The World Bank Is Failing and Needs a Restart

A crude approximation of this goal used by the World Bank is an annual estimate of how many people are living on less than $2.15 a day, the amount deemed necessary to avoid hunger. This is a very conservative measure of the bank’s performance—it could be met if all the world’s poorest were to reach this bare minimum for survival even as they fall further and further behind the rest of mankind. Yet even on this inadequate measure, prior to 1990 the Bank was failing. This is no longer in dispute: From 1960 to 1990, on standard statistical measures, the incomes of poorer countries were diverging from richer ones. The number of people in extreme poverty peaked in 1980 and flatlined until the early 1990s, when China, India, and other Asian emerging markets took off.

Since 1990, China and India have dramatically lifted many millions of people out of poverty, but that was due to internally driven reforms that opened their economies to trade. It was not due to the minuscule aid to these countries from the World Bank, which went disproportionately to Africa along with policy advice. While the bank cannot claim credit for the successes of China and India, it must accept responsibility for failures in Africa. Yet the bank and its leadership have been reluctant to face their failures or draw consequences from them.

When I first worked on the problem of global income divergence in 2003, I found that within it there was a further problem that had not been noticed at the time. A group of 60 poor countries, concentrated in Africa and Central Asia but with pockets elsewhere, had not managed to ignite economic growth and were gradually falling behind everyone else. They had a population of about a billion people in total—I termed them “the bottom billion.” China and India had initially been much poorer than most of these countries, but from the 1980s China had started to grow rapidly, and from the 1990s India and Latin America had also taken off. While in 1990 these three regions still dominated the statistics on global poverty, they are now favored by investors as emerging markets, and by 2035 their problems of mass hunger will be a thing of the past. It was due to their growth that global poverty began to decrease – both as a share of the world’s total population as well as in absolute numbers, probably for the first time in human history. But that success did not extend to the bottom billion. As a group, their incomes continued to diverge from the billions of people in the emerging market countries and the lucky billion in the rich ones.

The divergence of the bottom billion continued until 2003, when the global market prices of natural resources began a decade-long boom so exceptional that it became known as the super-cycle. Because the process of economic growth had never ignited among the bottom billion, the exploitation and export of their natural resources had become their predominant form of engagement with the international economy, and so the super-cycle boosted their income. This was their golden decade, and it lasted until 2014, when commodity prices tanked; since then, prices have been highly volatile. Post-2014, the world economy entered a period known as the “new normal,” a term coined by the economist Mohamed El-Erian. For the bottom billion, the new normal looked very similar to the old normal, that long period until the golden decade during which they had fallen behind. Only during the golden decade did the bottom billion as a group briefly interrupt the tragedy of falling further and further behind the rest of humankind.

If the trend since 2014 is sustained, the global poverty count will soon revert to its grim pre-1990 upward march. From 2035 and adjusted for inflation, the number of people below the World Bank’s $2.15 poverty threshold—the ones so poor they go hungry—will increase relentlessly. They will be concentrated in very different places from the past. Replacing China, India, and Latin America, the new poor regions are Africa and Central Asia. Given the World Bank’s mission, the prospect of rising poverty in precisely those regions on which it has long been focused should be galvanizing the bank into action.

Of course, there are plenty of reasons to be skeptical of these projections. But we can supplement projected trends with the evidence on changes in national wealth per person, including private assets such as houses and public ones such as infrastructure. Imperfect as this measure is, by looking at how assets are changing, we get some guide to how incomes might change in the future. In both the old normal and the new normal, the few assets of the bottom billion remained effectively flat, while per-capita assets in the emerging markets grew rapidly, at 3 percent or more each year. The assets of the lucky billion living in the developed world also grew comfortably, at around 2 percent per year.

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The people of the bottom billion are radically poorer than the rest of mankind. By 2020, the average per-capita assets of the lucky billion was half a million dollars. The emerging markets average had leapt to $85,000 and was on track to catch up with the lucky billion within a generation. But people of the bottom billion had less than one-thirtieth of those in the lucky billion, and the former’s assets are growing only slowly. How can they catch up? Unless there is radical change, these yawning differences in opportunities will widen into two different worlds—most of humankind in affluent societies and a minority mired in frustrated lives. Through social media, the two worlds will be in full view of each other.

