Journal of International Economics 57 (2002) 253–256www.elsevier.com/ locate /econbase

Book review

The World Bank: Structure and Policies, Christopher L. Gilbert and David Vines(Eds.), Cambridge University Press

The World Bank has been praised and vilified by both sides of the politicalspectrum. Created over fifty years ago to reconstruct war-torn economies, theBank’s mission was also to play a role in economic development. Sinceeconomists still do not fully understand how to create an economic miracle, it isnot surprising that the World Bank is still struggling to define its own goals andstrategies. This book seeks to provide a balanced perspective on two questions:What is the goal of the World Bank? Has the World Bank successfully achievedthose goals?

Written by both Bank insiders and outsiders, ‘‘The World Bank: Structure andPolicies’’ offers provocative and candid answers to both questions. The two editorsof this volume, Christopher Gilbert and David Vines, begin by describing theWorld Bank’s earlier roles. The institution was created in 1944 to rebuild thewar-torn economies devastated by World War II and promote economic develop-ment. After those economies were rebuilt, the Bank’s efforts focused on providingloans to developing economies, which presumably lacked sufficient access tocapital due to market imperfections in global capital markets.

The authors argue that since capital market imperfections are now a thing of thepast, the World Bank’s focus should now shift towards poverty alleviation andknowledge provision. Consequently, they would like to rename the World Bank,‘‘The Knowledge Bank’’. According to Gilbert and Vines, this ‘‘knowledge bank’’would have two roles. First, as indicated by the title, the World Bank will becomea store of wisdom on development issues, to be distributed freely to those in needof guidance. Second, the World Bank will continue to lend money, but on differentterms. The authors argue that ‘‘conditionality’’ – the practice of tying loans fromthe World Bank to specific policy reforms – has been a failure. Consequently, theysuggest that loans be focused on countries with good policies that are performingwell, what the authors refer to as ‘‘ex-post’’ conditionality. Countries that do notfollow good policies will not be coerced into doing so; instead, they will receiveadvice from the World Bank in its new role as a ‘‘Knowledge Bank’’.

0022-1996/02/$ – see front matter 2002 Elsevier Science B.V. All rights reserved.PI I : S0022-1996( 01 )00140-4

254 Book review / Journal of International Economic 57 (2002) 253 –256

These are interesting ideas. To a certain extent, the World Bank alreadyfunctions as a knowledge bank, and its economists do indeed travel all over theworld, educating government officials and sharing with them the experiences ofother countries. Lyn Squire’s chapter on why the World Bank should be involvedin development research makes the most persuasive argument in the book for thepromotion of the Bank as a ‘‘Knowledge Bank’’. He carefully documents howwork by the research department has had an important impact on policies andthinking. He also makes the argument that knowledge about development and howto turn that knowledge into real policies is clearly a public good, and he forcefullyargues that (primarily for principal-agent reasons) economists within the Bank arebetter able do that than those outside the Bank. He points out that the Bank fulfillsan important role by collecting data and making that data available to outsiders,although I personally wish that all World Bank researchers were as generous aboutproviding their datasets as Lyn Squire has been with his own.

I am not completely convinced that the World Bank will become a ‘‘KnowledgeBank’’ for several reasons. First, I do not believe that capital market imperfectionsare a thing of the past. Most private capital flows are directed at rich countries, notpoor ones. Second, the authors miss the fact that countries listen to economistsfrom the World Bank precisely because they know they will receive money fromthe institution. Advice without money, although valuable, will be less welcome.Third, the World Bank’s ability to effectively store its knowledge is currently quitepoor. Although the Bank is a wonderful depository for cross-country data,economists routinely throw out all documentation related to policy changes (andtheir effectiveness) after a loan has been disbursed. This is why after years ofshowing countries how to open up to international trade, there is still no databaseat the World Bank with detailed tariff and quota data. Finally, the distributionalimplications of a policy which advocates lending to successful countries but onlygiving advice to poor ones is likely to be very controversial. The authors are awareof this problem, but it nevertheless is likely to be a large political stumbling block.Nor is it clear how we should define ‘‘good’’ policies, which implies that lendingtargeted at good performers could become even more political.

The first half of the book is devoted to assessing the role of the World Bank.One of the most striking features of the book is how much disagreement there hasbeen on how the Bank should fulfill its goals, and what those goals actually are.One goal currently receiving extensive attention is that of reducing poverty. In oneof the early chapters, Ravi Kanbur and David Vines show that poverty alleviationhas waxed and waned as a policy goal of the Bank. They also document howattitudes towards poverty alleviation have changed. In particular, they argue thatthe 1980s belief that the benefits of growth will trickle down to the poor has beenreplaced, under the leadership of James Wolfensohn, with an explicit agenda aimedat poverty alleviation. The authors of this chapter express the hope that economistswill recognize the two-way causality between poverty reduction and growth: notonly does growth lead to poverty reduction, but policies explicitly aimed athelping the poor in turn lead to economic growth.

