobel Prize. By contrast, nine economists who worked for or were associated with the UN have won the Nobel Prize. These include: Jan Tinbergen, Wassily Leontief, Gunnar Myrdal, James Meade, Arthur Lewis, Theodore Schultz, Lawrence Klein, Richard Stone and Amartya Sen).
There have been many ups and downs in the Bank-UN relationship. Perhaps the toughest period was in the 1980s when the Bank and IMF were accused of insensitivity to the poor and vulnerable groups in pursuit of structural adjustment policies.
I happened to be personally involved as a tangential player in some of the big debates at the time, as I was UNICEF’s Chief of Programs for Latin America and the Caribbean in the late 1980s, and dealt extensively with sub-Saharan Africa in the 1990s when we made that region UNICEF’s top priority.
You heard me praise the Robert McNamara period, when there seemed to be quite a convergence of views and vision between the Bank and the UN.
But things went downhill in the1980s, when Tom Clausen became the President of the World Bank, (and Monsieur Jacques de Larosière of France was the Managing Director of IMF).
The 1980s were considered a “lost decade” for development in Latin America and sub-Saharan Africa as they were hit hard by a terrible global economic recession. This led to acute deficit in government budgets and balance of payments, hyper-inflation, massive currency fluctuations, economic contraction, and the beginning of the debt crisis.
Some of the causes of the recession were: steep decline in commodity prices, stagnation in overseas development assistance (ODA), net capital flows from the poor countries of the South to richer countries of the North, partly because of increased debt payments.
We had the first great oil shock in the 1970s with huge increase in petroleum prices imposed by OPEC, the cartel of petroleum-exporting countries. These countries had acquired huge cash reserves which they did not know how to use.
Many spent their new-found wealth in profligate military hardware, and in building huge infrastructure projects, which were a big bonanza for arms manufacturers, construction companies and contractors in North America and Europe.
They invested the rest of the money with large American and European commercial banks. These banks then became so awash with their petro-dollars that they encouraged many Latin American
countries to borrow huge sums for large infrastructure and industrial development projects, with little regard for their cost-effectiveness or the ability of the borrowers to service their debts.
By early 1980s, the debt burden of many Latin American countries – and some African countries as well – became hard to sustain. In 1982, Mexico became the first country to default on its debt payment obligations. Argentina, Brazil and several other countries also struggled hard to remain solvent.
Adjustment with a Human Face
The International Monetary Fund (IMF), supported by the World Bank, recommended to these countries “Structural Adjustment Programs” (SAP) with heavy conditionalities, requiring them to cut government spending, including subsidies in the social sectors, liberalization of trade, deregulation and privatization, and devaluation of their currencies.
While introduced with good intentions to ensure balanced budgets and fiscal discipline, the SAPs led to many devastating consequences for the poor and vulnerable populations. In many countries, incomes dropped, economic growth stagnated, unemployment and inflation rose, and the balance of payments went into the red.
At one point, the IMF/World Bank conditionalities of structural adjustment became the lightning rods in domestic politics of many countries. In some countries, even national elections were won or lost based on a government’s response to these conditionalities.
I recall the case of Jamaica, where the 1980 national election was actually called the “IMF Election” in which a populist socialist leader Michael Manley was defeated by a conservative pro-IMF leader Eduard Seaga.
There is an award winning documentary film called “Life and Debt” directed by Stephanie Black which graphically presents some of the dire consequences of the adjustment policies that Jamaica was pressed to follow both before and after the “IMF Elections”.
Some countries valiantly resisted and defied the IMF pressure. I recall Julius Nyrere of Tanzania asserting very poignantly: “Must we starve our children to pay our debt” to comply with the IMF/WB conditionalities?
At UNICEF, naturally, we were very worried about the impact of these developments on children. So, we commissioned a comprehensive study of the impact of economic recession combined with the impact of structural adjustment policies.
Based on its findings, UNICEF rang an alarm bell that the recession and the adjustment policies in response, had led to widespread and sharp deterioration in child health, nutrition and education.
The proper and urgent response that was needed, according to UNICEF, was outlined in these two books entitled: “Adjustment with a Human Face”!
