NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, July 23, 2014

There will always be a need for a World Bank, which celebrates a birthday of sorts Tuesday. There is no need for a World Bank with more than 10,000 employees.

President Jim Yong Kim is trying to reform the bank, one of the global financial institutions that emerged from the historic Bretton Woods agreement signed on July 22, 1944. He is getting strong resistancefrom a rank and file protective of its parking subsidies, business-class travel and generous meal allowances. The greater danger for Kim, however, is that he will be too timid.

Kim is right that the bank’s overarching mission should be to help the 1 billion or so people who subsist on less than $1.25 a day. It can best do so by complementing, not competing with, the private sector.

The bank, which fights poverty by lending to developing countries for roads, schools, dams and other public-works projects, is bloated and bureaucratic. And those aren’t even its biggest problems.

By its own admission, the bank is fighting for relevancy now that many of its customers don’t need it anymore. The developing world’s rising middle class is attracting private capital and reducing the need for countries to borrow from the World Bank. More than $1 trillion a year now flows from the private sector and major philanthropies to developing economies. Official development assistance, by contrast, totals about $125 billion. Last year, the World Bank’s new lendingcame to less than $35 billion.