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This book is highly unusual in that it was written by a combination of Bank‘‘insiders’’ who have worked within the institution for many years and a numberof outsiders who are very critical of the organization in its current form. Forexample, a chapter by Ngaire Woods argues that the Bank’s so-called in-dependence has been severely eroded by its need to placate its largest shareholder,the United States. Woods flatly states that ‘‘When the United States does notapprove of a loan or a policy, it is unlikely even to come before the Board’’ (p.134) implying that the United States plays a major role not only in determining thecourse of the institution but also in determining the fate of individual loans. Woodsalso argues that the multilateral flavor of the Bank has allowed the United States topursue its own agenda more successfully than it would have had it acted withoutthe Bank.

The introduction to the volume, written by Joseph Stiglitz, is equally contro-versial. Stiglitz argues that one of the challenges faced by the World Bank andother multilateral institutions is to become more transparent and democratic. Heargues that any attempts to suppress these trends ‘‘should be recognized for whatthey are: self-serving attempts by the agency to reduce the effectiveness ofaccountability. This is especially the case for the IMF . . . ’’ (p. 5). While thiscritique is certainly plausible, the authors must understand the delicate balancingact that exists between the need to be more transparent and democratic and theneed to take action.

The second half of the volume is devoted to assessing the effectiveness ofWorld Bank aid. The contributors to this part of the book come to slightly differentconclusions about the effectiveness of Bank aid, although in general they arepessimistic about the benefits of aid. Comparing mean growth rates and otheroutcomes across countries for so-called successful versus unsuccessful Bank-sponsored reforms, Ferreira and Keely conclude that ‘‘structural adjustment doesnot, on balance, appear to have contributed in a statistically significant manner tothe medium-term economic performance of most adjusting countries’’. Devarajanand Swaroop discuss the problem of aid fungibility, which could imply that theBank is funding projects which would have been funded anyway, thereby releasingfunds for other (potentially growth-reducing) expenditures such as defense.Burnside and Dollar point out that aid has no effect in countries with bad policies,although it does positively affect growth in countries with good policies. Onerecommendation which arises from these different studies is that aid is only likelyto be effective if it is combined with good government, good policies, and‘‘ownership’’ of the reform program – i.e., reforms are voluntarily implementedby functional governments who do not need to be convinced to follow the rightpolicies.

Written by a range of scholars across a variety of institutions, the volume isremarkably cohesive. For example, using an entirely different dataset thanBurnside and Dollar and a very different methodology, Isham and Kaufman alsofind that Bank projects are likely to exhibit significantly better outcomes if theright policies are in place. Although Isham and Kaufman have already published

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these results elsewhere, their conclusions that economic rates of return to WorldBank projects could have been 6 to 10 percentage points higher under better policyregimes are extremely interesting. Isham and Kaufman also echo other themesthroughout this volume: despite the fact that better policies lead to higher rates ofreturn, they reject the argument for standard conditionality. Instead, they showevidence that project rates of return are higher in more democratic, participatoryregimes. (However, they do not address the fact that democratic regimes also tendto have better policies in place, in turn leading to higher rates of return.)

The volume concludes with three chapters on how to increase aid effectiveness.The last chapters review the issues raised earlier in the book, including thedisappointing impact of past aid flows, the problems with conditionality, the needfor ownership of reform programs, and the need to select borrowers who are likelyto use aid efficiently. The concluding chapter, written by Paul Collier, sums upmany of the themes introduced earlier in the book. He argues that the Bank’srelationship with client countries should change from one of coercion to part-nership; in other words, lending based on conditionality should be eliminated infavor of partnerships with countries who follow acceptable policies. He points outthat the Bank’s new approach, the Comprehensive Development Framework(CDF) is an important step in that direction.

The twelve chapters in this book make for exciting and pleasurable reading. Theauthors are candid in the assessments of the Bank’s role. Given that a number ofthe writers are in fact economists at the World Bank, this book is a testament to thefact that the institution is very open to criticism and quite democratic. It is alsorefreshing to read a book which is not seeking to eliminate the institution, eitherfrom the perspective of the extreme-left or the extreme-right. Arguments arecarefully made and supported by detailed data analysis. This book should be readby both academics and non-academics interested in the development process.

Ann HarrisonUniversity of California, Berkeley, and NBER

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