Other UN agencies like ILO and the UN Economic Commission for Africa also joined this chorus of opposition to some of the harsh structural adjustment policies of the Bank and IMF.
Later, UNDP’s Human Development Report, authored by Mahbub ul Haq, formerly from the World Bank, also embraced the UNICEF position, pointing out that it was illogical and indefensible to attempt to rebalance a country’s economy while unbalancing the lives of its people.
UNICEF did not simply criticize the IFI’s structural adjustment programs, but came up with a detailed prescription for protecting the vulnerable and promoting growth as part of AWHF.
It outlined that AWHF required a set of micro, “meso” and macro-economic policies to promote growth and income generation, combined with certain sectoral emphases in key areas of employment, education, health and nutrition.
It argued that investment in “human capital”, particularly in children, needed to be considered part of strengthening the productive capacity of a country which must not be postponed to await better economic times.
UNICEF defended an “adjustment with a human face” approach, both as a matter of enlightened economic common sense, and on moral and ethical grounds. After all, it argued, human solidarity in times of crisis, and maximizing human welfare are the ultimate goals of development anyway.
In the beginning, such arguments fell on deaf ears. Such was the power and influence of the IMF and the Bank, that a case made by UNICEF in the name of children was politely brushed aside as a sentimental appeal by a do-gooder organization. Hard-nosed economists who had to deal with the “real”, adult issues of global economic and political importance, could not be persuaded by such infantile bleeding-heart arguments.
However, many others, particularly in civil society, academia, and some governments too, commended UNICEF for daring to challenge the orthodox prescriptions of the big IFIs, which later became known as the “Washington Consensus”.
After initially resisting and dismissing the UNICEF critique, the World Bank more willingly, and the IMF rather grudgingly, eventually accepted and accommodated the calls for “adjustment with a human face”.
Recommendations for improved partnership
Sir Richard Jolly, one of my mentors and a very thoughtful and constructive critic of the Bretton Woods Institutions, has long been a proponent of constructive partnership between the World Bank and the UN. He has outlined a number of proposals aimed at forging a win-win partnership between these two organizations.
I happen to fully concur with Dr. Jolly’s proposals, and we are hoping to present these to Jim Kim at some point in the near future.
Here are five areas in which more collaborative work between the Bank and the UN would be of great benefit to the developing countries:
#1. Make human rights and human development more central – The UN has been active in these areas from the beginning, whereas, the World Bank has been constrained by its lawyers who have specifically argued that its Charter prevents formal support of human rights, or a political approach to development.
Some of the more visionary leaders of the Bank, such as Jim Wolfensohn and Jim Kim, have dared to speak about the importance of human rights, including the whole issue of equity, social justice and social protection – which are very human rights driven concepts.
Over the last two decades, UN High Commission for Human Rights as well as the UN funds and programs have pioneered international action for a rights-based approach to development, which embraces not just the goals and objectives of development but also the inclusive and participatory processes used to pursue them.
Many developing countries have now accepted the primacy of the broader human development and human security approach. Embracing this approach as part of the Bank’s poverty reduction focus would provide common ground for fruitful collaboration between the Bank and many UN agencies at the country level.
#2. Climate change and environmental action – Since Stockholm in 1972, the UN has taken a lead in environmental matters, reinforced after the Rio conferences of 1992 and 2012.
More recently the UN-backed International Panel on Climate Change (IPCC) has established a strong reputation for its periodic scientific reports, based on the consensus findings of world-class scientists from all parts of the world.
Many organizations of the UN support some programs related to environment, and the MDGs/SDGs increasingly feature addressing climate change as an important development priority.
However, none of the UN agencies has the resources and widespread donor support that the Bank commands. Closer collaboration between the UN and the Bank could help accelerate more effective action commensurate with the scale of this global challenge.
#3. Pursuing an equity-focused approach – The UN has long emphasized the need for greater equity in development, both in income and gender, and in terms of access to education, health and other social services.
Recently, the Bank has recognized the need for much stronger action in these areas. Jim Kim’s call for ending extreme poverty by 2030 will necessarily require tackling the issue of equity head-on.
I see tremendous scope for the World Bank and the UN system to collaborate at country, regional, and global levels in pursuit of the equity agenda. As the awareness about untenable inequalities is growing, these two organizations could partner in building political consensus for taking more serious action.
