The World Bank and Governance: The Bank's Efforts to Help Developing Countries Build State Capacity

Abstract

This paper examines historically the World Bank's twin features: lending to developing economies to achieve tangible results and advocating specific development policies. Section 1 provides some conceptual underpinnings for the view that an effective state is essential for development. It asks whether development can be engineered, and state capacity increased, with large aid flows. Section 2 sketches the historical evolution of what characterizes the World Bank: lending to developing economies and advocacy of development policy. It concludes that, while the Bank discourse explicitly recognizes that developing countries need to improve their governance and build the capacity of the public sector to improve living standards, the Bank's performance in assisting governments in building state capacity and achieving better governance outcomes has been disappointing. Section 3 proposes an interpretation of why this has been the case. The interpretation is structural, and related to the way the Bank is organized. This concerns in particular (1) how its research is prioritized and used for decision-making, (2) how its leadership achieves a consensus between shareholders who hold different views on the role of government in the economy, and (3) how incentives for its staff emphasize disbursement and short-term success, and not capacity building and longer-term institutional sustainability.

Keywords: Banks & Banking Reform, Public Sector Corruption & Anticorruption Measures, Governance Indicators, Environmental Economics & Policies, National Governance