Global challenges like pandemics, climate change, biodiversity depletion, and conflict require global collective action. Yet the World Bank, built around country financing as the key product, has had neither the mandate nor the adequate modalities needed to systematically respond to issues that transcend borders. While the issues are not new, they are newly urgent: 242 million global COVID-19 cases have led to nearly 5 million deaths so far, and we are facing likely irreversible damage from climate change and biodiversity loss in the next decades.
On October 8, the Center for Global Development held an event with the governments of Germany and Norway that asked: how can the World Bank better respond to global challenges like pandemic and climate risks? The answers were clear—the World Bank must reorient its mission, carry out more and better analyses to measure regional and global externalities of projects and policies, generate clearer incentives and client demand for global public good (GPG) investments and reforms, offer better financing terms that use internal concessional resources and external contributions to drive progress, and simply propose a clearer vision and more money to advance more rapidly against global goals. Many CGD authors have long argued for greater attention to global public goods at the multilateral development banks. And asJürgen Zattler, Director General for International Development Policy at the German Ministry for Economic Cooperation and Development (BMZ), noted, the Bank’s clients pay the same for an investment that has positive externalities for the whole world as for one that doesn’t, so shouldn’t a Bank for the World explore new approaches that take that into account?
This blog excerpts some of our picks of key messages from the event, but it is not comprehensive so please watch the full set of speakers here, including from Nicholas Stern, Andy Baukol, Lene Lind, Naoko Ishii, Ed Mountfield, Masood Ahmed and more.
Lawrence Summers: A Call to Arms—But Not To Fight Each Other
Throughout human history, the primary source of cross-border suffering has been war or military conflict, culminating in the tragedies of the first half of the 20th century. It was the remarkable triumph of the Bretton Woods system after WWII that established a framework in which the amount of cross-border suffering caused by war has fallen in the last 75 years to less than a tenth of what it was in first half of 20th century. And in the 21st century, the instance of conflict fell again to less than a tenth of what it was in the latter part of 20th century. That is an extraordinary achievement of international cooperation.
Today, the principal threat to human security is no longer military conflict. Of course, we must maintain vigilance. But the greatest threat to our children’s and grandchildren’s generation is the deterioration of the global environment and the spread of pandemic virus. Yet the global system’s response is entirely disproportionate to the scale of these new threats.
Until recently, as many Americans died from COVID-19 every two days as died in the 9/11 attacks. And yet, in the US we have not committed even 1 percent to the global threat of pandemic disease of what was committed to the response to 9/11. Our efforts to respond a global challenge which threatens existential conditions for life on earth are a small fraction of annual commitments to military security. There is a complete disproportionality between our response to different kinds of threats.
I am not making a moral or altruistic argument, though there is one to be made with respect to meeting the needs of those in poverty. I am noting the stark juxtaposition of epically low borrowing rates in all major industrialized countries and the high return rates of pandemic preparedness, prevention, and response. There has not been a larger gap between what the major problem is and what the direction of energy is in decades.
Just as the new Bretton Woods system met the prevailing problem of containing economic frustration and rising hostile powers in the post-war era, there is a need for a renovation and reinvention of the global system today. It is the capacity of the international financial institutions (IFIs) that represents the world’s principal tool to respond to these challenges. They need to be rethought, replenished, and reinvented. And as the leader of the group of institutions directed at the broad solution to a global problem, the World Bank is where that rethinking, replenishment, and reinvention process needs to begin.
To be sure, the Bank cannot do it alone. An effort of this kind must truly be global and multilateral and based on judgments of all countries. Former finance ministers like myself have the tendency to think too quickly and too exclusively of the IFIs rather than the UN system, but crucially the World Health Organization (WHO) must remain at the center of any effort to combat a global pandemic.
What’s involved in rethinking, reinventing, replenishing, and revitalizing or renewing the World Bank? I suggest:
- First, a redefinition of its name and mission to explicitly embrace the centrality of sustainability—I propose the International Bank for Sustainability and Development, to underscore that both the core country-focused mission and the global public goods mission must be maintained. It is absolutely the case that the world must remain focused on poverty issues where it has lost substantial ground in recent times. But that is not enough. A World Bank must really be a bank for the world. Not one only directed at the poorest countries and poorest peoples, and so it needs a central emphasis on sustainability.