While this picture is bleak, some of the countries among the bottom billion have found the confidence to think for themselves, and they are thriving. Rwanda has doubled its people’s incomes and improved health and schooling. Ethiopia has broken into global markets for light manufacturing, where employment is booming in new clusters and value chains. Zambia, once highly centralized, is vigorously devolving decision-making closer to citizens’ lives. As role models for other neglected places still demoralized, and as a guide to how international development policies need to change, their experience is invaluable. Just as the prospect of a return to rising hunger should galvanize international action to avert it, so this means of learning rapidly how to do so should have been center stage. Yet neither has happened. Instead, owing to a combination of stale development ideologies, confusing statistical evidence, and distracting economic and other shocks, the danger and how to address it have been overlooked or ignored.

A worker checks weaving machines at the Hawassa Industrial Park in southern Ethiopia on Oct. 1, 2019. Eyerusalem Jiregna/AFP via Getty Images

The sobering data on global incomes and assets are all generated within the World Bank itself. But after 30 years of declining global poverty, the Bank had lulled itself into the complacent belief that because its mission was consistent with what happened in the world at large, those improved global statistics must vindicate what the bank had been doing—in other words, the bank’s programs must be working. The World Bank indeed had small programs in China, India, and Latin America, but in any realistic assessment, they were peripheral to those areas’ economic growth and poverty reduction. The bank’s main influence, through policy advice, aid, and the leverage exerted by conditioning the latter on accepting the former, was in Africa and Central Asia. The data proving that these were precisely the regions where the growth process had failed to ignite were incompatible with the bank’s own self-congratulatory assessment.

But when cherished beliefs collide with new evidence, the evidence does not necessarily win. Instead of being galvanized into soul-searching questioning of why its approach to its stated purpose was not working, in the early 2020s the bank decided to change its stated purpose. It would no longer aim for a world free from global poverty—and would no longer even measure it. The bank would simply aim to reduce the number of people living below a certain income threshold that would be specific to each country. If that number was falling, the bank would declare victory: Its programs in that country must be working. This measure was sufficiently undemanding that most programs would get a passing grade most years—even in Africa and Central Asia—so everyone could relax. To avoid a blighted career, a staff member assigned to one of the countries not currently getting a pass grade would simply need to shift to a different country as fast as possible. Since everyone would be playing this game, the most junior staff would end up working together with the least able ones on the most difficult countries.

Clearly, as the foremost global institution, the World Bank should be aiming for global convergence: That is its essential mission. The countries that have fallen behind to become the poorest should not be content with avoiding hunger or meeting some low, bureaucratic threshold—they should be growing faster than the other groups. That they have not, save for one golden decade that had nothing to do with any development projects, should be a reason for serious soul-searching and sober reassessment at the bank, reinforced by real concern about the prospects of the world’s poorest.

The World Bank might look to its sister institution, the International Monetary Fund (IMF), for an example of exactly this sort of soul-searching. It took place in 2018 under the direction of then-IMF chief Christine Lagarde, who now heads the European Central Bank. Through an independent assessment of its performance, the IMF found that in fragile states only one in seven of its programs of support and advice were succeeding. This triggered a major research study, published in 2021, that concluded that programs needed to last longer and be better tailored to the local context. The first fruits of this work are the agreement just reached with Ethiopia last month.

But in its policies towards the persistently slow-growing countries of Africa and Central Asia, the IMF is handicapped by a mandate focused only on financial stability, not economic development. The mandate for development is held by the World Bank—that is where the buck stops.

Then-World Bank Group President David Malpass and Kristalina Georgieva, the managing director of the International Monetary Fund, wait for the beginning of the plenary session of the Development Committee during the annual spring meetings at World Bank headquarters in Washington on April 12, 2023. Alex Wong/Getty Images

But instead of recognizing half a century of failure, discovering the reasons for it, and launching a process of comprehensive institutional change, the World Bank made the nefarious choice to redefine its purpose to something easier to achieve than economic development and income convergence. It simply changed its measures of poverty so that rising global poverty would not even need to be reported. Before the bank had finished this scandalous process, international anger at its failure to respond to the multiple crises engulfing poor countries boiled over and reached its Board of Management. The board correctly judged the bank to be dilatory in disbursing funds that could have enabled the governments of the poorest countries to prevent their economies imploding. In February 2023, under humiliating circumstances, World Bank President David Malpass was forced to resign.

This step might finally galvanize the bank to put itself through the same soul-searching the IMF has undergone. With its vast financial resources and capable staff, the World Bank has a noble mission waiting to be embraced. Will its new president have the ambition to chart a bold new course—or retreat into the defensiveness of a beleaguered bureaucracy?