This essay is part of a series of articles, edited by Stewart Patrick, emerging from the Carnegie Working Group on Reimagining Global Economic Governance.
There have been many calls—not least from developing countries—to reform major economic institutions such as the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO). But before entertaining reform ideas, we must grapple with a pair of uncomfortable questions. Are these three organizations fully devoted to poorer countries’ economic and social development? And, are they uniquely equipped to deal with development? These questions are especially pertinent today, as the organizations wrestle with making economic growth “environmentally sustainable,” promoting climate-oriented development, and adding climate action to their already-complex portfolios. On both questions, there are reasons for skepticism.
Questioning Devotion to Development: Self-Preservation
The devotion to development is worth scrutinizing because all three organizations initially pivoted toward development less out of convicton than as broader moves toward organizational self-preservation. The World Bank pivoted first. Designed in 1944 with the primary task of helping advanced European countries with postwar reconstruction, the World Bank was sidelined in this task by early 1948, when the United States launched its own European Recovery Program (more colloquially known as the Marshall Plan) as part of geopolitical efforts to contain the Soviet Union.
In its third annual report, released in September 1948, the World Bank acknowledged that the Marshall Plan had “precluded” its own loans for European reconstruction, and as a result “the problems of the Bank’s under-developed member countries are more and more occupying the major portion of the Bank’s attention.” The attention to the developing world grew, and in 1960 the International Development Association (IDA) was added as a World Bank arm that offered grants and below-market-rate loans to the world’s poorest countries. Today, the World Bank is one of the world’s foremost development institutions—but that is partially due to self-preservation efforts dating back to the 1940s.
Whereas the World Bank pivoted toward development early in its history, its sister the IMF took longer. Also designed in 1944, the IMF managed a post–World War II gold standard in which various countries’ currencies were fixed at exchange rates relative to the U.S. dollar, and central banks could exchange U.S. dollars for gold. That system functioned for several decades, but fell apart after then U.S. president Richard Nixon unilaterally closed the “gold window” in 1971 by terminating the convertability of dollars. The closure became permanent as currencies left the gold standard to “float” their exchange rates. Scrambling for a new purpose, the IMF revamped its activities. In the 1960s, the majority of its lending had gone to advanced countries facing short-term financial crises—but by the 1980s, essentially all its lending went to poorer countries to support longer-term capacity-building and economic growth. As part of its self-preservation, the IMF, too, embraced development.
The same is true of the WTO, a much younger institution. Designed in 1994 to subsume and expand beyond the General Agreement on Tariffs and Trade (GATT), the WTO mentions development in its founding agreement and also contains a Committee on Trade and Development. But it was not until 2001, with the launch of the “Doha Development Round” of trade negotiations, that the WTO more forcefully broadcast its association with development. WTO Director-General Michael Moore decided to put development in the name of the negotiating round. He was driven by at least three calculations: the WTO needed favorable publicity after antiglobalization protests derailed its 1999 Ministerial Conference in Seattle; other broad-based topics such as labor rights or environmental protection were too divisive to guarantee favorable publicity; and the safest bet was emphasizing development, which would appeal to poorer WTO members and also sound good to many members of the public in richer countries. But that bet for self-preservation has not quite paid out: critics portrayed the WTO’s embrace of development as hypocrisy, and governments eventually abandoned the Doha Development Round.
Questioning Devotion to Development: Decisionmaking Processes
Even after their pivots toward development, the World Bank, IMF, and WTO’s actual devotion to the mission has been questionable. None of these organizations have overhauled their formal decisionmaking processes to elevate developing countries as either their primary clientele or central decisionmakers. In both the World Bank and the IMF, the initial system of weighted votes—in which “donors” have larger vote-shares than “recipients”—has changed little. Moreover, the money that governments put into these institutions is portrayed not as donations but as capital subscriptions or quotas. Neither the terminology nor the weighted votes reflect the nature of development: it entails high rewards, but also high risks. Yet the decisionmaking processes of the World Bank and IMF remain risk-averse. Both continue to use conservative bank-like structures in which a privileged set of investors do not put their money on the line without many mechanisms in place to ensure that they will get it back.
One might think that development is better reflected in the WTO, where there are no capital subscriptions or quotas and each member has one vote. Indeed, developing countries comprise about two-thirds of the WTO’s members and collectively command the largest vote-share. However, the WTO’s one-member-one-vote system is a carryover from the 1947 GATT regime, not a response to the organization’s pivot toward development. Moreover, WTO decisions require consensus, which often means that developing countries, despite being in the majority, still cannot get their way unless richer members also agree. No surprise, then, that the Committee on Trade and Development (as well as the WTO as a whole) experiences deadlock.
Given the defensive nature of their pivots toward development, plus the lack of formal decisionmaking processes that cement developing countries as their primary clientele, it is easy to question whether the World Bank, IMF, and WTO have an actual commitment to match their rhetorical positions on the issue.
Questioning Uniqueness in Development: Losing their Edge versus the UNDP
It is also easy to question whether these three organizations are uniquely equipped to deal with development. Here, a useful comparison is the United Nations Development Programme (UNDP). Launched in 1965, the UNDP merged and built upon two previous United Nations (UN) initiatives dedicated to the developing world: the Expanded Program of Technical Assistance and the Special Fund.
From the start, these initiatives focused on development and viewed poor countries as their primary clientele. Indeed, they embraced the mission to such an extent that donor states such as the United States, which could throw its weight around in the World Bank more easily than in the UN, championed the creation of the World Bank’s IDA arm as a competitor to the Special Fund and later tried to hinder the creation of the UNDP. Although poorer countries enjoyed being able to exert greater influence over the development institutions housed directly inside the UN, some World Bank staff and richer countries saw UN development initiatives as a way for poor countries to “escape” rigorous oversight by donors.