- Second, there needs to be a comprehensive rethinking of the capital model for this era of low interest rates. The reality is that the traditional distinctions we have drawn between concessional and non-concessional finance have much less meaning when the special drawing right (SDR) interest rate is closer to zero. This means we need systematic rethinking. Companies and households in the US and Europe can borrow at rates today that would have been inconceivable a generation or even two decades ago. A similar rethinking of international public financial intermediation is in order. A crucial component is more innovation and less silo-ing as we approach support for private sector finance. MIGA, the IFC, and the World Bank’s guarantee program need no longer be siloed but must complement each other if private finance is to be catalyzed on the appropriate scale.
- Third, the Trump-era US-driven commitment that the most recent capital increase of the World Bank was to be the last one, and that it would now operate permanently on that capital, is a judgement that must be recognized as a mistake at the time or a reasonable judgement at the time that has been superseded by subsequent events. These are global problems, and the world must come together towards innovative approaches to increasing World Bank capital on the basis of renewal that I have described.
- Fourth, these resources for the World Bank must be complemented by the reinvention of the ways that the Bank does business. The Bank needs to operate on 21st century rhythms of speed, using 21st century information technology. It needs to be leaner and meaner in the way in which it carries out its business. Much should be asked of the Bank and its leadership, but much should be expected. This is a task for officials of the Bank but ultimately for the international community and for its major shareholders.
Tharman Shanmugaratnam: Tackle the Triple Challenge
We need to take step back and reposition and repurpose the World Bank—together with the multilateral development banks (MDBs), and in some ways with the IMF—to address the fundamental fact that the largest challenges facing not just the global system, but also individual countries, rest in the deterioration of the global commons.
It is so complex because the scale of existing traditional challenges has gotten much larger. Well before the COVID-19 pandemic, we recognized that the scale of investment required in infrastructure, education, and development was going to get larger in the next decade due to the demographic bulge. So, by any assessment, the usual sources of finance and of organizing finance would be greatly inadequate even before talking about financing the global commons.
The scale of setback we’ve seen in this crisis has not been fully appreciated. It is not just a standstill in education and national wellbeing; we also have had deep reversal of gains we had made. We now face the huge triple challenge of addressing existing, already difficult challenges, combined with a new setback, and alongside the looming global commons.
To address these problems, we need a fundamental repurposing of the World Bank. Global public goods require greater and much more resilient funding.
The G20 High Level Independent Panel on Financing the Global Commons for Pandemic Preparedness and Response’s report, which was presented to G20 finance ministers and central bank governors in Venice in July, lays out doable proposals to strengthen multilaterals and finance those global public goods.
The report calls for empowering and providing more resources to the WHO as well as repurposing the World Bank and IFIs. This requires not just the usual instruments of financing, but new approaches with more grant financing. An intrinsic part of financing global public goods (GPGs) is that individual countries don’t benefit exclusively from these investments, so lower-income countries need more grant support to ensure they don’t bear the entire financial burden for benefits distributed globally.
To do that, we must develop creative, new multilateral mechanisms to strengthen a system that today leaves global health security siloed and fragmented. We can’t raise or deploy resources based on today’s fragmented system of global health security. It requires a multilateral system to raise and deploy funds to plug gaps swiftly. Existing individual organizations can’t do that. We believe it can be done affordably by creating a fund for this purpose that all countries contribute to. The costs are tiny compared to the amount that has been spent to respond to this pandemic or what responding to the next one would cost. We are talking about making small investments relative to the huge costs we face.
The triple challenge we face is significant—we needed more resources to avoid disaster in development even before the pandemic, we must address this deep setback, and we must finance the global commons. If I were to redraw the mandate of the World Bank, I would focus the Bank on GPGs and on human capital and policy reform. If we can do that effectively with the resources available, we stand a 50/50 chance of succeeding in the next decade.
