World Bank: The Purse Strings of Global Development

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Introduction

Currently, about 10 percent of the global population lives in extreme poverty. This is approximately 700 million people living on less than $1.90 per day. To put this in perspective, this is about double the population of the United States, which is a little over 300 million people. However, this number used to be a lot higher. Although 700 million people is a lot, the number of people living in extreme poverty around the world has actually declined steadily since the early 90s. This is due to efforts to increase education, reduce infant mortality, and improve many other factors that affect income. Yet, how do we know that these factors influence a country’s level of poverty, and how have we been able to track this progress?

Explanation

Much of this information is easily accessible thanks to the World Bank, which collects data on a variety of topics from 189 countries. It is one of the World’s largest research centers, providing analyses of development data and training to governments throughout the world.

The World Bank tracks indicators of development in each of its member countries and publishes this data on its website. Individual countries report to the World Bank, which then compiles this information. Countries, companies, and ordinary people can use their free database to find statistics on public health, income, education, and other indicators of development. However, the World Bank is much more than a database.

Definition/World Bank

The World Bank is an international financial institution that provides loans and grants for low-income countries pursuing capital projects that they are unable to fund otherwise. The World Bank was founded after World War II, when many European countries were physically and financially destroyed. It was created to lend money with no interest rate so that these countries could rebuild themselves and eventually pay back the Bank. Now, the World Bank provides loans to countries all over the world working to eliminate poverty. The Bank also offers loans to non-governmental organizations, or NGOs, that provide aid in low-income and developing countries. Since 1947, the Bank has funded more than 12,000 development projects. In accordance with the United Nations Sustainable Development Goals, the World Bank intends to end extreme poverty and increase the income of the bottom 40% in every country by 2030.

How It Works

The World Bank is composed of two institutions: the International Bank for Reconstruction and Development, or IBRD, and the International Development Association, or IDA. The IDA is the branch that provides interest-free loans to low-income countries, and the IBRD branch collects information and helps developing countries implement their projects.

Countries can qualify for loans if their GNI, or Gross National Income, is low. But first, they have to identify a need and develop a plan to utilize the money they intend to borrow for a capital project.

So, what counts as a capital project? A capital project refers to improving a country’s capital, such as infrastructure, or even eliminating barriers to human capital, such as lack of nutrition or education.

The World Bank is accessible to low-income countries because, unlike most banks, its loans are interest-free. This means that although the countries eventually have to pay back the World Bank, they do not have to pay an additional percentage of what they borrowed.

So What?

Although the World Bank works to eliminate poverty, critics believe that it uses “shock therapy,” which can be harmful to developing countries. In economics, shock therapy is when the government quickly and radically changes economic policy. This can look like a sudden withdrawal of subsidies by the state and the release of controls on the price of goods. This transition is often difficult for citizens and can lead to political unrest.

Another critique of the World Bank is that poorer countries are under-represented in its decision-making processes. Countries get a vote for every share they have in the World Bank’s capital stock. The number of shares that a country has is dependent on how large its economy is. Countries with larger economies, primarily the United States, Japan, China, and European countries, hold the highest number of shares and, therefore, the most voting power. The countries dependent on the loans, however, have very little control. The United States has a unique influence over the World Bank as the largest single shareholder. Historically, the president of the World Bank has always been a U.S. citizen.

Some other critiques of the World Bank include that there are unfair conditions to qualify for a loan, and that the World Bank has “sovereign immunity.” Sovereign immunity means that the World Bank can do no legal wrong and cannot be criminally charged. Some also blame the World Bank for increases in poverty in parts of sub-Saharan Africa due to its structural readjustment policies. Since then, the World Bank has started a Poverty Reduction Strategy, although critics argue that the Bank’s efforts are still not sufficiently targeting root problems.

These criticisms of the World Bank remind us of the importance of equal representation in bodies of power, whether on the international level or in a student council. Representation is necessary to ensure that everyone has a voice regarding decisions that may affect them.

The World Bank does, however, provide many free and useful databases. These are incredible tools, whether you are an economist at Harvard researching the correlation between income and consumption, or a student curious about poverty levels around the world. Keep in mind the wealth of free information provided by the World Bank the next time you have an economics or history project!

Chan, Chee. “The World Bank.” International Journal of Political Economy 37.1 (2008): n. pag. Web. https://bridge.primo.exlibrisgroup.com/permalink/01BRC_INST/es0tl/proquest218338639
“Critical Voices on the World Bank and IMF.” Bretton Woods Project. Web. https://www.brettonwoodsproject.org/2020/05/special-drawing-rights/
Driscoll, David. “The IMF and the World Bank How Do They Differ?” International Monetary Fund. Web. https://www.imf.org/external/pubs/ft/exrp/differ/differ.htm
Lee, Danielle. “World Bank Organization Structure.” bizfluent, market research. Web. https://bizfluent.com/info-7747967-world-bank-organization-structure.html
“The World Bank.” Global Policy Reform. Web. https://www.globalpolicy.org/home.html
“Youth and the World Bank Group.” The World Bank. Web. https://www.worldbank.org/en/programs/youth

What kind of projects might qualify for a loan from the World Bank?
How could the lack of representation in the governing body of the World Bank affect low-income countries?
How might you be able to use data provided by the World Bank?