The CGD Podcast: "Is the World Bank Still Relevant?" — Shanta Devarajan

Date: April 14, 2015
Host: Rajesh Merchandani (Center for Global Development)
Guest: Shanta Devarajan (Chief Economist, Middle East and North Africa, World Bank)

Episode Overview

In this episode, Rajesh Merchandani sits down with Shanta Devarajan during the World Bank Spring Meetings to probe the question: Is the World Bank still relevant after 75 years? The conversation explores how the Bank's traditional lending model is holding up in a rapidly changing world, why knowledge transfer may be more important than finance, challenges posed by fragile states and persistent poverty, and the evolving nature of development aid—touching on global public goods and the need for institutional evolution.

Key Discussion Points & Insights

1. The World Bank’s Enduring Relevance: Knowledge vs. Lending

• Devarajan asserts that the World Bank remains highly relevant, primarily as the “greatest repository of development knowledge in the world” ([01:09]). The power of accumulated experience and knowledge transfer is positioned as central to the Bank’s ongoing impact.
• He acknowledges the Bank’s origins as a lender but notes how private capital flows now dwarf Bank lending (“capital flows of the order of $400 billion a year, private capital flows…our lending per se as a fraction is pretty small” — [02:00]).

2. The Knowledge Edge and Welcoming Competition

• Devarajan highlights the positive aspect of countries accessing private finance, viewing it as a sign of policy improvements and ultimately a success for the Bank ([02:53]).
• He articulates a vision where the Bank’s financial arm “should declare victory when it runs out of business,” but maintains that “knowledge assistance will always be necessary” ([02:53]).

3. Graduation from Lending & Persistent Poverty

• The Bank’s model fosters the graduation of countries from concessional to market loans as their economies grow, but Merchandani challenges that this doesn’t necessarily mean poverty is eliminated within those countries ([03:33]).
• Devarajan agrees, emphasizing that future poverty will be “highly concentrated…in the fragile states” and within “pockets” inside graduated countries ([04:13]). He argues that ending poverty by 2030, one of the Bank’s twin goals, will require focusing on these new challenges.

4. India as a Case Study: Money vs. Incentives in Education

• The conversation spotlights India: although still home to hundreds of millions living below the poverty line, India borrows relatively little from the Bank compared to its own budget allocations ([05:22]).
• The Bank’s value-add lies in international learnings—implementing randomized controlled trials and knowledge sharing:

  "Education is not a question of money, it is a question of incentives. And we are trying to strengthen those incentives." — Shanta Devarajan ([05:56])

5. Skepticism About Knowledge Impact

• Merchandani plays “devil’s advocate,” raising whether the knowledge is really making a difference given persistent problems in countries like India ([06:36]).
• Devarajan responds with humility, arguing development is “a constant process of learning and learning from your mistakes” and that the Bank enables cross-border learning ([07:04]):

  “There’s no silver bullet to development… individual countries don’t always want to be responsible for their own mistakes. But we can observe the terrain… and tell another country, don’t try this. It didn’t work here.” — Shanta Devarajan ([07:04])

6. Tackling Fragile States

• Devarajan stresses that in fragile or post-conflict countries, Bank financing remains vital due to the lack of private or bilateral capital ([08:46]).
• He suggests fragile states are “qualitatively different from non-fragile states,” being stuck in low trust/low service equilibria ([09:10]):

  “…the citizens have lost trust in the state and you are stuck in this low level equilibrium…” ([09:10])

• To spur real change, disruptive interventions and special funds (“like a venture capital fund”) are advocated. The Bank is already directing more resources to fragile states, with early signs of success ([10:40]).

7. Should the Bank Lend to Sub-National Entities?

• Bank lending is predominantly to sovereign governments for creditworthiness and AAA rating stability ([12:04]). Subnational projects usually require national guarantees ([12:38]), but the Bank often works directly with state-level authorities in project design and implementation.

