Rethinking the World Bank

(Bloomberg Opinion) -- President Trump has nominated David Malpass, a senior Treasury official and former Wall Street economist, to succeed Jim Yong Kim as next leader of the World Bank. Rather than rubber-stamp the U.S. nomination, as the bank's other member governments are generally inclined to do, they should ask whether Malpass is the best available candidate — and, even more important, start an open discussion about what the job should entail.

By longstanding agreement, the U.S. chooses the head of the World Bank, and Europe's governments choose the head of the International Monetary Fund. This arrangement is increasingly irksome to other countries, and ever harder to justify. The U.S. is the largest shareholder in the bank, with roughly 16 percent of the votes; Europe's governments have 26 percent. Acting together, they've been able to exert control. But it's in the interests of all concerned to find the best qualified leader, and that requires a genuinely competitive process.

Malpass is coming in for criticism, partly no doubt just because he is Trump's choice. It's also true that he's expressed doubts about globalism in general and the role of multinational institutions in particular. He's been roundly rebuked, in addition, for dismissing concerns about the economy in 2007, just before the crash. He was hardly alone in that, however. For what it's worth, his experience as a finance professional and high-ranking economic official make him a lot better prepared for the role than his predecessor was.

What matters more than credentials, though, are the ideas that the next president will bring to the job. The World Bank's proper role is indeed in doubt. Frequent reorganizations — including the one undertaken by Kim — have been heavy on turmoil, recrimination, and movement of office furniture, but not so potent when it comes to envisioning what the bank should be doing.

Malpass has asked whether the bank should continue to lend to China and other non-poor countries, for instance — and that's a good question. The bank describes China as an “upper middle-income country.” It has $3 trillion in foreign reserves, a handsome surplus of domestic saving over investment, and a far-reaching foreign-lending program of its own. It shouldn't need to tap a taxpayer-supported development institution for cash.

This is not just about China. The acute shortage of capital for development that justified the bank's creation more than 70 years ago no longer exists. Private capital markets can do all the lending the bank was originally designed to do.

All this has been well understood for years, if not decades. But the radical repurposing the bank requires still hasn't happened. The World Bank needs to move away from outmoded development lending toward supporting programs that the private sector cannot adequately finance — including programs to supply global public goods, especially efforts to mitigate climate change; programs that prioritize knowledge and information over money; and initiatives to improve the lives of the poor in the countries that global markets have left behind.

None of these ideas are new. Indeed, they are drearily familiar. They need to be recognized as urgent. The process of naming a new World Bank leader should provoke a public debate about ends and means, and demand a detailed plan of action from each of several strong candidates. It's entirely within the power of the bank's board to insist on this. The governments concerned owe it to the taxpayers who support the institution.

Editorials are written by the Bloomberg Opinion editorial board.

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