Great expectations

What explains this extravagant optimism in the face of harsh experience and dire reality? The bank embraces an unachievable vision instead of an operational mission because it is under pressure from many different constituencies. More important, this vision drowns out a discussion of realistic objectives and thus undercuts a much-needed drive to enhance internal management. It also weakens the bank's perceived "professional impartiality" as an adviser and partner to developing-country governments. And because of the politics within the institution -- where developing countries are both shareholders and clients -- the bank will rarely admit that working within a particular country at a particular time is unlikely to achieve much lasting benefit unless a more reform-minded government takes over. Yet to address all these issues, the bank must acknowledge a series of dilemmas.

First, the bank absorbs and expounds the huge prescriptive literature on development without acknowledging that knowing the destination does not produce a road map for getting there. For decades, the bank has underscored the importance of strong institutions to successful development -- without admitting that there is no magic wand that can give places such as Pakistan, Russia, or the countries of Africa that institutional infrastructure.

Second, the bank does not acknowledge that much is serendipitous about development. Different countries have developed at different times through a happy coincidence of myriad factors, including geography, immigration, political development, and the outcomes of war and peace. The Asian crisis showed that globalization has raised the bar for locking in development progress. But the idea that good corporate governance and transparent and stable financial systems are essential for development contradicts the postwar progress of western Europe. In Germany, banks and insurers have traditionally owned shares in each other and in industry, and unions have been powerful actors in a system of corporate governance that stresses consensus. Government-industry ties are equally thick in France and Italy, where corruption has also featured prominently. Yet no one would argue that these countries are "unstable" in their claim to be developed. But to say development is serendipitous is not to counsel pessimism. The revolution in technology and communication, for example, may over time permit great strides in Africa.

Third, the bank is in danger of overdetermining development to the point where it is a tautology, not a reasonable prescription. To argue that developing countries need market-friendly policies, stable macroeconomic environments, strong investments in human capital, an independent judiciary, open and transparent capital markets, and equity-based corporate structures with attention to modern shareholder values is to say that you will be developed when you are developed. It is the old debate of inputs versus outputs, where everything that development brings has become a necessary input to achieving it.

Fourth, the bank's strength paradoxically undercuts its effectiveness. The bank is so diverse in its expertise, so professional in its staffing, and so strong in its financial structure that all the interested parties want to control it for their own purposes.

This last point leads to the fifth dilemma: the politics of support can often conflict with the politics of influence. As the bank tries to broaden its support and avoid controversy in developed countries, it refrains from politically charged lending (such as that for large infrastructure projects or sustainable forestry). At the same time, it intrudes into political processes (such as by mandating consultation with nongovernmental organizations) as part of the loan process. The checklist for getting credit may now require assessing the loan's impact on poverty, gender disparities, and the environment; it may also call for competitive procurement and enhanced financial management. These requirements raise the cost of doing business with the bank to discouraging levels. The need for realistic management is acute.