Let's now consider the role of the World Bank in the global economy.
The World Bank was conceived of during World War II
by Great Britain and the United States
working together during a series of meetings at Bretton Woods.
From the beginning, the vision was of a bank dedicated to the idea
of economic development for the poorer nations of the world.
Some of the concrete goals stated by the bank itself are
fighting poverty and hunger,
educating, gender equality, health, environmental sustainability,
and, overall, all of those goals under a general rubric of economic development.
Of those goals, two of them,
gender equality and environmental sustainability,
are relatively recent.
There are several quite distinct institutions
associated with the World Bank.
The first is the International Development Association
or IDA as it is known for short.
The IDA works with the very poorest nations,
and offers zero interest loans, and, also, grants and aid.
You can think of this as, very much, a kind of traditional aid agency.
The International Bank for Reconstruction and Development,
also known as IBRD,
is much more like a bank, as the name World Bank would suggest.
So, the IBRD borrows money from private capital markets
and then invests this money in projects in developing nations.
The IBRD works with developing nations.
But, unlike the IDA, it does not, in general,
focus its activity on the very poorest of those nations.
To get a sense of scope in a typical year,
IDA expenditures might run around 15 billion dollars.
And the amount of money raised in private capital markets by the IBRD
might run in the range of 10 to 15 billion dollars.
There is also the IFC or the International Finance Corporation
which is part of the broader World Bank Group,
and this also serves banklike functions,
trying to support private sector investment in developing nations.
If you're looking at the governance of the World Bank,
you could start with the president of the World Bank.
By convention, this person is a citizen of the United States,
and the United States has a very significant role in choosing the person.
The World Bank has executive directors coming from many nations.
But the most fundamental form of governance in the World Bank
are the voting rights of particular nations.
And, here, the United States,
the major European nations, and Japan really have very significant influence
over the World Bank through their ultimate voting rights.
It has been a matter of real controversy
whether developing nations should be given greater voting rights in the World Bank.
Many poor individuals in developing nations
have benefited a great deal from projects supported by the World Bank.
But, let's look at a few of the major criticisms of the World Bank.
One set of criticisms has been directed at the bank's programs
for what is called 'structural adjustment.'
Under structural adjustment, the bank lends money to a country,
but it also asks that country to make policy changes,
typically, in the direction of economic liberalization.
This, of course, has proven very controversial.
I'm not going to survey these debates here, in this unit.
But if you look at the other video units, as part of this course,
you will find many particular details
on whether various sectors should be seeing
more economic liberalization or not.
There's a second approach to understanding the World Bank
and, probably, it's more of an observation than a criticism,
but the size of the World Bank has now become really quite small
relative to the size of private capital markets to developing nations.
So, if we think of the IDA, in a typical year, as spending 15 billion dollars,
and if we think of the IBRD as being, in a typical year,
in the range of 10 to 15 billion dollars, and there's the broader World Bank Group.
But we're getting a total impact in the range of
several tens of billions of dollars.
And, then, imagine that, in a typical year,
private capital flows are, say, 600 billion dollars
to developing nations,
well, then the World Bank looks quite small.
These private capital flows are a good thing,
and it was part of the original vision of the World Bank
that private capital would step in and do a lot of what the World Bank did at first.
But, nonetheless, what you hear often is exaggerated rhetoric about the World Bank,
whether for good or for evil.
And the notion that the World Bank is somehow pulling the strings
on the global economy, and manipulating capital markets,
and keeping poor countries under its boot
or whatever is alleged about the World Bank.
Typically those claims are serious exaggerations.
The World Bank is one player in economic development,
but, in relative terms, it's becoming smaller
and, indeed, much smaller with the passage of time.
Another criticism of the World Bank
is that it's too much under the control of its own boards of directors.
For instance, those boards tend to represent the United States
and the wealthier European nations and Japan.
And, in part, they view the World Bank as a useful way of generating
construction and infrastructure contracts for corporations
back in their home countries.
And what they're interested in seeing the World Bank do
is lend a lot of money and give a lot of aid
but in a form that will involve these contracts
for their own corporations.
That's where a lot of the political support
for the World Bank comes from.
But, sometimes, this leads to harmful incentives
because the incentives within the World Bank
are to get contracts out of the door.
And, of course, the developing nations working with the World Bank;
they know this.
So, sometimes, they're able to manipulate the World Bank
and get a contract when, ideally, perhaps the World Bank should take
more time or impose greater conditionality or maybe cut off aid or cut off the loan.
But, in fact, the incentive is, sometimes, to keep that stream of contracts running.
And the overall result of this equilibrium game
between the developing nation, the World Bank,
and the individuals on the World Bank boards of directors
who want a lot of construction contracts;
often, from that mix, you end up with a fair amount of inefficiency
and not necessarily the most effective projects for a development aid.
Of course, there's an enormous amount written on the World Bank.
For a very simple start, use Google, but, also, consider googling the news.
So, go to news.google.com and enter "World Bank"
or enter "World Bank" and the names of particular nations.
And that's one way to start, getting a handle on
what the World Bank is up to right now.
I also recommend digging into specific project areas,
whether it be health, or education, or water policy, whatever.
And you can do that by looking at the other video units
and following their suggestions for further research.
That's one very good way to get a handle on these specifics
of what the World Bank has been up to.