U.S. President Barack Obama has nominated Jim Yong Kim, a candidate with impeccable international development credentials, to succeed Robert Zoellick as World Bank president. Prior to the nomination of Dr. Kim, a Korean-American physician and president of Ivy League school Dartmouth College, volumes had been written on why the United States should not have the de facto right to unilaterally appoint the head of an important international institution. But complaining about World Bank succession was like complaining about the weather: Regardless of how much you talk about it, there is nothing you can do to change it.
Critics of the status quo pointed out that the rules for appointing the heads of the International Financial Institutions (IFIs) such as the World Bank and the International Monetary Fund are anachronistic, reflecting the economic realities of the mid-20th century. They are absolutely correct. Moreover, in nominating Dr. Kim, Mr. Obama demonstrated that he heard them.
The global economy has evolved since the IFIs were created after the Second World War. Europe is overrepresented at the IMF; its claim on the managing director’s job oddly inconsistent with its management of the euro zone crisis. And more change is inevitable with emerging market economies powering the engines of global growth.
IFI governance arrangements must keep pace. New procedures for the nomination and evaluation of candidates agreed to by the Group of 20 nations are a start.
But IFI succession conventions are just that – conventions; they are not “hard wired” into governance arrangements. Emerging market economies were singularly unsuccessful in blocking a European successor to the IMF’s Dominique Strauss-Kahn because they could not agree among themselves, even when a highly qualified and effective candidate, Agustin Carstens, the Governor of The Bank of Mexico, put his name forward.
Efforts to reform the World Bank succession process are blocked, however, by a formidable obstacle: No White House incumbent with a constitutional duty to faithfully execute his office will unilaterally give up prerogatives that advance U.S. interests.
Put bluntly, the U.S. is unlikely to give up its claim and considerable influence as long as Europe asserts its right to appoint the IMF managing director; Japan, the president of the Asian Development Bank; and so on. Other members of the “club” that appoint the heads of IFIs are in exactly the same position.
As a result, change won’t happen unless each member is assured that other members will also give up their claims. It has to be an all-or-nothing proposition. Otherwise, the sequencing of appointments prevents any one member of the club from moving first.
One way of resolving such first-mover disadvantage problems is to extract credible, enforceable public commitments that impose large costs for reneging. It is unclear, though, what such agreements would entail, or how they would be secured and enforced.
Moreover, because IFIs entail potential obligations to their members, sound domestic governance requires accountability to the taxpayers that provide the capital and quota shares of the institutions.
By the same token, as members’ contributions to the institutions increase, so too should their voice. No member, regardless of their role in the creation of the IFIs, should claim a privileged role in their governance that is not justified by their financial contribution.
Yet, it is not just about economic and financial heft. IFIs provide international public goods; their relationships with members are not simple debtor-creditor arrangements. The IMF, for example, is a policy-making institution whose effectiveness depends on the buy-in of its members and its perceived legitimacy. The World Bank and other development banks also need to be viewed as legitimate.
It would be foolish, therefore, to simply apply domestic governance principles to them. What is needed is a judicious balancing of international legitimacy with domestic accountability. Achieving this balance is difficult. And it goes beyond the question of succession at the World Bank.
The global economy faces a number of daunting challenges – rebalancing the global economy and dealing with the dangerous legacy of debt left by the financial crisis, looming demographic changes, and climate change, to name just a few. The broader governance question is to secure a consensus on the obligations of members and the role of the institutions to meet these challenges, and then ensure that the institutions have the necessary supporting governance arrangements.
This does not negate the need to raise the bar on the selection process – to ensure only individuals of the highest professional and ethical standards are selected, irrespective of nationality. But until there is agreement on the broader issues, reform of World Bank succession is a necessary, not a sufficient condition for addressing the challenges in the global economy.
James Haley is director of the global economy program at the Centre for International Governance Innovation.