8. Income Measures and Inequality Challenges

• Repayment calculations and concessionality are based on national income per capita, but growing inequality within countries raises questions about this metric’s adequacy ([13:30]).
• Devarajan notes classification and concessionality are more about creditworthiness than income distribution ([13:50]). He uses Gabon as an example—a middle-income, resource-rich country with deep poverty and poor health outcomes but adequate revenue to repay loans ([15:44]).

9. Global & Regional Public Goods: Institutional Constraints

• The Bank’s country-based model doesn’t always fit well with issues like climate change, water basins, or other global public goods ([17:24]).
• Some innovations are in place, such as funding regional projects when multiple countries coordinate ([18:40]), but overall, these mechanisms remain “underutilized” ([19:31]).
• Devarajan argues for the creation of a new “window” to directly funding global public goods ([20:05]).

10. The Future of the World Bank

• Looking ahead 25 years, Devarajan envisions the Bank moving “in these two directions”: a shift away from country-focused lending, toward tackling regional/global public goods and targeting pockets of poverty at the subnational level ([20:33]).

  “…we might see [the Bank’s offices] in Patna, in the capital of Bihar, or in Kano, Nigeria, rather than in Abuja. Because that’s where, if that’s where the problem is, that’s where the World bank should be.” — Shanta Devarajan ([20:33])

• Merchandani concludes that true success would be if the Bank rendered itself obsolete ([21:26]), to which Devarajan replies with a memorable anecdote:

  “…we should convert the World Bank building into a museum of poverty. So people never forget what it was like.” — Shanta Devarajan ([21:58]) “I hope entrance would be free.” — Rajesh Merchandani ([22:02])
  “It’s $1.25.” — Shanta Devarajan ([22:05])

Notable Quotes & Memorable Moments

• “Our financing and ARM should declare victory when it runs out of business.” — Shanta Devarajan ([02:53])
• “Development is not a silver bullet. There’s no silver bullet to development. It is a constant process of learning and learning from your mistakes.” — Shanta Devarajan ([07:04])
• “Fragile states might be qualitatively different from non-fragile states…” — Shanta Devarajan ([09:10])
• “If Gabon wants to borrow from us, it has to be a project where we can make the case that’s going to benefit the bottom 40%…” ([16:29])
• “I wouldn’t be surprised if we start seeing, instead of having our country office in New Delhi, we might see it in Patna, in the capital of Bihar, or in Kano, Nigeria, rather than in Abuja…” ([20:33])
• On the prospect of ending poverty and the World Bank’s legacy:

  “We should convert the World Bank building into a museum of poverty.” — Shanta Devarajan ([21:58])

Important Timestamps

| Timestamp | Segment | |-----------|-----------------------------------------------------------------| | 01:09 | World Bank’s knowledge repository described | | 02:00 | Scale of current capital flows, challenge to Bank’s lending | | 02:53 | Knowledge assistance is the future | | 04:13 | Poverty’s shifting geography | | 05:56 | Bank’s role in India: knowledge over funds | | 07:04 | Is Bank knowledge really making a difference? | | 09:10 | Unique challenges of fragile states | | 12:04 | Why Bank lends to sovereigns, not subnational entities | | 13:50 | Debating per capita vs. median income for concessionality | | 15:44 | Gabon: resource-rich but poor; the dilemma of classification | | 17:24 | Global public goods and Bank constraints | | 20:33 | The World Bank’s evolving future: regional and subnational role | | 21:58 | “Museum of poverty” vision |

Conclusion

This episode presents a candid, insightful examination of the World Bank’s legacy and future. As the development ecosystem grows more complex—with poverty increasingly found in fragile nations and inequality remaining stubborn—the Bank’s greatest resource may lie not in its loans, but in its ability to transfer experiences and support innovation worldwide. The conversation concludes with a hopeful vision: that someday, the World Bank may have succeeded so fully in its mission, its building might serve not as a workplace, but as a museum chronicling the now-solved problem of global poverty.