The World Bank is one of the largest and most prominent global development institutions in the world. The Bank currently manages over 12,000 projects worth approximately $46 billion, which are spread across more than 170 countries. In addition to the Bank’s global reach, it also has a wealth of knowledge resources. From its data portal on most macroeconomic indicators to its detailed reports and insightful papers, the World Bank is arguably the most important organization in development. But might the Bank’s vast capabilities be blinding it to opportunities to make significant impact in the countries it hopes to help?
The capabilities of the World Bank
In a previous post, I described the three components that determine an organization’s capabilities. They are its resources, processes, and its priorities. Here’s a quick recap: Resources are the most tangible of the three and include people, equipment, technology, cash, etc. Processes are the patterns of interaction, coordination, communication, and decision making through which organizations transform inputs of resources into products and services of greater worth. Finally, priorities represent the actual activities that an organization executes as opposed to activities the organization hopes to execute. Priorities emerge as a result of the interactions and amalgamation of all the organization’s processes. In effect, processes, over time, become an organization’s priorities. In other words, priorities are what the organization does, not what it says it’s going to do.
The World Bank appears well positioned to accomplish its mission of eradicating poverty in poor countries. From a resource standpoint, the Bank not only has access to some of the most brilliant economic minds in the world, but it also has access to billions of dollars in financial resources, which enable it to take on major, complicated projects. In order to operate at its existing scale with operations in over 170 countries, the Bank has developed well-oiled processes that, though rigid, are designed to help it execute its mission of helping the world’s poorest. And as explained above, its processes, over time, have coalesced to dictate the organization’s priorities.
One of the results of the Bank’s existing capabilities can be seen in the Bank’s average lending or project cost (the amount budgeted). Of the almost 6,000 World Bank projects for which data is available, the average project cost amounts to a staggering $166.5 million. The lending commitment per project (amount actually spent) was approximately $64 million.
On the surface, that looks like a good thing—the Bank is willing to spend hundreds of millions of dollars in poor countries where the funds are most needed. Yet many of the poorest countries the Bank helps remain poor, with some even poorer today. Here are three drawbacks of the World Bank’s capabilities, which may shed some light on why progress on economic development in these countries is slow.
1. Mismatch between the World Bank’s and the recipient country’s capabilities
The first problem with the Bank’s capabilities is that they cause the Bank to focus on large multi-million dollar projects. These projects are typically complicated and require advanced capabilities to execute. Unfortunately, most poor countries do not currently have the systems in place that will ensure the success and sustainability of many of these types of projects. According to the World Bank’s Independent Evaluation Group, the sustainability of about 43% of the 6,272 projects evaluated were either unlikely or uncertain.
2. Fuels dependency on the World Bank and the international development industry
When large and complicated projects fail to consider the capabilities of poor countries, an unintended consequence often occurs: the recipient country becomes dependent on experts from wealthy countries to sustain the project. On the surface, this is understandable, and can be a good thing. Many countries have developed by borrowing capabilities from other countries. However, what often happens with many development projects is that there is no transfer of capabilities.
This lack of capability transfer deepens the dependency that is created. One paper suggests that some countries even experience declines or setbacks after projects are completed. But considering that the Bank’s capabilities are designed to go after large and complicated projects, this trend is likely to continue.
3. Missed opportunities for investing in market-creating innovations
The third, and perhaps more important, problem with the Bank’s capabilities is that these large development projects do not target many of the market-creating innovations that can truly have a strong developmental impact on the economy. Market-creating innovations transform complicated and expensive products into simple and affordable ones so that more people in society can afford them. In doing so, these new innovations not only help many more people in society make progress as they can now afford existing products, but the innovations also help the society slowly build its own capabilities.
The companies behind many market-creating innovations, such as the mobile money platform M-PESA, often start out small, require less capital, and their solutions are less sophisticated than existing ones on the market. When the average project or loan size is in the tens of millions of dollars, it is difficult for these early-stage opportunities to look attractive or even enter the Bank’s radar. And thus, a seemingly valuable capability—funding large projects—all of a sudden becomes a hindrance.
What might happen if the Bank dedicated more of its resources to investing in market-creating innovations in poor countries? Or what would it look like if the Bank made more of a concerted effort to reduce the size of its average project and to simplify its project specifications? Our research suggests that such a shift in strategy would not only lead to more project success over time, but will also develop local capabilities in the process.