The UNDP was launched regardless. Its mission was development, with its main decisionmaking body reserving the majority of seats for developing countries. Yet the launch of the UNDP raised a persistent concern: why, other than donors’ desire to preserve alternative spaces where they dominate, was the UNDP not the lead organization coordinating all other development work? Consequently, the World Bank—and later the IMF and WTO—have tried to justify their own development work by demonstrating they do things that the UNDP does not. For its part, the World Bank takes pride in collecting vast amounts of development-related data. One prominent example is the World Development Report, published annually since 1978. Each installment takes a deep dive into factors that affect development, such as agriculture, climate change, conflict, demographics, education, employment, health, infrastructure, migration, risk, services, or value-chains. But over the years, the World Bank—though continuing to be a big development player thanks to the massive funds it can mobilize—has lost some of its data edge. In 1990, the UNDP began publishing its own annual Human Development Report, which moved beyond the World Bank’s emphasis on the growth of national economies and considered development from a broader, multidisciplinary perspective. Meanwhile, the private and not-for-profit sectors have made more of their development-related data available for purchase or for free. And in 2021, the World Bank discontinued its Ease of Doing Business Report following allegations of data-rigging.
The IMF, too, has lost some of its edge. In contrast with the UNDP, the IMF positioned itself as the sole lender-of-last-resort during emergencies like the Asian financial crisis, which hit countries such as Thailand and Indonesia in 1997–1998. It was able to quickly amass large infusions of cash, and in the 1990s and 2000s essentially all of its lending went to developing countries. But that trend reversed in the 2010s. Ironically, at the same time that the European Central Bank was demonstrating that it too could be a lender-of-last-resort, most of the IMF’s lending was being pumped into advanced European economies hit by the eurozone crisis. No longer the sole lender-of-last-resort, in the 2010s the IMF also was not focusing on developing countries. And as the IMF stepped back, China stepped in.
The situation is similar for the WTO, whose potential value over the UNDP has until recently been in dispute settlement. Many of the disputes handled by a WTO Panel or the Appellate Body have pitted developed versus developing countries or have involved trade restrictions done in the name of development. Thus, the WTO has had distinctive power to weigh in on development-related topics. But just as the World Bank has lost its edge in data and the IMF has lost its edge in being the sole lender-of-last-resort, the WTO has lost its edge in dispute-settlement. In 2019 the Appellate Body became nonfunctional after several years of the U.S. government demanding reforms and blocking appointments of new judges. An interim arrangement among a subset of WTO members has been operating in the meantime, but is not intended as a permanent substitute. Meanwhile, the WTO has been severely challenged by a resurgence in industrial policy—this time pursued not only by poorer countries but also by richer ones.
What All This Means for Reform
In sum, there are reasons to be skeptical about whether the World Bank, IMF, and WTO are fully devoted and uniquely equipped to deal with development. All three pivoted to development as part of broader moves toward organizational self-preservation, and in no case did this pivot include changes in decisionmaking processes to elevate developing countries as the primary clientele. Nor are these organizations uniquely situated to advance development, given the importance of other agencies—including the UNDP, whose governance structure is more closely aligned with recipients. And over time, the edge that the World Bank, IMF, and WTO once had compared to the UNDP has been blunted.
Given these realities, proposed reforms to the organizations face at least three broad challenges.
Challenge 1: Devotion
First, the fact that organizational self-preservation played a role in their pivots toward development suggests differing levels of devotion to development among each organization’s staff and the member states themselves. This devotion seems highest in the World Bank, which pivoted early in its history. Current staff have never known anything other than development as their organization’s raison d’être. And although donor states have resisted giving up their weighted votes, they broadly agree that the World Bank is a crucial institution for development.
The situations are different for the IMF and WTO. Their pivots toward development (in the 1970s and 2000s, respectively) are more recent, and they continue to work on their core issues (financial stability and trade, respectively) in addition to development. Accordingly, not all staff and member states regard the IMF and WTO’s missions as being primarily about development. Without consensus about an organization’s primary purpose, it is hard to reach consensus about how to reform things.
Challenge 2: Uniqueness
Second, the elements that made these organizations uniquely equipped to deal with development in the past may not give them the same advantages for dealing with development in the future. The WTO seems best positioned to regain its edge. The ability to settle disputes is distinctive, and its dispute-settlement process has been disrupted for only a few years, with the work being continued by an interim arrangement.
However, the World Bank and IMF may need to explore additional ways to demonstrate their added value. Both face more competition, particularly when it comes to collecting data (for the former) or being the lender-of-last-resort (for the latter). And that competition comes not only from other intergovernmental bodies such as the UNDP or the European Central Bank, but also from individual member states such as China.
Challenge 3: Devotion and Uniqueness
Third, reformers who are serious about development must aim to make the World Bank, IMF, and WTO both fully devoted and uniquely equipped to deal with development. An organization that is uniquely equipped but not fully devoted will not make concerted, meaningful progress for developing countries. Conversely, an organization that is fully devoted but not uniquely equipped may simply replicate or siphon work that could be done by other entities, including those whose decisionmaking processes are more explicitly led by the needs and preferences of recipients.
Unless both aspects are in place, the three organizations will continue to be in an unenviable position: their commitment to development not fully credible, and their claims to comparative advantage less than clear-cut.
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