#4. Adjustment with a human face – I have already spoken at length about “adjustment with a human face”. To its credit, the World Bank has already accepted and internalized many lessons learned from the practical experience of applying structural adjustment policies over the past three decades.
However, I must say the Bank’s partner and sister agency, IMF, does not seem to have fully accepted or internalized the lessons of AWHF. For example, the IMF erred seriously in its policy recommendations after the Asian economic crisis in 1997-99, when it insisted on deficit reduction and contractionary policies which made the situation worse. This led to quite a few Asian countries, including Malaysia, very boldly defying its advice.
I was happy to see that Joseph Stiglitz, the World Bank’s Chief economist openly challenged and criticized IMF’s approach during the Asian economic crisis.
Indeed, in the first decade of the 2000s, many Asian countries and regional institutions adopted policies to avoid the need for recourse to the Bretton Woods Institutions. Some actually attribute this defiance to how many Asian countries managed to avoid the worst repercussions of the global financial crisis after 2007-8.
Even today, Europe’s pursuit of austerity policies during the recent 2010-13 period is reminiscent of what Africa and Latin America were compelled to do three decades ago on the advice of IMF.
Based on all of this, I would say, a bit provocatively, that unless the IMF reforms more seriously soon, perhaps the World Bank should consider divorcing IMF and marrying the UN!
(To be fair, IMF produced some landmark studies in 2014 recognizing that high levels of inequality are bad for sustainable economic growth. Let us hope that these findings lead to corresponding policy guidance from IMF to developing countries).
I would add that the UN is by no means a flawless beauty queen. It has made many mistakes and is known for mediocrity and proliferation of process-heavy coordination mechanisms with poor results on the ground.
So, both the Bank and the UN must be open to serious rethinking of their current approaches and show greater willingness to listen and learn from other institutions.
On the part of the Bank, it must recognize the value of multi-disciplinary approaches and experience beyond neo-liberal orthodoxy, which has circumscribed so much of its work, including its earlier neglect of health, education, and the human dimension in its work on structural adjustment.
The UN requires greater openness to incorporate economic thinking within its own programs and analyses.
Changes in both sets of institutions will require strong support from both donors and developing countries alike. Donors can help by pledging more core funds as incentives to those UN organizations and funds that develop practical approaches of two-way collaboration with the
Bank. And developing countries can help by insisting on and facilitating more coordinated approach between the UN and the Bank.
#5. Revised governance and voting structures: In the longer run, there will have to be some significant changes in the voting structures of the governing boards of the Bank and the UN to ensure greater policy coherence and closer collaboration.
The positions taken by China, India, and other emerging powers will be of critical importance in this regard, as will be the role of the newly launched BRICS development bank.
Unlike the current voting system at the UN General Assembly or Security Council, or at the IMF/World Bank boards, the world today needs a more fine-tuned voting system at the Bank and IMF and within the UN on important economic matters, that better reflects the changing political and economic realities of the world.
One such proposal would give greater weight to the size of a country’s economy, not simply weighting by GDP, but linked to a group system under which categories of countries–industrialized countries, emerging economies, developing counties, the least developed countries, etc may have some form of block votes.
There are many creative proposals floating around on the kind of changes that are needed and possible in the governance and voting structures of the Bank and the UN. Among these, I would commend the ideas proposed by a good friend of mine, Ambassador Kishore Mahbubani of Singapore, who in his book “The Great Convergence: Asia, the West and Logic of One World” proposes a “7-7-7” formula for the reform of the UN Security Council that has drawn much attention and flack.
I really believe that closer collaboration between the UN and the Bank would be mutually beneficial in addressing the development challenges of the twenty-first century.
The UN would benefit much from the Bank’s more robust economic analysis, and possibly from access to some resources in areas of the UN’s strength that are currently channeled through the Bank Group as trust funds of various kinds.
The Bank might be spared the embarrassment of movements like the “Fifty Years is Enough” campaign by being more attentive to greater diversity of views, as does the UN.
And developing countries would benefit greatly from more coherent advice and support instead of the conflicting advice they sometimes get from these two great institutions.
Thank you.