The World Bank’s New Boss

US President Joe Biden has selected Ajay Banga to become the 15th President of the World Bank (WB), replacing self-described non-scientist David Malpass. Being appointed by Trump in 2019, Malpass has decided to step down a year early from the renewable 5 year term. Despite the claim that the World Bank is poised to tackle the existential crisis of climate change–which is only ‘existential’ if viewed from an insulated position atop the world in the Global North–it has become abundantly clear that a more concerted effort from the world’s largest lender of capital is needed.

Banga, with his extensive tenure at the top of some of the corporate world’s largest institutions, without a doubt has the resume to take the reigns as leader of the WB. But does he have the will to take the wheel at this critical moment in global investment/finance and steer the world in the right direction? Furthermore, is it time to rethink and restructure how the WB views its methods and goals?

A Bit About Banga

Mr. Banga was –in a sense– groomed for heading the WB, beginning with his private schooling at Hyderabad Public School, where he along with the future CEOs of Adobe and Microsoft, received an education worthy of the aristocratic offspring for which it was chartered. After securing an economics degree and an MBA in management, he began his climb up the corporate ladder at Nestle in 1981. 13 years later, he joined Pepsico for a quick stint before heading to Citigroup, where he became one of their highest-paid executives, netting nearly $10 million in 2008.

Continuing his ascent to the heights of COO at Mastercard in 2010, Banga went on to triple revenues and increase net income sixfold over the course of a decade. Throughout his journey to the peak of corporate leadership, he has also shown interest in working on social programs and ecology. Ajay proudly announced Mastercard’s pledge to plant 100 million trees in 2020. He also sits alongside Kamala Harris as chairman of the Partnership for Central America–a group focused on addressing the economic roots of migration through the creation of one million new jobs.

What in the World is the World Bank?

The World Bank was—in a sense—intended to be an altruistic organization tasked with rebuilding “the world” in the aftermath of WW2. Keynes, arguably the greatest economist of the 20th century, proposed a foundational structure that would have created a universal unit of currency (the bancor) to allow surpluses and deficits to be balanced among global economies, intended to keep the volatility to a minimum, discourage capital accumulation, and build shared prosperity worldwide.

The primary stakeholder (with veto power and the sole responsibility of appointing a president), the US promptly rejected Keynes’ idea and instead tied all transactions in the WB to the dollar. As trade deficits ballooned (which created the instability Keynes had predicted) and Nixon removed the dollar from the gold standard, a massive injection of private capital and speculation in the seventies and eighties occurred within the Bank–as neoliberalism established itself as the dominant economic theory worldwide.

The goals of the WB and its sister organization, IMF, shifted around the same time, focusing instead on eradicating global poverty worldwide. It is a matter of debate about how “successful” these organizations have been in achieving their goals; there is also a cloud of controversy surrounding the power and influence some countries have achieved and exerted within the organization.

Voting Power Reform

The World Bank’s mission is to “end extreme poverty and promote shared prosperity in a sustainable way.” If Banga is to actually fulfill this mission, he should start by tackling the upstream causes of global poverty and inequality by leading democratic reform of voting power at the World Bank and the IMF. The world’s wealthiest countries (representing only 15% of the global population) hold more than 50% of the voting power in the World Bank, while the U.S. holds the sole veto power over major decision-making.

Decades of this power imbalance have resulted in an international trade system dominated by wealthy countries and former colonial powers, which – even after accounting for aid transfers and investments from rich countries – are extracting $2 trillion of wealth from countries in the Global South every year. In 2020, UN Secretary-General Antonio Guterres called out rich nations for “refus[ing] to contemplate the reforms needed to change power relations in international institutions”, thereby perpetuating neocolonialism and global inequality.

To start with, a “double majority” system should be put in place such that significant decisions should require not only shareholder majorities but also member-state majorities. This would ensure that global South countries have a fairer say in the decisions that affect them, and the power to block harmful policies.

Ending Export-oriented Growth

One of the most impactful and transformative changes Banga should spearhead is a rejection of the World Bank’s outdated development model of pushing for export-oriented growth in “underdeveloped” countries. This type of growth takes the total pool of resources and labor in the debtor country and uses them primarily to create cheap goods and services for the “developed” countries of the Global North.

Meanwhile, the “developing” nations are in turn stuck in a situation where they must import value-added goods – like food, energy, medicine, and technology – because their economies are busy producing cheap exports for those wealthier countries. Rather than strengthening domestic institutions and generating the public goods and services needed to maintain decent standards of living, many places in the Global South are caught in a catch-22 debt-trap that has been a hallmark of the WB’s structural adjustment programs for decades.

Economic sovereignty for the Global South will never be achieved while the trap remains set. The spiraling debts owed to private, state, and multinational institutional lenders are all denominated in foreign currencies. With what is now becoming a regular occurrence, financial shocks in lender countries like recessions, interest rate hikes, and inflation make the interest payments on those loans ever more expensive. Debtor nations have become neo-colonial subjects of the wealthier lender nations in the Global North. Meanwhile, they struggle to endure through ever-worsening impacts of climate change under externally and structurally imposed conditions of artificial scarcity. If Banga is to lead the WB in an effort to truly combat the climate crisis, he must remove the debt-trap from its tool kit.