Norbert Barthle: A Bank for the World
COVID-19 is similar to climate change, in that neither their causes nor their consequences can be held in check by national borders. We can only master the current challenges we are facing by joining efforts.
The World Bank is called upon more than ever to do justice to its name. This crisis is an opportunity for the Bank to regroup. It is not just a bank for the nations; it can be a bank for the world in its entirety. In financing global protection and the provision of GPGs, the answer to global challenges is not just investing more; the World Bank needs to create incentives for investments that are aimed at regional and global dimensions.
Together with other multilateral institutions, the World Bank must support countries in making investments in GPGs and reforming their economies accordingly. The Bank must support costs arising from these in a fair manner so their transition is just. It is not enough for the World Bank to provide funds; it must also use its convening power and know-how as it has done in the past.
Nancy Lee: Fix the System
We just went through a major test of the capacity of the IFIs to respond to a global and prolonged shock that was not caused by financial or economic factors. The evidence we have suggests the IFIs are better at finance surges when responding to a shock caused by economic factors. We need a very basic rethinking of the size of the system as well as its design.
During the COVID-19 response, the MDBs collectively increased their finance, but the increase was distinctly smaller than what we saw during the Global Financial Crisis (though the World Bank’s IDA was a major exception this time). The private finance arms of the MDBs lagged and were not able to mount a major countercyclical surge, and private finance from the MDBs to poorer countries fell. On the climate side, we’re seeing a lot of focus on finance inputs and the share of operations that are climate related, but not on climate outcomes and outputs. We have not identified a path to zero emissions.
Generally, we did not see evidence that the system is acting as a system, or that institutions are collaborating with each other. That outcome is squarely on the responsibility of the shareholders themselves.
The system does need to be bigger; there was a major financing gap even before COVID-19. We need both capital increases in institutions as well as more aggressive stretching of existing capital.
But we are also missing another fundamental piece of the global architecture: oversight of the MDBs as a system. We cannot rely on the oversight of individual boards or on the G20 or G7 and intermittent guidance. We need a piece of architecture that brings MDBs together with climate and global health actors to create strategies for achieving GPG goals and to oversee those strategies. It will be quite difficult to create that architecture, but the cost of not doing so justifies it.
Jürgen Zattler: Next Steps
Germany has long argued for better treatment of GPGs in development, beginning 20 years ago. When you look at Germany’s development cooperation, it has grown to become the second biggest donor. Combining those two agendas—the global commons and development—in one makes sense and helps to make the case for investment.
UN Secretary General Guterres said the global governance of multilateral institutions must focus on global commons and global public goods. World Bank President David Malpass has made a similar comment. Now, how do we walk the talk? To respond to the global pandemic and climate situation, how do we operationalize the role of the WHO, World Trade Organization, and MDBs in the global architecture?
Three points on next steps for the MDBs:
- The business model of the MDBs and the World Bank must better reflect cross-border and global challenges. Poverty and collective prosperity on the one hand, and the preservation of the global commons on the other, are complementary. How to bring these two objectives into one business model is still an open issue. We must look to the MDBs to create incentives, better financing terms, and additional resources.
- The whole system needs additional resources. We can’t ask development agencies to “take on board GPGs” if there are no resources. We have discussed using SDRs, providing dedicated capital increases, and so on. There are many ideas around; let’s look at them.
- Third, the system needs better cooperation. We have thematic funds like the Green Climate Fund, and one could combine financing of those funds with MDB money—it is possible but very cumbersome. Let’s make the system more workable and eliminate bottlenecks.
What’s next? At the Annual Meetings, one topic of discussion was prevention, preparedness, and response and the Bank’s role in a future crisis. The Bank released a paper on GPGs in 2003, again in 2008, and since then nothing. We know that we will need to bring these issues together, but we don’t know how. After 13 years, why don’t we turn to the World Bank to do more analysis, focused on the two most important global public goods—pandemic prevention and climate protection—to guide us to reconcile the country model with global challenges?