Domestic Economic Resilience

Instead of exporting goods and labor to the Global North, Banga should be promoting stronger regional trade among countries in the Global South to build structural resilience into their domestic economies. This more autonomous and less predatory form of economic development, as described by Tunisian economist Fadhel Kaboub, involves countries in the Global South investing in their own food and energy sovereignty, while developing domestic industries to manufacture value-added goods.

Meanwhile, debtor countries could also work with neighboring countries to establish a more regionally-oriented and mutually beneficial trade system. Expensive value-added goods and services from the Global North would then be forced to compete with more affordable goods from within the region, allowing countries in the Global South to spend less on imports and more on socially and ecologically-beneficial projects within their borders.

A Global Minimum Wage

As argued by Jason Hickel, Michael Galant, Thomas Palley and others, a global minimum wage would stop the “race to the bottom” which keeps global wages low and working conditions poor. It could be set at a fixed percentage (such as 50%) of a country’s median wage, or pegged to an income level that provides decent living standards in each country. Setting a floor for wages globally would assist in achieving the WB’s mission to end extreme poverty.

Instead of advocating for structural adjustment programs that seek to privatize public goods and orient economic activity around raising foreign currency, Banga could instead call for countries to establish the global minimum wage standard (perhaps as a condition of a loan from the WB).

Empowering debtor countries to provide decent standards of living across their economy would help grow tax revenue, stimulate small businesses, and boost community well-being. In wealthier countries, jobs would be more secure with a global minimum wage, because multinational corporations, such as manufacturing giants, would have less ability to seek cheaper labor in developing countries. A global minimum wage would not only stabilize economies in the Global South, but  also “bring back the jobs” in the Global North—as much a win-win as anyone could envision.

Climate Finance Policy, Debt Cancellation and Restructuring

With a high likelihood that Banga will push for more investment in green tech and infrastructure sectors due to his past acknowledgment of the climate crisis (which is more than we can say for his predecessor), the ways in which these financial instruments will be structured/implemented is going to be extremely critical. Countries being hit with climate catastrophe do not need more foreign direct investment; they need climate reparations and debt cancellations.

At the very least, the WB and other global lending institutions should set up a fund for climate disasters, and when disaster hits, automatically suspend debts. The number of countries in debt crisis – in which sovereign debt is leading to a denial of human rights and life itself – has more than doubled since 2015. A climate disaster fund and interest payment pauses, two central ideas behind Barbados’ Prime Minister Mia Mottley’s Bridgetown Initiative, could help prevent those crises from getting much worse.

However, a purely lending-based plan to build climate resilience in the Global South is not enough to end the debt-trap described above. More than two-thirds of the public climate finance delivered between 2013 and 2018 was delivered through debt-creating instruments. Between 2016-2018, Latin America and the Caribbean received an average annual flow of $12 billion in climate finance, 90% of which was in the form of loans. Banga ought to promote climate finance through grants, not loans, which given the Global North’s historical responsibility for climate change—could be easily viewed as a justified form of reparations.

The debt crisis is also fueling climate/ecological-breakdown, as Arthur Larok, the incoming Secretary General of ActionAid International recently argued. Debt-distressed countries need to export fossil fuels, national resources, and industrial farming products because they tend to be the easiest ways to acquire the foreign currencies necessary to make debt payments.

On top of the urgently needed reforms described in Motley’s plan, the speed and scale of the global response demanded by the climate crisis also increasingly make the case for outright debt cancellation where and when it is needed. Worldwide calls for debt swapping/cancellation are getting stronger and louder by the day. A group of debtor countries called the V20 (“V” for most vulnerable to the climate crisis) has called for “debt cancellation and restructuring in exchange for creditor participation in our climate resilience strategies.” In addition to grants, debt cancellation can also take the form of reparations, as argued by an international group of scholars, policy-makers, and activists in the recent Dakar Declaration, which appeals “to allies in the Global South and North to build a global movement for economic sovereignty and socially just development.”

Banga’s Bottom Line

Rich countries like the U.S. have a vested interest in maintaining the current system of cheaply imported goods from countries in the Global South – who are structurally denied the political power to make changes to the current arrangement. It should also be noted that the everyday people in rich countries suffer too, especially when jobs are outsourced and domestic industries wither away. But we all suffer when longer supply chains over greater distances (to accommodate the profit margins of multinational corporations) lead to more unnecessary emissions that speed up the deterioration of our planet’s life-supporting systems.

At first glance, Banga’s appointment as the first Indian (with U.S. citizenship) to lead the WB is a sign that the U.S. wants more representation from the Global South among the leadership of the most important global institutions. However, the longstanding process as to how he was elected is still grotesquely unfair and unjust. His background in running and serving the financial interests of large U.S. corporations is not exactly a sign that he will be a champion of economic sovereignty for countries in the Global South.

Band-aid solutions will no longer work or be tolerated by the international community in the age of polycrisis. Nothing less than fundamental, transformational change is acceptable. Banga needs to help the WB bring an end to the debt crisis and create real pathways for debtor countries to build resilience to climate change and volatility in the global economy. That means a complete paradigm shift in which these countries are given the financial breathing room and support to develop more autonomously. After ages of power imbalances along neocolonial lines, now is the time for lending institutions like the WB to make things right. If Banga cannot soon usher in the kinds of fundamental changes necessary, like those called for by the V20 and the Bridgetown Initiative, he risks losing the trust of the international community in the WB entirely.